4 thoughts on “Monetarists’ blind spot on quantitative easing”

  1. Posted 14/03/2011 at 10:18 | Permalink

    This hits the nail nicely on the head but why is King still governor of the Bank of England? A man who has been responsible for so many errors can neither be expected to see the next crisis in advance nor can he be expected to have any sensible answers. There was a time when I would have preferred to see a number of people appointed to the post in preference to King; now I would prefer anyone.

  2. Posted 14/03/2011 at 14:25 | Permalink

    waramess has entirely missed the point – it’s about institutions, not individuals. Frankly, King shouldn’t have been in a position to have made those mistakes. However, I’d also suggest that the best means to find good institutions is to allow them to develop organically via the action of the market and free choice rather than by central diktat (which is what the original Bank of England was, to a degree).
    I’m more in agreement with Anthony Evans rather than Tim Congdon but I seem to remember Congdon’s own article for the IEA’s ‘verdict on the crash’ came to pretty much the same conclusions regarding the BofE’s role as lender of last resort.

  3. Posted 13/04/2011 at 08:06 | Permalink

    Thanks for this interesting post!

    One comment though: it seems to me that you are slightly misrepresenting the “Rothbardian” view of banking (one that thinks fractional reserve banking is inherently unstable), even though admittedly some of his followers have taken the positions you identify here.

    In my understanding – and I’m writing as a FRB-skeptic – your middle-ground interpretation of the recent crisis is compatible with a principled preference for a 100% reserve requirement on bank deposits properly so-called. Rothbard would have agreed that in a FRB world even unbacked deposits are money, and he argued that a return to sound money (for example gold + prohibition of FRB) requires that the transitional calculations of quantify of money take those deposits into account. Otherwise the transition would create a huge monetary contraction and punish ordinary citizens who have been fooled into trusting in bank accounts.

    There is scope for different interpretations even within the “100 % school”. But all would agree that it’s the conflation of deposit-taking and lending (i.e. fractional reserve banking) that gets us into trouble and, sooner or later, leads to the establishment of a central bank, and the rest of the story is right before us.

  4. Posted 19/04/2011 at 14:00 | Permalink

    If I recall his pamphlet “Central Banking in a Free Society” correctly, Congdon shares your views on the BoE acting as lender of last resort. However, he also wants to privatise the BoE.

    Obviously, liquidity support is preferrable to QE before a crisis gets going. However, once the central bank has allowed a monetary disequilibrium to take hold, the big guns have to be brought in or the market economy faces an avoidable constriction of supply by the monopoly providers of money.

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