aggregate scale economies market integration and optimal welfare state policy abstract using a two sector two country model with aggregate scale economies and unionisation we show that optimal welfare state policy entails positive levels of unemployment benefits under free trade and capital mobility in this setting economic integration does not reduce the revenue raising capacity of governments and thus does not lead to a race to the bottom in social standards instead trade and capital flows interact with welfare state policies in increasing welfare even when each government acts independently non cooperatively in determining its optimal welfare payment cooperation is shown to improve upon non cooperative outcomes by raising both the generosity of the welfare state and aggregate welfare

hume s specie flow mechanism and classical monetary theory an alternative interpretation abstract hume s celebrated essay on the international distribution of money has always been criticized for ignoring the law of one price contrary to the traditional interpretation however hume actually maintains that law and argues for the stability of long run equilibrium putting money market equilibrium in the foreground his analysis is essentially founded on the same hypothesis as the modern monetary approach albeit focusing on the supply rather than on the demand side of the money market

imperfect competition and the keynesian cross abstract this paper presents a simple general equilibrium model in which the only non walrasian feature is imperfect competition in the goods market the model is shown to exhibit various keynesian characteristics in particular as competition in the goods market becomes less perfect the fiscal policy multipliers approach the values implied by the textbook keynesian cross

the impact of fiscal policy on profits i introduction a large number of policy making decisions rely on the key issue of the impact of fiscal policy on the economy therefore it is not surprising that the effect of fiscal policy on macroeconomic aggregates has been extensively studied in the empirical literature 1 several authors starting with blanchard and perotti 2002 have attempted to estimate the effect of government spending shocks on output and other variables in the context of structural var models see perotti 2008 for a survey this interest has been renewed since the 2008 2009 recession given the unprecedented size of fiscal packages worldwide barro and redlick 2009 hall 2009 an important part of this literature focuses on the theoretical and empirical investigation of the fiscal policy transmission channels theories of fiscal policy transmission differ in their implications regarding the response of different macroeconomic variables to government spending shocks for example the neoclassical model predicts a negative impact of government spending on real wages and consumption while this prediction is challenged by new keynesian models to that end an important branch of empirical literature on fiscal multipliers has investigated the transmission channels of fiscal policy by looking mainly at the response of private consumption and real wages 2 this paper deals with an important but relatively under investigated channel of fiscal policy transmission which is the effect of fiscal policy on profits as pointed out by hall 2009 the impact of fiscal shocks on the markup of price over marginal cost is important for understanding the functioning of the fiscal multiplier in the purely neoclassical general equilibrium model a rise in government spending produces a negative wealth effect the labor supply curve shifts outward and real wages and consumption fall this implies that the output multiplier will be well below unity a keynesian type fiscal multiplier implying a large positive output effect and positive responses of private consumption and real wages to increased government spending relies on a negative response of the markup of price over marginal cost to an increase in economic activity the intuition is that a decrease in the price marginal cost markup in response to higher government spending allows a rise in wages or at least a smaller reduction in wages compared with the case when the markup is constant a rise in wages would then imply that households will substitute away from leisure and into consumption therefore if the markup is countercyclical conditional on government spending shocks sizeable output multipliers of fiscal spending are consistent with existing empirical evidence that fiscal shocks are not related to strong decreases in real wages or consumption blanchard and perotti 2002 fatas and mihov 2001 gall david lopez salid and valles 2007 perotti 2005 2008 in general a new keynesian model with sticky prices implies a countercyclical markup ratio as input prices rise in a boom while output prices stay constant however for understanding the fiscal policy transmission the key factor is markup and not price stickiness itself as a countercyclical markup could also be implied by models with flexible prices when the desired markup changes in response to a shock 3 a model which assigns a central role to markups for fiscal policy transmission has been presented by ravn schmitt grohe and uribe 2007 assuming that demand has a price inelastic component that is a function of deep habits a government spending shock that leads to a positive output response increases the share of the price elastic component of demand causing a rise in the overall demand elasticity and a corresponding decline in the optimal markup 4 thus for a sufficient decline in the markup the resulting rise in wages induces households to substitute away from leisure and into consumption thereby more than offsetting the negative wealth effect of government spending predicted by the neoclassical model

evolutionary stability in games of communication abstract this paper identifies evolutionarily stable outcomes in games in which one player has private information and the other takes a payoff relevant action the informed player can communicate at little cost outcomes satisfying a set valued evolutionary stability condition must exist and be efficient in common interest games when there is a small cost associated with using each message the outcome preferred by the informed player is stable the paper introduces a nonequilibrium set valued stability notion of entry resistant sets for games with partial common interest the no communication outcome is never an element of an entry resistant set journal of economic literature classification numbers c72 d82

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

communication structure and coalition proofness experimental evidence abstract the paper analyzes the role of the structure of communication i e who is talking with whom in a coordination game we run an experiment in a three player game with pareto ranked equilibria where a pair of players has a profitable joint deviation from the pareto superior equilibrium we show that specific communication structures lead to different coalition proof equilibria in this game results match the theoretical predictions subjects communicate and play the pareto superior equilibrium when communication is public when pairs of players exchange messages privately subjects play the pareto inferior equilibrium even in these latter cases however players beliefs and choices tend to react to messages despite the fact that these are not credible

market structure and fiscal policy effectiveness in a monopolistic competition macromodel with endogenous market structure the fiscal multiplier is shown to consist of two components the first depicts the response of output to a fiscal expansion through the conventional channels that disregard the role of market imperfections the second component captures the effects of firms market power as well as the policy induced change in market structure the latter effect which has not been taken into account in existing studies is shown to be quite significant in raising the fiscal multiplier even above unity and in improving consumers welfare when the labour market is competitive

allowance price and distributional effects under a personal carbon trading scheme abstract personal carbon trading pct is a downstream cap and trade scheme to reduce carbon emissions from the household sector in comparison to an upstream carbon trading scheme pct is a progressive scheme in which the poorer consumers are mostly winners as their levels of emissions are generally lower this paper investigates the equilibrium price for allowances and distributional effects under a pct scheme first we propose an equilibrium model for pct from which we derive an equilibrium price for allowances second a consumer surplus analysis is conducted to examine the welfare changes caused by the pct scheme generally we find that the pct scheme is progressive and can provide a buffer between the energy and allowance price based on these results the implications are discussed and suggestions for a future study are provided

of a controversial passage in hume david hume s 1955 analysis of how a change in the quantity of money can have a temporary effect on real income has been variously interpreted and misinterpreted for over two hundred years a possible reason for some misinterpretation is hume s archaic use of the term labor with the correct interpretation which is consistent with hume s other theories and in particular his theory ofthe interest rate the reason for the temporary effect on real income is that prices lag behind money wages and a rise in real wages leads to an increased supply of effort copyright 1987 by university of chicago press

representative agent meets class structure imperfect competition and the balanced budget multiplier recently new keynesian economists nke have been concerned with the effect of imperfect competition on the sign and size of the balanced budget fiscal multiplier this literature all came up with models based on a profit income relationship in which imperfect competition increases the tax financed fiscal multiplier accordingly the higher the exercise of market power by firms the greater the effectiveness of fiscal policy in this paper we argue that the new keynesian results are very sensitive to a heroic simplification on which they rest the representative agent we show that in terms of the budget balanced multiplier a kaleckian approach where class structure matters offers a richer set of results moreover we develop a simple short run rational agent optimisation model of the type used by nke and introduce class structure into it we demonstrate in support of the kaleckian approach that even in a general equilibrium optimising framework the balanced budget multiplier is strictly decreasing in the degree of monopoly copyright 2006 oxford university press

inflexible rules in incentive problems in practice contracts involve standard terms or rules allowing for variations only under exceptional circumstances we develop a simple model in which optimal contracts display this feature even in the absence of transactions costs rules arise when an agent has countervailing incentives to misrepresent private information these incentives are created by endowing the agent with a critical factor of production ex ante applications in regulatory labor and legal settings

an experimental study of communication and coordination in noncooperative games this paper reports the results of an experiment designed to test the usefulness of alternative solution concepts to explain players behavior in noncooperative games with preplay communication in the experiment subjects communicate byplain conversationprior to playing a simple game in this setting we find that the presumption ofindividualisticandindependentbehavior underlying the concept of nash equilibrium is inappropriate instead we observe behavior to becoordinatedandcorrelated statistical tests reject nash equilibrium as an explanation of observed play the coalition proof correlated equilibrium of the game however explains the data when the possibility of errors by players is introduced journal of economic literatureclassification numbers c72 c92

how are product demand changes transmitted to the labour market in the traditional keynesian and classical models the transmission of product demand changes to the labor market generally involves wage price sluggishness or countercyclical real wage movements in practice however real wages are often acyclical or procyclical and wages and prices are flexible over periods of several years this paper examines the main channels whereby product demand can affect employment under these conditions the analysis suggests that the effectiveness of demand management policies under wage price flexibility depends significantly on the availability of a limited number of supply side transmission channels copyright 1994 by royal economic society

can personal gasoline permit trading be effective an investigation into permit demand this study proposes a personal gasoline permit trading scheme to limit the total gasoline consumption thus reducing its environmental impact we studied the effectiveness of this scheme by analyzing the permit demand of a gasoline driven vehicle in transportation sector a general utility optimization model is formulated and a cobb douglas utility function is further assumed to analyze the response of permit demand to its price changes with the slutsky decomposition of price effects the results when defined in economic terms indicate that the permit demand of consumers in higher income groups are negatively related to permit price permit demand are also negatively related to permit price for consumers in medium income groups but with positive income effect and the direct relationship between permit demand of lower income groups and the price is defined as a giffen good effect that is for those low income groups when the permit price rises their demand for permits would also increase then us and singapore household expenditure data are used to show comparable results of a pilot personal gasoline permit trading scheme further some regulations on critical parameters such as permit allocation and permit prices in the policy design are proposed to make the scheme feasible in different income groups based on these results implications limitation and suggestions for future study are discussed

public capital and imperfect competition abstract in this paper we consider a macroeconomic model in which public capital is a productive input and there is monopolistic competition in the product market we analyze the effects of a permanent variation in public capital investment both in the short and in the long run finally we show that the optimal provision of public capital under imperfect competition is higher than that associated with the first best policy

monopolistic competition as a foundation for keynesian macroeconomic models a general equilibrium macroeconomic model based on monopolistic competition is presented the model exhibits a traditional multiplier in the short run but due to free entry the multiplier disappears in the long run by construction all agents are fully rational the keynesian results are a consequence of the assumption of monopolistic competition which creates a divergence between optimal private behavior and optimal social behavior

bare promises an experiment abstract is truth value of a statement what lying aversion is all about we propose an experimental test and find only limited support in this context with bare promises we also test for guilt aversion and again find only limited support

on the monotonicity of balanced budget multiplier under imperfect competition abstract this paper presents a counterexample to the wellknown monotonicity result of mankiw 1988 mankiw n g 1988 imperfect competition and the keynesian cross economics letters 26 7 13 in particular by considering taxes on labor income rather than lumpsum taxes it obtains a negative relation between the magnitude of the balanced budget multiplier and marketpower

profits markups and entry fiscal policy in an open economy in this paper we develop a general model of an imperfectly competitive small open economy there is a traded and non traded sector whose outputs are combined in order to produce a single final good that can be either consumed or invested we make general assumptions about preferences and technology and analyze the impact of fiscal policy on the economy we find that the fiscal multiplier is between zero and one and provide sufficient conditions for it to be increasing in the degree of imperfect competition we also are able to compare the multiplier under free entry and with a fixed number of firms and welfare a simple graphical representation of the model is developed

cheap talk with two audiences these problems have in common a simple structure an informed sender says something to two interested but uninformed receivers who then take actions based on their beliefs these actions affect the sender as well as the receivers in this paper we study how costless nonverifiable claims cheap talk can affect these beliefs and hence the actions and how the incentives for truthful revelation to one receiver are affected by the presence of the other we then ask how welfare is affected by whether claims are made in public or in private as some of the above examples suggest public messages may be more credible than private messages addressed to either audience one possibility is that the presence of one audience can discipline the sender s relationship with the other we call this one sided

optimal labour contracts and imperfect competition a framework for analysis this paper examines the macroeconomic properties of imperfectly competitive economies by modeling the labor market from the perspective of optimal contract theory the point is to demonstrate that important properties of imperfectly competitive economies such as underemployment equilibria multipliers and the prospect of coordination failures are not the consequence of arbitrary labor relations but can emerge with privately optimal labor contracts

market structure cost asymmetries and fiscal policy effectiveness abstract imperfectly competitive macroeconomic models typically assume a symmetric equilibrium with identical firms despite the fact that most industries are characterised by substantial degrees of firm heterogeneity we examine how inter firm efficiency gaps affect fiscal policy effectiveness under monopolistic competition

the present relevance of hume s open economy monetary dynamics david hume s monetary economics has remained a source of sustained controversy rival interpretations situate his work at the fountainhead of the quantity theory of money the monetary approach to the balance of payments and the post keynesian analysis of inflation recent contributions to the literature have explicitly modeled several aspects of his monetary writings but have not placed his controversial discussion of output and monetary dynamics within all open economy analysis this paper does so and contrasts rival specifications and interpretations of humean open economy output dynamics copyright 1995 by royal economic society

cantillon and hume on money and banking the foundations of two theoretical traditions the distinction between the classical monetary theory and quantity theory has been proposed in literature on money and banking the overall feature of the classical theory of money is that it holds one principle of regulation for each kind of issue metallic money bank issues and paper money whereas the quantity theory applied the causality and proportionality postulates for all kinds of monies without claiming to adjudicate the validity of such a distinction the paper investigates the foundation of each tradition in this respect this paper respectively examines and provides a survey of the secondary literature on cantillon s essai and the hume s discourses

why do people keep their promises an experimental test of two explanations numerous psychological and economic experiments have shown that the exchange of promises greatly enhances cooperative behavior in experimental games this paper seeks to test two theories to explain this effect the first posits that individuals have a preference for keeping their word the second assumes that people dislike letting down others payoff expectations according to the latter account promises affect behavior only indirectly because they lead to changes in the payoff expectations attributed to others i conduct an experiment designed to distinguish between and test these alternative explanations the results demonstrate that the effects of promises cannot be accounted for by changes in payoff expectations this suggests that people have a preference for promise keeping per se

cheap talk and the fed a theory of imprecise policy announcments this paper examines the problem faced by the federal reserve in announcing its private information about its future policies because it would like to manipulate expectations and pursue a time inconsistent policy the fed cannot reveal its policy objectives precisely and credibly it can however communicate some information about its goals through the cheap talk mechanism of vincent crawford and joel sobel making announcements that are imprecise and only giving ranges within which these goals may lie copyright 1989 by american economic association

a model of electoral competition with incomplete information a model of two candidate electoral competition is developed in which voters are uncertain about the policy either candidate would implement if elected candidates simultaneously announce policy positions from which voters attempt to infer the true positions the candidates would adopt announcing a position different from the true position is costly to the winning candidate with these costs increasing as the difference between the true policy and the announced policy increases a refinement of the sequential equilibrium concept is used to describe the behavior of candidates and voters

imperfect competition the marginal cost of public funds and public goods supply abstract this paper analyses the impact of changes in product market competition on the marginal cost of public funds mcpf and public goods supply when distortionary commodity taxes are used to raise revenue first less competition measured by a switch from bertrand to cournot conduct or a decrease in the elasticity of demand does not necessarily raise the mpcf second even if it does optimal public good supply does not necessarily fall the paper also presents a method for modelling bertrand and cournot competition in general equilibrium that may be of independent interest

tiered gasoline pricing a personal carbon trading perspective abstract this paper proffers a tiered gasoline pricing method from a personal carbon trading perspective an optimization model of personal carbon trading is proposed and then an equilibrium carbon price is derived according to the market clearing condition based on the derived equilibrium carbon price this paper proposes a calculation method of tiered gasoline pricing then sensitivity analyses and consumers surplus analyses are conducted it can be shown that a rise in gasoline price or a more generous allowance allocation would incur a decrease in the equilibrium carbon price making the first tiered price higher but the second tiered price lower it is further verified that the proposed tiered pricing method is progressive because it would relieve the pressure of the low income groups who consume less gasoline while imposing a greater burden on the high income groups who consume more gasoline based on these results implications limitations and suggestions for future studies are provided

imperfectly competitive cycles with keynesian and walrasian features abstract we consider a multi sector overlapping generations model with oligopolistic firms in the output markets and wage setting trade unions in the labour markets a coordination problem between firms creates multiple temporary equilibria which are either walrasian or of the keynesian unemployment type there exist many deterministic and stochastic equilibrium cycles fluctuating between keynesian recession and walrasian boom periods with arbitrarily long phases in each regime the cycles are in accordance with certain empirical regularities money is neutral and superneutral but appropriate countercyclical fiscal policies stabilize the cycles in a textbook keynesian way

imperfect competition and the fiscal multiplier the impact of fiscal policy in an economy with a monopolistic output market but a perfectly competitive labor market is examined both in the short run with a fixed number of firms and in the long run with free entry the main innovation of the paper is the generality of the assumptions about preferences and technology which enable the authors to examine the robustness of the relationship between the degree of monopoly and the fiscal multiplier found by r startz 1989 n g mankiw 1988 and h d dixon 1987 the specific results of these papers are found to rest on two assumptions constant returns and cobb douglas preferences copyright 1996 by the editors of the scandinavian journal of economics

optimal fiscal policy in open economies with labour market distortions abstract we set up a general equilibrium model with unemployment owing to distortions in the labour market it is shown that a public expansion financed by a distortionary income tax may give rise to a decrease in unemployment even if public goods are pure waste such an expansion may give rise to an increase in welfare if it is associated with a decrease in unemployment since part of the gain from a fiscal expansion is achieved at the expense of welfare in other countries non cooperative policies tend to be too expansionary

optimal government spending in an economy with imperfectly competitive goods and labor markets this article examines the growth and welfare maximizing government spending in an economy that is characterized by market imperfections namely unionization in the labor market and monopolistic competition in the goods market to thoughtfully explore the optimal spending two distinct scenarios where the government spending is financed by labor capital income taxes are considered our analysis shows that the optimal growth maximizing government spending is inconsistent with the welfare maximizing government spending moreover the growth maximizing welfare maximizing government spending have quite different responses to distinctive market imperfections markups in the goods and labor markets particularly in the scenarios with distinctive financing modes our numerical study indicates that the growth maximizing and welfare maximizing government expenditures in general are more responsive to the change in the labor market friction than that in the product market friction and the growth maximizing government spending is more likely to be lower than the welfare maximizing government spending

let s talk how communication affects contract design we study experimentally how the ability to communicate affects the frequency andeffectiveness of flexible and inflexible contracts in a bilateral trade context where sellers canadjust trade quality after observing a post contractual cost shock and a discretionary buyertransfer in the absence of communication we find that rigid contracts are more frequent andlead to higher earnings for both buyer and seller by contrast in the presence of communication flexible contracts are much more frequent and considerably more productive both for buyers andsellers also both buyer and seller earn considerably more from flexible with communicationthan rigid without communication our results show quite strongly that communication a normalfeature in contracting can remove the potential cost of flexibility disagreements caused byconflicting perceptions we offer an explanation based on social norms

coalition proof correlated equilibrium a definition a coalition proof correlated equilibrium of a game is a pair consisting of a correlation device and a coalition proof nash equilibrium of the game extended by the device a direct coalition proof correlated equilibrium is a canonical device such that the obedient strategy is a coalition proof nash equilibrium of the canonical extended game the revelation principle may not hold even for two person games direct coalition proof correlated equilibrium may fail to exist for games with more than two players for any game a pure coalition proof nash equilibrium is a direct coalition proof correlated equilibrium c 1996 academic press inc

coalition proofness and correlation with arbitrary communication possibilities abstract the ability of the members of a coalition to communicate secretly determines whether the coalition can coordinate to deviate from a proposed strategy and thus affects which strategies are coalition proof we show that the existence of a pareto best element in the set of strategies that survive iterated elimination of dominated strategies implies the existence of a coalition proof correlated equilibrium for any specification of coalitional communication possibilities that always permits individual deviations such an element exists in games with strategic complementarities if either 1 there is a unique nash equilibrium or 2 each player s payoff is nondecreasing in the others strategies journal of economic literature classification number c72

coalition proof equilibrium we characterize the agreements that the players of a noncooperative game may reach when they can communicate prior to play but they cannot reach binding agreements a coalition proof equilibrium is a correlated strategy from which no coalition has an improving and self enforcing deviation we show that any correlated strategy whose support is contained in the set of actions that survive the iterated elimination of strictly dominated strategies and weakly pareto dominates every other correlated strategy whose support is contained in that set is a coalition proof equilibrium consequently the unique equilibrium of a dominance solvable game is coalition proof journal of economic literature classification

talk is cheap although friedrich a von hayek leonid hurwicz and others stressed how the price system communicates private information on preferences technology and endowments our main means of communication is surely words but it is unclear whether mere words can be trusted absent outside sanctions for lying such as perjury law or a valuable reputation for honesty talk is cheap the perspective of the standard theory of signaling seems to suggest that cheap talk should be uninformative but this is misleading cheap talk can sometimes convey information and affect real payoffrelevant actions yet cheap talk s power is limited for example even given an unlimited chance to talk rational people may not reach an equilibrium or may not escape a bad one a growing literature in game theory political science and economics which i cannot survey here studies what cheap talk can and cannot do here i merely sketch some themes

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

information incentives and organizational mode we examine the choice of organizational mode for a two stage production process wherein cost realizations at each stage are observed only by the producing party when these costs are positively correlated the principal prefers to undertake second stage production herself when the correlation is negative and sufficiently small she will prefer that the agent who performs the first stage also perform the second for large negative correlation either mode might be preferred when costs are uncorrelated the principal is indifferent between modes

imperfect competition and crowding out abstract this paper applies the central feature of imperfect competition in the goods market to examine the validity of the standard belief in international macroeconomics namely that policy effects in a small open economy are less effective than in a closed economy it is shown that the profit margin in imperfect competition and marginal propensity to leisure are the key factors in determining whether this standard belief is valid

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

the dynamically extended keynesian cross and the welfare improving fiscal policy abstract we construct a dynamic keynesian cross the dynamic extension allows for seigniorage on government financing in lieu of lump sum taxation because seigniorage imposes no tax burden expansionary fiscal policy improves welfare even if wasteful

imperfect competition the keynesian cross and optimal fiscal policy abstract this note analyzes a simple keynesian macro model with imperfect competition and demonstrates that the optimal fiscal policy is a complete shutdown taxes and government purchases should both be zero if the model is extended slightly then welfare improving policies may exist however the benefits are generated in part by the public goods nature of government purchases and not just by the multiplier process it appears that the multiplier alone is not sufficient to justify the use of fiscal policy

communication coordination and nash equilibrium i note a methodological problem in studying the role of pre play communication in ensuring equilibrium to deal with this problem i define a solution concept for the extended game in which talk is followed by play that is intermediate between nash equilibrium and rationalizability in some games our solution concept implies a nash outcome while in others it does not

david hume on banking and hoarding david hume opposes banks and favors hoarding the only bank he reluctantly approves of is a public 100 reserve bank other banks increase money supply and prices hindering exports and economic growth for hume a 100 reserve public bank would lead to the destruction of paper credit 1752 1985 p 285 fostering economic growth instead by preventing inflation additionally a 100 reserve bank hoards a large quantity of gold and silver which is available in case of national emergency