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In-Concert Overexpansion and the Precautionary Demand for Bank Reserves

2001; Wiley; Volume: 33; Issue: 2 Linguagem: Inglês

10.2307/2673887

1538-4616

George Selgin,

Fiscal Policies and Political Economy

Economists have long believed that, absent any public withdrawals of high-powered money, an unregulated, closed banking system can expand its assets and liabilities without encountering any shortage of reserves so long as its members act in concert. Notwithstanding its popularity, this inconcert overexpansion doctrine is inconsistent with standard theories of the precautionary demand for bank reserves. Unless these theories are themselves incorrect, concerns that complete removal of legal restrictions on the competitive supply of bank money must result in an unstable or indeterminate bank-money multiplier are misplaced.