KREDIT und KAPITAL - Issue 4/1972



Oberhauser, Alois
Geldpolitik als Liquiditätspolitik. Ein Vorschlag zur Neugestaltung des geldpolitischen Instrumentariums

Ehrlicher, Werner
Die Geld-, Finanz- und Einkommenspolitik im volkswirtschaftlichen Systemzusammenhang

Benston, George J.
The Optimal Banking Structure: Theory and Evidence from the United States

Book Reviews

Willms, M.
Zinstheoretische Grundlagen der Geldpolitik (Bernd Kitterer)

Büschgen, Hans E.
Das Universalbanksystem (Michael Bitz)

Tew, Brian
International Monetary Cooperation 1945 - 1970 (Gerhard Graf)

Meiselmann, D.
Varieties of Monetary Experience (Gerhard Graf)

Pohl, Rüdiger
Regionale Leistungsbilanzsalden in integrierten Wirtschaftsräumen (Hans Pfisterer)


Oberhauser, Alois
"Monetary Policy as Liquidity Policy. A proposal for the reorganization of the instruments of monetary policy"

The lacking success of monetary policy is due above all to the fact that the central bank cannot control the quantity of money, changes in the quantity of money take place largely endogenously, and the instrumentarium is oriented too closely to the quantity of money and interest rates, instead of to liquidity. In this connection, liquidity of the commercial banking system must be understood as the sum of primary and secondary liquidity, i. e. the availability of central bank money and such assets as can be converted at any time into central bank money. Since in the past the banks mostly had a substantial amount of surplus liquidity, they were in a position to satisfy additional demand for money and credit even when this ran counter to the intentions of the central bank. The surplus liquidity is simultaneously an important factor for explaining the varying duration of time-lags of monetary policy.

Hence the goal of a restrictive monetary policy can be attained only if that policy succeeds in controlling the liquidity of the private banking system (and of the whole economy) in the necessary manner and in limiting it quantitatively. To this end it is necessary to pattern the instruments of monetary policy, so that they are more adequate for achieving their goals. The present instruments are based on inadequate conceptions of monetary theory, are too ineffectively coordinated with each other and, in part, unsuitable.

The following reorganisation proposal is therefore made: The monetary policy instrumentarium should centre around uniform refinancing quotas for the commercial banks; these quotas would replace the present rediscount quotas, collateral credits and facilities for the return of money market papers. The level of the quotas and the refinancing rate constitute a double instrument for the central bank, which is supplement by minimum reserve policy. For fine adjustment, use should be made of open market policy, the character of which would change, however, on account of the lack of any possibility to return money market papers.

The financial relations between the government and the central bank should also be reorganized. In lieu of central bank cash advances, provision should be made for cyclical credits. Moreover, central bank profits ought to be used in the service of monetary policy.

To control influences exercised by foreign trade on the quantity of central bank money and liquidity, various instruments must be employed. The liquidation of credit balances abroad and the taking up of credit abroad by banks may, if necessary, be counted as part of the refinancing quota. Deposits of non-residents can be made subject to high minimum reserves. To eliminate the inadequacies of the cash, deposit requirements and regulate imports of capital for the purchase of domestic securities, it is possible to employ tax measures which, if appropriately designed, are capable of hindering even speculative inflows of foreign exchange in the event of an anticipated rise in the exchange rate. However, complete protection of the foreign trade flank and elimination of fundamental disequilibrium of exchanges rates cannot be attained with the means of monetary policy alone.

The outlined instrumentarium is largely self-contained and compatible with the market economy system. It leaves the private banking sector a relatively high degree of elasticity and makes the problematical expedient of imposing credit ceilings unnecessary.


Ehrlicher, Werner
"Monetary, Fiscal and income policy in the Context of Macroeconomic Systems"

Since the world economics crisis, monetary, fiscal and income policy have been developed into instruments of over all macroeconomic control. In this connection, employment, growth and the value of money followed each other in rapid succession as the objective of general economic policy. The employment of monetary, fiscal and income policy, to which varying weight and varying emphasis was given in the individual economies, did not prevent economic development from proceeding with fluctuation in real economic activity, although they were less marked than earlier trade cycles. And in some countries, even in periods of economic expansion, an undesirably high degree of unemployment was maintained. Internationally the inflation rate manifestly rose from cycle to cycle.

In the explanation of this phenomenon there is a marked divergence between the theories of the post-Keynesians and the neo-quantity theorists. Generally speaking, the proponents of neo-quantity theory take no definite stand on whether there are mechanisms in our economic system designed to favour a cyclical process. They place more emphasis on the fact that the fluctuations in their given amplitude are the result of anticyclical policy which, on account of its inherent time lag, overcompensates for upward and downward movements and hence contributes to a decisive degree to cyclical trends. In contrast, the Post-Keynesians are of the opinion that the modern economy tends towards unstable development owing to the built-in accelerator mechanisms. Cyclical policy damps the fluctuations. Its instruments, however, are not yet sufficiently differentiated and in addition are handed inadequately, so that the current fluctuations are maintained.

The inflation process is explained by the neo-quantity theorists as the consequence of too rapid expansion of the quantity of money, which is permitted by the responsible authorities in order to attain employment in excess of the natural underemployment rate. The post-Keynesians, on the other hand, stress that in the modern economy the entrepreneurs have achieved a certain degree of pricing power, and the unions a certain amount of wage setting power. Under these conditions the struggle relating to income distribution results in inflationary trends, if it is not contained by income policy, of which, however, the instruments are so far insufficiently developed. The therapy suggested by the neo-quantity theorists is directed towards replacing the more or less abrupt alternation of contractive and expansive cyclical policy with a policy of steady expansion of the quantity of money oriented to the real growth potential of the economy and promoting the growth of the economy by way of fiscal structural policy. In contrast, the post-Keynesians recommend that growth fluctuations should continue to be damped by more refined cyclical policy measures and the inflationary trend limited by enlarging the instrumentarium of income policy.

In the final analysis, the differing prescriptions are attributable to the fact that the opposing theories proceed from different assumptions regarding people's attitude to money. According to the conception of the neo-quantity theorists, economic entities realize in the long run the effects of currency depreciation and calculate in real magnitudes. This the natural tendencies towards equilibrium make themselves felt and many excess creation of money can find expression only in a corresponding inflation rate. The post-Keynesians assume that the monetary sector of the economy has a high degree of instability in the sense that exogenous monetary impulses can be offset by redistribution within that sector, and conversely that redistribution within that sector can also trigger monetary impulses. This is the underlying reason for the tendency to instability of the economic process, which must be counteracted by cyclical policy.


Benston, George J.
"The Optimal Banking Structure: Theory and Evidence from the United States"

The optimal banking structure is one in which banks determine, meet and even anticipate the public's demands at the least cost for a given level of quality. For the economy, the optimal structure is one in which the public's demands are met with the most efficient expenditures of resources. A competitive market structure, free from government subsidies, penalties and regulations meets these criteria. For competitive markets to operate optimally, the following condition must obtain: entry and exit (via mergers, acquisition or failure) should be unrestricted, and cartels and natural monopolies should not occur. The extant empirical evidence from the United States is considered to determine the extent to which these conditions apply to the banking industry.

Economies of scale are considered first because, if the banking industry is characterized by significant and continuous economies of large scale operations, eventually only one bank would survive under free competition. The studies of the operations costs of commercial banks and savings and loan associations reviewed report statistically significant but not very great economies of scale. A 100 percent increase in output is associated with a 93 percent increase in costs. Thus, small banks appear lass efficient than large banks, but the cost advantage of larger size diminishes fairly rapidly. Although data on giant banks were not included in the studies, the analyses reported and the experience in states such as California indicate that free competition should not lead to the dominance of the market by one or a few very large banks as a consequence of operating economies of scale.

It would seem, then, that the authorities should permit mergers except where these substantially reduce competition. But competitive markets are difficult to define operationally. Since the authorities usually rely on concentration ratios to measure competition, the extent to which a greater number or lesser dominance of banks in a market is associated with greater benefits to the public should be considered. Evidence is reviewed on the effect of concentration on interest rates for loans, service fees for demand deposits, and interest paid on time deposits. Most of the studies on loan interest rates are so poorly structured that no conclusions can be accepted. These studies that are useful indicate slightly higher interest rates on loans in areas where there are few financial institutions, or dominance by two or three banks. Service charges on deposits also appear to be higher and interest paid on time deposits lower in areas where competition is reduced. But the evidence is weak.

Since the evidence does not indicate that more than a few institutions are necessary for competitive conditions to exist, the authorities need not be overly concerned that mergers usually will reduce competition. To determine the benefits from a liberal merger policy, the motivation of banks to merge with or acquire other banks is considered. Studies reveal that savings in operating costs do not appear to have been a motive for or result of mergers or acquisitions of banks by holding companies. They also reveal that merged and acquired banks tend to serve the public better by offering more loans and service. Mergers that affect competition differently for different classes of customers and mergers of banks that do not presently compete also are discussed. It is concluded that the effect of mergers on local and smaller customers should be given precedence and that prohibition of mergers that reduce potential competition is not usually based on valid reasoning.

The keystone to the effective operation of competitive markets is free entry. Barriers to entry are considered. Economic barriers are found to be slight and regulatory barriers great. Analysis shows that the rationale behind government restrictions on entry into banking is based on outmoded considerations. Fear of destructive competition, overbanking and bank failure are not valid. To the contrary, a considerable body of evidence shows that new entrants to banking markets improve prices and service to the public with no evident adverse effect on the safety of existing institutions. Thus, the authorities should allow and encourage entry into banking markets via new banks, branding, and expansion of banking powers to allow other institutions to serve the public.