Alexander W. Salter

Many who are supportive of free markets blame central banks for the low interest rates that have prevailed since the end of the 2007-8 financial crisis.  This is a mistake. Central banks can, in the short run and all else being equal, lower market interest rates through expansionary open market operations.  But this ‘liquidity effect’…

Thanks in part to high-profile and controversial public policy since the financial crisis, and to a lesser extent politicians such as Ron and Rand Paul, the monetary and financial arrangements of the United States have become a surprising source of public indignation.  Monetary and financial policy, previously a subject that would put almost all voters…

In my previous post, I argued that the institutions underlying laissez-faire banking systems, as approximated by historical cases in Scotland, Canada, and Sweden (among others) provided market actors the incentives and information necessary to maintain aggregate demand stability.  This also means a laissez-faire banking system does a good job of maintaining short-run macroeconomic stability, although this…

One of the most interesting areas within the analysis of governance regimes is the literature on polycentricity.  Polycentric governance systems are characterized by fractured and concurrent authority.  In other words, in polycentric systems, power is decentralized, and there is no final authority that possesses what is typically thought of as sovereignty—the right to make final decisions, beyond which there is no…

Last time, I argued that the two chief components of Austrian business cycle theory (ABCT)—inconsistent consumption and investment plans engendered by faulty interest rate signals, and reallocation of resources during the bust—could be understood even within a tight framework of rational expectations and ‘equilibrium always’ modeling conventions. I will now tackle the second of these…

Although Austrian business cycle theory (ABCT) is a powerful price-theoretic explanation for monetary-induced booms and busts, it is not without critics.  Indeed, many find ABCT implausible for two reasons.  The first is that it seems to rely on individuals making systematic and economy-wide errors.  This seems inconsistent with rational decision making, especially the theory of rational expectations.  The second…

As Steve Horwitz has shown, the insights of Austrian macroeconomics and monetary disequilibrium theory can be combined to yield a powerful paradigm for understanding how monetary policy affects the economy.  Crucial to this synthesis is the neutrality of money.  Remember that money is neutral when it facilitates exchange, but does not distort the terms of exchange. …

Many economists who have broadly free market views on money are sympathetic to the Austrian theory of the business cycle (ABCT).  As developed in the early part of the 20th century by Ludwig von Mises and Friedrich Hayek, and further refined in recent years by Steven Horwitz and Roger Garrison, ABCT links the business cycle to…

Supposing we decide a formal monetary constitution is a good idea, what properties should it have?  What essential features of money must a monetary constitution safeguard?  Again referencing James Buchanan, we know that money has properties that render it similar to weights and measures.  Money is a yardstick; if the definition or value of money is…

Having a monetary constitution is important. But do we need a distinct monetary constitution? Steven Horwitz says no. Agreeing with James Buchanan that a monetary constitution is desirable, Horwitz argues that a general constitution that protects private property rights, provides for contract enforcement, and maintains the rule of law is also a monetary constitution, even…