TITLE:
Boom and Bust Cycles in Financial Markets—Causes and Cures: Multiple Contradictory Functions of Money and Collective Action Problems
AUTHORS:
Tom R. Burns
KEYWORDS:
Coordination Problems, Contradictory Functions of Money, Designs and Institutional Arrangements, Chicago Plan, Political and Ideological Constraints
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.4,
June
16,
2017
ABSTRACT: The aim of this conceptualization article is to
formulate propositions about: (1) systemic faults in established money and
financial systems, in particular the mechanisms that make for boom-and-bust
cycles; and (2) the cognitive and action factors which limit the central banks
capabilities to consistently and effectively to regulate or to limit these
cycles. Drawing on earlier research (our own as well as that of others), this
conceptualization is presented in Section 1. Section 2 identifies a new design
and institutional arrangement, which would minimize the boom-and-bust predispositions
in money and financial systems. This work builds on earlier research invested
in “the
Chicago Plan” (from
the 1930s) in addition to our own research. Section 3 considers the expected
political and ideological constraints on reforming financial systems.
Previously operating constraints—including Neo-liberal erosion of New Deal
banking arguments and reforms—make for formidable barriers. The paper concludes
that reform is necessary—if boom-and-bust cycles on the scale of those since
1929 are to be effectively regulated; but it is suggested that such reform is
politically and ideologically difficult if not impossible in the short-run.