Essays in the Tradition of Jane D'Arista
Edited by Gerald A. Epstein, Tom Schlesinger and Matías Vernengo
Chapter 5: Heterodox central bankers: Eccles, Prebisch and financial reform
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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