Money, Banking, and the Business Cycle: Volume II: Remedies and Alternative Theories

319 Pages·2014·3.39 MB·English

by  Brian P. Simpson

Money, Banking, and the Business Cycle
Also by Brian P. Simpson
Money, Banking, and the Business Cycle, Volume 1: Integrating Theory and Practice
Markets Don’t Fail!
Money, Banking, and the
Business Cycle
Remedies and Alternative Theories
Volume Two
Brian P. Simpson
MONEY, BANKING, AND THE BUSINESS CYCLE
Copyright © Brian P. Simpson, 2014.
All rights reserved.
First published in 2014 by
PALGRAVE MACMILLAN®
in the United States— a division of St. Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world,
this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills,
Basingstoke, Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries.
ISBN: 978–1–137–34077–1
Library of Congress Cataloging-in-Publication Data
Simpson, Brian P., 1966–
Money, banking, and the business cycle : integrating theory and practice /
Brian P. Simpson.
volumes ; cm
Includes bibliographical references and index.
ISBN 978–1–137–33531–9 (hardback)
1. Business cycles. 2. Monetary policy. 3. Banks and banking. I. Title.
HB3714.S56 2014
338.5(cid:2)42—dc23 2013044047
A catalogue record of the book is available from the British Library.
Design by Newgen Knowledge Works (P) Ltd., Chennai, India.
First edition: July 2014
10 9 8 7 6 5 4 3 2 1
To Annaliese Cassarino, my wife, and Charles and
JoAnn Simpson, my parents

Contents
Preface i x
Acknowledgments xi
Introduction 1
Part I Refutation of Alternative Explanations of
the Business Cycle
1 Underconsumption and Overproduction Theories of
the Business Cycle 9
2 Keynesian Business Cycle Theory, Part Deux: Inflexible
Prices and Wages 4 5
3 Real Business Cycle Theory 7 9
Part II To Cure the Business Cycle
4 Government Interference, Fiat Money, and Fractional-Reserve
Banking 1 13
5 The Characteristics and Effects of a Free Market in
Money and Banking 1 51
6 The Significance of Some of the Historically Freer
Banking Periods 1 87
7 Gold and 100-Percent Reserves 219
8 How to Transition to a Free Market in Money and Banking 243
Epilogue 2 61
Notes 2 65
Selected Bibliography 2 91
Index 299

Preface
I
t took nine years to complete this book and get it published. It took me
about six years to write a very rough first draft, about seven months to
write the second draft, and about four months to complete the third draft.
Securing a publisher, going through several more rounds of editing, and get-
ting the book finalized for publication occupied the rest of the time. I did
not realize how large a task it would be when I started it. It required far more
research into more areas than I thought would be necessary. The project
grew so much that it eventually became two volumes.
I wrote this book in part because people have a poor understanding of
the business cycle. This lack of knowledge has been highlighted since the
2008–9 recession. Wrong explanations have been provided and bad policy
prescriptions have been recommended and implemented. The world desper-
ately needs to learn what is required to achieve financial stability in an eco-
nomic system. The two volumes I have written on the business cycle will
enable people to acquire the knowledge they need on this crucial subject.
The first volume shows theoretically and empirically what causes the busi-
ness cycle, and the second volume refutes alternative theories of the business
cycle and provides government policy prescriptions, based on the theory in
volume one, to solve the problem of monetary-induced recessions, depres-
sions, and financial crises.
Portions of the two volumes of this work, such as the discussions on money,
inflation, the causes of the business cycle, particular episodes of the cycle,
the invalidity of Keynesian depression and business cycle theory, the invalid-
ity of real business cycle theory, the nature of a free market in money and
banking, the benefits of a gold standard, and other topics are appropriate for
use as supplemental reading material in courses on “macroeconomics” and
money and banking. The two volumes could also be used as the main text-
books either by themselves or with other, supplemental readings in courses
on the business cycle. It would be well worth it to include the two volumes.
They will help readers gain an integrated and comprehensive understanding
of the business cycle and business cycle theory.
BRIAN P. SIMPSON
La Jolla, CA
January, 2014