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The misleading case for free markets

Summary:
From Asad Zaman This sequence of posts goes through Charles Goodhart’s book on Evolution of Central Banking. Previous post is: RG5 Evolution of Economic Systems Chapter 2 opens with a discussion of the views of Walter Bagehot (pronounce as badge-it), author of Lombard Street, which has received a lot of recent acclaim as masterpiece on central banking. After the Global Financial Crisis, Martin Wolf asked “Doesn’t what has happened in the past few years simply suggest that [academic] economists did not understand what was going on?”. Larry Summers responded by naming Lombard Street (1873). There are many articles which examine how a 150 year old book provides insights into the financial crisis which modern economists do not understand!. See, for example, Brad De-Long’s This Time is Not

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from Asad Zaman

This sequence of posts goes through Charles Goodhart’s book on Evolution of Central Banking. Previous post is: RG5 Evolution of Economic Systems

Chapter 2 opens with a discussion of the views of Walter Bagehot (pronounce as badge-it), author of Lombard Street, which has received a lot of recent acclaim as masterpiece on central banking. After the Global Financial Crisis, Martin Wolf asked “Doesn’t what has happened in the past few years simply suggest that [academic] economists did not understand what was going on?”. Larry Summers responded by naming Lombard Street (1873). There are many articles which examine how a 150 year old book provides insights into the financial crisis which modern economists do not understand!. See, for example, Brad De-Long’s This Time is Not Different. (For a more realistic and clear-sighted appraisal of Bagehot for modern Central Banking, see Misreading Walter Bagehot.)

As also discussed in the first chapter, Walter Bagehot supported free banking as a normative ideal, but recognized that it would not be practical or possible to create the radical changes required to move from Central Banking towards that ideal. Why then is it worth going over dead arguments of a dead economist from 150 years ago? As in a game of whack-a-mole, these arguments keep getting whacked down, and they keep popping up again and again. In practice, today, the shadow banking industry is close to a re-creation of the free banking idea. So, it is worth going over these ideas from their origins. In this post, we will discuss the general arguments for “laissez-faire” – let everyone do whatever they want to do –  read more

Asad Zaman
Physician executive. All opinions are my personal. It is okay for me to be confused as I’m learning every day. Judge me and be confused as well.

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