A Commentary on Patrizio Laina's 'Proposals for Full-Reserve Banking: A Historical Survey from David Ricardo to Martin Wolf'

Abstract

Patrizio Laina’s paper, and our commentary here, reflect the perennial battle between the Currency and the Banking Schools. 1 The main contention of the Currency School is that the functions of money creation and financial intermediation not only are, but should be, separable, and only became entwined by a (reversible) accident of history whereby commercial banking developed on a fractional reserve basis in Europe, (i.e. an example of path dependence). Thus Ronnie Phillips (1995) opens his book on ‘The Chicago Plan and New Deal Banking Reform’, which is the main source of parts of Laina’s paper, as follows:

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