JEL Code: G21

Kristoffer J. M. Hansen

Abstract

Recent debates in monetary theory have centered on so-called free banking and the role of banks in providing money in the form of fiduciary media in a pure market economy. This paper examines how and to what extent fiduciary media can emerge in a pure market economy. Based on the theory of value, it is argued that those economists are mistaken who claim that money substitutes must in all cases be interpreted as being money titles. Those economists too are mistaken, however, who claim a large role for the circulation of fiduciary media in a pure market economy. It is argued that holding fiduciary media in one’s cash balance is an entrepreneurial error, as fiduciary media by their nature do not have the qualities people demand in holding money. Money is the comparatively most certain good and the present good par excellence, qualities that fiduciary media do not have. Holding fiduciary media instead of money is therefore an entrepreneurial error, and like all errors in the free market, it will tend to be eliminated in the process of entrepreneurial profit and loss, leading to the virtual disappearance of all fiduciary media from the market economy.

Keywords: fiduciary media, free banking, money.

JEL Codes: B53, E22, E51, G21.

Erschienen in

Quart J Austrian Econ (2021) 24.2:286–316.

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Gunther Schnabl; Taiki Murai

Abstract

The bursting of the Japanese bubble economy in the early 1990s put the stage for a lasting lowzero-, and negative-interest rate environment, which fundamentally changed the business environment for the Japanese commercial banks. On the income side, with interest margins becoming increasingly depressed, net interest revenues declined, which forced the banks to expand revenues from fees and commissions. The banks had to cut costs by reducing the number of employees, closing branches and merging into larger banks. The gradual concentration process has most recently cumulated in the relaxation of the monopoly law. With the capital allocation function of banks being undermined, the Japanese economy has become zombified, suffering from anemic growth.

Keywords: Bank of Japan, banks, concentration, financial repression, interest margin, Japan, Monetary policy, regional banks.

JEL Codes: E50, E52, G21.

Erschienen in

Working Paper, No. 169.

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