Index

Adverse clearings, 7, 14, 15, 68, 75, 144

Aldrich-Vreeland Act, 137

Architectural metaphor, 175–76

Austrians: business cycle theory, 53–56, 58 nn.22, 24, 155 n.8, 156 n.13; characteristics, 42 n.5, 58 n.19; free banking, 18, 144–50, 155 n.6

Bank Charter Act of 1844, 82

Bank failures: Canada, 138; capital adequacy, 169, 173 n.14; option clauses, 171; Rothbard, 145–46; Scotland, 81, 83–85; United States, 95–101, 103–4, 137–38

Banking Act of 1933, 43 n.16, 172, 173 n.6

Banking Act of 1935, 172

Bank Merger Act of 1966, 172

Banknotes: convertibility, 87–88, 96, 143–44; counterfeiting, 81, 95–96, 109, 167–68, 172; distinctive, 7–8; excess supply of, 17, 89, 95, 109, 134; fraud, 95–96, 100–101, 145; small-denomination, 80, 88–89

Bank of England, 67, 82, 88, 91, 168, 170

Bank of Scotland, 80, 90, 92 nn.4, 5

Bank panics, 103–4, 170–71

Banks: chartered, in Scotland, 90–91, 92 nn.4, 5; chartered, in United States, 97, 105–8, 110; labor-intensity, 16; money producers, 20–23

Barter, 152

BFH (Black-Fama-Hall) model, 150–55, 156 nn.20, 21

Bimetallism, 155 n.9

Bordo, Michael D., 34, 67

Branching, by banks, 3, 80, 109, 137–38, 172

Bretton Woods agreement, 66

British Linen Bank, 80, 90, 92 nn.4, 5

Buchanan, James M., 2, 69, 71–72, 78 n.28, 161

Business cycles: Austrian theory, 53–56, 58 nn.22, 24, 61, 155 n.8, 156 n.13; classical economics, 48–49, 57 n.8; definition, 45–46; Keynesian theory, 53; monetarist theory, 53–56, 77 n.11

Cambridge cash-balance equation, 24–25

Capital ratios, 107–8

Capital requirements, 3, 96

Central banking: counterfeiting, 73; definition, 2–3; monetary policy, 59–61, 63–68, 71–76, 78 nn.31, 33; as natural evolution, 168–70

Checkland, Sidney G., 83, 85, 87, 90–91

Civil War, 109–10, 140 n.17, 141 n.27

Clearinghouses, 5, 173 n.10

CMGR (constant money growth rule), 63–65, 69, 76, 77 nn.8, 9

Collective demand, 158

Commodity money, 146

Comprehensive planning, 59

Contagion effects, 103–4, 169

Countercyclical actions: central banks, 60–61; free banks, 15–16, 41, 68

Credit markets, 50–52

Currency runs, 37–41, 43 n.19, 136, 171

CV (coefficient of variation), 110–35, 141 n.26

DD (Diamond-Dybvig) model, 173 n.14

Debt-based money, 88, 139 n.9, 143

Demand for money: changes in, 59; formal model, 19–26, 50, 56–57 n.3; stability of, 64–65

Demand for reserves, 14–15

Democratic socialism, 76 n.2

Deposit insurance: government, 1, 3, 172; private, 169

Deregulation, 3, 8

Discoordination, of markets, 17, 45–47

Diversification, 137–38, 171–72

Dowd, Kevin: analysis of money, 19; critique of DD model, 173 n.14; economies of scale, 163–64; free banking, 6, 11 n.5, 93 n.14, 177; inflation, 166; optimal money balances, 161; option clauses, 171; price index, 151; productivity norm, 69–71; Scottish banking, 88

Economic growth: Scotland, 80, 86–87; United States, 95–96, 110

Economic theories, 143

Economies of scale, 80, 162–64

Economies of scope, 163–64

Effective demand, 45–49, 56, 66, 148, 152

Efficient allocation, of capital, 104–5

Epistemology, 71, 73

Equity-based money, 101–3, 139 n.9, 143

FDIC (Federal Deposit Insurance Corporation), 1, 169, 172, 177

Federal Reserve: comparative performance, 110, 116, 121–33; criticisms of, 1–2; erratic behavior, 72; Great Depression, 141–42 n.34; note issue, 137; special interests, 170, 177

Fiduciary substitution, 10

First-best solution, 76

Forced savings, 55

Fractional reserves: American banking, 96–97, 105–6; central banking, 38; criticism by Rothbard, 145, 148–49; development, 5; gold standard, 66–67; optimal reserve ratio, 14–15; WS model, 144

Free banking: bond-security requirements, 96, 100–101, 109, 135, 139–40 n.10; business cycles, 41–42, 47, 49–52, 176; definition, 3–4; evolution, 4–5; historical examples, 10, 168, 176; interest rates, 17–18, 50–52; key characteristics, 14–18; models, 5–10, 21–41, 143–55; need for, 177–78; stability, in Scotland, 83–85; stability, in United States, 95, 103–4, 116, 121–33; theory, 143; transition to, 177

Free riders, 158

Friedman, Milton: business cycles, 18, 60; citation of White, 82; comment on Federal Reserve, 1–2; criticism of Keynes, 57–58 n.14; gold standard, 166–67; inflation, 164; monetary history, 103; monetary policy, 60–65; optimal money supply, 160–62, 172–73 n.5; price of money, 22

FSLIC (Federal Savings and Loan Insurance Corporation), 1

Future research, 176–77

Gibson paradox, 18

Glasner, David, 6, 16, 19, 82, 102, 151, 170, 173 n.8

Glass-Steagall Act (Banking Act of 1933), 43 n.16, 172, 173 n.6

GNP (Gross National Product), 2, 64

Gold standard, 66–68, 110

Great Depression, 141–42 n.34

Greenback era, 110, 125, 127

Greenfield, Robert, 22, 46, 150–54

Gresham’s Law, 155–56 n.9

Hayek, Friedrich A.: business cycles, 18, 155 n.8; central banks, 2, 61; comment on Friedman, 65; defense of Say’s Law, 48, 57 n.14; free banking, model of, 6–10, 11 n.8, 80, 150, 159; government planning, 59, 76 n.2; knowledge, 73; market discoordination, 17; monetary reform, 177; neutral monetary policy, 30, 68

Historical data, for Scotland, 84–86

Historical data, for United States: commercial paper rate of interest, 123, 128–31; commodity prices, 121–27; common stock prices, 123, 125, 132–35; industrial production, 131–33, 138–39; monetary base, 116–23; money supply, 111–16; real national income, 125, 128, 136–37

Horwitz, Steven, 45–47, 49–50, 53, 56, 57 n.10

Human capital, 77 n.23

Indirect convertibility, paradox of, 154

Inflation, 17, 67, 85, 96, 139 n.7, 164–66

Information, 73–76, 103, 160, 169, 176

Inside money, 4, 13, 17, 26, 34–38, 50

Interest rates: cost of holding money, 161; demand for money and, 65; free banking and, 7, 14, 17–18, 49–52; market rate, 17–18, 50–56, 58 n.24, 59, 89, 148; natural rate, 17, 50–52, 55–56, 57 n.12, 58 n.24, 61, 148; price of credit, 21–22, 54

Investment, 50–52

Joint supply, 172 n.1

Keynes, John Maynard, 18, 57–58 nn.14, 15, 16

Keynesian revolution, 19, 155 n.1

Knowledge, 160

Knowledge problem, 60, 73–76

Laidler, David, 18, 26, 56, 159

Laissez-faire banking, 69, 101, 134, 139, 163, 172

Laissez-faire principles, 3, 133, 155, 177

Legal tender, 3, 10, 16, 77 n.19, 139, 165, 173 n.13

Limited liability, 90, 92 n.5, 97

LOLR (lender of last resort), 170–72

McFadden Act of 1927, 172

Malinvestment, 55, 61

MAPC (mean absolute percentage change), 110–35, 141 n.26

Marginal costs, of free banks, 7, 16–17, 20–23, 33–36, 88, 165

Marginal revenue, of free banks, 17, 20, 23, 165

Market coordination, 46–47, 49, 54

Market process, 74

Mean-reverting series, 110

Methodological holism, 172 n.2

Methodological individualism, 172 n.2

Mises, Ludwig von: banknotes, 146–47; business cycles, 18, 155 n.8; criticism of Keynes, 57–58 n.14; defense of Say’s Law, 48; mathematics, 42 n.5; productivity norm, 68; regression theorem, 146; socialism, 59

Mixed economy, 76 n.2

MNPC (mean net percentage change), 110–35, 141 n.26

MOA (medium of account), 144–45, 150–54, 155 n.3

MOE (medium of exchange), 13, 42 n.10, 144–46, 150–54, 155 n.3, 159

Monetarists, 53–56, 58 n.19

Monetary authorities, models of, 71–72

Monetary base, 14, 38, 63–65

Monetary discretion, 60, 66, 68

Monetary equilibrium: business cycles and, 46–52; definitions, 46; free banking and, 21–41, 68–69

Monetary neutrality, 64

Monetary rules, 60, 66, 68

Money market, 49

MOR (medium of redemption), 144–45, 150–51, 154–55, 156 n.21

Moral hazard problem, 1, 169

Mutual fund shares, 101–3, 139 n.9, 143

National Banking Act of 1864, 172

National Banking System, 138, 149

National Currency Act of 1863, 139

National defense, 158, 172 n.1

Natural monopoly, 162–64, 172

Neo-Austrians, 56

Neo-Keynesians, 58 n.15

Neutral money policy, 30, 32, 151

New-classical economists, 56, 58 n.25, 61, 76 n.5

Nominal money balances, 29, 41, 111, 116

Noncomprehensive planning, 59

Nonexcludability, 158–60

Nonrivalrousness, 158–60

Note-exchange system, 4–5, 80–81, 83, 92 n.9

Noteholders, losses of, 81, 99–100, 105

Notional demand, 45–49, 56, 66, 148, 152

O’Driscoll, Gerald P., Jr., 73–74, 82, 160–61, 169

Optimal reserve ratio, 7, 14–16, 35, 38–39

Option clauses: RM model, 145, 147; theory of, 5, 11 n.6, 171; use in Scotland, 80; WS model, 144

Outside money, 13, 33–38

Patinkin, Don, 15, 22–24, 26

Per-capita measurement, 111

Perfect capital markets, 162

Perfect competition, 8, 140 n.12

Phillips curve, 58 n.18

Post-Keynesians, 58 n.15

PPM (purchasing power of money), 22, 24, 29, 31–34, 36, 40

Price: adjustment costs, 69–70; indexes, 11–12 n.11, 62–63, 70; level, 22, 42–43 nn.12, 13; level stability, 9, 61–63, 69–71, 85–86, 121–25; of money, 21–22; rigidity, 156 n.18; stickiness, 156 n.l8; theory, 22–23

Productivity, changes in, 30–32, 69–71

Profit-maximizing decisions, by free banks, 17, 41, 165

Property rights, 158

Public choice theory, 60, 71–73, 76, 78 n.28

Public goods, 157–60, 170

Public welfare, 72

Rational expectations, 58 n.25, 76 n.5

Real balance effect, 25–26, 32

Real money balances, 29, 31, 41

Real wage rates, 54–55

Redemption runs, 33–37, 43 n.19, 136, 171

Reflux, 7, 14, 68, 75

Rent seeking, 72–73, 90–91, 170, 177

Reserve ratios, 105–7, 166

Reserve requirements, 2–3, 66, 96–97

Risk taking, 1, 172

Rizzo, Mario, 73–74, 82, 160–61

RM (Rothbard-Mises) model, 11 n.8, 144–50, 155 nn.6, 9, 156 nn.10, 12, 166

Rockoff, Hugh, 79, 100–101, 104–5, 140 n.12, 167–68

Rolnick, Arthur J., 79, 96–105

Rothbard, Murray N.: bank failures, 92 n.8, 145–46; business cycles, 60; demand for money, 148, 156 n.12; Hayek, criticism of, 10, 11 n.8; index numbers, 11–12 n.11; inflation, 146; Keynes, criticism of, 57–58 n.14; math and statistics, 42 nn.5, 7; optimal supply of money, 147; price flexibility, 156 n.10; public goods, 158; White, criticism of, 93 n.20

Royal Bank of Scotland, 80, 90, 92 nn.4, 5

Savings, 17–18, 50–52, 148

Say’s Equality, 48

Say’s Identity, 48

Say’s Law, 11, 47–49, 56, 57 nn.5, 6, 64, 148, 155, 176

Schwartz, Anna J., 82, 103

Scottish Bank Act of 1845, 82

Scruggs, Leslie S., 3, 79, 137, 165, 177

Self-interest, 173 n.9

Selfishness, 173 n.9

Selgin, George A.: bank evolution, 4–5; CMGR, 65; comment on Friedman, 162; liquidity services, 159; model comparisons, 7–8, 13–20, 24–26, 29–37; price indexes, 62; productivity norm, 30–32, 46–47, 56–57 n.3, 62, 151; regulatory problems, 173 n.15; transition to free banking, 177

Signal-extraction problem, 47

Social cost, 161

Socialism, 59

Social welfare, 77–78 n.27

Specie-convertible money: BFH model, 151; interest rates and, 50; redemption runs, 33–35; RM model, 144–47, 166; United States, 96; WS model, 9, 13–14, 144

Spontaneous order, 5, 68

Sterilization, 67

Stocks and flows, 23–24

Supply of money: formal model, 19–26, 50, 56–57 n.3; inflation and, 17, 121, 123; optimal, 146, 152, 160–62; sub-optimal, 160–62, 172, 173 n.7

Theology, economics and, 78 n.30

Time: lags, 36–37, 61, 78 n.33; market, 49; preference, 145, 148

Treasury, Department of, 67

Unemployment, 53–55, 61, 110

Unit bank, 142 n.35

Unit of account, 8, 152–53, 159

Unlimited liability, 80, 90

Usury Law, 89–90, 92

Utility, of money, 148

Velocity, of money, 15, 75, 78 n.32, 148

Wage rate stability, 69–71

Walrasian equilibrium, 74

Walras’ Law, 48–49

Weber, Warren E., 79, 96–105

Wells, Donald R., 3, 79, 137, 165, 168, 177

White, Lawrence H.: bank evolution, 4–5; comments on Friedman, 166–67; criticism by Rothbard, 145–46; Lagrangian analysis, 18; price of money, 22; Scottish banking, 11, 80–92, 93 nn.11, 12, 20, 22, 23, 95, 167

Woolsey, W. William, 150, 154

World War I, 140 n.25, 141 n.27

WS (White-Selgin) model, 7–10, 144–45, 148, 150, 154

Yeager, Leland B.: demand for money, 65; free-banking model, 6, 150–54, 156 nn.18, 20, 22; monetary equilibrium, 46; price of money, 22