The End of Alchemy: A Review Essay
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.
I would like to thank Steven Durlauf for inviting me to write this review essay for the Journal of Economic Literature. I would also like to thank C. Roxanne Farmer for editorial assistance. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.