Thread by @GeorgeSelgin

File under: What the hell has gone wrong with Gary Gorton?

I have long been a huge Gary Gorton fan, but since the 2008 crisis, he's become very careless and naive in his discussions of monetary history. I pointed this out at some length in an essay on his 2012 book, "Misunderstanding Financial Crises": alt-m.org/2013/07/11/mis…

Today I got a copy of a new WP by Gorton and Jeffrey Zask called "Taming Wildcat Stablecoins." @lawrencehwhite1 and I have already warned of the isleading nature of the now de rigueur "stablecoin issuers are like wildcat banks" meme. Here's Larry's essay: alt-m.org/2021/06/24/sho…

And here's mine, concerning misleading claims about antebellum "wildcat banking": alt-m.org/2021/07/06/the…

Gorton and Zhang's paper (which is not yet available online) repeats many of the misleading arguments Larry and I criticize. But it does worse. I'll review it when it's publicly available. For now I'll just give one one example of the kind of history it exemplifies.

At one point, Gorton and Zhang ask, "Should the sovereign have a monopoly on money issuance?" Good question! Their answer? "As shown by revealed preference in the table below, the answer is yes":

Revealed preference? Do Gorton and Zhang seriously imagine that that what were political decisions of the countries in question, all reflected consumers' preferences? If so, that can't possibly know the stories behind their table!

Consider, for example, Napoleon's establishment of the Bank of France. Read about it here and then tell me whose preferences it "revealed": alt-m.org/2016/01/21/fou…

Even the decision to establish a uniform U.S. currency during the Civil War also had nothing to do with consumers' preferences: if it had, there'd have been no need to a punitive 10% tax to force state banks to quit issuing their own notes: onlinelibrary.wiley.com/doi/abs/10.111…

I might address every item in Gorton and Zhang's table, showing how little consumers' preferences had to do with the rise of currency monopolies. Instead I refer you to Very Smith's classic study, _The Rationale of Central Banking_, for the facts: files.libertyfund.org/files/1413/010…

One might have expected Gorton and Zhang themselves to refer to Smith before dishing up their naive theory of why we have ended up with so currency monopolies. But they didn't bother.

Nor did they consult Calomiris and Haber's excellent and highly relevant _Fragile by Design_. amazon.com/Fragile-Design…?

Nor did they consider any of the voluminous writings on successful decentralized currency systems, such as Larry White's classic work on Scottish banking: iea.org.uk/sites/default/… (Scotland, heaven forfend!, still has several commercial banks of issue.)

That fiscal motives played a much more important part in 19th-century and earlier decisions to establish currency monopolies never appears to have crossed their minds. Yet this is hardly a far-fetched view! Details here: cato.org/sites/cato.org…

But why delve into the actual history of currency monopolies, and consider the different motives and political considerations in play, when you can just suppose, like the good Dr. Pangloss, that "all is for the best in the best of all possible worlds"?

In short, Yecch.

P.S.: Forgot to mention the one historical study Gorton and Zhang _do_ refer to: Fung, Hendry, & Weber's "Canadian Bank Notes and Dominion Notes: Lessons for Digital Currencies." For part 1 of my 3 part critique of that paper, see alt-m.org/2017/03/16/wro…

@threadreaderapp, kindly unroll.

For "that" please read "they." (I am typing with a sling on!)