IDEAS home Printed from https://ideas.repec.org/a/cup/buspol/v19y2017i02p365-395_00.html
   My bibliography  Save this article

Polycentric banking and macroeconomic stability

Author

Listed:
  • Salter, Alexander William
  • Tarko, Vlad

Abstract

We contribute to the post-crisis literature on macroeconomic stability by arguing that polycentric banking systems can better achieve stability than monocentric systems. Building on the theories of E. Ostrom, we engage the literature on free banking systems to show that these systems met the requirements of polycentric governance systems, and that the unintentional result of the underlying governance institutions was macroeconomic stability. In contrast, modern central banking, because it is monocentric, lacks important features regarding knowledge aggregation and incentive compatibility conducive to generating macroeconomic stability. We conclude by discussing various legal barriers that stand in the way of a transition from monetary monocentrism to monetary polycentrism.

Suggested Citation

  • Salter, Alexander William & Tarko, Vlad, 2017. "Polycentric banking and macroeconomic stability," Business and Politics, Cambridge University Press, vol. 19(2), pages 365-395, June.
    • Handle: RePEc:cup:buspol:v:19:y:2017:i:02:p:365-395_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S1469356916000100/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Peter Leeson & J. Subrick, 2006. "Robust political economy," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 19(2), pages 107-111, June.
    2. Bryan Caplan, 2006. "The Economics of Szasz," Rationality and Society, , vol. 18(3), pages 333-366, August.
    3. Shleifer, Andrei, 2010. "Comments on Gorton and Metrick: Regulating the Shadow Banking System," Scholarly Articles 10498513, Harvard University Department of Economics.
    4. Elinor Ostrom, 2010. "Beyond Markets and States: Polycentric Governance of Complex Economic Systems," American Economic Review, American Economic Association, vol. 100(3), pages 641-672, June.
    5. Guillermo Calvo, 2013. "Puzzling over the Anatomy of Crises: Liquidity and the Veil of Finance," IMES Discussion Paper Series 13-E-09, Institute for Monetary and Economic Studies, Bank of Japan.
    6. Christina D. Romer, 1999. "Changes in Business Cycles: Evidence and Explanations," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 23-44, Spring.
    7. Gary Gorton & Andrew Metrick, 2010. "Regulating the Shadow Banking System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 261-312.
    8. Boettke, Peter & Coyne, Christopher (ed.), 2015. "The Oxford Handbook of Austrian Economics," OUP Catalogue, Oxford University Press, number 9780199811762, Decembrie.
    9. Cosmides, Leda & Tooby, John, 1994. "Better than Rational: Evolutionary Psychology and the Invisible Hand," American Economic Review, American Economic Association, vol. 84(2), pages 327-332, May.
    10. Claudio Borio & Piti Disyatat, 2011. "Global imbalances and the financial crisis: Link or no link?," BIS Working Papers 346, Bank for International Settlements.
    11. Guillermo A. Calvo, 2013. "The Mayekawa Lecture: Puzzling over the Anatomy of Crises- Liquidity and the Veil of Finance," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 31, pages 39-64, November.
    12. Paul Dragos Aligica & Vlad Tarko, 2014. "Institutional Resilience and Economic Systems: Lessons from Elinor Ostrom’s Work," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(1), pages 52-76, March.
    13. Charles P. Kindleberger & Robert Z. Aliber, 2005. "Manias, Panics and Crashes," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-0-230-62804-5, October.
    14. Hetzel,Robert L., 2012. "The Great Recession," Cambridge Books, Cambridge University Press, number 9781107011885, January.
    15. Roger Koppl, 2002. "Big Players and the Economic Theory of Expectations," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-62924-0, October.
    16. Lawrence H. White, 2012. "Making the Transition to a New Gold Standard," Cato Journal, Cato Journal, Cato Institute, vol. 32(2), pages 411-421, Spring/Su.
    17. George A. Selgin & Lawrence H. White, 1994. "How Would the Invisible Hand Handle Money?," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1718-1749, December.
    18. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Glenn L. Furton & Alexander William Salter, 2017. "Money and the rule of law," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 30(4), pages 517-532, December.
    2. William J. Luther & J. P. McElyea, 2018. "Austrian Macroeconomics in Search of Its Uniqueness," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 33(Summer 20), pages 1-20.
    3. Hendrickson, Joshua R. & Salter, Alexander W., 2018. "Going beyond monetary constitutions: The congruence of money and finance," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 22-28.
    4. Salter, Alexander William & Young, Andrew T., 2018. "A theory of self-enforcing monetary constitutions with reference to the Suffolk System, 1825–1858," Journal of Economic Behavior & Organization, Elsevier, vol. 156(C), pages 13-22.
    5. Gabriel J. Zanotti & Agustina Borella & Nicolás Cachanosky, 2023. "Hermeneutics and phenomenology in the social sciences: Lessons from the Austrian school of economics case," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 36(3), pages 403-415, September.
    6. Nicolás Cachanosky, 2021. "Microfoundations and macroeconomics: 20 years," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 34(2), pages 279-288, June.
    7. Cachanosky, Nicolás & Salter, Alexander W. & Savanti, Ignacio, 2022. "Can dollarization constrain a populist leader? The case of Rafael Correa in Ecuador," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 430-442.
    8. Nicolás Cachanosky, 0. "Microfoundations and macroeconomics: 20 years," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 0, pages 1-10.
    9. Peter J. Boettke & Alexander W. Salter & Daniel J. Smith, 2018. "Money as meta-rule: Buchanan’s constitutional economics as a foundation for monetary stability," Public Choice, Springer, vol. 176(3), pages 529-555, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Glenn L. Furton & Alexander William Salter, 2017. "Money and the rule of law," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 30(4), pages 517-532, December.
    2. Peter J. Boettke & Alexander W. Salter & Daniel J. Smith, 2018. "Money as meta-rule: Buchanan’s constitutional economics as a foundation for monetary stability," Public Choice, Springer, vol. 176(3), pages 529-555, September.
    3. Salter, Alexander W. & Smith, Daniel J., 2019. "Political economists or political economists? The role of political environments in the formation of fed policy under burns, Greenspan, and Bernanke," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 1-13.
    4. Nicolás Cachanosky & Alexander W. Salter, 2017. "The view from Vienna: An analysis of the renewed interest in the Mises-Hayek theory of the business cycle," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 30(2), pages 169-192, June.
    5. Cachanosky, Nicolás & Lewin, Peter, 2016. "An empirical application of the EVA® framework to business cycles," Review of Financial Economics, Elsevier, vol. 30(C), pages 60-67.
    6. Alexander Salter, 2014. "Is there a self-enforcing monetary constitution?," Constitutional Political Economy, Springer, vol. 25(3), pages 280-300, September.
    7. Salter, Alexander & Tarko, Vlad, 2017. "Governing the Financial System: A Theory of Financial Resilience," Working Papers 06954, George Mason University, Mercatus Center.
    8. Alexander William Salter, 2016. "Post-Cameralist Governance: Towards a Robust Political Economy of Bureaucracy," Economic Affairs, Wiley Blackwell, vol. 36(3), pages 294-308, October.
    9. Andreas Hardhaug Olsen, 2015. "Wilhelm Röpke and Richard C. Koo On Secondary Deflations and Balance Sheet Recessions," Economic Affairs, Wiley Blackwell, vol. 35(2), pages 215-224, June.
    10. Trent J. MacDonald, 2019. "The Political Economy of Non-Territorial Exit," Books, Edward Elgar Publishing, number 18871.
    11. Zanotti, Gabriel J. & Cachanosky, Nicolás, 2015. "Implications Of Machlup’S Interpretation Of Mises’S Epistemology," Journal of the History of Economic Thought, Cambridge University Press, vol. 37(1), pages 111-138, March.
    12. Darcy W E Allen, 2020. "When Entrepreneurs Meet:The Collective Governance of New Ideas," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number q0269.
    13. Hossein Nabilou, 2020. "Testing the waters of the Rubicon: the European Central Bank and central bank digital currencies," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(4), pages 299-314, December.
    14. Cachanosky, Nicolas, 2014. "The effects of U.S. monetary policy on Colombia and Panama (2002–2007)," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(3), pages 428-436.
    15. Haakon Kavli & Nicola Viegi, 2017. "Are Determinants of Portfolio Flows Always the Same? - South African Results from a Time Varying Parameter Var Model," South African Journal of Economics, Economic Society of South Africa, vol. 85(1), pages 3-27, March.
    16. Haakon Kavli & Nicola Viegi, 2015. "Portfolio Flows in a Two-Country RBC Model with Financial Intermediaries," Working Papers 201568, University of Pretoria, Department of Economics.
    17. Alexander William Salter, 2013. "Not all NGDP Is Created Equal: A Critique of Market Monetarism," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 29(Fall 2013), pages 41-52.
    18. ., 2019. "Economic theory of non-territorial unbundling," Chapters, in: The Political Economy of Non-Territorial Exit, chapter 1, pages 14-38, Edward Elgar Publishing.
    19. Cavallo, Eduardo & Powell, Andrew & Pedemonte, Mathieu & Tavella, Pilar, 2015. "A new taxonomy of Sudden Stops: Which Sudden Stops should countries be most concerned about?," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 47-70.
    20. Vlad Tarko, 2015. "The role of ideas in political economy," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 28(1), pages 17-39, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:buspol:v:19:y:2017:i:02:p:365-395_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/bap .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.