Banking and Monetary Policy from the Perspective of Austrian Economics (eBook)

Annette Godart-van der Kroon (lic.jur) is the President Ludwig von Mises Institute – Europe and under her guidance, the Institute has organized a multitude of successful conferences and dinner debates since its establishment in 2002. LVMI – Europe has a Board of Directors composed of prominent economists, politicians and thinkers originating from Europe and beyond. She also possesses long-term experience as a civil affairs lawyer at the Courts of Roermond and Utrecht in the Netherlands. In 1996, she became a member of the Mont Pélerin Society, an influential society composed of Nobel Prize winning economists and other leading scholars. She is an author of several books and she presented many articles at Universities such as the University of Athens, Erfurt, Maastricht, Heilbronn, Lviv and others.Patrik Vonlanthen is founder and president of the Swiss Mises Institute. Patrik works as a senior project leader and consultant. As president of the Swiss Mises Institute he passionately promotes the core principles liberty, property and peace.  

Preface 5
Information About the Institutes 6
Ludwig von Mises Institute Europe 6
The Swiss Mises Institute 6
Contents 7
List of Contributors 9
Introduction 11
1 Part I 12
2 Part II 16
3 Part III 22
Part I: Mises´s and Hayek´s Ideas on Banking and Monetary Policy from a Historical, Economic Point of View 33
Mises´ Monetary Theory 34
1 Historical Background 35
1.1 The Classical Revolution 35
1.2 The Bullion Controversy 36
1.3 Ricardo and the Currency School 37
1.4 The Banking School 39
1.5 Peel´s Act and the Consequences 40
1.6 A New Orthodoxy 41
1.7 Departure from Classical Economics 42
1.8 Welcome to State Dirigisme 44
2 A Masterpiece from Vienna 45
2.1 The Austrian School of Economics 46
2.2 The Nature of Money 47
2.3 The Value of Money 49
2.4 Theory of Fiduciary Media and Fiduciary Credit 51
2.5 Monetary and Banking Policy 54
References 56
Money: Capital Good, Consumers´ Good, or (Media of) Exchange Good? 58
1 Introduction 58
2 Mises 61
3 Rothbard 66
4 Hoppe et al. 67
5 Conclusion 72
References 73
The Trend of Economic Thinking on Markets and Money: What Is Hayek´s Position on These Issues? 74
1 Introduction: Vision and World View 74
2 Vision and Public Opinion in Hayek´s ``The Trend of Economic Thinking´´ 75
3 Hayek´s Transformation of His Vision of the Market 77
4 World View of the Market and Its Error 80
5 Hayek´s Position on Vision and World View of the Market 82
6 Hayek´s Position on Vision and World View of Money 84
7 The Relation of Vision and World View for Hayek and Keynes 85
8 A Comprehensive System of Economics for the Economist and the Public 86
References 89
Part II: The Measures Taken by the ECB Considered in the Light of the Ideas of Mises and Hayek 91
What Is Wrong with the 2% Inflation Target? 92
1 Power to Target Inflation in Doubt 93
2 Natural Rhythm of Prices Defies Targeting 94
3 Monetarism and Ersatz Gold 95
4 A Dislodged Monetary Pivot Means Price Inertia and Institutionalism 96
5 How Money Breaks Inertia 97
6 From Great Inflation to New Episodes of Inflation Inertia 98
7 How Did We Get to the 2% Inflation Standard?: Origins 100
8 A Fateful FOMC Meeting on 2% Inflation 101
9 The 2% Inflation Standard Goes Global 102
10 Europe´s Fateful Entry to 2% Inflation Standard 104
11 The Journey Away from 2% Inflation 105
12 Public Esteem for Sound Money 107
References 108
Unintended Consequences of ECB Policies in Europe 109
1 Introduction 109
2 Convergence Expectations cum Monetary Expansion: The Boom of the 2000s 110
3 The Crisis and the ECB 120
4 (Unintended) Consequences of ECB Stabilization Policies? 122
4.1 An Austrian View on ECB Policies 122
4.2 Evidence of Adverse Effects of ECB Policies on Bank Lending and Investment 123
4.3 The Return of State Banking 125
4.4 Evidence of Adverse Effects on Reform Process 126
4.5 Government Benefits 127
5 Summary 128
References 129
The Failure of ECB Monetary Policy from a Mises-Hayek Perspective 133
1 Introduction 133
2 Monetary Overinvestment Theories and Boom-and-Bust Cycles 134
2.1 Boom and Bust in the Overinvestment Framework 134
2.2 Asymmetric Central Bank Crisis Management 136
3 Reasons for the European Financial and Debt Crisis 137
3.1 The Institutional Framework of Common European Monetary Policymaking 138
3.2 A Mises-Hayek-Based Explanation of the European Financial and Debt Crisis 140
4 Implications of Monetary Policy Crisis Management 145
4.1 Lasting Stagnation and Zombification in the Crisis Countries 145
4.2 Speculative Upswing Inside Germany and Overinvestment Outside Germany 151
5 Outlook: Monetary Policy Failure as a Threat to the European Integration Process 154
References 156
Hayek and Mises on Neutrality of Money: Implications for Monetary Policy 159
1 Introduction 159
2 Neutrality of Money 160
3 The Significance of the Cantillon Effect in Economics and Monetary Policy 162
4 The Austrian Arguments for Non-neutrality of Money 165
5 Conclusions 168
References 169
Managing Decline by Expanding Government: The Case of Germany 172
1 Introduction: Human Fallibility Necessitates Limited Government and Economic Freedom 172
2 Econometric Evidence on Economic Freedom 175
3 German Climate Policy 177
4 Rescuing the Euro 178
5 An Open Door to Migration 184
6 Final Conclusions 190
References 192
Part III: Proposed Monetary Reforms for the Future 198
Anti-deflationist Paranoia 199
1 Introduction 199
2 The First Type of Deflation 201
3 The Second Type of Deflation 202
4 The Third Type of Deflation: In Defense of Good Deflation 205
5 Conclusion 209
References 210
The Reconsideration of Hayek´s Idea on the De-nationalization of Money: Taking the Growing Tendency of Digital Currencies in C... 211
1 Introduction 211
2 Growing Tendencies of Digital Currencies Including the Birth of Bitcoin 212
2.1 The Impact of the Original Idea of Bitcoin 212
2.2 The Problems of Digital Currency Seen in Bitcoin 214
2.3 The Meaning of Trust in Connection to Bitcoin 215
3 Hayek´s Consideration 217
3.1 The Historical Background of Hayek´s 1976 Treatise 217
3.2 The Problems of Money Creation with Eurodollar 219
3.3 Deviation from Hayek´s Expectations 222
4 The Meaning of Trust in Relation to Market and Transaction Cost 223
References 224
Cryptocurrencies from an Austrian Perspective 226
1 Introduction: The Challenge of Restoring Free Markets in Money and Credit 226
2 Distributed Ledger Money and Austrian Policy Objectives 230
2.1 The Proposal 230
2.2 A Reflection on the Changing Nature of the Medium of Exchange 232
2.3 Two Cryptocurrency Myths Dispelled 234
2.4 How Placing Deposit Money on a Mutual Distributed Ledger Supports Austrian Ideas 237
3 Bank Payment Without Settlement 241
3.1 The Evolution of Bank Payments and Settlement: A Short Historical Review 241
3.2 Settlement of Bank Payments in Central Bank Reserves 244
3.3 Settlement no Longer Necessary 246
4 Implications for Banking and Bank Regulation 248
4.1 The Triple Lock: Ensuring Repayment of Bank Money on the Ledger 248
4.2 Applying x-Per Cent Reserving to Limit Fractionally Reserved Monetary Deposits 250
4.3 Prudential Regulation Becomes an Industry Responsibility 251
4.4 Money Markets and the Role of the Central Bank 253
4.5 Resolution of Failing Banks and `Shadow Banks´ 255
4.6 Prospects for Adoption 255
5 Conclusions 258
References 259
Blockchain: The New Intellectual Battleground Within Economics 261
1 Blockchain and the Austrian School Conception of the Nature of Money 265
2 The Fatal Conceit: The Use of Blockchain for Monetary Central Planning 269
3 Blockchain and Austrian Business Cycle Theory 272
4 Conclusion 279
References 280