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Money, Finance and Capitalist Development

Edited by Philip Arestis and Malcolm Sawyer

In the past thirty years the financial sector has seen unparalleled growth and has exerted increased economic and political influence and significance. This growth has come hand-in-hand with several serious economic crises and greater monetary instability. Set against this background, this important book offers a wide ranging, critical analysis of the financial sector.
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Chapter 6: Political economy of central banls: agents of stability or sources of instability?

Costas Lapavitsas


6. Political economy of central banks: agents of stability or sources of instability? Costas Lapavitsas 6.1. INTRODUCTION Central banks have long been the object of the reformist zeal of credit practitioners and political radicals. They have also been subjected to withering criticism by those who think that instability in capitalist economies either originates in money and finance, or that it is exacerbated by the operations of central banks. In recent years there has been a proliferation of theoretical and empirical interest in central bank independence. This work has contributed, even if partially, to an actual trend toward greater independence for central banks. Similarly, free banking arguments, advocating the abolition of central banks and the instigation of freely issued bank money with a view to eradicating financial and monetary instability, have also become increasingly prominent. It is claimed in this chapter that the recent theoretical emphasis on the role of the central bank in the financial system significantly overstates its significance. There are narrow limits to the effectiveness of central bank financial and monetary operations, determined by the demands and requirements of capitalist accumulation. That is not to deny that conscious policymaking by central banks can be partially successful in its aims. However, the tendency to financial and other instability, which is characteristic of capitalist economies, cannot be abolished by central banking, regardless of the experience of the central bankers and the erudition of their economic advisers. In this light, though in different ways, both the theory...

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