Polycentric Banking and Macroeconomic Stability

Business and Politics, Forthcoming

41 Pages Posted: 6 Nov 2015 Last revised: 17 Nov 2016

See all articles by Alexander William Salter

Alexander William Salter

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

Vlad Tarko

Dickinson College - Department of Economics

Date Written: September 28, 2016

Abstract

We contribute to the post-crisis literature on macroeconomic stability by arguing that polycentric banking systems can better achieve stability than monocentric systems. Building on the theories of E. Ostrom, we engage the literature on free banking systems to show that these systems met the requirements of polycentric governance systems, and that the unintentional result of the underlying governance institutions was macroeconomic stability. In contrast, modern central banking, because it is monocentric, lacks important features conducive to generating macroeconomic stability. We conclude by discussing various legal barriers that stand in the way of a transition from monetary monocentrism towards monetary polycentrism.

Keywords: Central banking, clearinghouse, free banking, macroeconomic stability, monetary policy, polycentricity, robust political economy

JEL Classification: E42, E52, G21, H11, H41, P16

Suggested Citation

Salter, Alexander William and Tarko, Vlad, Polycentric Banking and Macroeconomic Stability (September 28, 2016). Business and Politics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2686368 or http://dx.doi.org/10.2139/ssrn.2686368

Alexander William Salter (Contact Author)

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

Vlad Tarko

Dickinson College - Department of Economics ( email )

Room 120, Althouse Hall
Carlisle, PA 17013
United States

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