Towards a reformulation of monetary theory: competitive banking

Abstract

Neo-classical economics is a difficult subject. It requires more than the usual willing suspension of disbelief. One is asked to put aside one's economic intuition, one's experiences of how the world works, to enter the realm of ideas: to begin with seemingly plausible or not terribly implausible assumptions (or assumptions which are implausible, but which are justified as convenient "simplifying" assumptions), and then through a process of deductive reasoning, arrive at surprising conclusions. The more surprising that is, the less sensible - the conclusion, the greater the mark of the theorist, for he has had to rely on his analytic powers, not his grasp of economic affairs. And the mark of the truly great scholar is a Ptolemaic ability to reconcile observed seeming contradictions with the edifice which has been slowly erected over, by now, almost a century.