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The classical monetary theory on bank liquidity and finance

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  • Laurent Le MauxBy

Abstract

This article investigates the classical monetary theory on bank liquidity and finance and especially the contribution of Thomas Tooke, John Stuart Mill and John Fullarton at the light of the debate on the Great Recession. These authors show how financial markets and banking system may collapse altogether after a rise of values in certain classes of securities or real estate markets. And they come to the view that competition between commercial banks creates the appearance of market discipline, while the expectation of scarcity in some specific markets leads to a speculative process, which in turn destabilizes the banking system and triggers the need for the lender of last resort.

Suggested Citation

  • Laurent Le MauxBy, 2020. "The classical monetary theory on bank liquidity and finance," Oxford Economic Papers, Oxford University Press, vol. 72(3), pages 692-709.
    • Handle: RePEc:oup:oxecpp:v:72:y:2020:i:3:p:692-709.
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    File URL: http://hdl.handle.net/10.1093/oep/gpz051
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    More about this item

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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