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Classical Political Economy and the Evolution of Central Banks: Endogenous Money and the Fiscal-Military State

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  • Matías Vernengo

Abstract

The paper analyzes briefly the changing ideas on the role of money and banks from William Petty to Thomas Tooke, including the works of Adam Smith, David Ricardo, and Karl Marx. It analyzes the role of ideas in shaping the evolution of central bank regulation. Particular importance is given to the Bank of England’s inconvertibility period, from 1797 to 1821, and the ensuing debate in shaping Robert Peel’s Bank Act of 1844, which is often seen as the birth of modern central banking. The importance of the Say’s Law, and the inexistence of an alternative theory of the determination of output, is shown to play an essential role in the policy prescriptions of the so-called Bullionist authors, who won the debates that shaped central banking practices in the nineteenth century. The paper concludes with a brief analysis of what is a central bank according to the dominant (marginalist) mainstream of the profession, and what an alternative conception based on what may be termed classical-Keynesian political economy would be. JEL Classification: B10, N20, E58

Suggested Citation

  • Matías Vernengo, 2018. "Classical Political Economy and the Evolution of Central Banks: Endogenous Money and the Fiscal-Military State," Review of Radical Political Economics, Union for Radical Political Economics, vol. 50(4), pages 660-667, December.
    • Handle: RePEc:sae:reorpe:v:50:y:2018:i:4:p:660-667
    DOI: 10.1177/0486613418773754
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    References listed on IDEAS

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    1. Andrianova, Svetlana & Demetriades, Panicos & Xu, Chenggang, 2011. "Political Economy Origins of Financial Markets in Europe and Asia," World Development, Elsevier, vol. 39(5), pages 686-699, May.
    2. William N. Goetzmann, 2016. "Money Changes Everything: How Finance Made Civilization Possible," Economics Books, Princeton University Press, edition 1, number 10662.
    3. Matías Vernengo, 2016. "Kicking Away the Ladder, Too: Inside Central Banks," Journal of Economic Issues, Taylor & Francis Journals, vol. 50(2), pages 452-460, April.
    4. Monson,Andrew & Scheidel,Walter (ed.), 2015. "Fiscal Regimes and the Political Economy of Premodern States," Cambridge Books, Cambridge University Press, number 9781107089204, January.
    5. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, December.
    6. Smith, Matthew, 2003. "On Central Banking “Rules”: Tooke's Critique of the Bank Charter Act of 1844," Journal of the History of Economic Thought, Cambridge University Press, vol. 25(1), pages 39-61, March.
    7. Goodhart, C. A. E., 2011. "The changing role of central banks," Financial History Review, Cambridge University Press, vol. 18(2), pages 135-154, August.
    8. Fratianni, Michele & Spinelli, Franco, 2006. "Italian city-states and financial evolution," European Review of Economic History, Cambridge University Press, vol. 10(3), pages 257-278, December.
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    Cited by:

    1. Lambert, Thomas, 2019. "Bankers as Immoral? The Parallels between Aquinas’s Views on Usury and Marxian Views of Banking and Credit," MPRA Paper 97741, University Library of Munich, Germany.

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    More about this item

    Keywords

    history of thought; economic history; central bank policy;
    All these keywords.

    JEL classification:

    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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