The Development of the New Monetary Economics Author(s): Tyler Cowen and Randall Kroszner Source: The Journal

of Political Economy, Vol. 95, No. 3 (Jun., 1987), pp. 567-590 Published by: The University of Chicago Press Stable URL: http://www.jstor.org/stable/1831978 Accessed: 15/04/2009 21:42
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The Development of the New Monetary Economics

Tyler Cowen and RandallKroszner

Harvard University

This paper looks into the history of economic thought to examine the forerunners of the "new monetary economics." This approach emphasizes the role of regulations on private financial intermediation in determining the particular institutional arrangements that contemporary monetary theory treats as data. The "new view" investigates the possibility that under laissez-faire the unit of account and means of payment, traditionally bundled together in the item called "money," may become separated. The earlier writers who share this perspective have been overlooked by historians of economic thought as well as by recent contributors to the new monetary economics. An examination of these theorists is of more than historical interest, for many of their insights and analyses are relevant to modern monetary theory.

Close on the heels of the "new classical" revolution in monetary theThis ory is another intellectual trend rapidly gaining momentum. new approach has been dubbed "the new monetary economics" (Hall 1982) and "the BFH system" (Greenfield and Yeager 1983), taken from the initials of three important innovators: Fischer Black (1970), Eugene Fama (1980), and Robert Hall (1982, 1983). Other recent contributors to this approach include Neil Wallace, Thomas Sargent, Robert Greenfield, and Leland Yeager. The new monetary economThis is a revised version of a paper originally entitled "The Development of the Legal Restrictions Theory of Money." In addition to the participants in seminars at George Mason University and New York University, we would like to thank Richard Cothren, George Stigler, Bill Woolsey, Leland Yeager, and an anonymous referee for valuable comments and/or discussions. Kroszner acknowledges support from the National Science Foundation. The usual disclaimer applies.
[Journal of Political Economy, 1987, vol. 95, no. 3] C 1987 by The University of Chicago. All rights reserved. 0022-3808/87/9503-0003$01.50

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NME-combines features of Wallace's (1983b) "legal ics-henceforth restrictions theory of money" with the possibility of separating the unit of account and medium of exchange functions of money, as will be outlined below. Notwithstanding the recent interest in the NME, there has been very little effort to discover its roots. Sargent and Wallace (1982) have noted certain similarities between the legal restrictions theory and the real bills doctrine of the British "Banking School." They have, however, overlooked a number of important writers who are in many respects much closer to the legal restrictions and BFH points of view. Since the NME has a long tradition starting in the eighteenth century and stretching into the early part of the twentieth century, our paper shall examine its development through the history of economic thought. The relevance of our present endeavor is twofold. First, many of the ideas discussed by the early theorists of the NME mold are relevant to modern economic theory and are just starting to enter the current debate (as discussed below). Second, nearly all the figures in the history of the NME have been unjustly overlooked or completely ignored and deserve a more prominent place in the history of monetary theory.' Our paper opens with a skeletal description of the NME, which is intended as a synthesis rather than a representation of any one author's views. As a general introduction to the NME forerunners' framework, some comparisons and contrasts with other approaches to monetary theory, including the quantity theory and the Austrian evolutionary approach, are offered. The following section briefly considers some of the earlier and less systematic discussions of NME themes such as monetary separation and the abstract unit of account. Next, we examine the first writings concerning the NME, spanning approximately the two decades prior to the First World War, when this set of ideas was debated extensively among such writers as William Whittick, Alfred Westrup, Benjamin Tucker, Hugo Bilgram, Arthur Kitson, J. Greevz Fisher, and Henry Meulen. These discussions concern the results of free banking as well as both the feasibility and desirability of the separation of monetary functions. We then
1 None of the major histories of monetary or economic theory, such as Viner (1937), Mints (1945), Schumpeter (1954), or Blaug (1978), discusses this active group of American and British writers. Three surveys that focus specifically on free banking thought-Vera Smith (1936), Brown (1982), and White (1984b)-and Hayek's competitive currencies proposal (1978) only cite Henry Meulen in passing. Finlay (1972) contains a brief discussion of Arthur Kitson and Meulen but misrepresents their monetary theory. In his encyclopedic compilation of all economic thinkers who advocated some form of currency stabilization, Fisher (1934) devoted two sentences to William Whittick (p. 54) and provided a short description of Kitson's contributions (pp. 51, 122-24).

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focus on Meulen's thorough analysis of these ideas. The concluding section summarizes the contributions of this neglected group of theorists and raises some of the issues that remain unresolved for the NME. Characterization of the New Monetary Economics We shall characterize the NME by the following seven propositions. 1. "Legal restrictions on private intermediation" in the financial sector are crucial to the analysis of monetary phenomena (Wallace 1983b, p. 1). Highly critical of the assumptions of monetary theory that render it narrowly institution-bound, the new school asserts that alternative institutional frameworks "would make current monetary theory almost completely invalid" (Black 1970, p. 9). 2. As a direct consequence of the emphasis on legal restrictions, the ''new view" finds that "money is exactly a creation of regulation" (Hall 1982, p. 1554).2 In a laissez-faire economy, completely devoid of governmental interference in the financial sector, "money in the usual sense would not exist" (Black 1970, p. 9). 3. Thus, in such a world, the quantity theory of money (as well as the liquidity preference theory [Black 1970, p. 20]) loses meaning. The quantity theory is valid only under special institutional arrangements that arise because of legal restrictions on intermediation; the quantity theory relations are an "artifact" of regulation (Hall 1982). 4. The provision of monetary services is conceptually distinct from the provision of what we typically think of today as "money" (Fama 1980, p. 49), and the laissez-faire case in which the private sector provides only the former is a useful analytical benchmark for monetary theory. In addition, proponents of the NME find the welfare implications of laissez-faire in financial intermediation to be favorable. 5. The traditional functions of money (unit of account and means of payment) need not be intertwined in a single entity called "money." The unit of account might be purely abstract or take a real commodities form.3 In either case, it could exist separately from the media of payment. The latter might take the form of real asset claims (Fama 1980, p. 43).
2 This statement refers to the continued existence of money in a developed economy, not the emergence of money itself, and so this view should not be confused with Knapp's (1924) "state theory of money." He argued that money comes into being and gains its "validity" exclusively through the decrees of the state. Ellis (1934, pp. 13-41) contains a concise summary and sympathetic criticism of Knapp's "chartalism." More on this issue later. 3 The notion of an abstract accounting unit will be developed in the next section.

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6. In the absence of legal restrictions in the banking sector of a developed economy, the disentangling of the monetary functions would eradicate many of the problems attending changes in the value of the unit of account. The banking and financial sector would thus have "no special control over prices or real activity" (Fama 1980, p. 47). 7. This independence of the financial and real sectors would eliminate those sources of macroeconomic instability arising from the "money side." In this way, the macroeconomic properties of a laissezfaire world would bear a striking likeness to those of a barter economy. Fama (1980) has even called it a system of "sophisticated barter." Analytic Overview: Some Comparisons and Contrasts Before permitting the forerunners to speak for themselves, we shall explore some comparisons and contrasts of their ideas with, first, the doctrines of the quantity theorists of their time and, second, the modern NME theorists.4 Both the turn-of-the-century quantity theorists and the NME forerunners were strongly influenced by the bimetallist controversies, which focused on the ability of monetary disturbances to generate deleterious macroeconomic effects as well as disruptive changes in an economy's "standard of value" or unit of account. In this way, both approaches are acutely concerned with developing a financial system that would minimize disturbances arising from shifts in the supply of and demand for money. The two schools, however, part company in their respective analyses of the institutions that would achieve such a goal. First, for the NME forerunners, "money as we know it," while performing important functions in the economy, is a fundamentally disequilibrating force. Tying the money supply to gold or some other commodity base through convertibility would subject the entire economy to the vagaries of supply and demand conditions of that commodity. Breaking the tight link to gold through central bank management of a gold exchange or fiat standard could not achieve stability either (see additional "political" reasons below). The forerunners argue that monetary problems arise precisely because a special commodity or governmentally issued paper money has such a central position in the economy. The pivotal role of the circulating asset or asset claim is what gives "money" its powerful ability to wreak havoc in the economy. In this way, the forerunners found the quantity theory
' Once again, we are providing simply a thumbnail synthesis here, not exegeses of individuals' works.

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to be highly misleading for the analysis of monetary phenomena because the theory does not take account of this underlying source of disequilibration. Second, in order to achieve a set of institutions that would permit "money" to be dislodged from its disruptive position in the economy, the forerunners believed that total deregulation of the monetary system would be required. In contrast, the quantity theorists considered such a situation infeasible and typically believed that some form of central bank control is necessary to eliminate monetary disturbances. For the forerunners, legal restrictions are an important obstacle to stabilization, for they help to maintain the focal position of "money." State control and regulation were identified by the forerunners with monopoly, privilege, and manipulation of economic variables contrary to the public interest. In addition to the criticism in point 1 above, this perspective led the forerunners to have little faith in proposals for government management of the system. They disagreed with those also wary of state intervention who advocated the gold standard because such a commodity base could not be insulated from state interference (as Clark [1984] has recently documented for the period in which the forerunners wrote). This second "political" level of criticism arises from the forerunners' libertarian and "public choice" analysis of government involvement in financial regulation (see McElroy 1981, 1982). While many of the quantity theorists also harbored suspicions of government power, they viewed the possible abuses of such control over monetary institutions as far less troublesome than the effects of complete deregulation. Third, unlike the quantity theorists, the forerunners wished to separate the means of exchange from the unit of account in all transactions. Notions of separation of monetary functions, however, are not unique to the NME forerunners. Variations in the value of the unit of account motivated Jevons (1876) to devise his partial indexation scheme involving "multiple legal tenders."5 Similar considerations also led Irving Fisher (1912, 1920) to develop his "compensated dollar" program. Such proposals do not address the concerns of the forerunners enumerated above. A "money" would still have a precarious place in the economy, and such indexation schemes would still be vulnerable to political manipulation. In addition, such plans en-

5 The ordinary gold standard was to be used for everyday transactions, whereas an indexed "tabular standard" would be the standard for all intertemporal contracts over 3 months in duration. Jevons found that "we come to regard as almost necessary that union of functions which is, at the most, a matter of convenience, and may not always be desirable" (1876, p. 16).

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counter traditional index number problems, for example, type of index, choice of weights, and revisions over time.6 In order to resolve the problems they posed, the forerunners developed the concept of the abstract unit of account. Under the abstract unit scenario, both market goods and instruments employed as media of exchange have their own price in terms of the unit of account. The unit of account is "abstract" in the sense that it does not correspond to any existing commodity or exchange medium. The quantity theory is not relevant to such a framework, for, first, the notion of "the" price level is no longer particularly meaningful and, second, every good could be said trivially to follow a quantity theory relation with the appropriate choice of a price level.7 Since exchange media have their own price in terms of this unit, changes in their supply and demand would exercise no special influence over economic activity. The transactional inconveniences resulting from distinct prices for media of exchange are clearly a major disadvantage of the abstract unit. Although the issue was briefly noted during the debates among the forerunners and their critics, it did not receive systematic attention until White (1984a, 1985), McCallum (1985), and O'Driscoll (1985) made the point central to their criticisms of the modern NME theorists. Despite the many similarities outlined in our paper, the forerunners deviated from the modern NME theorists in one important respect that makes the forerunners more akin to certain branches of the older quantity theory: They typically adopted an evolutionary approach to the development of monetary institutions. This approach was pioneered by Menger (1871/1981, pp. 257-85; 1892) and von Mises (19'12/1971) of the Austrian schools According to the Austrian evolutionary theory, money emerges as the outcome of a decentralized sequential decision-making process. The purchasing power
ireenfield and Yeager (1983) carefully distinguish the BFH system from indexation schemes. See Yeager (1983, esp. pp. 311-17) f'or a further elaboration of' the diffterences between pllins for monetary separation and indexation. Within the modern (lJanltity theory framework, Brunner and Meltzer (1971, pp. 802-3), Niehans (1978, p. 130 f'.), and Friedman (1984) consider risk and transactions costs arguments that account f'or the lack of' popularity of' voluntary indexation programs, even in highly v times. inaflationar 7 See Yeager (1 985) and Cowen and Kroszner (1 986) f'or discussions of' the stability of' abstract unit I)rices. x Ellis ( 1934) provides a usef'uLl survey of' the different theories of' money found in the German literature from 1905 to 1933, while Frankel (1977) contrasts the Austrian 'invisible hand" explanation of' the emergence of' money with Knapp's "chartalist" state theory of' money. See also Laidler and Rowe ( 1980), which examines the close relation of Siimmel's Philosophy o/ Motiey (1 907/1978) to Austrian monetary theory. Unf'ortunately, the forertinners who discussed this matter provided no citations, and so we have

been Unable to establish direct linkages to the Austrians, although the influence will become obviouLsin the following sections.

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of money arises out of barter as the undesigned consequence of individuals' interactions in the marketplace.9 The pivotal role of confidence in the monetary institutions, which thereby generate the expectations that determine the media's values, is an important element of Austrian monetary theory, which the forerunners also adopted (see Ellis 1934; Frankel 1977, pp. 36-41; Simmel 1978, esp. pp. 190-203; Laidler and Rowe 1980). We shall describe below the attempts by Kitson and Meulen to extend this evolutionary approach to explain the emergence of the abstract unit and the separation of monetary functions as a further stage in the development of financial institutions. Much of the controversy among the forerunners and their critics surrounds the explanation of a process by which an abstract unit could arise and be sustained in the economy, a challenge White (1984a) has put to the modern NME theorists. It is the adherence to the evolutionary approach that led the forerunners to views of a few specific aspects of the NME world different from those of the BFH thinkers and legal restrictions theorists. Advocates of the BFH system typically envisaged some form of positive state intervention in order to institute the monetary reform: redefinition of the unit of account. In contrast, the forerunners and the Minnesota legal restrictions theorists wished to focus on the consequences of relaxing governmental constraints in order to examine what will arise. ' The formal models that the modern legal restrictions theorists have employed (e.g., Kareken and Wallace 1980; Sargent and Wallace 1982) start de novo and then trace the path that gives rise to monetary or quasi-monetary equilibrium. The evolutionary approach of the forerunners, however, led them to devote more attention to the problems of moving from current institutions toward separation of monetary functions as legal restrictions are removed. A final distinction: Although the forerunners share the Minnesota legal restrictions theorists' interest in examining a world of laissezfaire, their case for such a world is rather different. The overlapping generations models that the moderns employ emphasize money's role as a store of value. (See McCallum [1983, 1985] for a critique of this
9 Modern formalized accounts of this evolutionary process typically focus on the economization of search, information, or transaction costs in order to demonstrate how money is generated out of barter in a fully decentralized economy (see, e.g., Brunner and Meltzer 1971; Jones 1976; Niehans 1978). Only Niehans, however, attempts to untangle the efficiencies due to a general medium of exchange and the use of this medium as the unit of account. That is, the "double coincidence of wants" problem of barter may be overcome with an "advanced barter" system without recourse to a payment medium tied to the unit of account. Niehans states "that in; an economy with a time dimension it may well be efficient to divorce the medium of account from the medium of exchange" (1978, p. 122). 10 Kitson's and Meulen's ambivalence on this issue will be discussed later.

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feature of' the overlapping generations models and Wallace [1983a] for a reply.) The equalization of the rates of return on different stores of' value is a key to the welfare implications of these models. The forerunners, more akin to the BFH theorists, stressed the gains to be secured by providing a stable unit of account and the diminished macroeconomic influence of changes in the supply of and demand for exchange media. It is these features, the forerunners argued, that result from laissez-faire. The equalization of rates of return on various stores of' value plays no role in their model. Instead, they perceived the welfare gains of laissez-faire as accruing from the two other functions of money, the unit of account and the medium of exchange. Early Experiences and Discussions of Monetary Separability Some degree of' separation of the means of payment from the accounting unit is a typical feature of monetary systems from primitive times to the French Revolution (see Einzig 1966). Einaudi (1953, p. 257) describes these systems consisting of an "imaginary" unit of account separated from the media of exchange: In former times, because of the existence of money of account, men every day set a price on the florins, scudi, ecus, doblons, sequins, and testoons which they received and paid out. Every day, in every single transaction, it was made clear to their minds that the money with which they paid, even bank money or paper money, was a commodity like any other, that its price was governed by the market and, like any other price, was the result of an infinite number of economic and noneconomic forces which determine the general equilibrium of all prices. l l This curious characteristic did not go unnoticed by early monetary theorists in both Europe and the United States. Montesquieu (1748/ 1899, pp. 378-80) was one of the first to consider a system with complete separation. He described the "macute" system reportedly employed by certain African tribes in which the macute was adopted as a purely abstract unit of account of valuation in exchange. 12
L EinaUdi (I 953, p. 233) goes on to explain, "Money of account was not created by decree 1)ut grew almost spontaneously out of men's habit of keeping accounts in monetary units." More recent medieval anti renaissance scholarship (Lane and Mueller 1985) stipports this view that abstract accounting units evolved out of a "long process of historical change" (Einaudi 1953, p. 246). 1 Montesqttieu explains: "The negroes on the coast of Africa have a sign of value without money. It is a sign merely ideal, founded on the degree of esteem which they

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As a method for better understanding the consequences of monetary disturbances, Scottish mercantilist Sir James Steuart (1810, pp. 1-21) suggested analyzing a system based on an abstract accounting unit separated from the exchange media. The unit, labeled "money of account" (p. 2), was compared to both the African macute (pp. 6-7) and a yardstick of unvarying length (p. 13), a metaphor that is frequently found in the work of the writers we will be discussing and has made its way into the modern literature (e.g., Greenfield and Yeager 1983, p. 306). John Stuart Mill also took note of the macute system in his Principles (1871/1929, pp. 483-84) but did not elaborate on it. Mill's contemporary John Gray (1848, esp. chap. 4) offered a reform proposal based on monetary separation. This separation, he argued, would ensure macroeconomic stability because Say's law would be in force, as in a barter economy. 13 In the United States, Stephen Colwell'4 presented an institutional approach to monetary theory hinging on the distinction between "money of account" and the "means of payment" (1859, pp. 2-3, 101, 459-60). He reviewed a variety of proposals for monetary reform that addressed separation issues (including the debate between Robert Morris and Alexander Hamilton on the appropriate coinage system for the young United States [pp. 88-89]).15 In addition, Colwell described the American and Canadian colonial experiences in which the "monies of account" of France and England persisted long after the corresponding means of payment were no longer available. A so-called bookkeeping barter system, which lasted into the 1800s, was developed in the American colonies and provides an example of how accounting operated under monetary separation (see Baxter 1956). 1'
fix in their minds f'or all merchandise, in proportion to the need they have of' it. A certain commodity or merchandise is worth three macoutes; another, six macoutes; another, ten macoutes; that is, as if' they said simply three, six, and ten. The price is formed by a comparison of' all merchandise with each other. They have therefore no particular money; but each kind of' merchandise is money to the other" (1899, p. 379). The eighteenth-century Italian economist Ferdinando Galiani (1750/1977, p. 78) also noted the abstract qualities of' the macute. '3 Somewhat later, in the German literature Simmel (1907/1978, pp. 190-93) was interested in "cases in which a certain kind of money is used as a standard of value but not for actual payment" and examined examples in Europe, Africa, and India. 4 On Colwell's life, works, and relationship with Henry Carey, see Carey's "Memoir of' Stephen Colwell" (1872), read before the American Philosophical Association meetings. See also Robey (1938) for a summary of Colwell's economic contributions. 15 Colwell also provided references to the development of the idea of monetary separability in the French literature, including the Marquis Garier and Charles Coquelin (pp. 75-77, 330). ' Although these early precursors of' the NME frequently provided fertile insights, they did not develop a systematic approach to monetary theory nor form a coherent school of' thought. The loose citation practices that characterize much late nineteenth-

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Forerunners of the New Monetary Economics Reformers A. Late Nineteenth-Century William Whittick and Alfred Westrup were the first Americans to attempt to integrate the ideas of monetary separation with a theory of free banking. 17 Whittick's views are most fully expounded in his Value and an Invariable Unit of Value (1896). While this pamphlet is long on polemics and short on content, Whittick had considerable affinities with the NME perspective. His preferred solution was a system of free banking' 8 in which "(1) money should be simply a scale of value, (2) its unit entirely arbitrary, (3) free from any commodity encumbrance, and (4) it must be poised 'in a just equilibrium between fluctuating values'" (1896, pp. 84-85). The media of exchange will arise from the monetization of all exchangeable wealth (p. 91). Like most other writers in the tradition of the NME, Whittick saw the continued existence of the gold standard as a result of monopolistic intervention (p. 92). He claimed that the precious metal cannot be a standard of value because the value of gold itself is continually varying, but rather is merely a standard of quantity and fineness because the dollar was equal to 25.8 grains of gold (p. 41). Similarly, Westrup wrote that "the misapprehension and confusion that befogs the minds of those who insist on the 'standard of value' idea, is the result of not viewing money and the denominator, 'dollar,' separate and distinct from each other. [Here Westrup footnotes Mill.] Each has its independent function. The one is to aid and facilitate the distribution of wealth; the other is a means by which we can express more or less value" (1895, p. 100). Westrup'19 supported both free banking and a mutual banking scheme taken from P.-J. Proudhon and William B. Greene (see Proudhon 1927). His plan involved the exchange of claims to real assets (1895, p. 112), while economic calculation would occur in terms of abstract units rather than commodity units. Both Whittick and Westrup claimed that their alternative would increase debtor-creditor

and early twentieth-century economic writing prevent us from determining the extent of the influence of these earlier authors on the Bilgram-Kitson-Meulen circle discussed below. Nonetheless, these early writers do deserve recognition for their priority in constructing important parts of the foundation of the NME approach. 17 Claims to the priority of Whittick and Westrup are documented in the following issues of Liberty:June 27, 1891, p. 2; June 29, 1895, p. 2; August 20, 1895, p. 6; and August 24, 1895, p. 7. 18 Whittick argued that it is best to minimize government interference into monetary affairs because "legislation is essentially stationary, while society is naturally evolutionary" (1896, p. 98). " Many of his views had been developed earlier (see Westrup 1886, 1891).

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equity, ease economic calculation, destroy the "banking monopoly," and eliminate business depressions.20 A series of debates over variants of the NME appeared in a periodical named Liberty.21 The NME approach to monetary questions first appeared in Libertyon April 4, 1891 (p. 3) in a reprint of an article entitled "Evolution in Finance," clipped from the Galveston News.22 The piece inquired: "Why is it that the admirers of evolution as regards gold as the standard are not likewise avowed admirers of evolution as to the means of payment? They must know that when parties are willing to refer to the standard, but when law compels the actual presence of the standard, law prevents the action of evolution by free contract." Further on, the article referred to "the tendency of evolution to separate the two functions [of money]. Banking science can and does separate them where the evolution is permitted to occur in the form which it will assume in freedom." Unfortunately, the rest of this reprint presents no explanation or justification for this claim, which is of central importance for the NME.23 The next major development of the legal restrictions theory came with the publication of A Study of the Money Question(1894) by Hugo Bilgram.24 He lamented the confusion in monetary theory that had arisen from ignoring the simple proposition: "The unit of value is not necessarily money, nor is money necessarily a denominator of value" (1894, p. 17). While the medium of exchange and the unit of account had evolved together through social processes "initiated in the early
20 A general weakness shared by Whittick and Westrup is, however, that they identified free banking with the actual separation of monetary functions without providing an adequate explanation of how (or whether) one might lead to the other. This assertion receives more attention later. 21 Liberty, published from 1881 to 1908, was edited by Benjamin Tucker. It was devoted to the discussion of the political, social, and economic issues of the day, primarily from an "individualist" point of view (see McElroy 1981, 1982). 22 Westrup (1895, p. 74) asserted that the GalvestonNews was the most popular and widely read daily paper in Texas and had advocated free banking for a number of years. 23 This claim is important not only for its possible policy implications but also because it promises a solution to the nagging question why individuals hold money. If money wereto disappear in the absence of government intervention, then we need not attempt to derive its continued existence from individual optimizing behavior in a pure market setting. (The origin of money, however, can still indeed be explained by an invisible hand mechanism; see Menger [1892].) Thus the absence of money from the basic model of general equilibrium may be a virtue of the theory rather than a failure. This absence would reflect that in the real world money would not exist without legal restrictions. On the other hand, if money were not to vanish under laissez-faire, a full understanding of the reasons for its persistence might suggest other approaches to constructing a framework for the analysis of a monetary economy. 24 For some brief biographical information on Bilgram, see Dorfman (1949). Bilgram was also a regular contributor to Liberty.

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stages of human history," Bilgram argued, "this evolution of money has incidentally led to the adoption of the commodity of which money was made as a universal value denominator.... This is, however, no excuse for so completely confounding these two concepts as to use the same word to denominate both" (p. 19). Bilgram identified "money" as simply any asset that through tacit or explicit agreement happens to be rendered acceptable "for the purpose of mediating exchanges" (p. 23); he argued that we do not need any quantity restrictions on the supply of money: "If a bill were introduced in congress for regulating the number of locomotives to be made and used in this country, lest an excessive number might be made, tending to increase the traffic beyond the needs of the people, the sanity of the author of this bill would justly be questioned. Yet, we accept without question the decree of congress which limits the amount of money, although money is by far the most important of all tools" (p. 49). In a close parallel, Wallace, after making a similar point with more contemporary examples, poses the questions: If it makes sense to control their [private bank notes and deposits] quantities, why not those of other credit instruments? For example, most economists would not favor a proposal to constrain the dollar volume of mortgages on single family residences to grow at a prescribed rate. Almost certainly, most would say that it is a necessary feature of a wellfunctioning credit system that the number of mortgages be determined in the market and not be set administratively. But if this is right for one set of private credit instruments, why is it not right for all? [1983b, p. 6] Bilgram proposed a modified form of freedom in banking, in which the government's role is to mandate that all banks are insured and to monitor the solvency of each bank (i.e., ensure that the forms of wealth backing the money issue are sound) in order to prevent fraud (1894, pp. 49-52). Beyond this, money "should be regulated exclusively by the law of supply and demand" (p. 53).25 No legal tender laws would be required since all notes could be accepted or refused as the transactor sees fit (p. 31). It is important to note that for Bilgram the unit of account was not abstract but rather took a real commodity form (pp. 40-41). As will be discussed below, this point led Bilgram (along with Tucker) to oppose the abstract unit of account framework.
25 Bilgram equivocated on his defense of freedom in banking (e.g., 1894, p. 50), a matter that led to a fierce debate in Liberty(July 28, 1894, p. 5; August 25, 1894, p. 5; December 29, 1894, p. 2; April 6, 1895, p. 7).

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B. Arthur Kitson and His Critics The publication of Kitson's A Scientific Solution of the Money Question (1895) was an important step in the formulation of the "abstract unit of account" branch of early NME thought. Kitson26 called for the issuance of media of exchange backed by all forms of wealth (p. 297), while an abstract unit of account (p. 178) would be used for economic calculation and pricing.27 Thus the Whittick-Westrup-Kitson approach extended work in the NME tradition by making the unit of account purely abstract. Shortly after the publication of Kitson's book, Bilgram wrote a lengthy review of it for Liberty.28 The heart of Bilgram's critique lay in his claim that when "comparing values, or economic quantities, the mediating unit must also have value" (Liberty,April 20, 1895, p. 3). Bilgram found Kitson's abstract unit inadequate for use in economic calculation and reaffirmed his advocacy of some form of real commodity unit of account. Emphasizing that a purely abstract accounting unit has no meaning to economic actors nor any operational force, Bilgram anticipated Patinkin (1965, p. 16). Kitson (Liberty, June 15, 1895, pp. 6-8) answered this line of attack with the argument that an abstract unit of account can be defined by setting the value of any commodity on a given day equal to "one" and pricing all commodities in terms thereof.29 For all succeeding market periods, however, this link is severed and only the abstract unit remains. Market participants set prices (in terms of abstract units) by reference to the abstract unit-denominated prices of the preceding
26 Kitson also distinguished himself as an inventor who had secured over 500 patents and worked with Thomas Edison on the original electric light. For other interesting details of his life, see the obituaries "Mr. Arthur Kitson" in the LondonTimes(October 4, 1937) and "Arthur Kitson, 78, Inventor of Lamp" in the New YorkTimes (October 2, 1937). Fisher (1920, pp. 50, 122-24) briefly outlined some of Kitson's reform activities in the United States and his native Britain. 27 In the book's preface, Kitson thanked Whittick for his personal help and noted the similarity between his ideas and Whittick's. Like Whittick and Westrup, Kitson also was an advocate of free banking and claimed his system would end business cycles, eliminate the debtor-creditor injustice, and furnish a stable unit of account. 28 "A New Book on Money" (April 20, 1895, pp. 2-4). (See also Liberty[June 15, 1895, p. 4] for Tucker's critical examination of Kitson.) Twenty years later, Bilgram coauthored a critique of real commodity bundle units of account (Bilgram and Levy 1914, pp. 33-35). Their criticism was twofold: First, there are conceptual problems in constructing an index number (choice of weighting scheme, etc.). Second, there "is no economic force by which the market value of things generally can become related to a prescribed unit of this kind" (p. 34), an issue raised by White (1984a) and touched on by Friedman (1984). 29 Kitson was not explicit whether this redefinition was the result purely of market forces or state intervention and thus straddled between the BFH and evolutionary approaches. Meulen clearly distinguished the two possibilities, as will be discussed below.

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period. In this way, the abstract unit can be derived from a sequential process, which ultimately refers back to an original commodity value, a process analogous to von Mises's description of the origin of money (1912/1971, esp. pp. 108-23). It was not until J. Greevz Fisher that the Westrup-Whittick-Kitson system encountered its most penetrating critic. Fisher30 was a frequent correspondent with Liberty, and Tucker printed many of his lengthy letters on banking and monetary theory. Although Fisher favored free banking (Liberty,June 27, 1891, p. 3), he also thought that many other advocates of free banking seriously exaggerated the significance of legal restrictions on financial institutions.3' Fisher was also highly critical of the view that free banking would substantially lower or eliminate the rate of interest (as was claimed by Tucker, among others), for he defended a time preference theory of interest (Liberty, July 28, 1894, p. 8; April 1897, p. 7). In addition, he rejected the Kitsonian schema for the separability of monetary functions as well as Kitson's heavy emphasis on the monetary system as the source of most economic problems. Fisher charged that "separability" proposals were impractical and would not evolve from a state of laissez-faire. He argued that, through an invisible hand process, one commodity (in this case, gold) emerges as the most salable of all commodities and, hence, becomes money (Liberty, April 1897, p. 7). Salability is thus the preeminent feature of money.32 Although all commodities are media of exchange in some sense (though their relative transactions velocities may differ), only one commodity (the most salable one) will become the denominator of values. Fisher closed the main statement of his argument by asserting that "the standard of value is simply one member of the larger class of exchangeables. All commodities are media of exchange; one commodity is a standard of value" (Liberty,August 1897, p. 7). The weak link in Fisher's argument is his claim that the most salable of all commodities must become the denominator of values. Fisher simply asserted that this happens "inevitably."33 He provided no specific arguments for this claim.34
3" Fisher was a prominent figure in the British free-thought movement (see Royle 1980, pp. 63, 225). 3' Fisher stated that "there is no legal obstacle, nothing, in fact, whatever except the inconveniences of bulk, fluctuation of value, and other inherent defects, to prevent the introduction and circulation of promises of wheat, cotton, oil, iron, or other commodities" (Liberty,June 27, 1891, p. 3). 32 The evolutionary explanation expounded by Fisher is virtually identical to the Austrian theory of money. See the discussion of the relation of the Austrians and the forerunners above. 3 Unfortunately, Tucker did not permit Kitson to make any further replies to the criticisms printed in Liberty.See Open Review (May 1910, p. 7) for Kitson's explanation of Tucker's hostility. to fill this gap by emphasizing the transactional 3' White (1984a, 1985) endeavored

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In May 1909, Kitson initiated a periodical called the Open Review that continued publication until the end of 1910.35 In this journal, Kitson and Meulen argued for free banking and the separation of monetary functions. (Since most of Meulen's thoughts were later incorporated into his book, we shall wait to examine them until the next section.) Kitson's articles were also quite similar to his other published works. Much of his work in the Open Review was devoted to his critique of the gold standard.36 Kitson also penned two brief manifestos, "The New School of Finance" (Open Review, 1909-10, pp. 327-35) and "The Standard of Value Fraud" (OpenReview, May 1910, pp. 68), which outline the Kitsonian formula of free banking and the separability of monetary functions. While many critics of Kitson wrote letters to the Open Review, the quality of these critiques is almost uniformly poor. Only Henry Seymour (OpenReview, May 1910, pp. 14-15) succeeded in raising cogent points against Kitson. Seymour argued that the gold standard, while imperfect, should not be eliminated. Much of the erratic nature of the value of gold is caused by the policies of the Bank of England, not the gold standard itself. Seymour claimed that laissez-faire in banking undergirded by the gold standard is the most stable system possible. Furthermore, if people are seriously concerned about inflation or deflation, contract indexation is always possible. Meulen wrote a brief reply to Seymour's letter. While conceding some of Seymour's points, Meulen claimed that an abstract unit of account is nonetheless

inconveniences associated with a distinct price for each of the media of exchange. See also McCallum (1985) and O'Driscoll (1985). 35 The Open Review was a forum for the discussion of contemporary political and economic issues: land reform, foreign affairs, and, certainly, banking reform. At first, the Open Review was almost completely the work of Kitson. As publication continued, articles and letters from other writers were printed with increasing frequency. Among the contributors were Meulen (who took over as acting editor when Kitson toured India [OpenReview, 1909-10, p. 89]), Henry Seymour, Egmont Hake (two other figures active in banking reform), and the literary critic G. K. Chesterton. (The first two volumes of the Open Review have been collected in a book [Open Review, 1909-1910], which does not distinguish between different issues and offers inconsistent pagination.) 36 Kitson's critique of the gold standard is well summarized by the following excerpt from the Banking and Currency Reform League statement of principles (1910, p. 4): "We have tied down our entire exchange system to a ridiculously inadequate gold basis. Hence, whenever the proportion of gold in the Bank of England reserves becomes small in relation to the superstructure of credit (which may occur simply because gold has been exported in the form of foreign investments, or because production and the volume of credit have increased at home), we raise the Bank Rate in order to cause the gold to return, that is, we make credit and exchange medium dearer, thereby penalising our producing classes, bankrupting great numbers of our manufacturers and causing quantities of goods to be thrown upon the market at ruinous prices in the endeavour to obtain exchange medium."

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superior to a laissez-faire gold standard because only the former can perfectly register changes in the value of gold. In addition to editing the Open Review, Kitson founded the Banking and Currency Reform League in December 1909 with Meulen as league secretary (Open Review, May 1910, p. 5). As the cover of the league's statement of principles (1910) announced, the league devoted itself to "the repeal of the Bank Charter Act and such laws as now interfere with freedom of banking." This unsigned statement is an excellent summary of the Kitson-Meulen position. The phrase "legal restrictions" is used as a means of describing the forces that have led Great Britain to its present monetary institutions and away from the free banking/separation of monetary functions alternative. For example, the statement argued that "we might long since have outgrown the necessity for the use of gold itself as an exchange medium, had not our legal tender and banking laws prevented its substitution in the channels of exchange" (p. 4). The central concerns of the Banking and Currency Reform League were the evolution of money and the consequences of legal restrictions for this evolutionary process. Despite the brief length of the statement of principles, it is rich with historical examples and evidence since the statement provides a brief sketch of British banking history as interpreted within an NME framework. Like the Open Review, the Banking and Currency Reform League never quite flourished. The work of Kitson and Meulen was probably far too abstruse to appeal to a popular audience. Nonetheless, it was activities of this nature that led Frederick Soddy (1934) to dub Kitson "the doyen of British banking reform."37 C. Henry Meu/en: The Last of a Tradition Henry Meulen is the most sophisticated and most interesting early contributor to the theory of legal restrictions. His views on money and banking can be found in his study Free Banking (1934), which remains the only comprehensive book-length statement of NME.38 Free Bank37 Kitson continued to argue for banking reform until his death in 1937, although he developed his original set of ideas only up until the First World War. His position then moved much closer to that of Major Douglas's "social credit" scheme (see Fisher 1920, pp. 123-25). After the outbreak of the war, Kitson no longer felt that free banking was a viable solution to financial problems and then advocated complete nationalization of the banking system. (See the preface of Kitson [1917] for his reasons for altering his views.) We are examining here only Kitson's prewar thought. " The 1934 book is a revised and expanded version of his shorter 1917 monograph IndustrialJustice throughBanking Reform. Of all the writers we have examined, Meulen placed the greatest emphasis on the idea of "legal restrictions" being the central focus of' his monetary theory; he even used the phrase repeatedly.

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ing contains a lengthy exposition of Meulen's theory of the evolution

of financial institutions under laissez-faire as well as several chapters on the history of money and banking. The cornerstone of Meulen's thought is that the separation of monetary functions and the disappearance of outside money are the natural outcome of laissez-faire: "The credit system described in the previous chapter was an a priori one, deduced from a knowledge of the needs of commerce. I will now endeavour to demonstrate inductively that the ideal system described represents the fulfillment of the historical strivings of men towards improvement of the exchange system, and that the inequity of our present social relationships is for the most part due to the deflection of the previous course of progress by unwarrantable State interference" (Meulen 1934, p. 66). Before examining Meulen's explanation of the evolution of such a system, we shall first look at his conception of the ideal end state. Chapter 12, "An Invariable Unit of Value," contains Meulen's description of how a system characterized by the separation of monetary functions might operate. Meulen begins by noting a problem with the gold standard: "The obvious defect of the use of a valuable metal to measure values is the very fact that the metal is itself the object of that it may, human desire-a notoriously fluctuating force-and moreover, be artificially monopolized. It is precisely as though our yard-stick were made of gutta-percha and could sometimes be stretched to 40 inches in length, and at others reduced to 30 inches. No measure should vary in that quality which it is designed to measure" (pp. 237-38). Most of the previous plans designed to deal with this problem involved some form of a tabular standard (p. 238), but like Greenfield and Yeager (1983, p. 309), Meulen explicitly distinguished his proposal from any form of indexation. He claimed that his system, unlike an index number scheme, establishese] a simple unit of value in which all commodities may be priced, and which shall remain unaffected by the price fluctuations of any one commodity whatsoever" (1934, p. 239). Instead of being a claim to a certain weight of gold, bank notes would be a claim for their "face worth" of gold according to the market conditions of the metal. Under the gold standard, notes are claims to a varying worth of gold and, hence, a varying worth of commodities. Meulen developed an argument similar to Kitson's that the "bank note pound" can become an invariable unit of account simply by defining its price as equal to one (p. 240). The price of gold in terms of bank note pounds would be permitted to fluctuate freely in accord with supply and demand for the precious metal. All relative prices would be expressed in terms of the standard unit of account (pp. 240-41). Thus the unit of account bears a relationship to gold no

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different from its relationship to other commodities. Changes in the supply of and demand for gold do not affect the general price level; they only change the price of gold expressed in terms of the unit of account (p. 240). Media of exchange would consist of paper credit claims issued "elastically" by the private sector (see chap. 4 on media of exchange). Meulen claimed several advantages for his proposed reform. First, it would stabilize the value of contracts and other intertemporal transactions (p. 238). Second, banks would be more secure since they could "issue credit on a much wider range of security than is the case today" (p. 277). Third, increases in the supply of and demand for gold would not influence real economic activity (p. 242), and international gold drains would be no problem for either bank security or general economic activity (p. 277). As we have already indicated, whether the separability of monetary functions would ever actually evolve under laissez-faire is a critical question for the NME. Meulen's work is particularly interesting because he also presented an account of how such a system might evolve through market processes. Chapters entitled "The History of Exchange" and "A Review of Scottish Banking" contain Meulen's theory of the evolution of financial institutions. In these chapters, Meulen interwove a general account of the evolution of money with examples from monetary history. He carefully examined Scottish banking history to 1845, a period marked by a considerable degree of laissez-faire with regard to financial institutions (see White 1984b). Crucial to Meulen's position is the proposition that a system of free banking provides a continual incentive to economize on the use of gold.39 This can be achieved through the enhanced reputation of the bank for security,40 the use of the option clause,4' and improvements in monitoring the financial soundness of banks. (See Meulen [1934, p. 81] for
3 It was well known in the "Banking School" literature that this was an important feature of the Scottish free banking system (see Meulen 1934, chap. 8). See also White (1984b, pp. 43-44), who noted that Scottish reserve ratios dropped from 10-20 percent in the second half of the eighteenth century to between 0.5 percent and 3.2 percent in the first half of the nineteenth century. 40 Klein (1974) and Hayek (1978) have underscored the importance of reputation and quality differentiation in private monetary competition. See Brown (1982) for a summary of these arguments and further references. 41 The "option clause" refers to a contractual agreement between bank and depositor that notes may not be redeemable on demand in the case of a declared "emergency"; however, the note would bear interest for the duration of the suspension. See Cameron (1967, p. 68 ff.) for a more detailed exposition. Meulen (1934, p. 129) claimed that Scottish banks were so secure that option clause notes circulated at par before the option clause was outlawed in 1765. We will discuss later the importance of the option clause to the evolution of monetary institutions. See Cowen and Kroszner (1987) for further analysis of the significance of the option clause prohibition.

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further discussion.) Meulen also noted the international ramifications of such a system (p. 324): Those countries with free banking will tend to lose their gold to countries without free banking because gold is granted a "monopolistic" status in the latter countries. Since the private sector demonstrates a continued tendency to economize on the use of gold, the result of free evolution would be that media of exchange would be backed only by the reputation of the issuer:42 "In an advanced state of society, increasing use is made of contract and promise in- all human relationships.... The process is one of gradual specialization and division of labor. Accordingly, with increased civilization, the transfer of intrinsically precious money is replaced by the transfer of documentary promises.... The fulfillment of these conditions necessitates the use of a money which is intrinsically worthless" (p. 63). Thus confidence in the system will grow to the point at which bank notes would not be backed by any gold at all (p. 309). Competition and the desire to attract new customers and keep old ones provide strong incentives for banks to enhance their reputations. As a bank's reputation improves, it will rely less and less on gold reserves. Another important factor is the real resource savings resulting from the elimination of gold backing for currency (p. 293).43 Meulen asserted that this trend was present in eighteenth-century Scotland: "The early Scottish bankers introduced the note with the option clause.... In accepting these notes at par, producers showed that they did not require gold in order to effect exchanges.... The bank then ceased to be regarded as a storehouse whence gold could be withdrawn for export abroad, and the banker increasingly assumed the function of integrity valuer, pure and simply, the demand for gold being directed to the professional goldsmith" (pp. 82-83). Thus Scotland was "following the path of progress to the theoretical ideal which I have previously outlined" (p. 82). This trend was arrested, however, when the option clause was outlawed in 1765 (p. 88). He also cited the influence of English banking regulations on the evolution of the Scottish system since an important part of Scottish financial intermediation involved dealing with the English system,

42 Though small change might still be represented by cheap metal tokens (Meulen 1934, p. 69). 4 Similar arguments on how free banking leads to the economization of specie can be found in Adam Smith (1776/1937, pp. 276-84), which also led Smith to praise Scotland's banking system, although he (pp. 309-10) was much less sanguine about the effects of the option clause than Meulen. On "free" banking in Scotland, see White (1984b) and Cowen and Kroszner (1987). Increasing trust and confidence in monetary exchange is a theme also emphasized by Simmel (1978) and the Austrians (Ellis 1934; Frankel 1977; Laidler and Rowe 1980).

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thereby presumably inhibiting the Scottish system from evolving along strict laissez-faire lines (p. 324). According to Meulen, the emergence of a distinct and separate unit of account also follows from the economization of gold (p. 83). As gold is used less for monetary purposes, its nonmonetary uses have a progressively greater influence over its value. As the value of gold becomes increasingly determined by its nonmonetary uses, it tends to become no more efficient than any other commodity as a unit of account or standard of value.44 "Gold thus tend[s] to fluctuate in price, and consequently to become unfit to serve as a standard of value. This very fact, however, as will be shown later, stimulated human ingenuity to the discovery of a better [standard] of value" (p. 83). Meulen's vision of this process paralleled Kitson's (cited above), in which the value of gold on the previous market day becomes the abstract unit of account and the price of gold, as well as the price of all other commodities, floats in terms of this abstract unit on subsequent days. Meulen went beyond Kitson, however, by attempting to explain how this separation could occur through market evolution. Further along in the exposition (pp. 291-93), Meulen stated that an abstract unit of account will be used under laissez-faire because it is more efficient to guarantee holders of notes access to a certain worth of gold rather than a certain weight of gold. White (1984a) has argued that the separation of monetary functions would involve considerable inconveniences to consumers because the value (in terms of the numeraire) of exchange media would no longer be constant. But Meulen believed that banks would be willing to bear the risk of fluctuations in such values in order to reap the gains from dispensing with their gold reserves (1934, p. 293).45 Concluding Comments Early NME theorists (particularly Meulen) were well on their way to developing a coherent alternate framework for analyzing many of the central issues of monetary theory. In addition, these early thinkers offered interesting original contributions in at least four areas: (1) the macroeconomic properties of a world without legal restrictions, (2) the transactional conveniences and inconveniences of the separation
44 This is the least satisfying link in Meulen's chain of reasoning. See the concluding section for a further discussion of this issue. 45 Meulen presented no explanation of the mechanism whereby banks might offer wealth insurance as an inducement for customers to hold equity shares. Calomiris and Cone (1984) argued, however, that dollar-denominated debt claims constitute an inefficient form of wealth insurance and hence would not be demanded for that purpose.

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of monetary functions, (3) the likelihood of such a separation evolving under laissez-faire, and (4) the nature of the unit of account (abstract, as opposed to embodiment in a commodity or bundle of commodities). The inability to provide a convincing explanation of the transition to a system with a unit of account separate and distinct from the means of payment is a major weakness of the theoretical apparatus developed by the early new monetary economists. Meulen had argued that the progressive demonetization of gold would lead to its abandonment as an accounting unit, but this claim is of questionable validity. Only if the nonmonetary demand for gold were highly unstable need this result follow. There are several possible paths that the economy could follow in the evolution toward a cashless payments system, some of which are discussed in more detail in Cowen and Kroszner (1986). For example, if equity shares portfolio-dominate dollar-denominated checking and savings deposits, it is possible for the dollar to remain as an abstract unit of account while disappearing completely as a means of payment. In this case, unlike the usual BFH approach, the abstract unit scenario would require no discrete change in the economy's unit of account. An alternative possibility involves the government or the private bank clearinghouse system engineering a deliberate switch of the accounting unit. In this scenario, the new unit of account could be abstract or a "real" commodity or commodity basket. Investigations into such issues as the NME raises, however, lay virtually dormant until Fischer Black's (1970) article eventually revived interest in this line of inquiry.
References Anderson, Benjamin M., Jr. The Value of Money. New York: Macmillan, 1917. Banking and Currency Reform League. A Statementof Principles. London: Letchwirth, 1910. Baxter, W. T. "Accounting in Colonial America." In Studies in the History of Accounting, edited by A. C. Littleton and Basil S. Yamey. London: Sweet & Maxwell, 1956. Bilgram, Hugo. A Study of the Money Question. New York: Humboldt, 1894. Bilgram, Hugo, and Levy, Louis E. The Causes of Business Depressionsas Disclosedby an Analysis of the Basic Principles of Economics.Philadelphia: Lippincott, 1914.
46 We have found no systematic attempts to develop a legal restrictions approach between Meulen (1934) and Black (1970). Benjamin M. Anderson (1917), however, does have affinities to the NME (see Salerno 1985). In the interim period, one can find occasional investigations that touch on NME themes. See the references provided in Black (1970, pp. 9-1 1) for a list of relevant, albeit fragmentary, comments by Tobin, Vickrey, and others.

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Black, Fischer. "Banking and Interest Rates in a World without Money: The Effects of Uncontrolled Banking." J. Bank Res. 1 (Autumn 1970): 9-20. Blaug, Mark. Economic Theory in Retrospect.3d ed. Cambridge: Cambridge Univ. Press, 1978. Brown, Pamela. "Constitution or Competition? Alternative Views on Monetary Reforms." Literatureof Liberty5 (Autumn 1982): 7-52. Brunner, Karl, and Meltzer, Allan H. "The Uses of Money: Money in the Theory of an Exchange Economy." A.E.R. 61 (December 1971): 784-805. Calomiris, Charles, and Cone, Kenneth. "A Note on Competitive Payment Systems." Manuscript. Evanston, Ill.: Northwestern Univ., 1984. Cameron, Rondo E. Banking in the Early Stages of Industrialization:A Study in Comparative EconomicHistory. New York: Oxford Univ. Press, 1967. Carey, Henry C. "A Memoir of Stephen Colwell." In Miscellaneous Works. Philadelphia: Baird, 1872. Clark, Truman A. "Violation of the Gold Points, 1890-1908."J.P.E. 92 (October 1984): 791-823. Colwell, Stephen A. The Waysand Means of Payment. Philadelphia: Lippincott, 1859. Cowen, Tyler, and Kroszner, Randall. "The Evolution of a Cashless Payments System." Manuscript. Cambridge, Mass.: Harvard Univ., 1986. . "Legal Restrictions on Financial Intermediation during Scotland's 'Free' Banking Era." Manuscript. Cambridge, Mass.: Harvard Univ., 1987. Dorfman, Joseph. The EconomicMind in American Civilization. Vol. 3. 18651918. New York: Viking, 1949. Einaudi, Luigi. "The Theory of Imaginary Money from Charlemagne to the French Revolution." In Enterpriseand Secular Change: Readings in Economic History, edited by Frederic C. Lane. Homewood, Ill.: Irwin (for American Econ. Assoc.), 1953. Einzig, Paul. Primitive Money in Its Ethnological,Historical and EconomicAspects. 2d ed. New York: Pergamon, 1966. Ellis, Howard S. GermanMonetaryTheory,1905-1933. Cambridge, Mass.: Harvard Univ. Press, 1934. Fama, Eugene F. "Banking in the Theory of Finance." J. MonetaryEcon. 6 (January 1980): 39-57. Finlay, John L. Social Credit: The English Origins. Montreal: McGill-Queen's Univ. Press, 1972. Fisher, Irving. The Purchasing Power of Money: Its Determinationand Relation to Credit,Interest and Crises. New York: Macmillan, 191 1. Stabilizing the Dollar: A Plan to Stabilize the General Price Level without Fixing Individual Prices. New York: Macmillan, 1920. Stable Money: A History of the Movement. New York: Adelphi, 1934. Frankel, S. Herbert. Money: Two Philosophies.Oxford: Blackwell, 1977. Friedman, Milton. "Financial Futures Markets and Tabular Standards." J.P.E. 92 (February 1984): 165-67. Galiani, Ferdinando. Della Moneta. Naples: Raimondi, 1750. English ed.: On Money. Translated by Peter R. Toscano. Ann Arbor, Mich.: Univ. Microfilms, 1977. Gray, John. Lectureson the Nature and Use of Money. Edinburgh: Black, 1848. Greenfield, Robert L., and Yeager, Leland B. "A Laissez-Faire Approach to Monetary Stability."J. Money, Creditand Banking 15 (August 1983): 302-15. Hall, Robert E. "MonetaryTrendsin the United Statesand the UnitedKingdom:A Review from the Perspective of New Developments in Monetary Economics."J. Econ. Literature20 (December 1982): 1552-56.

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"Optimal Fiduciary Monetary Systems." J. MonetaryEcon. 12 (July 1983): 33-50. Hayek, Friedrich A. von. Denationalisation of Money: An Analysis of the Theory and Practice of Concurrent Currencies. 2d ed. London: Inst. Econ. Affairs, 1978. Jevons, William Stanley. Money and the Mechanism of Exchange. New York: Appleton, 1876. Jones, Robert A. "The Origin and Development of Media of Exchange." J.P.E. 84, no. 4, pt. 1 (August 1976): 757-75. Kareken, John H., and Wallace, Neil, eds. Models of MonetaryEconomics.Minneapolis: Fed. Reserve Bank Minneapolis, 1980. Kitson, Arthur. A Scientific Solution of the Money Question. Boston: Arena, 1895. . A Fraudulent Standard: An Exposure of the Fraudulent Characterof Our Monetary Standard. London: King, 1917. Klein, Benjamin. "The Competitive Supply of Money." J. Money, Creditand Banking 6 (November 1974): 423-53. Knapp, Georg F. The State Theoryof Money. London: Macmillan (for Royal Econ. Soc.), 1924. Laidler, David, and Rowe, Nicholas. "Georg Simmel's Philosophyof Money: A Review Article for Economists." J. Econ. Literature 18 (March 1980): 97105. Lane, Frederic C., and Mueller, Reinhold C. Money and Banking in Medieval and Renaissance Venice.Vol. 1. Coins and Moneysof Account. Baltimore: Johns Hopkins Univ. Press, 1985. Liberty.Edited by Benjamin Tucker. Westport, Conn.: Greenwood Reprint, 1970. McCallum, Bennett T. "The Role of Overlapping-Generations Models in Conf. Ser. Public Policy 18 (Spring Monetary Economics." Carnegie-Rochester 1983): 9-44. . "Bank Deregulation, Accounting Systems of Exchange, and the Unit of Account: A Critical Review." Working Paper no. 1572. Cambridge, Mass.: N.B.E.R., March 1985. McElroy, Wendy. "Benjamin Tucker, Individualism and Liberty." Literatureof Liberty4 (Autumn 1981): 7-39. Index. St. Paul, Minn.: Coughlin, Liberty,1881-1908: A Comprehensive 1982. Vienna: Braumtiller, 1871. Menger, Karl. Grundsdtzeder Volkwirtschaftlehre. English ed.: Principles of Economics.New York: New York Univ. Press, 1981. . "On the Origin of Money." Econ. J. 2 (June 1892): 239-55. Meulen, Henry. Free Banking: An Outline of a Policy of Individualism. London: Macmillan, 1934. Mill, John Stuart. Principles of Political Economy,with Some of Their Applications to Social Philosophy.7th ed. London: Longmans, Green, Reader, and Dyer, 1871. Reprint. London: Longmans, Green, 1929. Mints, Lloyd W. A History of Banking Theory in Great Britain and the United States. Chicago: Univ. Chicago Press, 1945. Montesquieu, Baron de [Charles de Secondat]. The Spirit of Laws. 2 vols. Rev. ed. New York: Colonial, 1899. Niehans, Jurg. The Theoryof Money. Baltimore: Johns Hopkins Univ. Press, 1978. O'Driscoll, Gerald P., Jr. "Money in a Deregulated Financial System." Fed. ReserveBank Dallas Econ. Rev. (May 1985), pp. 1-12.

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