A lost century in economics: Three theories of banking and the conclusive evidence
☆Richard A. Werner Available online 8 September 2015
da https://www.sciencedirect.com/science/article/pii/S1057521915001477 il documento http://www.sciencedirect.com/science/article/pii/S1057521915001477/pdfft?md5=91115b0304bc79f304d8fc13db188a75&pid=1-s2.0-S1057521915001477-main.pdf
In this paper the reason why bank regulation based on the fractional reserve and on the financial intermediation theories of banking have not been successful could be identified. On the other hand, having no bank regulation is also not likely to be successful, as the 2008 financial crisis has shown: Bank credit derivatives had been entirely unregulated on the advice of Alan Greenspan and other supporters of unregulated mar- kets. They have since concurred with their critics that regulation would have been better. But what type of bank regulation is likely to be more successful? […]
The question why economics seems to have made no progress in the 20th century concerning a pivotal issue, namely the role of banks, is im- portant and troubling. The thesis that conflicts of interest and indeed vested interests may have been at play (especially emanating from cen- tral banks and large banks) was discussed and requires further research. Overall it can be said that one of the implications of this study is that it does not make much sense to build economic theories of the financial sector, if these are not based on institutional (and accounting) realities. The role of accounting and law in economics should be increased, both in research and in the teaching of economics. This includes the role of national income ac- counting and flow of funds information (see Winkler et al., 2013a, b), which have to be reconciled with those records of the banks. These are not only the “central settlement bureau, a kind of clearing house or bookkeeping centre for the economic system” (Schumpeter, 1934, p. 124), but also the creators and allocators of the money supply. The reflection of empirical bank reality within theories and textbooks surely must become the ‘new normal’ in fi- nance and economics. Finally, the confirmation of the results reported in Werner (2014b) further strengthens the call for a new, interdisciplinary research agenda on the role of banks and the central bank in particular, and the monetary system in general, which should be firmly rooted in the inductive, em- pirical research methodology to produce scientific economics. While many authors have proclaimed a continuous blurring of the division be- tween banks and non-bank financial institutions, Werner (2014c) showed precisely what allows banks to create money (and capital) out of nothing, while non-banks are unable to do so. Interdisciplinary work with researchers in politics, law, accounting, management, opera- tional research, information technology, engineering and systems re- search is called for to ensure that economics and finance on their own cannot continue to ignore empirical reality and embark on another lost century for economic sciences.
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