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Not as original as I thought

François Velde of the Federal Reserve Bank of Chicago has pointed out in e-mail that my 2001 Cato Journal article was not the first to observe that note issue by banks in the United States was legal again. Though I made no claim to originality in the article, until now I thought nobody else had stumbled across the fact before. Jeffrey Lacker, then an economist at the Federal Reserve Bank of Richmond and now the president of the bank, had however published an article in the bank’s quarterly bulletin in 1996, “Stored Value Cards: Costly Private Substitutes for Government Currency.” In it he observed that that note issue was apparently legal both for state and federally chartered banks.

Where did he make his observation? Twenty pages into the article, in one sentence plus a footnote! He buried his most important finding in one sentence deep into the article and did nothing to publicize it. I missed Lacker’s paper in my search of the literature, or, if I saw it, the title put me off the trail. When researching the article I contacted some other economists, lawyers at the Federal Reserve Board of Governors, and persons knowledgeable about bank regulation, and none of them were aware either that note issue by banks was legal, or of the finding in Lacker’s article.

So, humility in claiming priority of discovery is always in order. And if you make a discovery, you need to make other people aware of it!

3 comments

    1. Mr. White, I just read your article with Mr. Bordeaux at the link you provided. Some comments I would like to make regarding it:
      1) It is more a reply to Scott Sumner´s "Is Nonprice Competition in Currency Inefficient?" (2000) than a critique to Lacker´s paper linked at Mr. Schuler´s post, which you barely quoted a couple of times.
      2) Throughout it you discuss a diagram that is only shown at Mr. Sumner´s article, it would have been helpful if you had reproduced it in yours as well for didactical purposes, so your readers are not clueless trying to picture it in their minds while you refer to the letters after which some areas in that graph were labeled.
      3) The 1999 article of Scott Sumner you refer in the last page is not included in your bibliography.
      4) In page 151, you say -at two different lines- "su-plus" instead of "sur-plus".
      And the most important one:
      5) The validity of a geometrical "proof" of net social welfare through the measurement of the variations in consumer and producer surplus of supplying money with "n" producers rather than with one is unclear: Not only the numbers chosen for an entirely hypothetical situation were arbitrary, but it is dubious if all issues were taken into account: In your book "The Theory of Monetary Institutions", for instance, you discuss the economic incentives for a private money issuer to decide (through an inter-temporal analysis) whether to go wild and hyperinflate its currency rather than behave, which I don´t think was taken into consideration here.
      In general, my position is that one cannot illustrate the benefits of not having a monopoly (as in any standard Micreconomics textbook) for the case of money as with any other (real) good.

  1. There is practically nothing new under the Sun, so debates over priority seem more like bickering, but there is always plenty of darkness needing illumination, not to mention academics, politicians and corporatists wearing blinders.

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