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On the Social Value of Banks

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  • George McCandless

Abstract

I compare the utility of individuals in an economy with and without banks. To make the comparison interesting, the economy without banks has cashin-advance money that the individuals use for consumption and for precautionary (emergency) purposes and that firms use to pay their wage bill. In the economy with banks, the precautionary funds are deposited in banks, which lend this money to firms for working capital. In these economies output is generally higher, people have higher utility and live longer. Also, the price level is usually higher.

Suggested Citation

  • George McCandless, 2010. "On the Social Value of Banks," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 28(61), pages 106-133, August.
    • Handle: RePEc:bdr:ensayo:v:28:y:2010:i:61:p:106-133
    DOI: 10.32468/Espe.6103
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    References listed on IDEAS

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    1. Ronnie Phillips, 1992. "The 'Chicago Plan' and New Deal Banking Reform," Economics Working Paper Archive wp_76, Levy Economics Institute.
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    More about this item

    Keywords

    wage; Money; Interest Rates; Financial Institutions and Services;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G2 - Financial Economics - - Financial Institutions and Services

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