Ok, so how does taking monetary policy out of the government’s hands prevent interest rates from falling below the natural interest rate?

Because the market rate will now be uninfluenced, it will follow the natural rate.

The natural rate of interest is the rate in which time preferences are equilibrated, savings and investments are allocated effectively. This rate is existing without the central bank’s intervention.

Is that what happened before the Federal Reserve existed?

@sɪᴅɪsɴᴏᴛʜᴇʀᴇ except any nation that does have central banking can manipulate your currency, so that’s fun

And you have no way to combat hyperinflation

And if you don’t have a gold standard you have no way of even regulating currency supply

and if you do have a gold standard, you basically need a central bank to administer it

@Sophie that’s what I was trying to build to lol

Lol sry

That is very well said, however

Thanks 🙂

The other option is making your coins out of precious metals, but then you have big problems with electronic transfers, currency values aren’t pegged to each other (4 quarters might not equal a dollar) and you’re subject to debasement

@abby_ella Yes, but no.

@Sophie A free banking system is capable to combating hyperinflation, if inflation is too high interest rates naturally rise.
> And if you don’t have a gold standard you have no way of even regulating currency supply
> and if you do have a gold standard, you basically need a central bank to administer it
We had a gold standard without a central bank.

We did, and we had mass panics once or twice a decade

Prior to the FED the business cycle was less severe, less persistent and had shorter recovery times.

There were 20 recessions between the end of the Second Bank of the United States and the creation of the Fed. Most lasted over a year. Most of the recessions after the Fed’s creation lasted less than a year. The average GDP loss during each during the free banking era, for those that we have data on, was higher than the GDP loss for post-Fed recessions

So no, the data doesn’t back that claim up

O

The data *does* back it up, if you look at it correctly. As it stands the NBER data for that era and after uses different reporting techniques which overstate previous recessions and the quality is worse, when you adjust for it:
> This paper evaluates the consistency of the NBER business cycle reference dates over time. Analysis of the NBER methods suggests that the early turning points are derived from detrended data, while the dates after 1927 are derived from data in levels. To evaluate the importance of this and other changes in technique, the paper derives a simple algorithm that matches the postwar NBER peaks and troughs closely. When this algorithm is applied to data for 1884-1940, the new dates systematically place peaks later and troughs earlier than do the NBER dates. Using the new business cycle chronology, recessions have not become shorter, less severe, or less persistent between the pre-World War I and the post-World War 11 eras. Expansions, however, have become longer.
https://www.nber.org/papers/w4150

"*Using the new business cycle chronology, recessions have not become shorter, less severe, or less persistent between the pre-World War I and the post-World War 11 eras*"

We're even excluding the Great depression, so if anything the FED is getting lee-way.

That’s a stretch to apply that paper to my point, given that it only goes back to 1887. There were some pretty severe and long lasting 19th century depressions between 1836 and 1887

There's little data on the NBER before 1887.

But even so, it's reasonable to assume it would be more or less the same since the system was effectively similar.

We have great data on how long they lasted though, so at the very least, the “less persistent” and “shorter recovery times” part can be challenged by that

Pre 1887 had similar recessions in those metrics if we look at the flawed NBER data, it's not a far fetched assumption.

One would expect due to technological change recessions would get better post fed, but it's surprising that did not happen.

@abby_ella In my ideal, I wouldn't use the system of the 1800s exactly since it had a few flaws.

SHUT THE FUCK UP

Guys I’m 8

Lmao

@Valindra they’re having a discussion about economics in the economics channel, just mute the channel if you don’t want to see it

So I did some averaging, the average recession under free banking lasted 2 years and 2 months. The average under the federal reserve lasted 1 year and 2 months. That’s a significant difference

I know you wouldn’t do it exactly the same, but you would remove the central bank, right? That’s really the difference that matters

You're using the NBER numbers, they're flawed. The paper goes back to 1880, which is not that far but it's pretty far considering the system pre that was effectively the same, and finds the results: shorter recovery times; less persistant; less severe pre fed (not even including the depression for the federal reserve).

> but you would remove the central bank, right?
Yes, but it's much more nuanced than that.

The 1800s is not my ideal because it wasn't exactly 'free banking', not regarding note issuing but regulations making the banking sector fragile, causing credit pyramiding.

And you think that this wouldn’t happen if you remove regulations or control from the situation?

The regulations I'm talking about in the 1800s? Yes, those issues would cease to exist.