The Knowledge Problem under Alternative Monetary Regimes

During the past decade a significant change has occurred in the kinds of questions explored by monetary economists. Heretofore, one of the central issues concerned the “rules versus discretion” debate of a central bank empowered monopolistically to supply base money. However, with the publication of studies by Klein (1974), Thompson (1974), and Hayek (1976/1978), the range of alternatives expanded to include the possibility of regimes based on the private provision of inconvertible media of exchange. Subsequent research by White (1984b) rehabilitated the idea of free banking with fractional reserves and full convertibility of a commodity money. In addition, laissez-faire cashless payments systems have been studied by Black (1970), Fama (1980), and Greenfield and Yeager (1983).