Chapter 1: Monetary Beliefs and the Power of Central Banks
André Orléan INTRODUCTION If all money is ﬁduciary, as Simiand maintains, we still have to determine, at each stage in its evolution, the reasons for this collective trust. There is no task more imperative for economic historians than to discover its nature and measure its strength, society by society. This calls for a detailed analysis of the whole social atmosphere. (Marc Bloch in a review of François Simiand’s, ‘La monnaie réalité sociale’)1 In a system with purely self-referential money, free of all the constraints of ﬁxed rate convertibility, the central bank’s commitment to maintaining the purchasing power of the unit of account plays a pivotal role. It is responsible both for sustaining the nominal anchorage and for stabilizing private price expectations. Modern theory rightly stresses the importance of this task and the diﬃculty of accomplishing it. One point is given particular attention: the disruptive inﬂuence of the government in power.2 Before elections, the government is tempted to increase the money supply, to the detriment of price stability, so as to stimulate the economy and increase its chances of re-election. Within the framework of a model with rational expectations, private agents, perfectly aware of this inﬂationary expedient of the incumbent government, adapt their price expectations accordingly, so that the government’s measures simply end up producing inﬂation, without stimulating production at all. To avoid this result, so prejudicial to everyone concerned, modern theory argues that the central bank should be independent in order to...
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