Steve Keen's Ravel software can model how debt deflation is an inevitable outcome in an economy with a fixed money supply, see chapter 3 of his excellent book "Money and Macroeconomics from First Principles" for a demonstration.
I've actually not used Steve's software to model that, I do though have a math model that will demonstrate it. I have an article already written, I can't publish it yet until I find a good way to accurately display the equations etc., in substack. The in-line LaTeX functions are very messy.
Weren't many bank runs caused precisely by that historical 'muddle' between government base money and private bank liabilities?
A constant source of instability.
Nowadays, without the pretence of a commodity anchor, concerns are about liquidity and solvency - not about a run on gold. No mismatch between the pyramid of private credit and the narrow base of physical gold. Final settlement and par carried out by reserves and notes. No need for gold shipments or convertibility panics.
FWIW, runs still occur. The failure of Silicon Valley Bank, for example. The rules of what is and is not money changes from time to time, but the bank liabilities (demand deposits) we use as money today always exceed a bank’s ability to pay every depositor should they all demand their deposits at once. Switching from gold to fiat does not change how credit expansion banking works.
Absolutely. But note the crucial difference: No one at SVB was demanding gold. No one feared that their dollars would become worthless because the government might "go off fiat." The run was about a specific bank's interest-rate risk and liquidity, not the collapse of the monetary standard itself.
Absolutely, but I would note that there was one major difference: No one at SVB was demanding gold. No one feared that their dollars would become worthless because the government might "go off fiat." The run was about a specific bank's interest-rate risk and liquidity—not the collapse of the monetary standard itself.
In the pre-FDIC, pre-Fed era. The Harvard Business Law Review notes that "despite state and federal risk constraints, banking panics were a recurring part of the financial landscape in the nineteenth and early twentieth centuries." The US experienced major banking panics in 1873, 1884, 1890, 1893, and 1907—episodes "associated with major disruptions to the broader economy." Two economists add that these recurring crises were precisely what led to the creation of the FDIC in 1933.
Runs could be local, regional, or national, often centred on the New York money market. When a panic hit, banks would partially suspend cash payments, triggering business payroll difficulties, hoarding, and a currency premium.
Under the gold standard, a run on a bank was also, implicitly, a run on the government's gold. The state's ability to act as lender of last resort was compromised by its commitment to convertibility.
Steve Keen's Ravel software can model how debt deflation is an inevitable outcome in an economy with a fixed money supply, see chapter 3 of his excellent book "Money and Macroeconomics from First Principles" for a demonstration.
I've actually not used Steve's software to model that, I do though have a math model that will demonstrate it. I have an article already written, I can't publish it yet until I find a good way to accurately display the equations etc., in substack. The in-line LaTeX functions are very messy.
Note a key difference to look at is government “base money” vs bank liabilities- usually in the past a muddle on redeemability and these
Weren't many bank runs caused precisely by that historical 'muddle' between government base money and private bank liabilities?
A constant source of instability.
Nowadays, without the pretence of a commodity anchor, concerns are about liquidity and solvency - not about a run on gold. No mismatch between the pyramid of private credit and the narrow base of physical gold. Final settlement and par carried out by reserves and notes. No need for gold shipments or convertibility panics.
FWIW, runs still occur. The failure of Silicon Valley Bank, for example. The rules of what is and is not money changes from time to time, but the bank liabilities (demand deposits) we use as money today always exceed a bank’s ability to pay every depositor should they all demand their deposits at once. Switching from gold to fiat does not change how credit expansion banking works.
Absolutely. But note the crucial difference: No one at SVB was demanding gold. No one feared that their dollars would become worthless because the government might "go off fiat." The run was about a specific bank's interest-rate risk and liquidity, not the collapse of the monetary standard itself.
Absolutely, but I would note that there was one major difference: No one at SVB was demanding gold. No one feared that their dollars would become worthless because the government might "go off fiat." The run was about a specific bank's interest-rate risk and liquidity—not the collapse of the monetary standard itself.
In the pre-FDIC, pre-Fed era. The Harvard Business Law Review notes that "despite state and federal risk constraints, banking panics were a recurring part of the financial landscape in the nineteenth and early twentieth centuries." The US experienced major banking panics in 1873, 1884, 1890, 1893, and 1907—episodes "associated with major disruptions to the broader economy." Two economists add that these recurring crises were precisely what led to the creation of the FDIC in 1933.
Runs could be local, regional, or national, often centred on the New York money market. When a panic hit, banks would partially suspend cash payments, triggering business payroll difficulties, hoarding, and a currency premium.
Under the gold standard, a run on a bank was also, implicitly, a run on the government's gold. The state's ability to act as lender of last resort was compromised by its commitment to convertibility.