Banking and Financial Circuits and the Role of the State
Edited by Louis-Philippe Rochon and Mario Seccareccia
Chapter 10: Rethinking banking institutions in contemporary economies: are there alternatives to the status quo?
The theory of the monetary circuit (TMC), especially as developed and extended by Alain Parguez over the last four decades, finds its origins in the broad post-Keynesian theory of money as these ideas first emerged from the nineteenth-century anti-metalist tradition of the Banking School. Following the ideas of Thomas Tooke, John Fullarton and other Banking School theorists, the TMC places the banking sector at the center-stage of the money-supply process with banks creating endogenous credit-money (see Parguez and Seccareccia 2000). At the same time, as Hyman P. Minsky (1994) had noted, there is a dual aspect to banking: ‘Banking plays two roles in a modern capitalist economy: it supplies the means of payments and it channels resources into the capital development of an economy’ (Minsky 1994, p. 1) As a byproduct of the financing of production and capital accumulation, but also as a result of banks’ legal status in being able to issue their liability that would be generally accepted as means of payments, already by the early nineteenth century the banking industry acquired a unique role because its ‘output’, the community’s means of payments, could be produced ex nihilo at virtually zero marginal resource cost.
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