Abstract
From the very beginning of industrial capitalism the evolution of the concept of monetary policy has clearly, though not always closely, paralleled that of both economic theory and central banking practice. The advances still considered fundamental for the regulation of money were coupled with equally important steps forward in monetary and credit analysis.
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Notes
The passage in question is well worth quoting in full: ‘If the subject of central banking is classed as an art and not as a science, it is not for that reason any the less scientific. The art of central banking is practical in that it teaches how to use a power of influencing events. It is concerned, not merely with the relation of cause to effect, but with the relation of means to end. But there is no less scope for systematic reasoning in the study of means than in the study of causes. The pursuit of wisdom is as scientific as the pursuit of truth. Economic theory, in every branch, deals with practical affairs. Its subject is human welfare, and it is never entirely dissociated from the practical question of how human welfare is to be promoted. But it is a special characteristic of the art of central banking that it deals specifically with the task of an authority directly entrusted with the promotion of human welfare. Human welfare, human motives, human behaviour supply material so baffling and elusive that many people are sceptical of the possibility of building a scientific edifice on so shifting a foundation. But however complex the material, and however imperfect the data, there is always an advantage to be gained from systematic thought. We may have to be satisfied with probabilities, but we can at any rate see to it that our probabilities make the most of the data we have’, R. G. Hawtrey, The Art of Central Banking (London: Longman, Green, 1932) pp. vi–vii.
The central bank was founded in Sweden in 1668, in England in 1694, in France in 1800, in Holland in 1814, in Austria in 1817, and in Belgium in 1850. The Reichsbank (since 1957 the Bundesbank) was set up in 1875, the Bank of Japan in 1882, the Bank of Italy in 1893 and the US Federal Reserve System in 1913. Among the many works in this field, see the summary comparative study by M. Fanno, Le banche e il mercato monetario (Rome: Athenaeum, 1912); see also V. C. Smith, The Rationale of Central Banking (London: King, 1936); M. H. de Kock, Central Banking (London: Crosby Lockwood Staples, 1974); R. S. Sayers, ‘Banking, Central’, International Encyclopedia of Social Sciences (New York: Collier & Macmillan, 1968) vol. II.
′The case for giving to the central bank some special constitutional position rests on the fact that it is the creator of cash, and thereby offers standing temptation to improvident governments. The advantages which such governments enjoy, when they resort to easy finance at the central bank, are immediate and obvious; the disadvantages are not so readily perceived, but in the long run they are cumulative and can be disruptive to economic society. In recognition of this, most countries (including our own) have not been willing to reduce their central banks to the position of an ordinary department of government. The need to integrate the policy of the central bank with the broad economic policy of the government is generally accepted, but the central bank retains a special status which is something rather more than freedom to conduct its daily technical operations unhindered. It is rather, in the words of an outstanding Governor of the Bank of England, that the central bank has “the unique right to offer advice and to press such advice even to the point of nagging; but always of course subject to the supreme authority of the Government”, R. S. Sayers, Modern Banking (Oxford: Clarendon Press, 1967) p. 67.
R. S. Sayers, ‘Banking, Central’, p. 6.
For an introduction to this debate, see E. V. Morgan, The Theory and Practice of Central Banking, 1797-1913 (Cambridge: Cambridge University Press, 1943). A thorough account is to be found in C. Rotelli, L’origine della controversia monetaria (1797-1844) (Bologna: II Mulino, 1982); but the best critical appraisal remains that of J. A. Sebumpeter, History of Economic Analysis (New York: Oxford University Press, 1954).
M. Blaug, Economic Theory in Retrospect (London: Heinemann, 1970)p. 202.
Ibid.
For an interpretation in this sense of Thornton’s major work, see J. R. Hicks, ‘Thornton’s “Paper Credit” (1802)’, in Critical Essays in Monetary Theory (Oxford: Clarendon Press, 1967) especially pp. 181‐8.
J. A. Schumpeter, History of Economic Analysis, p. 729.
H. Thornton, An Enquiry into the Nature and Effects of the Paper Credit of Great Britain (London: Hatchard, 1802) p. 295.
A summary comment can none the less be found in T. M. Humphrey, ‘The Classical Concept of the Lender of Last Resort’, Economic Review of the Federal Reserve Bank of Richmond, no. 61, 1975, especially pp. 3-4.
D. Ricardo, ‘The High Price of Bullion: A Proof of the Depreciation of Banknotes’, in P. Sraffa (ed.), Works and Correspondence of David Ricardo (Cambridge: Cambridge University Press, 1951) vol. III, pp. 94–5.
D. Ricardo, ‘Plan for the Establishment of a National Bank’, in Worksand Correspondence of David Ricardo, vol. IV.
R. S. Sayers, ‘The Theoretical Basis of Central Banking’, in CentralBanking after Bagehot (Oxford: Clarendon Press, 1957) pp. 1 and 7.
See the survey by V. C. Smith, The Rationale of Central Banking, which, though full of sympathy for the pluralist view, is thorough and penetrating. This book does not deal with Italy, even though the debate there was no less exhaustive and actually lasted longer than in other countries because of the survival of several banks of issue and the strength of regional forces. A useful bibliographical guide to the period after the unification of Italy is to be found in E. Vitale, La riforma degli istituti di emissione e gli ‘scandali bancari’ in ltalia 1882–1896 (Rome: Chamber of Deputies, Historical Archive, 1972). Among the writings of the politicians involved, the most interesting and lucid is that by C. Cavour, Discorso sui progetto di Iegge per I’ affidamento del servizio di Tesoreria generale dello Stato alia Banca Naziona/e (14 novembre 1853), in Nuova Collana di Economisti Stranieri e Italiani, A. Garino Canina (ed.), Economisti italiani del Risorgimento (Turin: UTET, 1933) vol. II, pp. 214–29.
F. A. v. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960) pp. 520–1; Choice in Currency (London: The Institute of Economic Affairs, 1976); and Denationa/isation of Money (London: The Institute of Economic Affairs, 1976).
V. C. Smith, The Rationale of Central Banking, p. 172.
Quoted in W. Bagehot, Lombard Street: A Description of the Money Market (London: King, 1873) pp. 170–1. The data on the Bank of England’s loans on private securities are given on p. 62.
J. A. Schumpeter, History of Economic Analysis, p. 697.
J. M. Keynes, ‘The Works of Bagehot’, The Economic Journal, 1915, p. 371.
J. A. Schumpeter, History of Economic Analysis, p. 1111.
W. Bagehot, Lombard Street, p. 123 and ch. 6.
Ibid, p. 57.
Ibid, p. 56.
H. Thornton, Paper Credit of Great Britain, pp. 185–6.
In his Lombard Street Bagehot actually talks of ‘raising’ and ‘very high’ interest rates ( cf., for example, the passage on p. 56 quoted above) exclusively as the means of countering a foreign drain. The view upon which this reasoning is based is that if the risk of capital outflows were eliminated, a domestic drain would require unchanged or lower interest rates. However, see T. M. Humphrey, ‘The Classical Concept of the Lender of Last Resort’, for the opposite view.
W. Bagehot, Lombard Street, p. 71.
Ibid, p. 51.
Ibid, pp. 51–2.
J. M. Keynes, ‘The Works of Bagehot’, p. 372.
R. S. Sayers, ‘The Development of Central Banking after Bagehot’, inCentral Banking after Bagehot, p. 9.
J. M. Keynes, The General Theory of Employment, Interest and Money (London: Macmillan, 1936) pp. 32–4. The only qualification to this view is that the critical approach which Keynes identified with the principle of effective demand survived, after Malthus, in the ‘clandestine’ analyses of Marx, Gesell and Douglas. See also N. Kaldor’s The Scourge of Monetarism (Oxford: Oxford University Press, 1982) p. 19.
J. A. Schumpeter, History of Economic Analysis, p. 703.
N. Kaldor, The Scourge of Monetarism, p. 42.
J. A. Schumpeter, History of Economic Analysis, pp. 702–3. On money in Marx, see C. Boffito, Teoria della moneta (Turin: Einaudi, 1973).
M. Blaug, Economic Theory in Retrospect, p. 615.
J. A. Schumpeter, History of Economic Analysis, p. 1103.
‘I maintain that Ricardo, before him Wheatley, after him James Mill and McCulloch, held the quantity theory in this sense and that no other major writers did’, J. A. Schum peter, History of Economic Analysis, p. 703. ‘Ricardo turned a deaf ear to Thornton’s suggestion and kept on repeating again and again – almost unintelligently – that “fictitious” capital cannot stimulate industry’ (ibid, p. 724). ‘Ricardo, there, is not much help to us. Though he did have a theory of the “world” value of money, explaining it in terms of the real cost of production of the money metal, it was a very long–run theory, an almost incredibly long‐run theory, so long‐run as to be uninformative’, J. R. Hicks, ‘Monetary Experience and the Theory of Money’, in Economic Perspectives: Further Essays on Money and Growth (Oxford: Clarendon Press, 1977) pp. 48–9.
D. Hume, ‘Of Money’, in Political Discourses (Edinburgh: Fleming, 1752). D. Hume, ‘Of Money’, in Political Discourses (Edinburgh: Fleming, 1752).
M. Blaug, Economic Theory in Retrospect, p. 180.
J. S. Mill, Principles of Political Economy (London: Longman, 1885) especially book III, ch. 8.
E. Eshag, From Marshall to Keynes: An Essay on the Monetary Theory of the Cambridge School (Oxford: Blackwell, 1963) p. 14.
J. A. Schumpeter, History of Economic Analysis, p. 1109.
‘I hold that prices vary directly with the volume of currency, if other things are equal; but other things are constantly changing. This socalled “quantity theory of the value of money” is true in just the same way as it is true that the day’s temperature varies with the length of the day, other things being equal; but other things are seldom equal’, A. Marshall, ‘Evidence before the Indian Currency Committee (1899)’, in Official Papers by Alfred Marshall (London: Macmillan, 1926) p. 267.
For a well‐argued interpretation in this key of Wicksell’s monetary theory, see J. R. Hicks, Monetary Experience.
M. Blaug, Economic Theory in Retrospect, p. 616. See also, in the same vein, J. A. Schumpeter, History of Economic Analysis, pp. 1101-2.
J. A. Schumpeter, History of Economic Analysis, p. 1112.
Ibid, p. 1077.
R. S. Sayers, Banking, Central, p. 4.
Ibid, pp. 4–5. For supporting evidence with regard to Italian central bankers’ awareness of the effects monetary restriction could produce on income and employment as well as prices and exchange rates, see P. Ciocca, ‘Note sulla politica monetaria italiana, 1900–1913’, in G. To niolo (ed.), Lo sviluppo economico italiano, 1861–1940 (Bari: Laterza, 1973) pp. 241–82.
M. Desai, Testing Monetarism (London: Pinter, 1981) p. 35. Schumpeter had arrived at a similar conclusion: ‘ ... the chief progress of monetary theory in more recent times has been the result of a tendency to tear up the straitjackets and to introduce explicitly and directly all that the best presentations of the quantity theory relegated into the limbo of indirect influences’, History of Economic Analysis, p. 1106.
J. M. Keynes, The General Theory, especially chs 3, 5, 20 and 21. For a critical guide to The General Theory, see V. Chick, Macroeconomics after Keynes: A Reconsideration of the ‘General Theory’ (Oxford: Allan, 1983). A simpler handbook with a similar approach is that published twenty years earlier by P. Davidson and E. Smolensky, Aggregate Supply and Demand Analysis (New York: Harper & Row, 1964).
J. Robinson, ‘Quantity Theories Old and New: A Comment’, Journal of Money, Credit and Banking, 1970, pp. 505–6.
For a recent appraisal of that far‐off but decisive discussion, see M. Desai, ‘The Task of Monetary Theory: The Hayek–Sraffa Debate in a Modern Perspective’, in M. Baranzini (ed.), Advances in Economic Theory (Oxford: Blackwell, 1982).
J. Robinson, ‘Quantity Theories Old and New’, p. 505.
Committee on the Working of the Monetary System, Principal Memoranda of Evidence (London: HMSO, 1959). Kahn’s contribution is to be found in R. Kahn, Selected Essays on Employment and Growth (Cambridge: Cambridge University Press, 1972).
Committee on the Working of the Monetary System, Report (London: HMSO, 1959) paragraphs 514 and 389 respectively.
‘I believe that negotiation of some kind of national wage structure, conceived in terms of relative wages, at least for the most important sections of labour, is an essential prerequisite to securing ... a tolerable behaviour of the absolute wage level . . . Essentially it would be a matter for negotiation between trade unions, and to some extent within trade unions. It ... would call for strong direction inside the trade‐union movement’, R. Kahn, Selected Essays, pp. 143–4 (my italics).
R. Kahn, Selected Essays, p. 146
Ibid, p. 147.
J. R. Hicks, ‘Mister Keynes and the “Classics”’, Econometrica, no. 5, 1937.
J. Robinson, ‘Quantity Theories Old and New’, pp. 507-8.
Ibid, p. 508.
J. M. Keynes, The General Theory, pp. 197–8.
Cf., in particular, P. Garegnani, Valore e domanda effettiva (Turin: Einaudi, 1979).
F. Modigliani, ‘Liquidity Preference and the Theory of Interest and Money’, Econometrica, no. 12, 1944, pp. 45–88; L. R. Klein, The Keynesian Revolution (New York: Macmillan, 1947); A. H. Hansen, Monetary Theory and Fiscal Policy (New York: McGraw Hill, 1949).Greater awareness of the neoclassical elements in this type of model is naturally to be found in D. Patinkin, Money, Interest and Prices (New York: Harper & Row, 1958).
Any selection of critical surveys of the main results of the research in this field is bound to be arbitrary, even if its purpose is purely bibliographical. It is none the less impossible to omit those sponsored between 1957 and the early 1960s by the Royal Economic Society in the UK and the American Economic Association in the USA. For a summary discussion of the leading large‐scale econometric models constructed in the USA, see M. D. Intriligator, Econometric Models, Techniques and Applications (Amsterdam: North Holland, 1978) ch. 12. The most important example in Italy is the model constructed by the Bank of Italy; see the first description by Guido Carli in Vincoli nella politica economica italiana, a lecture given on 7 February 1970 at the Economics Faculty of the University of Parma in Brescia.
With reference to Italian experience, see P. Baffi, ‘L’ analisi monetaria in ltalia’, in Studi sulla moneta (Milan: Giuffr’, 1965) and ‘Metodi e programmi di azione monetaria in ltalia: uno sguardo a due decenni’, in Nuovi studi sulla moneta, (Milan: Giuffr’, 1973); see also F. Cotula and P. de’ Stefani, La politica monetaria in ltalia: lstituti e strumenti (Bologna: II Mulino, 1979).
Among such works, it is worth mentioning: G. Ackley, Macroeconomic Theory (New York: Macmillan, 1961); M. J. Bailey, National Income and the Price Level: A Study in Macrotheory (New York: McGraw Hill, 1962); J. S. Duesenberry, Money and Credit: Impact and Control (Englewood Cliffs: Prentice Hall, 1964); R. G. D. Allen, MacroEconomic Theory: A Mathematical Treatment (London: Macmillan, 1967); M. K. Evans, Macroeconomic Activity: Theory, Forecasting, and Control (New York: Harper & Row, 1969). Textbooks were also produced in Italy giving a full and critical description of the IS–LM model; outstanding among these, apart from anything else for the clarity of the writing, is that by F. Caffé, Lezioni di politica economica, published by Boringhieri, Turin 1978.
Strictly Keynesian textbooks on money and monetary policy have not been totally lacking, but they have appeared sporadically. An example is the lively and elegant work by A. B. Cramp, Monetary Management: Principles and Practice (London: Allen & Unwin, 1971). Of the famous Keynesians, it was again Joan Robinson who showed the greatest commitment to teaching – cf. J. Robinson and J. Eatwell, An Introduction to Modern Economics (London: McGraw Hill, 1973). Furthermore, not much research was done in this direction either. Among the exceptions of greatest interest, and also decidedly opposed to the main stream of US literature, the writings of H. Minsky occupy an important place; see, in particular, H. Minsky ,John Maynard Keynes (New York: Columbia University Press, 1975).
R. Kahn, The Development of Theories of Employment, Lezioni Mattioli (Milan: Banca Commerciale ltaliana, 1978) mimeo, lesson 5, p. 25.
‘ ... the only way in which IS–LM analysis usefully survives – as anything more than a classroom gadget, to be superseded, later on, by something better – is in application to a particular kind of causal analysis, where the use of equilibrium methods, even a drastic use of equilibrium methods, is not inappropriate. I have deliberately interpreted the equilibrium concept, to be used in such analysis, in a very stringent manner (some would say a pedantic manner) not because I want to tell the applied economist, who uses such methods, that he is in fact committing himself to anything which must appear to him to be so ridiculous, but because I want to ask him to try to assure himself that the divergences between reality and the theoretical model, which he is using to explain it, are no more than divergences which he is entitled to overlook. I am quite prepared to believe that there are cases where he is entitled to overlook them. But the issue is one which needs to be faced in each case.’ J. R. Hicks, ‘IS–LM an Explanation’, Journal of Post‐Keynesian Economics, vol. III, 1980–1, pp. 152–3.
H. Markowitz, ‘Portfolio Selection’, Journal of Finance, 1952, pp. 77–91; J. Tobin, ‘Liquidity Preference as Behaviour Toward Risk’, Review of Economic Studies, 1958, pp. 65–86.
J. R. Hicks, Causality in Economics (Oxford: Blackwell, 1979) p. 85.
For a concise introduction to this criticism, seeM. H. Dobb, Theories of Value and Distribution since Adam Smith: Ideology and Economic Theory (Cambridge: Cambridge University Press, 1973) ch. 9.
De rigueur, the reference is to the textbook bought by over 10 million readers, P. A. Samuelson’s Economics (New York: McGraw Hill, 1980).
A. W. H. Phillips,‘The Relationship between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957’, Economica, 1958, pp. 283–300.
P. A. Samuelson and R. M. Solow, ‘Analytical Aspects of AntiInflation Policy’, The American Economic Review, 1960, pp. 177–94.
A classic example of this opti~ism is W. W. Heller, New Dimensions of PolitiCal Economy (Cambridge, Massachusetts: Harvard University Press, 1966).
J. M. Keynes, ‘Professor Tinbergen’s Method’, The Economic Journal, 1939, pp. 558–68.
M. Bronfenbrenner (ed.), Is the Business Cycle Obsolete? (New York: Wiley, 1969).
W. Poole, ‘Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model’, Quarterly Journal of Economics, 1970, pp. 197–226.
Friedman’s writing and its derivatives now form a copious literature. For a preliminary guide, see T. Mayer, The Structure of Monetarism (New York: Norton, 1978); T. Congdon, Monetarism: An Essay in Definition (London: Centre for Policy Studies, 1978); D. D. Purvis, ‘Monetarism: A Review’, The Canadian Journal of Economics, no. 1, 1980. The major works by Lucas have been brought together in R. E. Lucas, Jr, Studies in Business‐Cycle Theory (Cambridge, Massachusetts: MIT Press, 1981).
M. Friedman, ‘The Methodology of Positive Economics’, in Essays in Positive Economics (Chicago: University of Chicago Press, 1953). On Friedman’s place in non‐rational epistemology, see W. J. Frazer, Jr, and L. A. Boland, ‘An Essay on the Foundations of Friedman’s Methodology’, The American Economic Review, 1983, pp. 129–44.
M. Friedman, ‘A Theoretical Framework for Monetary Analysis’, National Bureau of Economic Research Occasional Paper, no. 112 (New York: 1971) p. 2.
M. Friedman, The Optimum Quantity of Money and Other Essays (Chicago: Aldine, 1969) p. 179.
Ibid, p. 181.
Ibid, p. 181.
M. Friedman, ‘The Role of Monetary Policy’ in The Optimum Quantity of Money and Other Essays, p. 105.
Ibid, p. 106.
Ibid, p. 107.
Ibid, p. 109.
Ibid, p. 110.
M. Friedman, ‘Should There Be an Independent Monetary Authority?’, in L. B. Yeager (ed.), In Search of a Monetary Constitution (Cambridge Massachusetts: Harvard University Press, 1962) p. 227.
R. E. Lucas, Jr, Studies in Business‐Cycle Theory, p. 257, my italics.
Ibid, pp. 232–3. For a useful guide to the problems raised by the new classical economics, see A. Vercelli, ‘“Anti‐Lucas”, ovvero “La Nuova Economia Classica” e Ia rivoluzione Keynesiana’, in Keynes, edited by the Cassa di Risparmio di Torino, Piemonte V:ivo Ricerche, Turin 1983. Vercelli’s essay brings out the merely instrumental nature of the socalled ‘rational expectations’ hypothesis within Lucas’s programme.
‘Friedman’s arguments can be taken as an injunction to look for good correlations and make no attempt to judge whether or not they are spurious. If this is what he means I must part company with him ... It seems to me that one of the most convenient instruments for judging the appropriateness of our necessarily imperfectly realistic models is the examination of the plausibility of their assumptions. While ridiculous premises may sometimes yield correct conclusions, we can have no confidence that they will do so’, W. J. Baumol, Business Behavior, Value and Growth (New York: Macmillan, 1959) p. 6.
‘ ... specifications and identifications must be determined a priori by reflecting on what is essential to capitalist industrial institutions’, M. Hollis and E. Nell, Rational Economic Man: A Philosophical Critique of Neo‐Classical Economics (Cambridge: Cambridge University Press, 1975) pp. 20 and 265.
M. Hollis and E. Nell, Rational Economic Man, ch. 1, and M. Desai, Testing Monetarism, ch. 3.
M. Desai, Testing Monetarism, p. 189. This book also contains an excellent survey of the empirical literature on other monetarist propositions.
For an introduction to this issue, see the entry ‘Crisi economiche’ and similar in the encyclopaedia II mondo contemporaneo: Economia e Storia (Florence: La Nuova Italia, 1978).
The most controversial example is, of course, the Great Depression. For two non‐monetary interpretations, see P. Temin, Did Monetary Forces Cause the Great Depression? (New York: Norton, 1976) and C. P. Kindleberger, The World in Depression, 1929-1939 (London: Allen Lane, 1973).
D. Patinkin, ‘The Chicago Tradition, the Quantity Theory, and Friedman’, in Essays on and in the Chicago Tradition (Durham: Duke University Press, 1981). F. Cesarano is more open to the possibility of links with the older economists in the case of Friedman, but not in that of the new classical macroeconomics, see his ‘The Rational Expectations Hypothesis in Retrospect’, The American Economic Review, 1983, pp. 198–203.
An extreme version of this analytical approach is that which envisages a managed money supply function with infinite interest rate elasticity; see N. Kaldor, The Scourge of Monetarism, especially pp. 19–29, and also N. Kaldor and J. Trevithick, ‘A Keynesian Perspective on Money’, Lloyds Bank Review, no. 139, 1981, pp. 1–19. The resort to the announcement of quantitative monetary and credit targets by the central banks of several countries does not break the tradition. Dr Emminger’s postscript in this book is confirmation of this affirmation, especially since the Bundesbank was the first central bank to make such announcements. In the final analysis they are an operational technique designed to enhance the effect of a restrictive and credible monetary policy in the short term by influencing expectations, with the aim of reducing the cost of bringing prolonged inflation down. For a discussion of the limits of this technique when it is not part and parcel of an economic policy mix that also curbs demand and costs, see A. Lamfalussy, Observation de règles ou politique discrétionnaire: Essai sur Ia politique monétaire dans un milieu inflationniste (Bâle: Banque des Reglements lnternationaux, 1981) and J. Tobin, Monetary Policy in an Uncertain World (Tokyo: 1983) mimeo.
J. R. Hicks, ‘What is Wrong with Monetarism’, L/oyds Bank Review, no. 118, 1975, p. 1. For a survey of the very different natures of inflation in modern times, see P. Ciocca, ‘L’ipotesi del “ritardo” dei salari rispetto ai prezzi in periodi di inflazione: alcune considerazioni generali’, Bancaria, nos. 4 and 5, 1969.
J. R. Hicks, ‘What is Wrong with Monetarism?’, p. 4.
For a comprehensive example ofthe first type of criticism, see J. Tobin, Asset Accumulation and Economic Activity (Oxford: Blackwell, 1980). For the more systematic version of the theoretical criticism, see P. Garegnani, II capitale nelle teorie della distribuzione (Milan: Giuffré, 1960). The difficulty of introducing money into the Walras–Arrow–Debreu model in a meaningful way has been made clear to both old and new monetarists on many occasions by Hahn, albeit to little effect. Cf. F. Hahn, ‘Professor Friedman’s View of Money’, Economica, 1971, pp. 61–80; ‘Monetarism and Economic Theory’, Economica, 1980, pp. 1–17; ‘Preposterous Claims of the Monetarists’, The Times, 28 April 1981, p. 19; and Money and Inflation (Oxford: Blackwell, 1982).
In this connection Lucas’s own caution, based on his methodological scrupulousness, needs to be remembered: ‘From the point of view of those involved in economic management, the posttJOn that policy should be dictated by a set of fixed rules seems at best a partial response to the question: What should be done now? ... What advice. then. do advocates of rules have to offer with respect to the policy decisions before us right now? Thts question does have a practical, men‐of‐affairs ring to it, but to my ears, this ring is entirely false’, R. E. Lucas, Jr, Studies in Business‐Cycle Theory, pp. 257–8.
An overview of this vast subject together with a preliminary bibliographical guide is to be found in P. Ciocca, Interesse e Profitto (Bologna: II Mulino, 1982). Among subsequent works that by G. Nardozzi, Tre sistemi creditizi (Bologna: II Mulino. 1983) deserves mention for its comparative insights.
On the importance of tradition in the political and institutional ‘legitimization’ of central bank see the fine essay by K. E. Boulding, The Legitimacy of Central Banks’, in Reappraisal of the Federal Reserve Discount Mechanism (Washington: Board of Governors of the Federal Reserve System, 1971).
In this connection one of the most sensible and effective criticisms of the hypothesis of predetermined monetary rules is by a member of the Chicago School. See J. Viner, ‘The Necessary and the Desirable Range of Discretion to be Allowed to a Monetary Authority’, in L. B. Yeager (ed.), In Search of a Monetary Constitution.
Cf., for example, H. G. Johnson, ‘Should there be an Independent Monetary Authority?’, in W. L. Smith and R. L. Teigen (eds), Readings in Money, National Income and Stabilization Policy (Homewood: Irwin, 1965).
For an echo of this view in Italy, though primarily with reference to the institutional order of Western Germany, see M. Monti, ‘Più autonomia monetaria, meno poteri fiscali “occulti’”, Politica ed economia, no. 1, 1983., The case is based on an interpretation of the ‘constitutional’ position of the Bundesbank that a large part of German legal scholarship itself rejects or qualifies, especially since the promulgation of the Stabilitiitsgesetz in 1967. On the legal aspects of this question, see: R. Schmidt, ‘La banca centrale della Repubblica federale tedesca: aspetti costituzionali’, Rivista Trimestrale di Diritto Pubblico, 1982; F. Merusi, ‘L’indipendenza della banca centrale nel dibattito della dottrina costituzionale tedesca’, Scritti in onore di Ugo Caprara (Milan: Vallardi, 1975) vol. III; S. Ortino, ‘La Bundesbank e Ia Iegge sulla stabilità economica’, Economia Pubblica, April 1975.
‘ ... independence, looked at practically, is a matter of degree, not of black and white’, G. L. Bach, ‘Federal Reserve Organization and Policy‐making’, in W. L. Smith and R. L. Teigen (eds), Readings in Money, p. 239.
‘Viner after Aristotle’, in J. Viner, The Necessary and Desirable Range of Discretion’, p. 274.
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Ciocca, P. (1987). Introduction Between ‘a Science’ and ‘an Art’: Central Banks and the Political Economy of Money. In: Ciocca, P. (eds) Money and the Economy: Central Bankers’ Views. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-07927-8_1
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