DP11846 The End of Alchemy: A Review Essay

Author(s):	Roger E A Farmer
Publication Date:	February 2017
Keyword(s):	Banking, financial crisis, money, public policy
JEL(s):	E0, E2
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=11846

I review The End of Alchemy by Mervyn King, published by W.W. Norton and Company in 2016. I discuss King's proposed regulatory reform, the `Pawn Broker for All Seasons' (PFAS) and I compare it to an alternative solution developed in my own work. I argue that unregulated trade in the financial markets will not, in general, lead to Pareto optimal allocations. As a consequence, solutions like the PFAS that correct problems with existing institutions are likely to be circumvented by the development of new ones.