The Relevance to Modern Economics of the Banking School View

Abstract

This chapter attempts a rational reconstruction of the banking school view from a modern perspective.1 The greatest difficulty in such a project is encountered immediately: there exists no systematic account of the monetary theory underlying the specific policy arguments of the banking school. As one historian of monetary thought summed up regarding the seminal texts of Fullarton (1845) and Tooke (1844), ‘the banking school was not trying to develop monetary theory for later generations, but was attempting to make effective arguments against specific proposals for regulating notes’ (Fetter 1965: 191). Much the same could be said of those authors who have maintained and developed the banking school tradition through the years. Monetary theory, unlike value theory, has been the province of practical men with concrete proposals for solving the current crisis and staving off the future one, men less interested in consistency and logical coherence than in persuasion and political effectiveness.