Banking, Monetary Policy and the Political Economy of Financial Regulation
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Banking, Monetary Policy and the Political Economy of Financial Regulation

Essays in the Tradition of Jane D'Arista

Edited by Gerald A. Epstein, Tom Schlesinger and Matías Vernengo

The many forces that led to the economic crisis of 2008 were in fact identified, analyzed and warned against for many years before the crisis by economist Jane D’Arista, among others. Now, writing in the tradition of D’Arista's extensive work, the internationally renowned contributors to this thought-provoking book discuss research carried out on various indicators of the crisis and illustrate how these perspectives can contribute to productive thinking on monetary and financial policies.
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Chapter 5: Heterodox central bankers: Eccles, Prebisch and financial reform

Matías Vernengo and Esteban Pérez Caldentey


Central bankers have been defined as men that lend you an umbrella, and then want it back when it starts to rain. The Great Depression saw plenty of rain, so to speak, but some central bankers did not fit the stereotype. The reason is that the Great Depression led to a need to rethink the principles of central banking, as much as it led to the rethinking of economics in general, with the Keynesian Revolution at the forefront of the so-called “years of high theory,” during which much of the rethinking was done (Shackle, 1967). In the center the tenets of sound finance and the Gold Standard were threatened by the economic collapse, and the heightened social conflicts that followed rising unemployment. The conventional wisdom suggests that central bankers dismissed the so-called real bills doctrine, and developed an activist view of the central bank. In this view, the abandonment of the real bills doctrine allowed a more active control of money supply and credit. In contrast to that argument, we suggest that the role of the monetary authority as a fiscal agent of government and the abandonment of the view of the economy as self-regulated were the main changes in central banking. In addition, in the periphery, central banks changed to try to insulate the worst effects of balance of payments crises, and the use of capital controls became acceptable.

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