Free Banking, the Real-Balance Effect, and Walras´ Law

Ludwig Van Den Hauwe

MPRA Paper from University Library of Munich, Germany

Abstract: The author of this article draws special attention to two particular claims of the free bankers concerning the supposed working characteristics of a fractional-reserve free banking system which may strike the reader as questionable. The first of these relates to the alleged absence of a real-balance effect under free banking. The second relates to the free bankers´ reference to Walras´ Law as providing a rationale for the free banking system´s “offsetting” actions when confronted with changes in the public´ s demand to hold bank liabilities. This rationale is defective since it is based on an erroneous interpretation of Walras´ Law. The author´s conclusion does not imply that it is not at all possible, from a rational viewpoint, to make a plausible case for this variant of free banking, only that the argument should be freed from certain questionable tenets.

Keywords: E0; E32; E42; E5; E51; E52 (search for similar items in EconPapers)
JEL-codes: E00 E31 E32 E42 E50 E51 E52 (search for similar items in EconPapers)
Date: 2008-09-17
New Economics Papers: this item is included in nep-ban, nep-hpe and nep-mac
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https://mpra.ub.uni-muenchen.de/8765/1/MPRA_paper_8765.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/10875/1/MPRA_paper_10875.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/10885/1/MPRA_paper_10885.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/12346/1/MPRA_paper_12346.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/17231/1/MPRA_paper_17231.pdf revised version (application/pdf)

Related works:
Working Paper: Free Banking, the Real-Balance Effect, and Walras´ Law (2008)
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