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A Letter on Full-Reserve Banking and Friedman"s Rule in Chicago Tradition

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Soldatos, G., Varelas, E. A Letter on Full-Reserve Banking and Friedman"s Rule in Chicago Tradition. Credit and Capital Markets – Kredit und Kapital, 47(4), 677-687. https://doi.org/10.3790/ccm.47.4.677
Soldatos, Gerasimos T. and Varelas, Erotokritos "A Letter on Full-Reserve Banking and Friedman"s Rule in Chicago Tradition" Credit and Capital Markets – Kredit und Kapital 47.4, 2014, 677-687. https://doi.org/10.3790/ccm.47.4.677
Soldatos, Gerasimos T./Varelas, Erotokritos (2014): A Letter on Full-Reserve Banking and Friedman"s Rule in Chicago Tradition, in: Credit and Capital Markets – Kredit und Kapital, vol. 47, iss. 4, 677-687, [online] https://doi.org/10.3790/ccm.47.4.677

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A Letter on Full-Reserve Banking and Friedman"s Rule in Chicago Tradition

Soldatos, Gerasimos T. | Varelas, Erotokritos

Credit and Capital Markets – Kredit und Kapital, Vol. 47 (2014), Iss. 4 : pp. 677–687

2 Citations (CrossRef)

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Author Details

Prof. Dr. Gerasimos T. Soldatos, American University of Athens, 15232 Athens, Greece

Prof. Dr. Erotokritos Vasrelas, University of Macedonia, 54006 Thessaloniki, Greece

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Abstract

Post-war Chicago School advanced a blend of pre-war Chicago and non-Chicago quantity theory, termed Monetarism. The preponderance of the non-Chicago element in this blend has been documented well by the relevant literature. This note maintains that monetarism"s only contribution to pre-war Chicago is the k-percent rule as a powerful countercyclical policy instrument, indeed, along with the cyclically-balanced-budget and no-open-market-operations rules put forth by pre-war Chicago. Early Chicago"s thinking was motivated by what nowadays is called Quantity Theory of Credit too, and a full-reserve banking rule was also included as a policy instrument. This rule was advanced from the viewpoint of no-bank-money-rule. By identifying bank money with commercial bank seigniorage, this rule is found here to be consistent with any value of the reserve ratio that nullifies such a seigniorage depending on the bank profit margin. This rule is also as price stabilizing as the k-percent rule, and this is the reason the contribution of the latter to Chicagoan policymaking is linked to its countercyclical rather than anti-inflationary power.