As I noted earlier, in my “modern economic perspectives” class we have been reading Milton Friedman’s classic work, Capitalism and Freedom. In one of the early chapters he discusses his view of monetary policy, the gold standard, and the role of the Federal Reserve. Although it isn’t my plan to discuss Friedman’s views on monetary policy, the chapter and the discussion that followed it has led to a bit of an argument between some of the students and the professor on the nature of money and banking. Specifically, the debate has centered on the pros and cons of a 100% reserve system verses a fractional reserve system.
Not surprisingly, this is a debate that has been ongoing in academic economics for decades and probably won’t be resolved definitively anytime soon. All the same, I am going to take the next week or so to hopefully do a number of posts on money in a way that I think will be relevant to the debate we are having in our class. My goal here won’t be to “end” the debate, but simply to make the concepts being argued over a bit clearer. Mostly I am just doing this for my own sake in order to help me learn the economics at hand. That’s the goal anyways.
We shall see how this goes.