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Two old French references to free banking

New to me, however.

1. "Adam Smith et la banque libre," by Laurent Le Maux, Brussels Economic Review (Cahiers économiques de Bruxelles), 2002, vol. 45, issue 1, pages 3-36.

English abstract: Smith is the forerunner of the free banking theory. Smith develop the law of reflux which asserts that private banks cannot over-issue because the convertibility rule and the market mechanism induce banks to supply just the amount of money that public want to hold. The real bills doctrine of Adam Smith has been misinterpreted and just propose a solution to the law of reflux. Smith is a forerunner too of information asymmetry theory. He shows that banks are confronted with information asymmetry when they discount doubtful bill, and it is in their interest to control actively the quality of their claims.

2. Economie monetaire by G. Bramoulle and Dominique Augey (book, 1998). The description of the book reads (in loose translation), "This book treats both the theoretical and institutional aspects of money. It is aimed at [French economics students in the equivalent of their junior year in college]. In-depth treatment of monetary theories, integrating the microeconomic foundations of the behavior of the supply and demand for money, along with the arguments of the debate between monopoly central banks and free banking systems, offers readers intending to specialize in monetary analysis a synthesis of recent work in the subject."  Would that there were a widely used money and banking textbook in English whose author was astute enough to devote more than a page or two to free banking, because the contrasts between free banking and central banking throw light on a number of issues in monetary economics.


  • Can there be any doubt that Smith's leap in economic understanding dwarfs that of any other individual since? I'm ashamed to admit that I only recently read TWoN and was struck by how it could have been written today, and how clear the language and reasoning are. Almost all of the new things I've learned in economics over the years are over 14 decades old. Even his great miss on labor theory of value reads more like a passing consideration of which he'd have taken all of 10 minutes to dismiss and integrate into his other ideas if ever confronted by a marginalist.

    I've become a great fan of Smith. I very much recommend TWoN as a starter book in economics. A modern textbook is 90% Smith, and scarcely more lucid. It has become impossible for me to take vociferous critics of Smith seriously once having read Smith.