Democracy, Dictatorship, and the Monetary Commons

21 Pages Posted: 1 Oct 2021 Last revised: 19 Apr 2022

See all articles by Bryan Cutsinger

Bryan Cutsinger

Angelo State University - Accounting, Economics and Finance Department; Texas Tech University - Free Market Institute

Louis Rouanet

George Mason University

Date Written: 2021

Abstract

In this paper, we analyze the effect that alternative decision-making structures have on equilibrium inflation rates. Our analysis considers decision-making structures that could be expected to emerge under dictatorship, political instability, and democracy. Each scenario implies different ownership structures over the real value of the money stock, which we treat as a common pool resource. We find that the equilibrium inflation rate that emerges under dictatorship is consistent with the seigniorage-maximizing rate, but under conditions that could be characterized as politically unstable, the inflation rate exceeds the seigniorage-maximizing rate. In the case of democracy, however, we find that under plausible conditions, the inflation rate that emerges will always be below the seigniorage-maximizing rate. In other words, when political property rights over the real value of the money stock are ill-defined, there is a tragedy of the monetary commons. Our analysis explains why inflation rates are lower in more democratic countries and those that experience lower bouts of political instability.

Keywords: Democracy, Dictatorship, Monetary Commons, Political Property Rights

JEL Classification: E02, P16

Suggested Citation

Cutsinger, Bryan and Rouanet, Louis, Democracy, Dictatorship, and the Monetary Commons (2021). Free Market Institute Research Paper No. 3934048, Available at SSRN: https://ssrn.com/abstract=3934048 or http://dx.doi.org/10.2139/ssrn.3934048

Bryan Cutsinger (Contact Author)

Angelo State University - Accounting, Economics and Finance Department ( email )

San Angelo, TX 76909
United States

Texas Tech University - Free Market Institute

Box 45059
Lubbock, TX 79409-5059
United States

Louis Rouanet

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

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