Warren Mosler and the Great American Banking Myth — George Selgin

Although I've taken issue with various MMT claims in the past (see, e.g. here and here), I've grown to respect several Modern Monetary Theorists. Far from being ill-informed, people like Eric Tymoigne and Nathan Tankus (the list is by no means exhaustive–these happen to be two whose work I know best) know a lot more than many orthodox economists do about the workings of the U.S. monetary system. Knowing this, I'm not inclined to accuse Modern Monetary Theorists of being ignorant just because I disagree with many of the school's positions and arguments.

But on the subject of bank runs, at least, Warren Mosler shows no signs of being well-informed. Although his talk is laced with knowing chuckles, along with disparaging references to "so-called neo-liberals" who are so foolish as to think markets work in banking, his attitudinizing is so much bluff and bluster. The truth is rather that, so far as knowledge of runs is concerned, Mosler is no less destitute than some of the banks whose demise he so heedlessly laments.

George Selgin disputes Warren Mosler's assertions about the dire consequence of free banking, namely, bank runs.

I would have no problem with allowing free banking for institutions that are not members of the central bank's payments system and have no recourse to either the lender of last resort function or government guaranteed deposit insurance. This would mean that such institutions would have to either issue their own private notes as liabilities of the institution or get currency from raising capital or deposits. A sovereign government would be advised not accept such liabilities in payment of obligations to it in place of the currency that the government issues, since this would be ceding sovereignty.

I would also require such institutions to advertise that customers' have no recourse in the case of bank failure other than the civil courts. Let people take a chance if they choose but the choice should be an informed choice. Thus, I would also require all financial institutions other than banks that are member of the government payments system to adopt the partnership model that characterized financial institutions before they were allowed to incorporate and thereby limit the liability of the owners. Note that is is not bank regulation but rather definition of legal liability.

"Let a hundred flowers bloom." Chairman Mao.

Alt-M
Warren Mosler and the Great American Banking Myth
George Selgin | senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and Professor Emeritus of Economics at the University of Georgia.

David Glasner — Larry White on the Gold Standard and Me

Gold standard, free banking, central banking, fixed rule versus flexible discretion, and financial crises in the 19th century.  Important from the perspective of economic history, history of economics (H. Simons, M. Friedman), and money & banking. If you are interested in these topics, it's an important read.

Uneasy Money
Larry White on the Gold Standard and Me
David Glasner | Economist at the Federal Trade Commission

George Selgin — On Free Banking, Monetary Rules, and Crusades

Not sure he has a grip on actual operations and he ignores the global financial system and global economy.

Alt-M
On Free Banking, Monetary Rules, and Crusades
George Selgin | senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and Professor Emeritus of Economics at the University of Georgia

ht Art Shipman at The New Arthurian Economics

Thomas Klitgaard and James Narron — Crisis Chronicles: The Man on the Twenty-Dollar Bill and the Panic of 1837

President Andrew Jackson was a "hard money" man. He saw specie—that is, gold and silver—as real money, and considered paper money a suspicious store of value fabricated by corrupt bankers. So Jackson issued a decree that purchases of government land could only be made with gold or silver. And just as much as Jackson loved hard money, he despised the elites running the banking system, so he embarked on a crusade to abolish the Second Bank of the United States (the Bank). Both of these efforts by Jackson boosted the demand for specie and revealed the soft spots in an economy based on hard money. In this edition of Crisis Chronicles, we show how the heightened demand for specie ultimately led to the Panic of 1837, resulting in a credit crunch that pushed the economy into a depression that lasted until 1843.

FRBNY — Liberty Street Economics
Crisis Chronicles: The Man on the Twenty-Dollar Bill and the Panic of 1837

Thomas Klitgaard, vice president in the Federal Reserve Bank of New York’s Research and Statistics Group, and and James Narron, senior vice president in the Federal Reserve Bank of San Francisco’s Cash Product Office

David Glasner — What Is Free Banking All About?

I notice that there has been a bit of a dustup lately about free banking, triggered by two posts by Izabella Kaminska, first on FTAlphaville followed by another on her own blog. I don’t want to get too deeply into the specifics of Kaminska’s posts, save to correct a couple of factual misstatements and conceptual misunderstandings (see below). At any rate, George Selgin has a detailed reply to Kaminska’s errors with which I mostly agree, and Scott Sumner has scolded her for not distinguishing between sensible free bankers, e.g., Larry White, George Selgin, Kevin Dowd, and Bill Woolsey, and the anti-Fed, gold-bug nutcases who, following in the footsteps of Ron Paul, have adopted free banking as a slogan with which to pursue their anti-Fed crusade. 

Now it just so happens that, as some readers may know, I wrote a book about free banking, which I began writing almost 30 years ago. The point of the book was not to call for a revolutionary change in our monetary system, but to show that financial innovations and market forces were causing our modern monetary system to evolve into something like the theoretical model of a free banking system that had been worked out in a general sort of way by some classical monetary theorists, starting with Adam Smith, who believed that a system of private banks operating under a gold standard would supply as much money as, but no more money than, the public wanted to hold. In other words, the quantity of money produced by a system of competing banks, operating under convertibility, could be left to take care of itself, with no centralized quantitative control over either the quantity of bank liabilities or the amount of reserves held by the banking system.…

Uneasy Money

What Is Free Banking All About?
David Glasner

Philosophical Economics — Free Banking on a Bitcoin Standard–The State Prepares its Death Blow

Commerce depends on a reliable (stable) but elastic money supply. How can Bitcoin provide it?

Philosophical Economics
Free Banking on a Bitcoin Standard–The State Prepares its Death Blow