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                                   Economics 8620
                             Monetary Institutions and Policy
                                      Sanford 107
                                  M,W, F 12:20-1:10

                                      George Selgin
                                     Brooks Hall 513

Summary: This course is designed to complement my class on “Fundamentals of
Monetary and Banking Theory.” The focus of the course is on the workings of
alternative monetary institutional arrangements, the ultimate aim being that of
determining what sorts of arrangements are most capable of contributing towards
economic stability and growth.
         The course is in two parts, and is based mainly on three books: my own Theory
of Free Banking (1988) (henceforth, TFB), Lawrence White’s Theory of Monetary
Institutions (1999) (henceforth, TMI), and Vera Smith’s The Rationale of Central
Banking (henceforth RCB). My book supplies a general discussion of free banking,
while White’s book offers further insights concerning the implications of monetary
laissez-faire. Smith’s book, finally, discusses the historical origins of central banking.
The first part of the course, on “Monetary Laissez Faire,” treats the development and
workings of an unregulated monetary system. I start this way because it seems to me
that one can’t properly appreciate the consequences of government intervention without
first having some idea of how things would shape up in the absence of such intervention.
         The rest of the course considers the consequences of government intervention
and regulation of monetary systems. Its focus is, again, on institutional matters,
including alternative government-administered monetary regimes, though of course we
also discuss monetary policy options in the usual, narrow sense. Readings from the two
assigned books will be supplemented by a number of articles.

Class Format: The course uses a seminar format. Students will be asked to carefully
read all assigned readings prior to attending the associated seminar, where the readings
will be discussed in-depth. Each student is asked to prepare no fewer than three
questions to be raised during each seminar (where a seminar involves multiple readings,
at least one question should be aimed at each). It would be best for students to
coordinate their questions, so as to avoid duplication; I plan to set-up an e-mail list-serve
account ( to make this easy and to allow us to carry on
discussion after actual class sessions.
         I also ask that students suggest papers for discussion, with each student leading
at least one class discussion surrounding a paper or set of papers of their choosing. I
have left some slots open for such student-led presentations.
         Your other major assignment is to prepare at least three “referee reports”
(including at least one for each “part” of the class) on published articles. (An actual
referee’s report is written for a journal editor who wants to know whether an article is
worthy of publication; you will prepare a similar report, of 3-5 typed pages, that is
actually a review of something already published.) I will provide samples of my own
        Grades will be based on class participation (30 points total), article “referee”
reports (10 points each), and short-essay mid-term and final exams worth up to 20 points
each. The requirement for a grade of “A” will be 90 points.

Seminar Topics and Readings

        You should be able to purchase copies of Prof. White’s book at the University
bookstore. I am having my Theory of Free Banking scanned so that I can make it
available to you electronically, but you may also find it worthwhile to locate a used
copy. Vera Smith’s book is available in its entirety on line at Other readings will
also be made available electronically when possible; otherwise I will supply a “master
copy” of the readings free of charge. I suggest that one of you be assigned to make and
distribute additional copies, your reward being that you get to have the original, free
copy. Contact me if you wish to volunteer.
        I’ve included many of my own articles because they address the issues I wish to
focus on in class. But remember, I’m prepared to consider any alternative articles you
might suggest. Lets just try to emphasize institutional and policy content as opposed to
highly abstract works.

Part I: Monetary Laissez Faire

1. Overview
   Selgin and White, “How Would the Invisible Hand Handle Money?” (JEL 1994), (JSTOR link)

2. The Evolution of a Free Banking System
   White, TMI 1
   Selgin, TFB 2

3. Money Supply under Free Banking
   Selgin, TFB 3-6
   White, TMI 3
   Selgin, “Free Banking and Monetary Control” (Econ. J. 1994), (JSTOR link)

4. The Scottish System
   Smith, RCB 3
   White, “Scotland as a Free Banking System” (to be supplied)

5. Other Case Studies
   Selgin, “Free Banking in Foochow” (to be supplied)
   Schuler, “Free Banking in Canada” (to be supplied)
5. (Student presentation: Free Banking.)

6. Commodity Money
   White, TMI-2
   Bordo, “The Gold Standard: Myths and Reality” (to be supplied)
   idem, “Gold Standard,” at

7. Private Fiat Money?
   Hayek, selections from Denationalisation of Money
   Selgin, “On Ensuring the Acceptability of a New Fiat Money” (JMCB 1994), (JSTOR link)
   White, TMI 1

8. (Student presentation: Base Money Regimes.)

Part II: Origins of Central Banks

9. The Origins of Central Banking I: The Bank of England
   Dowd, “The Origins of Central Banking in England and the United States”
   White, TMI 4
   Smith, RCB 2.

10. The Origins of Central Banking II: The U.S.
   Selgin, “The Suppression of State Bank Notes: A Reconsideration” Economic
   Inquiry, (October 2000), (OUP Press
   Smith, RCB 5,9

11. The Lender of Last Resort Argument for Central Banks
    Bordo, “The Lender of Last Resort”
    Goodhart, “Why Banks Need a Central Bank” (to be supplied)
    White, TMI 6
    Selgin, “Legal Restrictions, Financial Weakening, and the Lender of Last Resort”
    (Cato Journal 1989),
    (JSTOR link)

12. A Debate on Bank Self-Regulation
    Bordo and Schwartz, “The Performance and Stability of Banking Systems under
    Selgin, “Bank Self-Regulation: Comment on Bordo and Schwartz.”
    Selgin TFB 11

13. (Student presentation: Banking Crises and the LOLR.)
14. The Revenue Motive
    White, TMI 7
    Selgin and White, “A Fiscal Theory of Government’s Role in Money” Economic
    Inquiry (1999) (to be supplied).
    Giovaninni and de Melo, “Government Revenue from Financial Suppression
    8282%28199309%2983%3A4%3C953%3AGRFFR%3E2.0.CO%3B2-S (JSTOR

15. (Student presentation: Positive Theory of Monetary Regulation)

Part III: Managing Fiat Money

16. Central Banks as Monetary Central Planning Agencies
    Selgin, TFB 7
    White, TMI 8

17. The Time-Inconsistency Problem and the Case for Rules
    White, TMI 10, 11
    Selgin, TFB 11
    Bordo and Rockoff, “The Gold Standard as a “Good Housekeeping Seal of
    (JSTOR link)

18. The Zero Inflation Target
    B. McCallum, “Targets, Indicators, and Instruments of Monetary Policy” in Haraf
    and Cagan, eds., 1990 (background; to be supplied)
    Laidler, “The Zero-Inflation Target: An Overview of the Economic Issues” (to be
    Lee Hoskins, “Defending Zero Inflation: All for Naught,”
    Stephen L. Neal, “The Case for Zero Inflation,” Cato Journal

19. The Productivity Norm vs. Zero Inflation: A Debate
    Dowd, “Deflating the Productivity Norm” and
    Selgin, “The Case for a Productivity Norm: Reply to Dowd,” both in J. Macro.
    Autumn 1995,
   Selgin, “The Price is Right” (National Review)
   Selgin, Less Than Zero (for review only).

20. Monetary Policy for an Open Economy: Fix or Float?
    George Tavlas, “The Economics of Exchange Rate Regimes: A Review Essay”
    Schuler, “The Problem with Pegged Exchange Rates,” (Kyklos 1999)
    Obstfeld and Rogoff, “The Mirage of Fixed Exchange Rates” JEP 1995,
    (JSTOR link)
    Carmen Reinhart, “The Mirage of Floating Exchange Rates,”

21. (Student presentation: Alternative Monetary Rules)

22. Alternatives to Central Banks in a Fiat-Money World: Currency Boards
    Schuler, Should Developing Countries Have Central Banks?
    Kurt Schuler’s Currency Board and Dollarization Website:
    Humpage, “An Introduction to Currency Boards” FRB Cleveland Economic Review
    Roubini, “The Case Against Currency Boards”

23. Alternatives to Central banks in a Fiat-Money World: Dollarization
    Joint Economic Committee (Schuler), “Basics of Dollarization”
    Fischer, “Seignorage and the Case for a National Money”
    3808%28198204%2990%3A2%3C295%3ASATCFA%3E2.0.CO%3B2-7 (JSTOR
    Selgin and White, “Credible Currency: The Commitment Problem under Private and
    Central Banking” (unpublished; to be supplied).

24. (Student presentation: Alternative Fiat Money Regimes)

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