Old (Chicago) School, New Century: The Link between Simons' Chicago Plan to Buchanan's Constitutional Money
32 Pages Posted: 11 Nov 2015
Date Written: November 10, 2015
James Buchanan had long been a champion of the early Chicago school’s emphasis on the essential role institutions play in framing the market process. In his post-2009 analysis, Buchanan used this “Old Chicago School” approach to argue that the Great Recession fundamentally represented not a market failure, per say, but a “constitutional failure.” In particular, he echoed his Old Chicago mentors like Frank Knight and Henry Simons in arguing that it, like all previous financial crises, was primarily a failure of the rules governing our existing monetary-financial institutions. In this paper, I connect the dots in Buchanan’s post-2009 analysis of the Great Recession and his reaffirmation of the need for “constitutional money” to his Old Chicago mentor’s strikingly similar calls for a radical restructuring of the monetary-financial system in the Chicago Plan of the 1930s. Though Buchanan’s 21st century resurrection of these ideas has yet to conjure up the academic support of his predecessors, their core proposal calling for an end to fractional reserve banking has experienced a strong revival since 2009.
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