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« Policies that promote long term growth, not those that provide short term relief, are the answer to this dilemma | Main | A Thought Experiment in Political Theory Constrained By Knowledge of Political Economy »


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Why on God's earth should we be concerned with monetary base growth?

the only reason, theoretically, to be concerned with monetary base growth is future inflation. And even that is a little crazy:

if, "worst case", all that base is leveraged and loaned out, people will by tons of goods and services, and the output gap will close.

" Yglesias has to explain why these were absent in Canada which also had a gold standard, and a more “pure” one than the US."

Oh, dear.

Libertarians need to get their Canadian banking history right:

(1) Canada in the 1920s and early 1930s **did** have a government lender of last resort via the discount window at the Canadian Department of Finance, created by the Finance Act of 1914.

(2) After WWI, a third of Canadian banks failed outright or were unloaded on other institutions, and it was government issued money and a continued infusion of these government legal tender notes that keep the banking system solvent.

(3) There is some evidence that successive Canadian governments from the 1920s made public statements and implicit promises to protect depositors in failed private banks, at least to some extent.

Yes, but the Canadian system did not have that befoere 1914 and did not suffer the problems the US system did before that. That was the point, made more clearly in the linked piece here.

Well, no doubt the branch banking did provide a greater degree of stability for banking in Canada, but nevertheless certain facts contradict the free banking interpretation even for the period before 1914.

(1) in 1907 the Canadian banking system had a bad panic and financial crisis: the Canadian government had to intervene to stop the financial crisis by providing reserves to the banks (details in Bordo, M. D. 2002. “The Lender of Last Resort: Alternative Views and Historical Experience,” in Charles Goodhart and Gerhard Illing [eds.]. Financial Crises, Contagion, and the Lender of Last Resort: A Reader. Oxford University Press, Oxford. 109–125,at p. 121).

(2) Furthermore, the relevant histories tell us that banks were subject to moderate regulation by the Bank Act of 1871 and subsequent revisions of that act, which “specified (among other things) audits, capital requirements, directors’ qualifications, and loan restrictions, including a prohibition against holding mortgages” (see Haubrich, Joseph G. 1990. “Nonmonetary Effects of Financial Crises: Lessons from the Great Depression in Canada,” Journal of Monetary Economics 25: 223–252, at 226).

In particular, the Bank Act of 1871 had prohibited banks from lending on real estate, which checked debt-financed asset bubbles in property and real estate speculation – all major sources of instability in capitalist systems.

(3) a government supported industry group called the “Canadian Bankers Association” was formed in 1891 to provide stability to the banking system by organizing bank mergers to deal with insolvent banks and emergency loans. In 1900, it even became a public corporation.

A slight problem for your view?

Again, see

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