free banking and the stability of early joint stock banking proponents of free banking argue that systems adopting their policies will be stable in this paper we present evidence suggesting that in general early joint stock banking systems did not adopt free banking and those that did proved to be unstable in particular we demonstrate that those systems imposing regulations were generally stable we rationalise the success of regulation as a pragmatic solution to the time inconsistency problem arising from the peculiar nature of the banking firm notably we find that the golden age of free banking stability can be attributed to restrictions on the organisational form of the early banking firm

financial factors in economic development financial factors have been assigned strategic importance in economic development but very different factors have been isolated in the respective experiences in asia unrepressed financial markets in mobilizing saving and allocating investment have been given prominence in latin america the central question is the role of inflationary finance the scope for deficits to enhance growth and increasingly the feedback from high and unstable inflation to poor economic performance this paper reviews and contrasts the two approaches and concludes that the strong claims for the benefits of financial liberalization are not supported by evidence financial factors are important but probably only when financial instability becomes a dominant force the scope for inflationary finance is small and the risks are larger than commonly accepted when hyperinflation takes over and foreign exchange crises disrupt the price system and shorten the economic horizon to a week or a month normal economic development is suspended moreover difficult to reverse capital flight puts savings outside the home economy attention should focus on these extreme cases and explore deeper the thresholds at which financial factors become dominant and the channels through which this occurs superior growth performance in this perspective may be more a reflection of adaptability than financial deepening this abstract was borrowed from another version of this item

the federal reserve as a bureaucracy an examination of expense preference behavior in this paper the federal reserve system is viewed as a bureaucracy with a bureau s incentive to increase expenses beyond the profit maximizing point moreover the bureau consists of divisions the district banks that exhibit their own expense prefer ence behavior an empirical investigation of labor demand by the boar d and district banks reported in this paper demonstrates that the fed eral reserve has engaged in expense preference behavior and that the centralization of the monetary authority amplified this type of behav ior copyright 1988 by ohio state university press

time deposits dimensions and fraud we stipulate arguendo that fractional reserve demand deposit banking is per se fraudulent we ask whether or not time deposit banking can also be illicit and answer in the positive if there is a mismatch between the time dimensions of deposits and loans to wit if an intermediary borrows short and lends long

can currency competition work abstract can competition among privately issued fiat currencies work only sometimes and partially to show this we build a model of competition among privately issued fiat currencies a purely private arrangement fails to implement an efficient allocation even though it can deliver price stability under certain technological conditions although currency competition creates problems for monetary policy it is possible to design a policy rule that uniquely implements an efficient allocation

in which context is the option clause desirable the option clause is a contractual device from free banking experiences meant to prevent banknote redemption duels it has been used within the diamond and dybvig j pol econ 91 401 419 1983 framework to suggest that very simple contractual solutions can act as an alternative to deposit insurance this literature has however been ambiguous on whether the option clause can replace deposit insurance outside of those two contexts it will be argued that the theoretical clause does not generally affect the likelihood that a solvent bank goes bankrupt because of a bank run as empirical evidence suggests it is already near null and that the exercise of the clause will have the effect of diminishing the size of creditor claims on bank assets because it exacerbates the agency problem of bank debt it will therefore be argued that the clause is only desirable in a free banking systems that are historically devoid of bank runs in the first place and have other means of managing debt related agency problems and b under the unrealistic assumption that bank runs are self fulfilling prophecies it will be argued that the agency problem of bank debt makes the option clause undesirable outside of free banking systems

fractional reserve banking client collaboration and fraud this paper traces the recent debate over the legitimacy of maturity mismatching and fractional reserve banking it shows that there is common ground between bagus and howden journal of business ethics 90 3 399 406 2009 106 295 300 2012 on the one hand and evans journal of business ethics 2013 on the other regarding contractual arrangements that lead to fractional reserve banking while both agree that fractional reserve banking that arises out of a bailment or storage contract constitutes fraud block and barnett journal of business ethics 88 4 711 716 2009 100 229 238 2011 stress the illegitimacy of fractional reserve banking for creating more money substitutes than there is actual money while it is true that fractional reserve banks are capable of creating money this activity still cannot be regarded as fraudulent using a common law definition of fraud for it can only take place with requisite client collaboration that makes it impossible to identify a victim

the economics of development a survey i the subject our definition of the subject will be the use of economic analysis to understand the economies of poor or developing countries this includes in particular how standards of living in the population are determined and how they change over time and further how policy can or should be used in the influence of these processes the definition contains in principle much or most of analytical methods in economics insofar as they can be put to use in the examination of the issues of interest this is as it should be but it poses a problem for a survey in a journal a comprehensive treatment is infeasible so we shall follow a different route the survey will focus on what i take to be the major themes and approaches which characterise the productive aspects of the subject there is therefore no pretence at being exhaustive the purpose is rather to highlight some of the advances many of these have been of real substance there are a number of possible purposes for a survey and it is important to be clear at the outset for whom it is intended what it is and what it is not this survey is addressed to economists and students of economics who know the tools of their trade but not necessarily how they have been applied to and fashioned for the analysis of the economics of developing countries it is a description of the ways in which problems can be productively formulated and approached in terms of examples chosen for their intrinsic importance and interest the vastness of the subject means that we have to be highly selective it does not seek to provide a summary evaluation of the current view of the appropriate response to immediate policy questions it is not a history of thought nor a research manifesto nor an attempt to adjudicate or settle the major debates where they arise naturally from the major purpose some judgements on these subjects will be offered but they do not themselves constitute the primary intent of this survey there are three lines of enquiry or sets of questions which have i suggest been distinctive of the most fruitful work in development economics they will

fractional reserve banking in grain fractional reserve banks namely enterprises being legally liable to pay some substance on demand while regularly having too little on hand to satisfy all their obligations are commonly associated exclusively with money conceivably fractional reserve banks can deal in substances other than money as it happens chicago s warehousemen of the 1860s practiced fractional reserve banking not in dollars or sterling but in grain l these warehousemen operated in the style of a conventional financial intermediary borrowing short through demand deposits in order to lend long the natural evolution of fractional reserve banking in grain in nineteenth century chicago was interrupted however ever more stringent laws the result of repeated campaigns against fraudulent receipts eventually forced chicago s warehousemen to keep 100 percent reserves consequently the organization of the grain trade past and present not only provides information about the development of fractional reserve banking in general but reveals the effects of a rare experiment in outlawing fractional reserve banking

currency competition a hayekian perspective on international monetary integration currency internationalization is examined from the vantage point of friedrich hayek s contributions in the 1970s compared with received commentaries in which only an idealized case for private money is attributed to hayek this paper underscores other dimensions of hayek s work on money and currency hayek s case for choice in currency draws on his theory of competition anticipates competition between government suppliers of fiat money accommodates many aspects of international monetary integration and embodies a distinctive approach to monetary independence choice of exchange rate regime and the transnationalization of currency hayekian predictions are outlined for future developments in currency competition

market evidence on the effective maturity of bank assets and liabilities the recent years increase in interest rate volatility has intensified concern over the exposure of commercial banks to interest rate or funding risk since the effect of interest rate changes on the equity value of a bank depends on the maturity or duration of the bank s assets and liabilities assessing an individual bank s interest rate risk exposure requires information about the maturity composition of its portfolio it is difficult however to assess a bank s risk exposure from balance sheet data because several important asset and liability items have theoretically ambiguous effective maturities in a frictionless market a security s effective maturity will equal its stated maturity or time to repricing with market imperfections e g depositors transaction or information costs however the equilibrium cost of some deposit items may respond sluggishly or incompletely to market rate changes see hester and pierce 1975 or flannery 1982 such liabilities market values discounted at market rates would therefore fluctuate with the level of interest rates these liabilities are sometimes called core deposits which manifest sticky responses to market rate changes we define an asset or liability s effective maturity as the maturity of a fixed rate perfectly elastically supplied security with the same market value elasticity as the bank balance sheet item under consideration naturally a balance sheet item s effective maturity is the relevant determinant of its contribution to the bank s overall interest rate risk sensitivity

rejoinder to bagus and howden on borrowing short and lending long in barnett and block j bus ethics 88 4 711 716 2009a the present authors claim that borrowing short and lending long is fraudulent and thus ought to be prohibited on legal grounds bagus and howden j bus ethics 90 3 399 2009 take issue with our ethical analysis the present paper is our response to these authors it is an attempt to defend barnett and block j bus ethics 88 4 711 716 2009a against the very interesting and important although we believe erroneous criticisms of bagus and howden j bus ethics 90 3 399 2009

oil and water do not mix or aliud est credere aliud deponere the financial crisis has led to new interest in the ethics of financial markets in this article we further the debate on the nature of banking contracts by showing that the fundamental subjective purposes of loan and deposit contracts are irreconcilable any resultant mixture of the two contracts is a legal aberration we consider a mutual fund as an important and legitimate alternative to the common demand deposit to provide high liquidity and some yield without offering full availability of a nominal sum besides being a close substitute for how many deposit accounts function today the mutual fund has the additional benefit of satisfying all legal and ethical requirements loan and investment contracts such as money market mutual funds allow for the bank to make use of their clients funds while the intents of money owners are clearly classified without running into legal or ethical problems

reassessing the ethicality of some common financial practices depositors have perceived banks as acting unethically during the most recent recession one area of consternation is the ambiguity of the legal obligations entailed by the deposit contract when it is backed with only fractional reserves in this article we apply an existing analysis of the legitimacy and ethicality of banking practices to a wider range of financial transactions including insurance policies securities lending perpetual bonds and callable loans securities lending in particular creates rights violations analogous to those in fractional reserve banking both callable loans and perpetual bonds have clear legal obligations which are not inherently problematic though we herein clarify what these obligations are finally we apply our ethical framework to demonstrate that insurance products are distinct from banking deposit contracts and that perceived parallels between the two products underestimate these differences

how auctions work for wine and art interview auctioneers and even to buy a little wine in the meantime i have also had the opportunity with john abowd 1988 to observe and collect data on the auction sale of impressionist and contemporary paintings this paper reports on some of the empirical regularities that i and others have observed in the actual operation of the auction markets for these items in view of the rich and diverse array of theoretical literature on auctions it seems high time economists began to spell out precisely what facts it is meant to explain 2

a survey of recent empirical work concerning auctions in this paper the authors survey some recent empirical work concerning auctions first outlining two complementary approaches to the empirical analysis of auctions and then discussing several recent developments in the econometric analysis of field data concerning auctions

imperfect substitutes the local political economy of informal finance and microfinance in rural china and india abstract banking authorities in both china and india have attempted to limit most forms of informal finance by regulating them banning them and allowing certain types of microfinance institutions the latter policy aims to increase the availability of credit to low income entrepreneurs and eliminate their reliance on usurious financing nonetheless the intended clients of microfinance continue to draw on informal finance in both rural china and india this article argues that the persistence of informal finance may be traced to four complementary reasons the limited supply of formal credit limits in state capacity to implement its policies the political and economic segmentation of local markets and the institutional weaknesses of many microfinance programs

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

the hubris of hybrids in the pages of this journal a fruitful debate has evolved on the ethical legitimacy of fractional reserve banking in this article we respond to the new arguments raised by evans j bus ethics 2014 as we clarify our bagus et al in j bus ethics 128 197 206 2015a position on the unethical and illegitimate nature of fractional reserve banking fractional reserve banking is not a recent financial innovation unlike e g money market mutual funds but represents a long standing legal aberration the co mingling of two mutually exclusive financial contracts deposit and loan confounds the contracting parties purposes intents rights and obligations as a result it creates unsolvable legal difficulties and ethical dilemmas while these problems are most evident in the case of a bank run they also arise when trying to answer the simple question of who owns a deposit

mckinnon shaw versus the neostructuralists on financial liberalization a conceptual note abstract the views of the mckinnon shaw group and the neostructuralists differ about the approach to financial liberalization not about financial liberalization itself the neostructuralists view as it is normally interpreted is misleading in that it recommends that developing countries maintain low interest rates in the banking sector a practical way for developing countries to pursue financial liberalization would be through the organized financial system

the legitimacy of loan maturity mismatching a risky but not fraudulent undertaking barnett and block journal of business ethics 2009 attack the heart of modern banking by claiming that the practice of borrowing short and lending long is illicit while their claim of illegitimacy concerning fractional reserve banking can be defended their justification lacks substance their claim is herein strengthened by a legal analysis of deposits and loans based on huerta de soto money bank credit and economic cycles 2006 a combined legal and economic analysis shows that while lending deposits can be regarded as illicit the maturity mismatching of loans is legitimate contrary to barnett and block s claim no over issuance of property rights is involved with this practice once the distinction between present and future goods is taken into account however while the practice is not illicit per se it is greatly assisted and developed through the presence of a fractional reserve banking system and can sometimes breed detrimental effects

the role of dutch auctions and lotteries in shaping the art market s of 17th century holland abstract this article examines institution formation in the nascent art markets of 17th century amsterdam and haarlem in response to external and internal pressures on artists guilds in amsterdam poor quality imports often copies were touted as originals and sold in clandestine dutch auctions the deliberate confusion about quality imparted to the market features similar to those of akerlof s lemons model and a need for quality guarantees gave occasion to dealers in haarlem and other towns demand was viewed as fixed and guilds toughened restrictions on the supply side dissenters successfully used lotteries to show that demand can be engendered promotion was to become a key feature of later art markets

the monetary transmission mechanism an empirical framework this paper provides an overview of the monetary transmission mechanism describing the impact of changes in monetary policy on real gdp changes in financial market prices including long term interest rates and exchange rates are the main vehicle for the transmission of policy the framework incorporates rational expectations and policy rules it is empirical and appears to fit the facts well

the case against fiduciary media ethics is the key salerno http mises org daily 4389 2010a asserts that in the debate between those who favor and oppose fractional reserve banking the important issue is not whether or not this institution is inherently fraudulent but rather does it or does it not cause the business cycle we join this author in thinking both important however we reverse this order

global measure of causal intensity between real and financial spheres the lack of theoretical consensus on the causality direction between real and financial spheres as well as on the macroeconomic importance of transmission channels drive to an empirical approach of the links between the two areas the aim of this paper is to offer a method for the analysis of the causal structure between the two spheres according to the transmission channels it becomes possible globally on short and long runs for a given country to better surround mechanisms intervening inside the feedback between real and financial areas

of finance and development neglected and unsettled questions abstract the article analyzes some of the neglected and still unsettled issues on the interrelationship of finance and development and in the subdiscipline of finance notably the implications of the dichotomy of formal and informal finance the modalities and sequencing of financial reform the challenge of maintaining competition in oligopolistic systems the scope for market related monetary policy instruments the case for autonomy of central banks and divestiture of their developmental role and revamping of their prudential functions it argues for a sharply focused country specific issues oriented research agenda

entrepreneurial error does not equal market failure barnett and block 2015 claim that bagus and howden 2012b support indirectly the concept of market failure in this paper we show that maturity mismatching in an unhampered market may imply entrepreneurial error but cannot be considered a market failure we demonstrate why fractional reserve banking leads to business cycles even if there is no central bank and why maturity mismatching does not per se lead to clusters of errors in a free market finally in contrast to the examples provided by barnett and block we assure that maturity mismatching does not imply the creation of two incompatible contracts due to the fungible nature of money

in defence of demand deposits contractual solutions to the barnett and block and bagus and howden debate this article contributes to a recent debate between barnett and block j bus ethics 88 4 711 716 2009 bagus and howden j bus ethics 90 3 399 406 2009 barnett and block j bus ethics 100 299 238 2011 cachanosky j bus ethics 104 219 221 2011 and bagus and howden j bus ethics 106 295 300 2012a regarding the conceptual distinction between demand deposits and time deposits it is argued that from an economic perspective there is nothing inherently fraudulent or illegitimate about deposit accounts that are available on demand but that this relies on certain contractual provisions particular attention is drawn to option clauses and withdrawal clauses which solve the problems raised by barnett and block and bagus and howden previous authors have also neglected the asset side of banks balance sheets and this is shown to further justify the legitimacy of fractional reserve banking

money as meta rule buchanan s constitutional economics as a foundation for monetary stability this paper explores james buchanan s contributions to monetary economics and argues these contributions form the foundation of a robust monetary economics paradigm while often not recognized for his contributions to monetary economics buchanan s scholarship offers important insights for current debates especially the renewed interest in narrow banking in the wake of the financial crisis we argue that the post 2007 crisis milieu creates a unique opportunity to recognize as buchanan did the vital role that money plays in the market as the grammar of commerce that recognition makes the need for more fundamental reform of our monetary regimes at the constitutional level more apparent making buchanan s work on monetary constitutions more relevant than ever before we then discuss how adopting buchanan s monetary framework can improve both monetary scholarship and institutions

ethical differences between loan maturity mismatching and fractional reserve banking a natural law approach in a number of recent articles the debate on the ethics of fractional reserve free banking has been extended to loan maturity mismatching specifically the banking practice of borrowing short and lending long barnett and block j bus ethics 88 4 711 716 2009 2010 claim the practice is illicit because like fractional reserve banking it creates duplicate property titles they argue there is a continuum in the time dimension between the two kinds of activities bagus and howden j bus ethics 90 3 399 406 2009 106 3 295 300 2012a eur j law econ 2012b bus ethics 22 3 235 245 2013 maintain that loan maturity mismatching does not create duplicate titles and is not illicit and that from an economic and legal perspective there is no continuum with fractional reserve banking cachanosky j bus ethics 104 219 221 2011 and evans j bus ethics 2013 enter the debate from the free banking standpoint and view both practices as legitimate in this paper i agree with the conclusions of bagus and howden but adopt a different approach to support this position using the title transfer theory of contract i demonstrate from first principles why loan maturity mismatching does not create duplicate property titles and is a legitimate practice employing this same theory i then present a novel argument to show why the contractual arrangements found in fractional reserve banking are logically contradictory and illegitimate

interdependence of the banking sector and the real sector evidence from oecd countries this article investigates the validity of the credit view hypothesis in eleven oecd organization for economic cooperation and development countries over the period 1987 qi to 2003 qiii the existence of a long run relationship between the banking sector and the real sector is supported by cointegration test results for some of the countries in the sample granger causality tests show the leading role of the banking sector in the real sector thus supporting the credit view hypothesis whereas for other countries the same tests indicate no interdependence

do we need a distinct monetary constitution abstract elements of the chicago and virginia traditions of political economy have rejected both competitive money production and money s politicization via post constitutional bargaining opting instead for constitutionalization this paper argues that competitive money production is not subject to the pro cyclicality that concerns constitutional political economy it also meets the standard of predictability that motivates constitutional perspectives although at the level of individual prices rather than the price level an effective monetary constitution is implicit in any constitution that protects rights to property contract and exchange and sets limits on the democratic process

on the necessary and sufficient conditions for legitimate banking contracts what role do demand deposits serve in the financial system the answer to this simple question has great implications in keeping the legal terms of the contract consistent with the demands of the financial system demand deposits are a perfect monetary substitute since money is only held to hedge against perceived uncertainty in both the timing and magnitude of future expenditures demand deposits are demanded for the same reason from this we derive three main conclusions first a financial contract similar to a demand deposit e g very short term bonds money market mutual funds etc cannot substitute for money second full agreement to a financial contract does not create a perfect substitute for money unless it provides money s two key characteristics on demand and par value redemption finally the demand for fractional reserve demand deposits is fostered by an exogenous source deposit insurance and that demand for a good or service is not a sufficient condition to justify its legality or ethicality

the continuing continuum problem of deposits and loans barnett and block j bus ethics 18 2 179 194 2011 argue that one cannot distinguish between deposits and loans due to the continuum problem of maturities and because future goods do not exist both essential characteristics that distinguish deposit from loan contracts in a similar way but leading to opposite conclusions cachanosky forthcoming maintains that both maturity mismatching and fractional reserve banking are ethically justified as these contracts are equivalent we argue herein that the economic and legal differences between genuine deposit and loan contracts are clear this implies different legal obligations for these contracts a necessary step in assessing the ethics of both fractional reserve banking and maturity mismatching while the former is economically legally and perhaps most importantly ethically problematic there are no such troubles with the latter

adverse selection in the market for slaves new orleans 1830 1860 this paper seeks to cast some light on the importance of adverse selection in competitive markets by examining the market for the sale of slaves in pre civil war new orleans estimates of the degree of adverse selection in the new orleans market are obtained by examining the relative prices of slaves from different regions of origin these estimates indicate that slaves brought to market may on average have been of 20 percent to 40 percent lower quality than the slave population in general and that good slaves were perhaps three times less likely to be sold than low quality ones

bidding behaviour in second price auctions rare stamp sales 1923 1937 we find significant asymmetries between bid functions of the low and high mail bidders in auctions of rare stamps over the extremes of the business cycle 1923 1937 we also find a strong negative relationship between the number of bidders and the bids suggesting that the common value characteristics of stamps outweigh their private value characteristics finally we show that stamp returns are positively related to inflation and to stock yields and negatively to interest rates these last results correspond to other studies of stamps over more stable sample periods

a theory of self enforcing monetary constitutions with reference to the suffolk system 1825 1858 abstract we develop a theory of self enforcing monetary constitutions a monetary constitution is the framework of rules within which money providing and money using agents interact a self enforcing monetary constitutions is upheld by the agents acting within the system it thus does not require external enforcement we describe how the institutional technology of polycentric sovereignty applies to monetary constitutions and show how the 19th century suffolk banking system was characterized by polycentric sovereignty rendering its de facto monetary constitution self enforcing we conclude by briefly discussing the implications of our analysis for the role of the state in maintaining healthy money and banking systems

auctions and bidding a primer maybe the contractor was right to think bid jobs are different but it is more likely that he suffered from too simple a view of what is involved in preparing a competitive bid our analysis will show that even an experienced estimator working in familiar terrain can lose money if he doesn t understand the subtleties of competitive bidding the phenomenon experienced by the painting contractor known as the winner s curse is just one of the surprising and puzzling conclusions that have been turned up by modern research into auctions another is the theoretical proposition supported also by some experimental evidence that for example a sealed bid treasury bill auction in which each buyer pays a price equal to the highest rejected bid would yield more revenue to the treasury than the current procedure in which the winning bidder pays the seemingly higher amount equal to his own bid there are also subtle results that demonstrate the equivalence of such apparently different institutions as the standard sealed bid auction in which the auctioneer seller sells the goods to the highest bidder for a price equal to his bid and the dutch auction in which the auctioneer seller begins by asking a high price and gradually lowers the price until

free banking and monetary control despite growing interest in competitive payments systems and the continuing progress of bank deregulation relatively little is known about the macroeconomic implications of completely unregulated or free banking its advocates view free banking where competing banks freely issue monetary liabilities redeemable in base money 1 as a means for depoliticising the money stock by replacing public holdings of government money with private bank money while limiting changes in the monetary base such a programme begs many crucial questions how would the unregulated stock of bank money be determined would free banking enhance or reduce macroeconomic stability compared to regulated banking what implications would free banking have for the proper conduct of monetary policy lawrence h white i 984 ch i employs a model of a free banking system to answer some of these questions however because it concerns free banklng as practised in scotland in the nineteenth century white s model assumes an open economy operating in an international gold standard where the price level is given and there is no such thing as monetary policy in its modern sense were free banking to reemerge today it would probably be based not on a gold standard but on irredeemable paper fiat base money issued by a former or extant central bank under this form of free banking the price level is no longer given and conventional monetary policy questions remain relevant in particular would free banking on a fiat standard simplify or complicate the control of nominal variables including the price level and nominal income would it be easier or more difficult to adhere to a simple monetary rule what would happen if the stock of base money were frozen as a means for ruling out discretion altogether answers to such questions require an analysis of determinants of the money stock in a closed free banking system with a centrally determined stock of base money here i offer some preliminary answers based upon carl christ s i 989 formal interpretation of selgin i988 the features of free banking stressed here because they bear most on questions of monetary control include i the freedom of banks to issue notes as well as deposits where banknotes are a more

a quantitative reassessment of the finance growth nexus evidence from a multivariate var abstract the long run relationship between financial development and economic growth is examined in a multivariate vector autoregression var framework using 10 sample countries difficulties surrounding the cross country regressions and bivariate time series studies are outlined the long run financial development and output relationships are identified in a cointegrating framework through tests of over identifying restrictions we find bi directional causality between financial development and economic growth in all the sample countries conclusions that stand distinct from those in the existing empirical literature we attribute our findings to i analysis of a higher dimensional system ii a new method of identifying the long run economic relationships and iii a new approach to long run causality testing

what is the latin for mayonnaise a response to bagus howden and gabriel if fractional reserve demand deposits are common and illegitimate an obvious flaw in the banking system is exposed however this article maintains that the only reason why demand deposits may be considered illegitimate is because of a way of defining them that renders them almost irrelevant this article provides a response to bagus et al j bus ethics forthcoming 2014 and identifies examples of how they misrepresent evans j bus ethics forthcoming 2013 it also provides further considerations on the tradeoffs relating to the availability of a deposit methodological subjectivism and the potential for hybrid contracts deposit and loan contracts may be hard to mix but the actual results of doing so should not be ignored

maturity mismatching and market failure the present article is a continuation of the debate two sets of authors bagus and howden vs barnett and block have been engaging in regarding one type of maturity mismatching borrowing short and lending long bsll all four authors had agreed that this practice can set up the austrian business cycle the present author denies that bsll would be a legitimate commercial interaction in the free society bagus and howden continue to maintain that it would be licit our main criticism of bagus and howden is a reductio ad absurdum that this opens them up to the charge of embracing the doctrine of market failure this is something highly problematic for the two of them since all four contributors to this debate are well known supporters of laissez faire capitalism

connectedness and sme financing in post communist economies evidence from uzbekistan this paper investigates effects of interpersonal links with bureaucrats on sme access to formal finance a survey of 502 smes in post communist uzbekistan shows fewer smes with government connections express a need for external finance but success rates of applications are higher than for smes without connections econometric models show government connected smes receive more formal credit than their counterparts the small share of sme credit available is thus distributed in favour of those capitalising on bureaucratic links with consequent resource misallocation findings imply that greater sme credit flows need supplementing with capacity building that improves bank transparency and efficiency

the option clause in scottish banking a key question raised by the modern literature on laissez faire money and banking is whether unregulated fractional reserve banks could protect themselves from bank runs by purely contractual means if so banking stability would not require government to provide deposit insurance or to act as a lender of last resort one possible run proofing device discussed in the literature is an option clause or notice of withdrawal clause allowing a bank temporarily to suspend the redeemability of some or all of its liabilities notes or demand deposits provided the bank pays a prespecified penalty rate of interest on the suspended liabilities before the practice was outlawed in 1765 many scottish banks issued notes bearing option clauses in an informative reappraisal of the option clause in scottish banking james a gherity 1995 suggests that his findings contradict other recent discussions in particular gherity disputes three propositions that he attributes to us and others 1 that option clauses were vital to preventing runs in scotland 2 that run proofing was the purpose that motivated scottish banks to employ option clauses and 3 that option clause notes were accepted by the public without prejudice to set the record straight we note here that we and several other authors gherity cites have in fact avoided making claims 1 and 2 the conflict between gherity s view and ours is thus much smaller than he suggests we would defend claim 3 however and argue that the evidence gherity offers against it does not suffice to refute that claim 1 the potential and historical roles of the option clause an option clause can keep a solvent bank from being run upon by providing a contractual circuit breaker by allowing an illiquid bank to suspend for enough time to liquidate assets without fire sale losses it prevents a run from forcing a sol

causality between financial development and economic growth an application of vector error correction and variance decomposition methods to saudi arabia this article makes an attempt to test the possible directions of causality between financial development and economic growth which were labelled by patrick 1966 as the supply leading and demand following hypothesis saudi arabia is taken as a case study the methods applied are the error correction and variance decompositions techniques including the most recently developed long run structural modelling lrsm pesaran and shin 2002 which by imposing exactly identifying and overidentifying restrictions on the cointegrating vector has taken care of a major limitation of the conventional cointegrating estimates in that they were atheoretical in nature to the best of our knowledge there has not been any study on this issue with the application of the techniques that incorporate lrsm the stability of the functions has also been tested by cumulative sum cusum cumulative sum of squares cusumsq and chow test chow tests our findings based on the above mentioned rigorous techniques tend to s

hedonic prices property values and measuring environmental benefits a survey of the issues this paper provides a review of the theoretical basis and the assumptions required in order to use hedonic price equations derived from property value data to obtain measures of the prices and the inverse demand functions for environmental amenities such as air quality it also includes a review and assessment of existing empirical applications of the technique to problems of air and water quality and urban noise

suspension of payments bank failures and the nonbank public s losses abstract we present evidence on the effects of suspensions of payments from an episode that is close to a controlled experiment for examining those effects in 1861 about 44 of the banks in wisconsin closed 81 of the banks in illinois closed and noteholders suffered substantial losses the historical record suggests that an effective suspension of payments in wisconsin but not in illinois may explain the difference our statistical evidence indicates that the suspension of payments increased the probability of a bank remaining open by about 21 percentage points and decreased noteholders losses by about 14 cents per dollar

a comment on barnett and block on time deposit and bagus and howden on loan maturity mismatching in time deposits dimension and fraud 2009 william barnett and walter block argue that by borrowing short and lending long there is an over issuance of property rights their article however does not fully extend the consequences of their contribution once this is done it becomes clearer that their argument suits a great impediment to banking becoming a possible reason to support rather than to oppose fractional reserve banking bagus and howden j bus ethics 90 3 399 406 2009 comment on barnett and block j bus ethics 88 4 711 716 2009 the authors claim that while maintaining the illegitimacy of fractional reserve deposits borrowing short and lending long it is actually not illegitimate an extension on bagus and howden 2009 will show that their line of argumentation can be applied as a defense of fractional reserve banking as well

did hayek and robbins deepen the great depression contrary to some accounts the hayek robbins austrian theory of the business cycle did not prescribe a monetary policy of liquidationism in the sense of passive indifference to sharp deflation during the early years of the great depression there is no evidence that hayek or robbins influenced any liquidationist in the hoover administration or the federal reserve system federal reserve policy during the great depression was instead influenced by the real bills doctrine which despite some apparent similarities was diametrically opposed in key respects to hayek s norms for central bank policy

market structure and incomplete information price formation in a real world repeated english auction abstract this paper examines the effect of buyer size on price formation in an english auction of used state police cars while open auctions generally favor competitive pricing bikhchandani 1988 develops a model of a second price common value auction in which bidders can use strategic behavior based on repeated sales to develop an aggressive reputation and as a result pay lower prices in equilibrium the paper tests this hypothesis by examining sales of 340 used automobiles sold at 13 public auctions conditional on the volume of purchases made by the three largest buyers at the auctions the empirical results show that the number of buyers plays a stronger role in price formation than does buyer size

limited commitment money and credit abstract this paper studies limited commitment and adverse selection in an economy in which private liabilities inside money can be used as instruments of intertemporal trade the results suggest that in conjunction with adverse selection the limited commitment problem may affect the behavior of intrinsically higher quality debtors more severely than lower quality ones nonetheless a credit economy may function better when both problems are present than under limited commitment alone adding a fixed amount of money eases frictions associated with the credit market journal of economic literature classification numbers d8 e0 e5

scottish banking before 1845 a model for laissez faire during the free banking era in eighteenth and early nineteenth century scotland there were a number of legal restrictions affecting the evolution of the system scottish banking was characterized by restrictions on small denomination and interest bearing notes there were also restrictions inhibiting the development of capital markets and entry into banking furthermore the bank of england operated as a shadow central bank for the scottish system these considerations call into question the use of the scottish banking experience as the appropriate model for laissez faire and as evidence against the legal restrictions theory of money and the new monetary economics copyright 1989 by ohio state university press

child auctions in nineteenth century sweden an analysis of price differences during the nineteenth century destitute and or orphan swedish children were boarded out as a part of that time s public assistance the families to which they were allocated were determined by means of english auctions this paper studies the price differences among such children using empirical data from 601 auctions price is regressed on variables related both to the buyer and to the child the results suggest that variables related to the children s characteristics were important and that the willingness to take a poor or orphan child was dependent on the foster parents uses for a child in the household children who were old enough to be used as shepherd boys or girls were easily placed it was worse with those who were feeble incapacitated blind sick mentally deranged or confined to their beds they were useless to farmers and others as a rule the most miserable were boarded out to the poorest of the non property owners julius ejdestam 1969 the poor s sweden my translation