Topics in Central Banking - Ec 220 Alternatives to Central Banking

Topics in Central Banking - Ec 220
Alternatives to Central Banking
Spring 2014
This course is a study of the workings and implications of an entirely unregulated
banking system in the capitalist world economy. It asks whether financial and price
stability can be maintained in a capitalist world without the intervention of central banks
functioning as the issuer of the state's money and as lender of last resort. We will
examine a variety of proposals for monetary reform based on free banking principles and
consider the spontaneous evolutionary processes that produce and maintain our monetary
institutions.
Instructor Information
Professor Shirley Gedeon
802.656.0188
[email protected]
337 Old Mill
Office Hours: Monday and Wednesday: 2-3:30 p.m.
Organization of Class
Each class will begin with a 25 minute free write on a topic assigned at the beginning of
the class or with a report from each student of a short article recently posted on one of the
websites devoted to free banking, alternative currencies, policy analysis from a
neoliberal/neoconservative/Austrian perspective, etc.
Discussion questions will be posted by Sunday evening prior to each class. Class
discussion will be structured around these discussion questions, and each student will be
expected to participate.
Grading: Weights & Policies
2 assigned essays: 40% of grade
1 research paper: 40% of grade, of which
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class presentation: 10%
final draft of paper: 30%
Quality of class participation and blog entries: 20%, of which
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weekly blog entry from FreeBanking.org or in-class essays: 5%
class participation: 15%
Class attendance is mandatory. If you must miss class because of illness, etc., you must
notify Professor Gedeon by the morning of the class with the explanation. If you miss
more than one class for any reason, your overall participation grade will be lowered 10
points for each missed class. Exceptions will only be made if the Dean of Students
makes the recommendation.
Format and Length of Research Paper
You may write a research paper on any of the topics explored in this course or related to
the topics discussed. Research papers must be typed, double-spaced, and should not
exceed 6,500 words including references. This is approximately 26 pages. References
may take the form of (Smith, p. 250) and additional comments may be entered as either
footnotes or endnotes (your choice) and numbered.
You must also include a formal bibliography.
Begin your paper with an abstract of no more than 100 words. The abstract should
concisely state the research question and key findings. This can be single spaced, but the
rest of your paper should be double-spaced. Your Introduction follows the abstract.
Any commonly accepted format for bibliography is acceptable: MLA, Chicago, APA. A
useful guide for helping you correctly cite your references can be found:
http://library.uvm.edu/guides/citation/why.php
Presentation of Papers:
All students will be expected to present their research papers to the class.
Papers must be submitted by Sunday evening before the Tuesday of your presentation.
All students will be expected to read each other's papers and be ready for discussion
and comment following the 20-minute presentation. Students who are not presenting that
day will be assigned as principal discussants to one of the papers
Syllabus
January 14: Roots of Neoliberalism
Required Reading:
1. Jerry Muller, "Adam Smith," Ch. 3 from The Mind and the Market:
Capitalism in Western Thought
2. Jerry Muller, "Justus Moser," Ch. 4 from The Mind and the Market:
Capitalism in Western Thought
3. John Cobin, "Ideas and Interest Groups in Economics and Public Policy,"
Ch. 1 from A Primer on Modern Themes in Free Market Economics and
Policy
4. John Cobin, "The Austrian Business Cycle and Free Banking," Ch. 11 from
A Primer on Modern Themes in Free Market Economics and Policy
If you are interested in studying neoliberalism further: (I own copies of all of these)
David Harvey, A Brief History of Neoliberalism, Oxford, 2005
Manfred Steger and Ravi Roy, Neoliberalism: A Very Short Introduction, Oxford,
2010
Gerald Dumenil and Dominique Levy, The Crisis of Neoliberalism
Frank Lechner and John Boli, Globalization Reader (debates of the issues)
Joseph Stiglitz, Globalization and its Discontents, 2003
Jagdish Bhagwati, In Defence of Globalization, Oxford, 2004
January 21: Financial Globalization--The Issues
Required Reading
1. Rudiger Dornbusch, Stanley Fischer, Richard Startz, "International Linkages,"
Ch. 12 in Macroeconomics, pps. 283 – 306
2. "Liberalization and Management of Capital Flows, " IMF, 2012
3. Barry Eichengreen, "The Global Gamble on Financial Liberalization:
Reflections on Capital Mobility, National Autonomy, and Social Justice," 1998
4. Benjamin Cohen, "Monetary Governance and Capital Mobility in Historical
Perspective," in The Regulation of International Financial Markets, 2006
5. Adam Harmes, "Neoliberalism and Multilevel Governance," Review of
International Political Economy, Vol. 13, No. 5, 2006
And choose one of these two:
1. Geoffrey Underhill, "Paved with Good Intentions: Global Financial Integration,
The Eurozone, and the Imaginary Road to the Fabled Gold Standard," Center for
Economic Policy Research, Dec. 2010
2. Stephen Gill, "Globalisation, Market Civilization, and Disciplinary
Neoliberalism," Millennium - Journal of International Studies, 1995
If you are interested in these topics - further readings (I have copies of all of these
articles)
Capital controls debate within IMF: (I have copies of all of these)
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Burcu Aydin, "Banking Structure and Credit Growth in Central and Eastern
European Countries," IMF Working Paper WP08/215
Zsófia Árvai, Karl Driessen, and İnci Ötker-Robe, "Regional Financial
Interlinkages and Financial Contagion Within Europe" IMF, 09/6
Linda Goldberg, "Understanding Banking Sector Globalization," IMF Staf
Papers, Vol. 56, No. 1, 2009
"Globalization, Financial Markets, and Fiscal Policy," Fiscal Policy and
Surveillance Division, Fiscal Affairs Department of the IMF, 2007
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Jagdish Bhagwati, "The Capital Myth: The Difference between Trade in
Widgets and Dollars," Foreign Affairs, May/June 1998
Critique of Neoliberalism and Globalization of Finance (I have copies of all of these)
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Eric Helleiner, "A Bretton Woods moment? The 2007-08 crisis and the future
of global finance" International Affairs, 86: 3, 2010
Geoffrey Underhill and Xiaoke Zhang, "Setting the Rules: Private Power,
Political Underpinnings, and Legitimacy in Global Monetary and Financial
Governance, " International Affairs, 84, 2008.
Benjamin Cohen, "The International Monetary System: Diffusion and
Ambiguity," International Affairs, 84, 2008.
Adam Harmes, "Institutional Investors and Polanyi's Double Movement: A
Model of Contemporary Currency Crises," Review of International Political
Economy, 8, 2001
Benjamin Cohen, "Macrofoundaitons of Monetary Policy," in International
Monetary Power, David Andrews (ed.) 2006
Stephen Gill and David Law, "Global Hegemony and the Structural Power of
Capital," International Studies Quarterly, Vol. 33, No. 4 (Dec 1989), pps. 475499
January 28: Friedrich von Hayek and the Argument for Denationalization of
Money
Required Reading:
1. F. A. Hayek, Denationalization of Money, 1976
2. Steven Horwitz, "Money as the Language of the Market Process," (Ch. 3) in
Monetary Evolution, Free Banking, and Economic Order, Westview Press,
1992. (Ch. 2, "Rules, Institutions, and the Evolution of Economic Order," is
recommended for econ/philosophy double majors. The PDF has both
together, so just scroll to Ch. 3)
3. Lawrence White, "Competitive Money, Inside and Out," (Ch. 2)
Competition and Currency, New York University Press, 1989
4. Recommended: Manfred Neuman, "Seignorage in the US: How Much
Money Does the US Government Make From Money Production?" Federal
Reserve of St. Louis, 1992
If you are interested in these topics - further readings (I have copies of all of these
articles)
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Critical Review, Vol. 25, No. 3-4, 2013:
o Jeffrey Friedman, "Hayek's 2 Epistemologies and the Paradox of His
Thought"
o Peter Boettke and Kyle O'Donnell, "The Failed Appropriation of
F.A. Hayek by Formalist Economics
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o Andrew Gamble, "Hayek and Liberty"
o Francois Godard, "The Road to Serfdom's Economistic Worldview
o Paul Lewis, "Hayek, Social Theory, and the Contrastive Explanation
of Socio-Economic Order"
o Andrew Lister, "The 'Mirage' of Social Justice: Hayek Against (and
For) Rawls
o Alan Ryan, "The Planners and the Planned"
o Karen Vaughn, "Hayek, Equilibrium, and the Role of Institutions in
Economic Order"
David Glasner, "Money and the State," (Ch. 2) in Free Banking and
Monetary Reform, Cambridge University Press, 1989
Lawrence White, "Why Didn't Hayek Favor Laissez Faire in Banking?"
History of Political Economy, Vol 31, No. 4, 1999.
F. A. Hayek, "Free Market Monetary System" and "Pretense of Knowledge"
(PDF)
Gerry O'Driscoll, Economics as a Coordination Problem: The Contributions
of Friedrich Von Hayek, 1977.
Nicholas Wapshott, Keynes Hayek: The Clash That Defined Modern
Economics, Norton, 2011
Robert P. Murphey, "Hayek's Plan for Private Money," Mises Daily
http://mises.org/daily/1854 (an introduction to Hayek's thought on
denationalization)
Another interesting topic is to look at the issue of seignorage. You will find plenty of
resources from the Free Banking community of contributors that examine seignorage in
light of the US bailout and Federal Reserve policies under Bernanke.
February 4: Gold Standard - The Theory
Required Reading
1. Barry Ickes, "Lecture Note on the Gold Standard" Fall 2006 (read pps 1-27)
2. Hugh Rockoff, "Wizard of Oz" as a Monetary Allegory," Journal of
Political Economy, Vol. 98, No. 4 (Aug., 1990), pp. 739-760
3. George Selgin, Brian Domitrovic, Larry White - Gold Standard Explained.
Video produced at Hillsdale College
4. Michael Bordo, "The Classical Gold Standard: Some Lessons for Today,"
Federal Reserve Bank of St. Louis, May 1981
5. Good Introduction to the Issues: Charles Postel, "Why Conservatives Spin
Fairytales About the Gold Standard," Reuters, September 17, 2013
(http://blogs.reuters.com/great-debate/2013/09/17/why-conservatives-spinfairytales-about-the-gold-standard/)
If you are interested in these topics - further readings (I have copies of all of these
articles)
theoretical approach and models:
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Robert Barro, "Money and the Price Level Under the Gold Standard,"
Economic Journal, Vol. 89, March 1979
Michael Bordo and Hugh Rockoff, "The Gold Standard as a "Good
Housekeeping Seal of Approval," Journal of Economic History, Vol. 56,
June 1996
Michael Bordo, "A Model of the Classical Gold Standard with Depletion,"
Journal of Monetary Economics, 1985
Michael Bordo, Robert Dittmar, William Gavin, "Gold, Fiat Money, and
Price Stability," NBER Working Paper 10171, 2003
Michael Bordo and Angela Redish, "Putting the 'System' In the International
Monetary System," NBER, 2013. http://www.nber.org/papers/w19026
Larry White, The Theory of Monetary Institutions, Chs. 2 & 3, Blackwell,
1999
policy, history of thought, and implementation
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Lawrence White, "Making the Transition to a New Gold Standard," Cato
Journal, Spring/Summer 2012
Michael Bordo, The Gold Standard: The Traditional Approach (an
intellectual history of the gold standard)
Giulio Gallarotti, "The Scramble for Gold: Monetary Regime
Transformation in the 1870's" in Bordo and Capie, Monetary Regimes in
Transition. (This is a class analysis of which sectors favored gold, how they
lobbied to institute GS in 1870's- international context)
John Wood, Money: Its Origin, Development, Debasement, and Prospects,
American Institute for Economic Research, Economic Education Bulletin,
August 1999
Judy Shelton, "Gold and Government," Cato Journal Sumer 2012
Mark Skousen, Economics of a Pure Gold Standard, Foundation for
Economic Education, 1977
Bernard von NotHaus, The Liberty Dollar Solution to the Federal Reserve,
2004
Llewellyn Rockwell, (ed), The Gold Standard: Perspectives in the Austrian
School
"The Case for a Genuine Gold Dollar - Murray Rothbard
The Monetary Writings of Carl Menger - Hans Sennolz
"Ludwig von Mises and the Gold Standard" - Richard Ebeling
"The Costs of a Gold Standard" - Roger Garrison
"Gold and the International Monetary System: The Contribution of
Michael Heilperin" - Joseph Salerno
"Free Banking and the Gold Standard" - Larry White
"The Political and Economic Agenda for a Real Gold Standard" – Ron
Paul
February 11: Gold Standard - The Reality
Required Reading:
1. Barry Eichengreen and Peter Temin, "Fetters of Gold and Paper," NBER,
2010
2. Barry Eichengreen and Peter Temin, "The Gold Standard and the Great
Depression," Contemporary European History, 2000
3. Kevin O'Rourke, "Cross of Euros," Journal of Economic Perspectives, Vol.
27/1, 2013
4. Giulio Gallarotti, "The Scramble for Gold: Monetary Regime
Transformation in the 1870's", in Bordo and Capie, Monetary Regimes in
Transition, 1993
5. Christopher Meissner, "Capital Flows, Credit Booms, and Financial Crises
in the Classical Gold Standard Era," NBER 2013
6. Kevin Dowd, "Financial Instability in a 'Directly Convertible' Gold
Standard," Southern Economic Journal, 57/3, 1991
There are thousands of articles published on the gold standard. Here are some classics,
but feel free to conduct your own search for topics that interest you, including the
economics of gold mining and production, gold stand and price stability, return to the GS
in the 21st century. Here are some of the major works whose bibliographies might be
helpful
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Barry Eichengreen, The Gold Standard and the Great Depression, 19191939, 1995
Michael Bordo and Ronald McDonald, "Interest Rate Interactions in the
Classical Gold Standard, 1880-1914: Was There Any Monetary
Independence?" Journal of Monetary Economics, Vol. 52, no. 2, 2005
Christopher Hanes and Paul Rhode, "Harvests and Financial Crises in Gold
Standard America," Journal of Economic History, Vol. 73/1, March 2013
Giulio Gallarotti, The Anatomy of an International Monetary Regime: The
Classical Gold Standard, 1880 - 1914
Milton Friedman and Anna Schwartz, A Monetary History of the United
States, 1867-1960.
Charles Kindleberger, Manias, Panics, and Crashes, 1996
J. E. Tanner and V Bonomo, "Gold, Capital Flows, and Long Swings in
American Business Activity," Journal of Political Economy, vol. 76/1 1968
February 18: No class will be held. Essays are due by 4:30 p.m. on February 18.
Typed, double-spaced, stapled together, delivered to Professor Gedeon.
February 25: Free Banking - The Theory & Laissez-Faire Model
Required Reading:
1. George Selgin and Lawrence White, "How Would the Invisible Hand
Handle Money?" Journal of Economic Literature, Vol. 32, December 1994
2. George Selgin, Central Banks as Sources of Financial Instability"
Independent Review, Spring 2010
3. Lawrence White, The Theory of Monetary Institutions,
Ch. 3 "Money Issue by Unrestricted Banks
Ch. 4 "Evolution and Rationales of Central Banking"
March 11: Free Banking - The Institutional Issues
Required Reading
1. Lawrence White, The Theory of Monetary Institutions, Ch. 7 "Seigniorage"
2. Ignacio Briones and Hugh Rockoff, "Do Economists Reach a Conclusion on
Free-Banking Episodes?" Econ Journal Watch, Vol. 2, no. 2, August 2005
3. Shirley Gedeon, "The Modern Free Banking School: A Review" Journal of
Economic Issues, Vol. 31, no. 1, March 1997
4. David Glasner, Free Banking and Monetary Reform, Ch. 8 "The
Competitive Breakthrough" and Ch. 9 "Can Competitive Banking be Safe &
Stable?"
5. Recommended: George Selgin, Theory of Free Banking, Ch. 8 "The Supply
of Currency" and Ch. 9 "Stability and Efficiency"
For a more formal treatment, complete with historical examples, see the following
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Steve Horwitz, Monetary Evolution, Free Banking, and Economic Order
Kevin Dowd, Laissez-Faire Banking
Larry Sechrest, Free Banking: Theory, History, and a Laissez-Faire Model
George Selgin, Good Money: Birmingham Button Makers, the Royal Mint,
and the Beginnings of Modern Coinage, 1775-1821, 2011
David Glasner, Free Banking and Monetary Reform
Lawrence White, Free Banking in Britain: theory, experience and debate
Lawrence White, Competition and Currency: Essays on Free Banking &
Money
Lawrence White, The Theory of Monetary Institutions. See especially
Ch. 5, "Should Government Play a Role in Money?
Ch. 6, "Should Government Play a Role in Banking?
March 18: No class will be held. Essays are due by 4:30 p.m. on March 18. Essay
topic will be assigned. Typed, double-spaced, stapled together, delivered to Professor
Gedeon.
March 25: Bitcoin: Digital Currency and Payment System
Required Reading
1. Peter Surda, "Economics of Bitcoin: is Bitcoin an alternative to fiat
currencies and gold?" MA Thesis, Vienna University of Economics and
Business, 2013
2. Jerry Brito and Andrea Castillo, "Bitcoin: A Primer for Policymakers"
Mercatus Center, George Mason University, 2013.
3. Cato Institute, Private Digital Economy, 2013
4. Lawrence White and George Selgin, "Why Private Banks and NOt Central
Banks Should Issue Currency, Especially in Less Developed Countries,"
2000
5. If you like to hear an explanation: Marc Hockstein, "Bitcoin: An
Introduction" Interview on SurprisinglyFree.com. Go to: http://cdnsurprisinglyfree.s3.amazonaws.com/SFC-154-130416.mp3
As you work through these assigned texts, sketch out answers to the following
questions:
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What precisely is digital money?
Is Bitcoin a fiduciary currency? Does it satisfy the formal definitions of
fiduciary currency?
How is the supply of Bitcoin controlled?
April 1: Monetary Stability under a Private Digital Economy: Bitcoin as Case
Study. Supply of Bitcoin, Mining, Volatility of Bitcoin, Control of Price Levels
Required Reading
1. Michael Taylor, "Bitcoin and the Age of Bespoke Silicon," International
Conference on Compilers, Architecture and Synthesis for Embedded
Systems, Sept. 2013
2. Sarah Meilejohn, Marjori Pomarole, et. al., "A Fistful of Bitcoins:
Characterizing Payments Among Men with No Names," 2013
3. Nicholas Houy, "The Bitcoin Mining Game," WP 1412, Groupe d'Analyse
et de Theorie Economique Lyon - St Etienne, 2014
4. European Central Bank, "Virtual Currency Schemes," 2012
5. Tim Sablik, "New Private Currencies Like Bitcoin Offer Potential...and
Puzzles," Richmond Federal Reserve, Econ Focus, Third Quarter, 2013
6. Nicholas Plassaras, "Regulating Digital Currencies: Bringing Bitcoin Within
the Reach of the IMF" Chicago Journal of International Law, 2013
To go further into mathematical models:
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Joshua Kroll, Ian Davey, and Edward Felten, "The Economics of Bitcoin
Mining, or Bitcoin in the Presence of Adversaries," Princeton, 2013.
April 8: Back to Hayek
Required Reading
1. Friedrich Hayek, "Choice in Currency: A Way to Stop Inflation"
2. Francois R. Velde, "Bitcoin: A primer" Chicago Fed Letter, Federal
Reserve Bank of Chicago, No. 317, December 2013
April 15: Presentation of Research Paper
April 22: Presentation of Research Paper
April 29: Presentation of Research Paper