Go With the Flow: An Emergent, Free Banking Perspective on Stabilizing Nominal Spending

45 Pages Posted: 13 Nov 2015 Last revised: 28 Sep 2016

See all articles by Scott Burns

Scott Burns

Ursinus College; Southeastern Louisiana University; American Institute for Economic Research

Date Written: September 26, 2016

Abstract

Market Monetarists and free bankers tend to agree on the theoretical desirability of having a monetary system that stabilizes the flow of nominal spending in an economy. However, their ideas diverge on two related issues: (1) how should we conceive of the process in which total spending is generated, and (2) what are the best means for stabilizing the flow of total spending, however defined. In this paper, I argue that the free banking approach is superior on both accounts. Free banking theory brings to the forefront of its analysis the all-important role that individuals acting within naturally evolved monetary institutions play in facilitating microeconomic coordination. This coordination, in turn, has the unintended yet desirable consequence of producing a stable flow of spending. In this sense, free banking theory is more consistent with an “emergent-dynamic” approach to understanding macro-phenomena, as discussed in Wagner (2010, 2012). Although I argue that free banking is superior means of stabilizing the total flow of spending, I conclude that combining free banking reforms with a strict monetary rule that adjusted the supply of base money to stabilize the flow of spending in the economy as Market Monetarist propose would serve as an effective remedy for the potential problems in a free banking system stemming from changes in the demand for base money.

Keywords: Market Monetarism; Free Banking; Monetary Disequilibrium; Austrian Economics; Market Process; NGDP Targeting; Monetary Institutions

JEL Classification: B53, E42, E50

Suggested Citation

Burns, Scott, Go With the Flow: An Emergent, Free Banking Perspective on Stabilizing Nominal Spending (September 26, 2016). Available at SSRN: https://ssrn.com/abstract=2688621 or http://dx.doi.org/10.2139/ssrn.2688621

Scott Burns (Contact Author)

Ursinus College ( email )

Collegeville, PA 19426-2562
United States
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HOME PAGE: http://www.scottburnsecon.com

Southeastern Louisiana University ( email )

Hammond, LA 70402
United States

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
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