Topics in Central Banking - Ec 220 Alternatives to Central Banking Fall Shirley J. Gedeon, Ph.D

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1 Topics in Central Banking - Ec 220 Alternatives to Central Banking Fall 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 Shirley J. Gedeon, Ph.D Shirley.gedeon@uvm.edu 337 Old Mill Office Hours: M 2-3:30 p.m. and W 9-11 And also after class on Tuesday Required Textbooks Friedrich Hayek, Road to Serfdom Friedrich Hayek, Denationalization of Money Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression , Oxford, 1995 Lawrence H. White, Competition and Currency: Essays on Free Banking and Money, NYU Press, 1989 Manfred Steger and Ravi Roy, Neoliberalism: A Very Short Introduction, Oxford, 2012 (available as PDF under Course Readings I) Organization of Class Each class will begin with a minute "free-write" on a topic that Professor Gedeon assigns. You may use your reading notes and texts to consult to help in writing your essay. These will be collected by Professor Gedeon and will comprise one portion of your discussion assessment. If you miss class, Professor Gedeon will assign a 6-page essay that must be submitted to her via on the Sunday before the next class. Only those who receive a grade above 70 will be permitted to attend the next class. Grading: Weights & Policies 3 assigned essays: 75% of grade Each will be on a topic that Professor Gedeon assigns Each will be 8-10 pages in length, double spaced - approximately words Quality of class participation, assigned class presentations, and "free-write" essays: 25% 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. Please note: missing class for any reason whatsoever does not excuse the student from the obligation to submit a paper approximately 6 pages in length ( words) on a topic assigned by

2 Professor Gedeon that is designed to capture the exposition and discussion of the missed class. Students must contact Professor Gedeon for the assigned essay topic on Wednesday following the missed class, submit the essay by the next Sunday, and receive a grade of 70 before being permitted to attend the next class. Syllabus I. Introduction to the Course - Aug 26 : Jerry Z. Muller, "Adam Smith" Ch. 3 and "Edmund Burke" Ch. 5 II: Roots of Neoliberalism - Sept 2 : Manfred Steger and Ravi Roy, Neoliberalism: A Very Short Introduction, Oxford, 2010 If you are interested in studying neoliberalism further: (I own copies of all of these) 1. David Harvey, A Brief History of Neoliberalism, Oxford, Manfred Steger and Ravi Roy, Neoliberalism: A Very Short Introduction, Oxford, Gerald Dumenil and Dominique Levy, The Crisis of Neoliberalism 4. Frank Lechner and John Boli, Globalization Reader (debates of the issues) 5. Joseph Stiglitz, Globalization and its Discontents, Jagdish Bhagwati, In Defence of Globalization, Oxford, 2004 III: The Case Against the Fed--The Issues - Sept 9 1. Robert Dimand and Robert Koehn, "Central bank responses to financial crises: lenders of last resort in interesting times," in Monetary Policy and Central Banking: New Directions in Post-Keynesian Theory, Ch Robert Guttmann, "Central banking in a systemic crisis: the Federal Reserve's 'credit easing'" in Monetary Policy and Central Banking, New Directions in Post-Keynesian Theory, Ch Eric Helleiner, "A Bretton Woods moment? The crisis and the future of global finance," International Affairs, 86, 3, George Selgin, The Dilemma of Central Banking, Ch. 7 in The Theory of Free Banking, Rowman & Littlefield, Murray Rothbard, What has Government Done to our Money? 6. Murray Rothbard, The Case Against the Fed 7. Ludwin von Mises, On the Manipulation of Money & Credit IV. Friedrich von Hayek and the Essential Laissez-Faire Argument: Sept 16 : 1. Hayek, Road to Serfdom, Chs Steven Horwitz, Rules, Institutions, and the Evolution of Economic Order, Ch. 2 and "Money as the Language of the Market Process," (Ch. 3) in Monetary Evolution, Free Banking and Economic Order, Westview Press, 1992

3 V: Friedrich von Hayek and the Argument for Denationalization of Money - Sept 23 & Oct 3 (commodity-basket-backed money supply and central banking and seigniorage) : 1. F. A. Hayek, Denationalization of Money, Lawrence White, Competition and Currency, Chs Lawrence White, "Seigniorage" (Ch. 7) in The Theory of Monetary Institutions, Blackwell, Federal Reserve Distributions to the U. S. Treasury, 5. Robert P. Murphey, "Hayek's Plan for Private Money" Mises Dailey, Recommended: 1. Murray Rothbard, "The Austrian Theory of Money" in The Foundations of Modern Austrian Economics, Edwin Dolan, ed., 1976, pp Carl Menger, "On the Origins of Money." Economic Journal, Vol. 2, 1892, pps Harold James, "The Return of 'Asian Values'" If you are interested in these topics - further readings (I have copies of all of these articles) 1. Critical Review, Vol. 25, No. 3-4, 2013: 1. Jeffrey Friedman, "Hayek's 2 Epistemologies and the Paradox of His Thought" 2. Peter Boettke and Kyle O'Donnell, "The Failed Appropriation of F.A. Hayek by Formalist Economics 3. Andrew Gamble, "Hayek and Liberty" 4. Francois Godard, "The Road to Serfdom's Economistic Worldview 5. Paul Lewis, "Hayek, Social Theory, and the Contrastive Explanation of Socio- Economic Order" 6. Andrew Lister, "The 'Mirage' of Social Justice: Hayek Against (and For) Rawls 7. Alan Ryan, "The Planners and the Planned" 8. Karen Vaughn, "Hayek, Equilibrium, and the Role of Institutions in Economic Order" 2. David Glasner, "Money and the State," (Ch. 2) in Free Banking and Monetary Reform, Cambridge University Press, Lawrence White, "Why Didn't Hayek Favor Laissez Faire in Banking?" History of Political Economy, Vol 31, No. 4, F. A. Hayek, "Free Market Monetary System" and "Pretense of Knowledge" (PDF) 5. Gerry O'Driscoll, Economics as a Coordination Problem: The Contributions of Friedrich Von Hayek, Manfred Neuman, "Seignorage in the US: How Much Money Does the US Government Make From Money Production?" Federal Reserve of St. Louis, Nicholas Wapshott, Keynes Hayek: The Clash That Defined Modern Economics, Norton, 2011 ESSAY #1 IS DUE IN CLASS ON OCTOBER 3. Topic to be assigned by September 24. Students may propose their own essay topic. See Prof. Gedeon for details.

4 VI: Gold Standard - The Theory - Oct 7 1. Barry Eichengreen, Golden Fetters, Chs. 1-5 (Read through The Legacy of Hyperinflation) 2. Barry Ickes, "Lecture Note on the Gold Standard" Fall 2006 (read pps 1-27) Bring your notes with you and be prepared to introduce any of the graphs to the class) Recommended: 1. Hugh Rockoff, "Wizard of Oz" as a Monetary Allegory," Journal of Political Economy, Vol. 98, No. 4 (Aug., 1990), pp George Selgin, Brian Domitrovic, Larry White - Gold Standard Explained. Video produced at Hillsdale College 3. Michael Bordo, "The Classical Gold Standard: Some Lessons for Today," Federal Reserve Bank of St. Louis, May Good Introduction to the Issues: Charles Postel, "Why Conservatives Spin Fairytales About the Gold Standard," Reuters, September 17, 2013 ( If you are interested in these topics - further readings (I have copies of all of these articles) theoretical approach and models: 1. Robert Barro, "Money and the Price Level Under the Gold Standard," Economic Journal, Vol. 89, March Michael Bordo and Hugh Rockoff, "The Gold Standard as a "Good Housekeeping Seal of Approval," Journal of Economic History, Vol. 56, June Michael Bordo, "A Model of the Classical Gold Standard with Depletion," Journal of Monetary Economics, Michael Bordo, Robert Dittmar, William Gavin, "Gold, Fiat Money, and Price Stability," NBER Working Paper 10171, Michael Bordo and Angela Redish, "Putting the 'System' In the International Monetary System," NBER, Larry White, The Theory of Monetary Institutions, Chs. 2 & 3, Blackwell, 1999 Policy, history of thought, and implementation 1. Lawrence White, "Making the Transition to a New Gold Standard," Cato Journal, Spring/Summer Michael Bordo, The Gold Standard: The Traditional Approach (an intellectual history of the gold standard) 3. 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'sinternational context) 4. John Wood, Money: Its Origin, Development, Debasement, and Prospects, American Institute for Economic Research, Economic Education Bulletin, August Judy Shelton, "Gold and Government," Cato Journal Sumer Mark Skousen, Economics of a Pure Gold Standard, Foundation for Economic Education, 1977

5 7. Bernard von NotHaus, The Liberty Dollar Solution to the Federal Reserve, Llewellyn Rockwell, (ed), The Gold Standard: Perspectives in the Austrian School 1. "The Case for a Genuine Gold Dollar - Murray Rothbard 2. The Monetary Writings of Carl Menger - Hans Sennolz 3. "Ludwig von Mises and the Gold Standard" - Richard Ebeling 4. "The Costs of a Gold Standard" - Roger Garrison 5. "Gold and the International Monetary System: The Contribution of Michael Heilperin" - Joseph Salerno 6. "Free Banking and the Gold Standard" - Larry White 7. "The Political and Economic Agenda for a Real Gold Standard" - Ron Paul VII: Gold Standard - The Reality - Oct 14 : 1. Eichengreen, Golden Fetters, Chs. 6 - end and With one other student in the class, read and be ready to present one of the following: 1. Barry Eichengreen and Peter Temin, "The Gold Standard and the Great Depression," Contemporary European History, Kevin O'Rourke, "Cross of Euros," Journal of Economic Perspectives, Vol. 27/1, Giulio Gallarotti, "The Scramble for Gold: Monetary Regime Transformation in the 1870's", in Bordo and Capie, Monetary Regimes in Transition, Christopher Meissner, "Capital Flows, Credit Booms, and Financial Crises in the Classical Gold Standard Era," NBER 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 1. Barry Eichengreen, The Gold Standard and the Great Depression, , Michael Bordo and Ronald McDonald, "Interest Rate Interactions in the Classical Gold Standard, : Was There Any Monetary Independence?" Journal of Monetary Economics, Vol. 52, no. 2, Christopher Hanes and Paul Rhode, "Harvests and Financial Crises in Gold Standard America," Journal of Economic History, Vol. 73/1, March Giulio Gallarotti, The Anatomy of an International Monetary Regime: The Classical Gold Standard, Milton Friedman and Anna Schwartz, A Monetary History of the United States, Charles Kindleberger, Manias, Panics, and Crashes, J. E. Tanner and V Bonomo, "Gold, Capital Flows, and Long Swings in American Business Activity," Journal of Political Economy, vol. 76/1 1968

6 VIII: Free Banking - The Theory & Laissez-Faire Model - Oct 21 & 28 : 1. Lawence White, Competition and Currency, Chs George Selgin, The Theory of Free Banking, Chs George Selgin and Lawrence White, "How Would the Invisible Hand Handle Money?" Independent Review 4. George Selgin, Central Banks as Sources of Financial Instability" Independent Review, Spring 2010 IX: Free Banking - The Institutional Issues - Nov 4 1. George Selgin, The Theory of Free Banking, Chs Martin Klein and Manfred Meumann, "Seigniorage: What is it and who gets it?" Shirley Gedeon, "The Modern Free Banking School: A Review" Journal of Economic Issues, Vol. 31, no. 1, March 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 1. Steve Horwitz, Monetary Evolution, Free Banking, and Economic Order 2. Kevin Dowd, Laissez-Faire Banking 3. Larry Sechrest, Free Banking: Theory, History, and a Laissez-Faire Model 4. George Selgin, Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, , David Glasner, Free Banking and Monetary Reform 6. Lawrence White, Free Banking in Britain: theory, experience and debate 7. Lawrence White, Competition and Currency: Essays on Free Banking & Money 8. Lawrence White, The Theory of Monetary Institutions. See especially o Ch. 5, "Should Government Play a Role in Money? o Ch. 6, "Should Government Play a Role in Banking? ESSAY #2 IS DUE ON NOV 7. Topic to be assigned by November 1st. Students may propose their own essay topic. See Prof. Gedeon for details. X: Monetary Stability Under a Private Digital Economy - Bitcoin as a Case Study- Nov 11 & 18 As you work through these assigned texts, sketch out answers to the following questions: 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?

7 Does it protect property rights? How? For whom? 1. The Khan Academy has videotaped lectures by electrical engineers who can explain the process of how Bitcoin are mined, encrypted, and transferred. There are 9 videos in all. Familiarize yourself with the videos: 2. George Selgin, Synthetic Commodity Money Nikolei Kaplanov, Nerdy Money: Bitcoin, the Private Digital Currency, and the Case Against its Regulation, Rhys Bollen, The Legal Status of Online Currencies: Are Bitcoin the Future? David Yermack, Is Bitcoin a Real Currency? An Economic Appraisal Robin Teigland, Zaynep Yetis, Tomas Larson, Breaking Out of the Bank in Europe: Exploring Collective Emergent Institutional Entrepreneurship through Bitcoin Gabriel Michael, Anarchy and Property Rights in the Virtual World Nicholas Plessaras, "Regulating Digital Currencies: Bringing Bitcoin Within the Reach of the IMF" Chicago Journal of International Law, 2013 To go further into mathematical models: 1. Joshua Kroll, Ian Davey, and Edward Felten, "The Economics of Bitcoin Mining, or Bitcoin in the Presence of Adversaries," Princeton, IX: Globalization, Neo-Conservatism, and the Future of the Competitive Currency Debate - Dec 3 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 ESSAY #3 IS DUE ON THE DAY OF THE FINAL EXAM December 9 BY 4 P.M. YOU MAY SUBMIT YOUR ESSAY EARLY BUT UNDER NO CIRCUMSTANCES WILL YOU SUBMIT YOUR EXAM LATE AND RECEIVE CREDIT FOR IT