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Article

Anghel N. Rugina

The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual…

Abstract

The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual realities and the future, potential, best possible conditions of general stable equilibrium which both pure and practical reason, exhaustive in the Kantian sense, show as being within the realm of potential realities beyond any doubt. The first classical revolution in economic thinking, included in factor “P” of the equation, conceived the economic and financial problems in terms of a model of ideal conditions of stable equilibrium but neglected the full consideration of the existing, actual conditions. That is the main reason why, in the end, it failed. The second modern revolution, included in factor “A” of the equation, conceived the economic and financial problems in terms of the existing, actual conditions, usually in disequilibrium or unstable equilibrium (in case of stagnation) and neglected the sense of right direction expressed in factor “P” or the realization of general, stable equilibrium. That is the main reason why the modern revolution failed in the past and is failing in front of our eyes in the present. The equation of unified knowledge, perceived as a sui generis synthesis between classical and modern thinking has been applied rigorously and systematically in writing the enclosed American‐British economic, monetary, financial and social stabilization plans. In the final analysis, a new economic philosophy, based on a synthesis between classical and modern thinking, called here the new economics of unified knowledge, is applied to solve the malaise of the twentieth century which resulted from a confusion between thinking in terms of stable equilibrium on the one hand and disequilibrium or unstable equilibrium on the other.

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International Journal of Social Economics, vol. 24 no. 5
Type: Research Article
ISSN: 0306-8293

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Article

Rodney Shakespeare and Sofyan Harahap

The purpose of this paper is to set out the role of banking in a binary and Islamic economy.

Abstract

Purpose

The purpose of this paper is to set out the role of banking in a binary and Islamic economy.

Design/methodology/approach

By comparison, the paper shows that the main requirements for such an economy, although superficially similar, differ from the realities of “free market” finance capitalism. The paper goes on to explain how, in a binary and Islamic economy, commercial banks would be the means by which interest‐free loans, coming from the central bank and ummah and directed at various forms of productive capacity, would be introduced.

Findings

There is no difficulty in using the banking system to introduce the binary and Islamic economy. However, a paradigm issue is involved.

Practical implications

The central bank‐issued interest‐free loans implemented through the commercial banking system loans serve the ends of both binary and Islamic economics in that they enhance the real economy and forward social and economic justice.

Originality/value

The paper shows how use of these loans is a new concept with a power to change the whole of the economy and society in a beneficial way.

Details

Humanomics, vol. 25 no. 2
Type: Research Article
ISSN: 0828-8666

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Article

DONALD R. WELLS

Some economists who normally prefer to rely on free market solutions to economic problems often consider money a special good that requires government control to prevent…

Abstract

Some economists who normally prefer to rely on free market solutions to economic problems often consider money a special good that requires government control to prevent overissue. But free banking advocates take the position that the market can control the supply of money without any government imposed rule. The type of banking system envisioned by the latter school would be one in which banks would be subjected to no restrictions regarding balance sheet choices and would be allowed to charge what they want on loans and pay what the market dictated on any source of funds. Each bank would be free to issue distinctive banknotes as well as deposits redeemable into some reserve asset that banks would hold in accordance with their goal of profit maximization subject to the necessary liquidity cost. There would be no required reserve holding, no minimum amount of capital, nor any restrictions on the type of loans a bank could make, nor where they could establish branch offices. Government's only role would be to enforce contracts and to punish fraud.

Details

Studies in Economics and Finance, vol. 12 no. 2
Type: Research Article
ISSN: 1086-7376

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Book part

Scott Burns

For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that this revolution and…

Abstract

For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that this revolution and the subsequent internal and external disputes it has sparked have had the unfortunate side effect of crowding out much of what was good in macro-level analysis before it, leading to the dissatisfactory state of macroeconomics we have today. In the search for alternative paths for macroeconomics, I focus on two separate but compatible traditions: monetary disequilibrium (MD) theory and the Austrian business cycle theory (ABCT). I argue that scholars in these traditions employed a far richer micro-theoretic explanation for the business cycle well before Keynes’s General Theory. Unfortunately, their ideas were not united in time to mount a sufficient counterattack to the Keynesian crusade. My goal is to unite the best elements of these two traditions by providing what I believe is the “missing link” that can help connect these alternative paths: free banking theory.

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Research in the History of Economic Thought and Methodology
Type: Book
ISBN: 978-1-78560-962-6

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Article

Laura Davidson and Walter E. Block

The purpose of this paper is to correct Rozeff (2010). He contends that fractional-reserve banking is legitimate and efficacious. The authors demonstrate that it is not.

Abstract

Purpose

The purpose of this paper is to correct Rozeff (2010). He contends that fractional-reserve banking is legitimate and efficacious. The authors demonstrate that it is not.

Design/methodology/approach

The design of this paper is to quote widely from Rozeff (2010) and then to expose his errors of analysis.

Findings

The authors demonstrate that fractional-reserve banking is neither legitimate nor efficacious.

Originality/value

Money is the lifeblood of the economy. If so, then banking is the marrow of the economy, since it is from that sector that money arises in the first place. It is crucially important, then, that the monetary system be based on sound principles. Fractional-reserve banking is a violation of these sound principles. Therefore, it is valuable to demonstrate that this is indeed the case.

Details

Journal of Economic and Administrative Sciences, vol. 34 no. 2
Type: Research Article
ISSN: 1026-4116

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Article

Fadzlan Sufian and Muzafar Shah Habibullah

– The paper aims to explore the impact of economic freedom on the efficiency of the Malaysian banking sector.

Abstract

Purpose

The paper aims to explore the impact of economic freedom on the efficiency of the Malaysian banking sector.

Design/methodology/approach

The analysis is confined into two stages. In the first stage, the bias-corrected data envelopment analysis method is used to compute the efficiency of individual banks. Then bootstrap regressions are used to examine the impact of economic freedom on bank efficiency, while controlling for the potential impacts of contextual variables.

Findings

It was found that greater freedom to start new businesses tend to impede the efficiency of banks operating in the Malaysian banking sector. The results indicate that restrictions on the activities of which banks could undertake exert negative impact on their efficiency levels. The empirical findings seem to support for official regulation and supervision of banks by setting the limits on activities which banks could undertake. In addition evidence supporting for government interventions in the foreign exchange and money markets was found.

Originality/value

The purpose of the present paper is to extend the earlier works on the performance of the banking sector in a developing economy and establish empirical evidence on the impact of economic freedom. Although empirical evidence which examines the performance of banking sectors is abundant in the literature, to the best of our knowledge, virtually nothing has been published to address the impact of economic freedom.

Details

Journal of Financial Regulation and Compliance, vol. 22 no. 3
Type: Research Article
ISSN: 1358-1988

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Article

Ofurum Clifford Obiyo

The purpose of this paper is to examine the concept of Islamic banking in Nigeria, against the backdrop of the country's peculiar socio‐cultural background and economy.

Abstract

Purpose

The purpose of this paper is to examine the concept of Islamic banking in Nigeria, against the backdrop of the country's peculiar socio‐cultural background and economy.

Design/methodology/approach

The paper reviews related issues and prospects in the context of Islamic banking in the Nigerian economy.

Findings

Implementation and success of Islamic banking in Nigeria would require: re‐shaping the society, restructuring of the economic system and re‐framing of the laws according to the dictates of Islam. This will not be easy in Nigeria, given her multi‐religious nature. The most difficult and important task, however, is the reformation of society, which has to be undertaken as an on‐going process. The paper recommends a dual banking system, where the conventional system will run side by side with the Islamic banking system.

Originality/value

The paper offers some useful suggestions that may lead to effective interest‐free banking operations in Nigeria.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 1 no. 3
Type: Research Article
ISSN: 1753-8394

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Article

Rafik Harkati, Syed Musa Alhabshi and Salina Kassim

The purpose of this paper is to investigate the influence of economic freedom and six relevant subcomponents of it on the risk-taking behavior of banks in the Malaysian…

Abstract

Purpose

The purpose of this paper is to investigate the influence of economic freedom and six relevant subcomponents of it on the risk-taking behavior of banks in the Malaysian dual banking system. It also aims to make a comparative analysis between Islamic and conventional banks operating in this dual banking sector. Moreover, the study is an effort to enrich the existing literature by presenting empirical evidence on the argument that the risk-taking behavior of the two types of banks is indistinguishable given that they operate in the same regulatory environment.

Design/methodology/approach

Secondary data of all banks operating in the Malaysian banking sector are collected from FitchConnect database, in addition to the economic freedom index from Foundation Heritage for the period 2011–2017. Generalized least squares technique is employed to estimate the influence of economic freedom and the six relevant subcomponents of it on the risk-taking behavior of banks.

Findings

The level of economic freedom influenced risk-taking behavior within the banking sector as a whole, conventional and Islamic banking sectors negatively during the study period (2011–2017). Risk-taking behavior of conventional and Islamic banks is similar. However, conventional banks turn to be less influenced by economic freedom level as compared to Islamic banks.

Practical implications

The government and regulators may benefit from the results by rethinking and setting the best economic freedom index that better serves the stability of the banking system, and lessens banks’ risk-taking inclination.

Originality/value

To the present time, this paper is thought to be of a significant contribution. Given the argument that Islamic and conventional banks behave in the same way. This is one of the first attempts to address this issue in light of the influence of economic freedom and six subcomponents of it on the risk-taking behavior of banks operating in a dual banking system.

Details

Review of Behavioral Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1940-5979

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Article

M.M. Metwally

Uses logit, probit and discriminant analysis to test for structural differences between the financial characteristics of interest‐free banks and conventional banks. The…

Abstract

Uses logit, probit and discriminant analysis to test for structural differences between the financial characteristics of interest‐free banks and conventional banks. The analysis extends to various financial dimensions which evaluate performance, namely: liquidity, leverage, credit risk, profitability and efficiency. Covers 15 interest‐free banks and 15 conventional banks. The statistical evidence suggests that the two groups of banks may be differentiated in terms of liquidity, leverage and credit risk, but not in terms of profitability and efficiency.

Details

European Business Review, vol. 97 no. 2
Type: Research Article
ISSN: 0955-534X

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Article

Charles Hickson and John Turner

Suggests that banks are different due to plasticity of assets and high debt/equity ratios. For this reason banks need to be regulated. Discusses the most efficient method…

Abstract

Suggests that banks are different due to plasticity of assets and high debt/equity ratios. For this reason banks need to be regulated. Discusses the most efficient method of regulating banks. Highlights that the move from unlimited liability banking to limited liability banking was inefficient as it led to a more unstable banking system. The unstable banking system required government monitoring of banks. To reduce the costs of monitoring, regulations such as deposit insurance, price and quantity controls and the separation of investment and deposit banking were imposed. Argues that deposit insurance actually has increased banking instability. Suggests that the deregulation process of the last 20 years has led to a more unstable banking system. Argues empirically that bank regulation (apart from deposit insurance) promotes stability rather than creating banking monopolies.

Details

European Business Review, vol. 96 no. 5
Type: Research Article
ISSN: 0955-534X

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