Rent-Seeking Origins of Central Banks: The Case of the Federal Reserve System

Czech and World Economies After the Global Financial Crisis: The Collection of the International Scientific Conference, Prague: University of Finance and Administration, 2011

18 Pages Posted: 16 Apr 2012

See all articles by Tomáš Otáhal

Tomáš Otáhal

Mendel University - Faculty of Economics and Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: April 16, 2012

Abstract

What were the purposes for establishment of central banks? Central banks are historically relatively young organizations. Their main purposes are to regulate money supply through interest rates, regulate the banking sector and act as a lender of last resort to banking sector during the time of financial crises. Historical evidence suggests that in the second half of 19th century in the USA private clearing houses were able to provide the banking sector with similar services. In this paper, we follow such evidence and provide Public Choice explanation for establishment of central banks. On the historical example of establishment of the Federal Reserve System we show that the motivation for establishment of the Federal Reserve System might be rather political instead of economic. More precisely, we argue that the Federal Reserve System was established to allow the American Federal Government to control rent-distribution through money supply control and banking sector regulation.

Keywords: Federal Reserve System, financial markets institutions, historical example, rent-seeking

JEL Classification: D72, D73, N21, E42, E58

Suggested Citation

Otáhal, Tomáš, Rent-Seeking Origins of Central Banks: The Case of the Federal Reserve System (April 16, 2012). Czech and World Economies After the Global Financial Crisis: The Collection of the International Scientific Conference, Prague: University of Finance and Administration, 2011, Available at SSRN: https://ssrn.com/abstract=2040623 or http://dx.doi.org/10.2139/ssrn.2040623

Tomáš Otáhal (Contact Author)

Mendel University - Faculty of Economics and Business Administration ( email )

Staňkova 578/16b
Brno, 602 00
Czech Republic

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
43
Abstract Views
744
PlumX Metrics