nep-hme New Economics Papers
on Heterodox Microeconomics
Issue of 2020‒09‒28
seventeen papers chosen by
Carlo D’Ippoliti
Università degli Studi di Roma “La Sapienza”

  1. Rethinking inequality in the 21st century – inequality and household balance sheet composition in financialized economies By Szymborska, Hanna Karolina
  2. Modern Money Theory, by defining money as state-issued debt instrument, failed to provide sufficient spending for securing full employment; but succeeded in blurring our understanding of money By Naba Kumar Adak
  3. Female entrepreneurship: business, marriage and motherhood in England and Wales, 1851–1911 By van Lieshout, Carry; Smith, Harry; Montebruno, Piero; Bennett, Robert
  4. Revisiting the history of welfare economics By Roger E. Backhouse; Antoinette Baujard; Tamotsu Nishizawa
  5. Corporate social responsibility through global value chains : behaviour of lead companies and new dynamics of industrial relations By Gharyeni, Abdellatif
  6. Gender and Culture By Giuliano, Paola
  7. What drives the profit rates of islamic banks ? Malaysia’s case By Fairuz, Sharifah; Masih, Mansur
  8. The Inclusive and Sustainable Development Index: a Data Envelopment Analysis Approach By Cheng, Charles Fang Chin; Cantore, Nicola
  9. J'Accuse! Antisemitism and Financial Markets in the Time of the Dreyfus Affair By Quoc-Anh Do; Roberto Galbiati; Benjamin Marx; Miguel Ortiz Serrano
  10. Entropy: First as Chaos then as Order By khasgiwala, Suvidh
  12. Ten Contemporary Wounds of the Market Economy By Jacques Fontanel
  13. Ethique des Affaires : quand l’organisation se mêle de société ? By Yvon Pesqueux
  14. Les « révolutions » dans la théorie du développement : éléments de synthèse By Driss El Ghoufi
  15. Normes et normativité en économie By Antoinette Baujard; Judith Favereau; Charles Girard
  16. China’s post-COVID-19 stimulus: no Green New Deal in sight By Jorrit Gosens
  17. Austrian School of Economics? Suggestion for Introducing Free Private Banking System is So Absurd that It Can Never be Implemented By Naba Kumar Adak

  1. By: Szymborska, Hanna Karolina
    Abstract: This paper analyses the impact of household wealth heterogeneity on inequality and macroeconomic stability in financialized economies. Based on the case of the USA since the 1980s it argues that transformation of financial sector operations has generated inequality by influencing gains from wealth ownership and leverage levels across the income distribution. Securitization and the subprime lending expansion have led to the emergence of a new class of leveraged homeowners, experiencing large increases in wealth prior to the Great Recession, followed by substantial losses after the crisis. Simultaneously, capitalists have diversified their asset portfolios while earning the highest and fastest growing wages in the economy when employed as financial sector executives. In this light, the paper proposes a new conceptualization of households in macroeconomic models, defined by balance sheet composition rather than income sources alone. To inform this taxonomy, inequality and leverage indicators are simulated in a stock-flow consistent model calibrated to US data with three classes of households distinguished by their wealth composition, and a securitized financial sector. The proposed framework is found to produce more empirically accurate levels of income inequality and greater macroeconomic instability than the two-class division, and establishes an equalizing effect of housing for wealth distribution.
    Keywords: Household wealth; Inequality; Macroeconomic modelling; Financial system; USA
    Date: 2020–09–21
  2. By: Naba Kumar Adak (Sabang Sajanikanta Mahavidyalaya, West Bengal)
    Abstract: The purpose of this paper is to explain MMT?s misconception and misrepresentation relating to money?s origin, character and function, and monetary & fiscal policies. The MMT is a conglomeration of different contradictory and already discarded theories put forward by earlier economists like Credit Theory of A. Mitchell Innes, State Theory or Chartalist Theory of money of Georg Friedrich Knapp, combination of Credit Theory and State Theory of money by Geoffrey Ingham (in his article ?Money is a Social Relation?), Functional Finance theory of Abba Lerner, Money theory of Keynes, Sectoral Balance Approach of Wynne Godley and so on. The MMT developed another unique theory called Consolidation between the Government and the Central Bank. Though MMT claims that it provides an alternative definition of money, yet, in reality, it does not want to explore what money is and how money had been evolved as a medium of exchange. The MMT argues that in the modern capitalist system, money is nothing but a numeraire or an account of credit (debt) and has no intrinsic value of its own and that money is neither pegged to any commodity nor a medium of exchange. The MMT, then, begins to impose this theory (money is a state-issued debt instrument) on the history of evolution of money. Therefore, their explanation does not reflect how money really evolved or what money really is.Other purpose of this paper is to explain that these concepts and theories of MMT are hypothetical and have no connection with how present economy is functioning. If the suggestion, of MMT for increasing budget-deficit without provisioning how the debt (for financing the deficit) will be redeemed, is followed blindly then the economy as a whole will be led to a catastrophe and collapse. This conceptual/ theoretical paper concludes that the MMT became a hotchpotch combination of impractical fanciful and arbitrarily concocted theories. Therefore, the MMT became the most un-intelligible theory. It is not at all functional. So, this exercise (criticism of MMT) is necessary in order to eliminate the negative impacts of the MMT on the theories and practices of economics at large.Another purpose of this paper is to show that the primary cause of most of the economic anomalies is money?s entrance into the economy from its issuer the central bank as debt. This paper suggests that economists should formulate such a theory that will free money from its debt nature. This paper concludes that the very nature of money?s origin as debt (from the central bank to the economy) is a systemic defect and this defect is primarily responsible for continuous economic downturn and frequent recession. However, the MMT does not try to find how this debt-nature of money can be eliminated. On the contrary, the MMT gives emphasis that money (even commodity money) should be recognized as nothing but a debt-instrument.Therefore, this paper implores that some theory should be constructed so that money can originate as ?debt-free?. If money originates free of debt only then sustainable economic growth can be secured.
    Keywords: Functional finance, hierarchy of money, Modern Money Theory, credit theory of money, state theory of money, printing money, theory of consolidation between the government and the central bank, full employment, High Powered Money, barter through caste system, sectoral balance approach
    JEL: B59 E52 E62
  3. By: van Lieshout, Carry; Smith, Harry; Montebruno, Piero; Bennett, Robert
    Abstract: This article offers a new perspective on what it meant to be a business proprietor in Victorian Britain. Based on individual census records, it provides an overview of the full population of female business proprietors in England and Wales between 1851 and 1911. These census data show that around 30% of the total business population was female, a considerably higher estimate than the current literature suggests. Female entrepreneurship was not a uniform experience. Certain demographics clustered in specific trades and within those sectors employers and own-account proprietors had strikingly different age, marital status and household profiles. A woman’s life cycle event such as marriage, motherhood and widowhood played an important role in her decision whether to work, the work available to her and the entrepreneurial choices she could make. While marriage and motherhood removed women from the labour force, they had less of an effect on their levels of entrepreneurship. Women who had young children were more entrepreneurial than those who had none, and entrepreneurship rates rose with the arrival of one child and continued to rise the more children were added to the family.
    Keywords: Entrepreneurship; women; gender; Victorian Britain; nineteenth century; life cycle; motherhood
    JEL: B54 D1 D91 L26 M13 N83
    Date: 2019–04–09
  4. By: Roger E. Backhouse (University of Birmingham and Erasmus University Rotterdam); Antoinette Baujard (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint-Etienne, France); Tamotsu Nishizawa (Teikyo University, Faculty of Economics, Tokyo)
    Abstract: Our forthcoming book, Welfare Theory, Public Action and Ethical Values challenges the belief that, until modern welfare economics introduced issues such as justice, freedom and equality, economists adopted what Amartya Sen called “welfarism.” This is the belief that the welfare of society depends solely on the ordinal utilities of the individuals making up the society. Containing chapters on some of the leading twentieth-century economists, including Walras, Marshall, Pigou, Pareto, Samuelson, Musgrave, Hicks, Arrow, Coase and Sen, as well as lesser-known figures, including Ruskin, Hobson and contributors to the literature on capabilities, the book argues that, whatever their theoretical commitments, when economists have considered practical problems they have adopted a wider range of ethical values, attaching weight to equality, justice and freedom. Part 1 explains the concepts of welfarism and non-welfarism and explores ways in which economists have departed from welfarism when tackling practical problems and public policy. Part 2 explores the reasons for this. When moving away from abstract theories to consider practical problems it is often hard not to take an ethical position and economists have often been willing to do so. We conclude that economics needs to recognise this and to become more of a moral science.
    Keywords: Welfarism, non-welfarism, welfare, public policy, ethics, economics, individualism
    JEL: B21 B31 B41 D63 I31
    Date: 2020
  5. By: Gharyeni, Abdellatif
    Abstract: This paper reviews the behaviour of multinational companies across global value chains. The production and exchange of a final or intermediate product is no longer limited to a simple transaction in nation-state. There are at least five forms of global value chains (market; captive; hierarchical and relational). These new business models minimized the marginal cost of production for many multinational companies. However, with the pressure of a hyper-competitive global production regime and its iron triangle (price, quality, and flexibility), the different transactions were often accompanying by inadequate labor conditions across the intermediate links. Thus, the traditional regime of labor regulation has given way to new coercive and normative mechanisms often labelled under corporate social responsibility initiatives. Based on a literature search, this article is written from a critical perspective and advances a new theoretical approach. The behaviour of a multinational company varies according to the nature of institutional arrangements in its home country. Our approach is based on the French theory of regulation and the American theory of strategic choice. Our analysis shows that labor regulation instruments seem increasingly decentralized in countries with family capitalism and countries with social-democratic capitalism. However, they frequently centralized in countries with a capitalism dominated by markets and finance. This new cartography makes an interpretative break with previous developments that do not consider the institutional context in the analysis of the form of governance of global value chains.
    Keywords: Global Value Chains; Corporate Social Responsibility; Political Economy of Capitalism; Strategic Choices of Multinational Companies.
    JEL: E61 F16 L11 M14
    Date: 2019–04–24
  6. By: Giuliano, Paola (University of California, Los Angeles)
    Abstract: This paper reviews the literature on gender and culture. Gender gaps in various outcomes (competitiveness, labor force participation, and performance in mathematics, amongst many others) show remarkable differences across countries and tend to persist over time. The economics literature initially explained these differences by looking at standard economic variables such as the level of development, women's education, the expansion of the service sector, and discrimination. More recent literature has argued that gender differences in a variety of outcomes could reflect underlying cultural values and beliefs. This article reviews the literature on the relevance of culture in the determination of different forms of gender gap. I examine how differences in historical situations could have been relevant in generating gender differences and the conditions under which gender norms tend to be stable or to change over time, emphasizing the role of social learning. Finally, I review the role of different forms of cultural transmission in shaping gender differences, distinguishing between channels of vertical transmission (the role of the family), horizontal transmission (the role of peers), and oblique transmission (the role of teachers or role models).
    Keywords: gender, culture, social norms
    JEL: A13 J16 Z1
    Date: 2020–08
  7. By: Fairuz, Sharifah; Masih, Mansur
    Abstract: Repeated financial crises helped the growth of Islamic banks as an alternative asset for investment. Similar to conventional banks, Islamic banks also depend on depositors’ money as their source of funds. The profit rate of Islamic banks is expected to influence the amount of funds deposited for investment. This paper wants to investigate what drives the profit rates of Islamic banks. The standard time series techniques are used for the analysis. Malaysia is used as a case study. The findings tend to indicate that the profit rates are driven by the investment deposits of Islamic banks followed by the deposits of the conventional banks and their interest rates. The outcome of the results would be particularly of great interest to the regulators and Islamic bank CEOs to make decisions on whether to still depend on conventional rates and deposits in order to survive.
    Keywords: Islamic bank investment deposits, conventional bank deposits, interest rates, profit rates, Malaysia
    JEL: C22 C58 E44 G21
    Date: 2018–11–30
  8. By: Cheng, Charles Fang Chin; Cantore, Nicola
    Abstract: Inclusive and Sustainable Industrial Development (ISID) calls for full engagement of policymakers in industrializing countries by minimizing environmental footprint and enhancing social inclusiveness. This study investigates the progress of 118 countries towards ISID (2005-2015) through an input-oriented CCR (Charnes, Cooper, and Rhodes) slack-based (Data Envelopment Analysis) DEA model. The efficiency analyses have been carried out with two approaches: i) the ISID approach represents the aspiration of countries to promote industrialization and consequently sustain economic growth by reducing the adverse environmental and social effects which manifest in the overall economy; ii) ISIDsdg9 approach considers the same aspects of ISID but only focuses on indicators related to the industrial sector. An analytical tool is developed to measure ISID with the two different approaches. This study finds that (i) Denmark, Sweden, and Switzerland are at the top of the ranking with the ISID approach, and the Czech Republic and Switzerland are at the top of the ranking with the ISIDsdg9 approach. Throughout 2005-2013, there is no sign of catching up between developed and developing countries in progress towards ISID and ISIDsdg9.
    Keywords: Environmental Economics and Policy
    Date: 2020–09–15
  9. By: Quoc-Anh Do (Département d'économie); Roberto Galbiati (Département d'économie); Benjamin Marx (Département d'économie); Miguel Ortiz Serrano (Universidad Carlos III de Madrid (UCM))
    Abstract: This paper studies discrimination in financial markets in the context of the “Dreyfus Affair” in 19th century France. The Affair originated from the wrongful conviction of a Jewish officer, Alfred Dreyfus, and revealed the depth of antisemitism in French society. We show that firms with Jewish board members experienced abnormal stock returns after several salient events of the Affair. However, in the long run, these firms experienced higher returns during the media campaign sparked by J’Accuse...!, a famous editorial that paved the way for Dreyfus’ rehabilitation. Our preferred interpretation is that media coverage of the Affair changed beliefs among antisemitic investors, allowing those who bet on Jewish-connected firms to capture excess returns through arbitrage. Our findings provide novel evidence on the existence of rents from discrimination and the economic impacts of antisemitism.
    Keywords: Antisemitism; Financial Markets; Discrimination
    JEL: J15 J71 N23 G14
    Date: 2020–08
  10. By: khasgiwala, Suvidh
    Abstract: This article presents a reformulation to the concept of Entropy and the Second Law of Thermodynamics. Research shows that the second law of Thermodynamics is misunderstood, by changing the Law and re-defining Entropy, the improved statement of the law is the fundamental law that drives our Universe, following Hegel’s oeuvre.
    Date: 2019–02–28
  11. By: Tigist Gebrehiwot (University of South Africa, Pretoria)
    Abstract: According to the latest, available data women are the majority in Africa and overrepresented in the informal economy. Sadly, in the formal sector women are less likely to participate, this range from women 63% to men 94% and why?This paper captures women participation in Africa?s economy and ask an important fundamental question that how is going to Africa to achieve the 2030 Agenda for sustainable development. It is a particular importance for this paper is Goal 5 of the Agenda in attaining gender equality. This paper hopes to engage with a global audience interested in women?s economic empowerment in finding a mechanism to narrow the gap.This is significant because there are so many gifted and talented women living undeserved lives in Africa because they are confined by restrictions imposed upon them by culture, tradition and the law. It is also because the bases of the world economy are men dominated and continue benefited majority men and need to be addressed.This paper will offer a comprehensive assessment and critical perspective of the importance of women participation in globalised Africa?s economy in realizing the sustainable development agenda.
    Keywords: Gender, Economy, Africa, Sustainable Development, Global
    JEL: A13 B54 D31
  12. By: Jacques Fontanel (CESICE [1977-2015] - Centre d'études sur la sécurité internationale et les coopérations européennes [1977-2015] - UPMF - Université Pierre Mendès France - Grenoble 2 - IEPG [?-2019] - Sciences Po Grenoble - Institut d'études politiques de Grenoble [?-2019])
    Abstract: The faith in the self-balancing of the markets is however contradicted by the facts, but its defenders always find in economic intervention the State the fundamental cause of crises. The role assigned to the State in economic and social life is mainly a philosophical, moral and of course political question. Market economy did not lead to peace, and globalisation is nor a panacea. At the international level, American leadership is taking hold, but China is beginning to concurrence it. The struggle will be fierce in the years to come, because both countries want to rule the world to their benefit, thanks to their domination effects on the most powerful technologies for the future, such as artificial intelligence, space and especially information management. Europe is still in political, economic and philosophical crisis. BRICS do seek to define common solidarity policies, but their internal divergences often do not allow them to impose their objectives. Social inequalities have been growing for almost half a century. In the future, they will raise considerable economic problems that will undoubtedly lead to worrying social and societal conflicts. The robotic and digital revolutions call into question the importance and content of human labour. Finally, the looming environmental crisis, especially with global warming, may lead to the progressive collapse of the human race.
    Abstract: La foi dans l'auto-équilibre des marchés est contredite par les faits, mais ses défenseurs trouvent toujours dans l'intervention économique l'État la cause fondamentale des crises. Le rôle assigné à l'État dans la vie économique et sociale est principalement une question philosophique, morale et bien sûr politique. L'économie de marché ne conduit pas à la paix, et la mondialisation n'est pas une panacée. Au niveau international, le leadership américain s'impose, mais la Chine commence à l'inquiéter. La lutte sera féroce dans les années à venir, car les deux pays veulent diriger le monde à leur avantage, grâce à leurs effets de domination sur les technologies les plus puissantes du futur, comme l'intelligence artificielle, l'espace et surtout la gestion de l'information. L'Europe est toujours en crise politique, économique et philosophique. Les BRICS cherchent à définir des politiques communes de solidarité, mais leurs divergences internes ne leur permettent pas d'imposer leurs objectifs. Les inégalités sociales s'accentuent depuis près d'un demi-siècle. À l'avenir, elles soulèveront des problèmes économiques considérables qui entraîneront sans aucun doute des conflits sociaux et sociétaux inquiétants. Les révolutions de la robotique et du numérique remettent en question l'importance et le contenu du travail humain. Enfin, la crise environnementale qui se profile, notamment avec le réchauffement climatique, pourrait entraîner l'effondrement progressif de la race humaine.
    Keywords: State,Europe,Leadership,BRICS,Digital Revolution,Environment,Economics,USA,China,inequalities.
    Date: 2020
  13. By: Yvon Pesqueux (EESD - Equipe en émergence sécurité défense - CNAM - Conservatoire National des Arts et Métiers [CNAM])
    Abstract: Après une introduction qui questionne la continuité « éthique des affaires-responsabilité sociale de l'entreprise-développement durable », ce texte aborde les éléments suivants : L'éthique des affaires ou l'émergence d'une discipline des sciences de gestion (L'« évidence éthique » de la fin du XX° siècle ; L'argument philosophique ; Les principaux courants éthiques d'après J. Russ ; L'argument historique ; L'argument économique ; Le « moment libéral » ou le passage d'une représentation de la vie en société fondée sur le « vivre avec » et ses implications sur les fondements éthiques) ; Qu'est-ce que l'éthique des affaires ? (Les références en présence ; Les raisonnements en présence : conséquentialisme et non conséquentialisme ; Minimalisme et maximalisme éthique ; Le modèle des idéologies éthiques de D. R. Forsyth ; Une référence courante en éthique des affaires : la théorie des différents stades du jugement moral formulée par L. Kohlberg ; Ethique et affaires et Spirituality in Management ; L'éthique des affaires comme « culture organisationnelle » ; L'éthique des affaires comme « contrat psychologique » ; Conclusion, les interrogations quant à la place de l'éthique des affaires) ; Les codes d'éthique et le management par les valeurs (Les codes d'éthique ; Les dénominations et les contenus ; Les liens « codes d'éthique-culture organisationnelle » ; Les questions relatives aux codes d'éthique) ; L'enracinement philosophique des concepts en présence (De la distinction « déontologie-loi-éthique-morale » et sur ses corrélats-Déontologie-Loi-Ethique et morale : première approche-La perspective d'A. Kremer-Marietti sur la morale-La définition de la morale selon E. Weil-La perspective d'A. Kremer-Marietti sur l'éthique-La position de L. Ferry sur l'éthique dans le Dictionnaire de philosophie politique-Le parcours de R. Misrahi dans Qu'est-ce que l'éthique ?-La définition du bonheur selon A. Comte-Sponville-Ethique et normativité-Ethique et Morale chez P. Ricoeur-La position de P. Ricoeur dans l'Encyclopedia Universalis-Sur Ethique et Morale, la perspective de P. Ricoeur dans Lectures 1 : 1. La primauté de l'éthique, 2. Le recours à la norme, 3., La nécessité d'une Yvon PESQUEUX 2 sagesse pratique, Les fondements de la dialogique : immanence et transcendance, L'évidence éthique et la convocation des philosophes, Conclusion ; Valeur ; Normes ; Règle) ; Le management par les valeurs : un projet de partage des valeurs émises par une direction générale (Le déontologue (ou « responsable éthique »), L'Ethics Officer aux Etats-Unis, Les Federal Sentencing Guidelines, La « Defense Industry Initiative », La fonction d'Ethics Officer (E.O.), La fonction de Corporate Responsibility Officer, L'Ethics Officer en Europe) ; Le Whistleblowing ; Le problème de l'intégration des valeurs éthiques ; L'éthique en situation de travail ; Contrôle de soi et contrôle des autres.
    Date: 2020–09–06
  14. By: Driss El Ghoufi (INREDD - Innovation, Responsabilités et Développement Durable - Université Cadi Ayyad - Université Cadi Ayyad)
    Abstract: Trois ensembles de travaux dominent aujourd'hui la conception que l'on se fait de l'évolution de la théorie du développement : la nouvelle économie institutionnelle (ou New Institutional Economics), la perspective du développement humain et les approches environnementale et territoriale. Ils semblent partager la conception de la science selon laquelle celle-ci se développerait de façon continue par ajouts successifs de fragments qui ne remettraient pas en cause les postulats mêmes de la science économique ; au contraire, ils représentent la discontinuité entre la perspective des néo-classiques et celle des promoteurs des dimensions environnementale et territoriale. Il s'agit donc pour nous de fournir des éléments de compréhension de cette mosaïque ; éléments de compréhension seulement car, nous le verrons, aucune approche n'est parvenue à expliquer le surgissement d'une nouvelle théorie. Mots clés : Nouvelle économie institutionnelle, développement humain, développement territorial durable. Classification
    Date: 2020–08–28
  15. By: Antoinette Baujard (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint-Etienne, France); Judith Favereau (Université Lumière Lyon 2, Université de Lyon, Triangle UMR 5206); Charles Girard (Université Jean Moulin Lyon 3, Université de Lyon, IRPhiL EA 4187)
    Abstract: Cette introduction insiste sur les difficultés et les enjeux de la distinction entre les approches positives et normatives des normes. La vie collective est organisée par des normes, mais qu’elles ordonnent les comportements dans les faits n’impliquent pas qu’elles soient désirables. Une stricte description des normes peut nécessiter de prendre en compte les questions éthiques, lesquelles peuvent être traduites à l’aide de la méthode axiomatique ; choisir les normes en revanche est une activité de nature fondamentalement normative, qui interroge la légitimité des décisions et des évaluations. La possibilité même de démarcation entre positif et normatif ne va pas de soi : en particulier en économie du bien-être, les approches standards qui visent à éviter les jugements de valeur (le welfarisme) ou à les isoler (l’axiomatique) peuvent s’avérer problématiques. Pour conclure, nous présentons les quatre articles du numéro qui illustrent les quatre étapes de cette réflexion sur la normativité.
    Keywords: positif, normatif, normes, jugements de valeurs, éthique, régularités, démarcation
    JEL: A13 B41 D63
    Date: 2020
  16. By: Jorrit Gosens (Crawford School of Public Policy, Australian National University)
    Abstract: Much hope has been placed on China’s decisions regarding low-carbon stimulus following COVID-19. Analysis of China’s recent Government Work Report suggests that while a repeat of recovery measures focused on high-emissions infrastructure following the 2008 global recession is not in the cards, a Chinese Green New Deal is not in sight either. Much investment is flowing to fossil fuel industries, whilst support policies for renewable energy industries are absent from Beijing’s recovery program. These signs of environmental ambition taking a back seat are worrisome given that Beijing is currently designing its 14th Five-Year Plan.
    Date: 2020–07
  17. By: Naba Kumar Adak (Sabang Sajanikanta Mahavidyalaya, West Bengal)
    Abstract: Economists of Austrian School think that a few commodities (ultimately gold and silver) emerged as mediums of exchange out of the barter system. They think if money were commodity-money, only then exchanges will be done smoothly without causing any adverse effect on the economy. The supply of any amount of fiat-money proves to be over-supply of money, as no extra commodity is created corresponding to the creation of the fiat-money. Increase in fiat money reduces the value of the money and the price of commodities rises. They think, that to be able to spend more than its tax-receipts can support, the government will allow the central bank to fraudulently increase fiat-money. Austrian economists also think that the central bank (CB) allows the commercial banks to create credit-money. They think the government and the central bank jointly inflate (increase) the supply of fiat-money. This causes inflationary pressure on the economy and leads the economy to cycles of recessions. So, they prescribe that the government and the CB should be deprived of their monopoly power to create money and that only private banks should be allowed to create money. They think that private bankers will not increase supply of money to that extent that can harm the stability of money and the Consumer Price Index. The Austrian economists suggest how the private bankers will create money and how the people will accept or reject any money to hold. They argue that private banks will manage their own affairs if they were left without any external interference. The purpose of this paper is to show that the alternative processes suggested by the Austrian School of Economists are very much impractical and detrimental to the economy. In their private banking system, different banks will issue notes of different denominations. People will have to be always on alert to see which money becomes more stable than other moneys. Private Banks will also have to remain always on guard lest their money is devalued in competition to other banks? moneys. There is no guarantee that no private bank will fall. Thus, both private banks and the people will be puzzled in deciding what policy or action will be the best choice for keeping the value of their money stable or which money they should hold so that they do not face any future devaluation or any bank-failure. Therefore, the private banking system will lead to uncertainty and complete chaos in the monetary and financial systems.
    Keywords: Fractional reserve free banking, Ma, Mb, Commodity credit, Circulation credit, Fiduciary media, Abolition of Central Bank, Mal-investment, unemployment, concurrent currencies, boom-bust cycle, bunch of commodity reserve standard, ?a collection of raw material prices? standard, sound money, stable money, private banking
    JEL: B53 E52 E62

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