Edited by Philip Arestis and Malcolm Sawyer
Chapter 6: Political economy of central banls: agents of stability or sources of instability?
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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