Money, Banking, and the Business Cycle: Volume Two Remedies and Alternative Theories PDF
Preview Money, Banking, and the Business Cycle: Volume Two Remedies and Alternative Theories
Money, Banking, and the Business Cycle Also by Brian P. Simpson Money, Banking, and the Business Cycle, Volume 1: Integrating Theory and Practice Markets Don’t Fail! Money, Banking, and the Business Cycle Remedies and Alternative Theories Volume Two Brian P. Simpson MONEY, BANKING, AND THE BUSINESS CYCLE Copyright © Brian P. Simpson, 2014. Softcover reprint of the hardcover 1st edition 2014 All rights reserved. First published in 2014 by PALGRAVE MACMILLAN® in the United States— a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN: 978–1–137–34077–1 Library of Congress Cataloging-in-Publication Data Simpson, Brian P., 1966– Money, banking, and the business cycle : integrating theory and practice / Brian P. Simpson. volumes ; cm Includes bibliographical references and index. ISBN 978–1–137–33531–9 (hardback) 1. Business cycles. 2. Monetary policy. 3. Banks and banking. I. Title. HB3714.S56 2014 338.5(cid:2)42—dc23 2013044047 A catalogue record of the book is available from the British Library. Design by Newgen Knowledge Works (P) Ltd., Chennai, India. First edition: July 2014 10 9 8 7 6 5 4 3 2 1 ISBN 978-1-349-46493-7 ISBN 978-1-137-33656-9 (eBook) DOI 10.1057/9781137336569 To Annaliese Cassarino, my wife, and Charles and JoAnn Simpson, my parents This page intentionally left blank Contents Preface i x Acknowledgments xi Introduction 1 Part I Refutation of Alternative Explanations of the Business Cycle 1 Underconsumption and Overproduction Theories of the Business Cycle 9 2 Keynesian Business Cycle Theory, Part Deux: Inflexible Prices and Wages 4 5 3 Real Business Cycle Theory 7 9 Part II To Cure the Business Cycle 4 Government Interference, Fiat Money, and Fractional-Reserve Banking 1 13 5 The Characteristics and Effects of a Free Market in Money and Banking 1 51 6 The Significance of Some of the Historically Freer Banking Periods 1 87 7 Gold and 100-Percent Reserves 219 8 How to Transition to a Free Market in Money and Banking 243 Epilogue 2 61 Notes 2 65 Selected Bibliography 2 91 Index 299 This page intentionally left blank Preface I t took nine years to complete this book and get it published. It took me about six years to write a very rough first draft, about seven months to write the second draft, and about four months to complete the third draft. Securing a publisher, going through several more rounds of editing, and get- ting the book finalized for publication occupied the rest of the time. I did not realize how large a task it would be when I started it. It required far more research into more areas than I thought would be necessary. The project grew so much that it eventually became two volumes. I wrote this book in part because people have a poor understanding of the business cycle. This lack of knowledge has been highlighted since the 2008–9 recession. Wrong explanations have been provided and bad policy prescriptions have been recommended and implemented. The world desper- ately needs to learn what is required to achieve financial stability in an eco- nomic system. The two volumes I have written on the business cycle will enable people to acquire the knowledge they need on this crucial subject. The first volume shows theoretically and empirically what causes the busi- ness cycle, and the second volume refutes alternative theories of the business cycle and provides government policy prescriptions, based on the theory in volume one, to solve the problem of monetary-induced recessions, depres- sions, and financial crises. Portions of the two volumes of this work, such as the discussions on money, inflation, the causes of the business cycle, particular episodes of the cycle, the invalidity of Keynesian depression and business cycle theory, the invalid- ity of real business cycle theory, the nature of a free market in money and banking, the benefits of a gold standard, and other topics are appropriate for use as supplemental reading material in courses on “macroeconomics” and money and banking. The two volumes could also be used as the main text- books either by themselves or with other, supplemental readings in courses on the business cycle. It would be well worth it to include the two volumes. They will help readers gain an integrated and comprehensive understanding of the business cycle and business cycle theory. BRIAN P. SIMPSON La Jolla, CA January, 2014
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