Well, if you’re looking for criticism, let’s start with this: As someone who has almost certainly spent much more time around economists than you have, I think both of your explanations for the unpopularity of free banking are very bad. On the second point, self-interest has little influence on individuals’ politics. This is a robust result in political science across a large range of policies, and so should be the default when discussing why others have the politics they do. Unless you have very good evidence, rather than weak conjecture, you should assume that people’s salaries do not determine their political opinions. Your conjecture makes little sense anyway, since under free banking economists would be hired by private banks instead of the Federal Reserve, while getting paid nicely to help shape the economy, and only a small portion of economists work for the Fed anyway. So there’s a reasonable case to be made that self-interest would encourage economists to support rather than reject free banking.
For your first criticism, I think you’re starting from entirely the wrong assumption. Your argument seems to be, “economists naturally distrust the government except for here, where status quo bias prevents them from doing so.”
More reasonably, I think, is that you are simply wrong about what most economists believe. The average economist is a moderate Democrat. They support many, many government monopolies when they think there is a market failure to correct. They support the regulation of natural monopolies, they support antitrust commissions to tell us whether a market is too concentrated, they support the EPA, etc.
Most economists are quite supportive of centralization in the face of market failure, and there is at least one market failure argument with regard to free banking that is quite obvious: you might get too many currencies, the constant exchange of which would cause a large deadweight loss. And that’s not just the exchange rates, that’s employees now tasked with manning money exchange booths all over town, time wasted going to such vendors, people holding more than the optimal amount of money, etc. Indeed, some people will tell you this is exactly what happened when Switzerland tried free banking. Heck, there’s currently a quote regarding that case on the wikipedia page for free banking.
There are good arguments in response to that, and responses to other criticisms of free banking. But your post pretends that such arguments don’t even exist. I can find several more.
Not to mention other reasons the typical economist might not spend too much time looking into free banking: Free banking is largely the product of Austrian economists, an unpopular group whose main idea separating them from the mainstream, their business cycle theory, is considered by most economists totally wrong. So a first pass at free banking might see it as an attempt to fix a problem that is incorrectly identified to begin with.
In short: far, far too much confidence on display here. That’s what politics does to us, and I’d recommend reading a lot more before continuing your series. As a start, read the references in Selgin and White’s papers, you’re sure to find some genuine criticisms there.
(Disclaimer: I have no strong opinions on free banking. I think it might be worth a try, that it’s a shame we can’t run this experiment, and that it’s also a shame our historical data isn’t good enough to settle the question. I have a Master’s in econ from GMU.)
No, people don’t vote in their own self-interests. But in this case economists would constitute a special interest group supporting a policy that increases their own income and status. Or do you think that whenever a special interest group requests subsidies and attempts to restrict its competition, self-interest isn’ the primary motivator? Now, of course they won’t be thinking any sinister or malevolent thoughts; I’m sure as well that economists genuinely think that central banking is the best alternative. But why would they think that? Why isn’t Greg Mankiw a strident free banker? Self-interest must be a primary motivator here—not the only motivator, but I’ll eat my hat if it isn’t playing a significant role.
The average economists supports various interventions in the economy for valid economic reasons he would have no trouble explaining. I know, as I’m sure do most economists, valid economic arguments against free markets whenever there are problems with externalities, information asymmetries, natural monopolies, etc, which might well justify things like the EPA and a single-payer universal health care system, public utilities, etc. But Professor Mankiw of Harvard doesn’t seem to think that there’s any similar argument for central banking.
Arguments against central banking go back to people like Adam Smith and Walter Bagehot, who preceded the Austrians.
Well, if you’re looking for criticism, let’s start with this: As someone who has almost certainly spent much more time around economists than you have, I think both of your explanations for the unpopularity of free banking are very bad. On the second point, self-interest has little influence on individuals’ politics. This is a robust result in political science across a large range of policies, and so should be the default when discussing why others have the politics they do. Unless you have very good evidence, rather than weak conjecture, you should assume that people’s salaries do not determine their political opinions. Your conjecture makes little sense anyway, since under free banking economists would be hired by private banks instead of the Federal Reserve, while getting paid nicely to help shape the economy, and only a small portion of economists work for the Fed anyway. So there’s a reasonable case to be made that self-interest would encourage economists to support rather than reject free banking.
For your first criticism, I think you’re starting from entirely the wrong assumption. Your argument seems to be, “economists naturally distrust the government except for here, where status quo bias prevents them from doing so.”
More reasonably, I think, is that you are simply wrong about what most economists believe. The average economist is a moderate Democrat. They support many, many government monopolies when they think there is a market failure to correct. They support the regulation of natural monopolies, they support antitrust commissions to tell us whether a market is too concentrated, they support the EPA, etc.
Most economists are quite supportive of centralization in the face of market failure, and there is at least one market failure argument with regard to free banking that is quite obvious: you might get too many currencies, the constant exchange of which would cause a large deadweight loss. And that’s not just the exchange rates, that’s employees now tasked with manning money exchange booths all over town, time wasted going to such vendors, people holding more than the optimal amount of money, etc. Indeed, some people will tell you this is exactly what happened when Switzerland tried free banking. Heck, there’s currently a quote regarding that case on the wikipedia page for free banking.
There are good arguments in response to that, and responses to other criticisms of free banking. But your post pretends that such arguments don’t even exist. I can find several more.
Not to mention other reasons the typical economist might not spend too much time looking into free banking: Free banking is largely the product of Austrian economists, an unpopular group whose main idea separating them from the mainstream, their business cycle theory, is considered by most economists totally wrong. So a first pass at free banking might see it as an attempt to fix a problem that is incorrectly identified to begin with.
In short: far, far too much confidence on display here. That’s what politics does to us, and I’d recommend reading a lot more before continuing your series. As a start, read the references in Selgin and White’s papers, you’re sure to find some genuine criticisms there.
(Disclaimer: I have no strong opinions on free banking. I think it might be worth a try, that it’s a shame we can’t run this experiment, and that it’s also a shame our historical data isn’t good enough to settle the question. I have a Master’s in econ from GMU.)
No, people don’t vote in their own self-interests. But in this case economists would constitute a special interest group supporting a policy that increases their own income and status. Or do you think that whenever a special interest group requests subsidies and attempts to restrict its competition, self-interest isn’ the primary motivator? Now, of course they won’t be thinking any sinister or malevolent thoughts; I’m sure as well that economists genuinely think that central banking is the best alternative. But why would they think that? Why isn’t Greg Mankiw a strident free banker? Self-interest must be a primary motivator here—not the only motivator, but I’ll eat my hat if it isn’t playing a significant role.
The average economists supports various interventions in the economy for valid economic reasons he would have no trouble explaining. I know, as I’m sure do most economists, valid economic arguments against free markets whenever there are problems with externalities, information asymmetries, natural monopolies, etc, which might well justify things like the EPA and a single-payer universal health care system, public utilities, etc. But Professor Mankiw of Harvard doesn’t seem to think that there’s any similar argument for central banking.
Arguments against central banking go back to people like Adam Smith and Walter Bagehot, who preceded the Austrians.