Going Beyond Monetary Constitutions: The Congruence of Money and Finance

27 Pages Posted: 29 Oct 2015 Last revised: 20 Nov 2017

Joshua R. Hendrickson

University of Mississippi; American Institute for Economic Research

Alexander William Salter

Texas Tech University - Rawls College of Business; American Institute for Economic Research

Date Written: October 28, 2015

Abstract

We extend the literature on ‘monetary constitutions’ by arguing that binding rules must go beyond specifying the behavior of the monetary authority. Instead, a genuine monetary constitution must also be a financial constitution: it must take into account the natural and evolved links between money and banking, treating them as a single institution. We present a unified conception of money and banking, show how modern monetary institutions have severed the traditional links between money and banking, and discuss how macroeconomic stability is an unintended result of a self-enforcing constitution for the money-and-banking system. Finally, we conclude by discussing the implications of our argument for re-orienting the conversation on post-financial crisis stability towards genuinely institutional solutions.

Keywords: Commodity standard, depositors, extended liability, financial constitution, macroprudential policy, monetary constitution

JEL Classification: E42, E44, E52, G21, P16

Suggested Citation

Hendrickson, Joshua R. and Salter, Alexander William, Going Beyond Monetary Constitutions: The Congruence of Money and Finance (October 28, 2015). Quarterly Review of Economics and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2682624 or http://dx.doi.org/10.2139/ssrn.2682624

Joshua R. Hendrickson (Contact Author)

University of Mississippi ( email )

Oxford, MS 38677
United States

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

Alexander William Salter

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

HOME PAGE: http://awsalter.com

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

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