IDEAS home Printed from https://ideas.repec.org/a/kap/copoec/v28y2017i3d10.1007_s10602-016-9223-9.html
   My bibliography  Save this article

The institutional rationale of central banking reconsidered

Author

Listed:
  • Pablo Paniagua

    (King’s College London)

Abstract

Based on Goodhart’s (1988) The Evolution of Central Banks, I examine both the theoretical arguments and the historical evidence that could sustain the case for the natural emergence of central banks. I criticize Goodhart’s theoretical claim that central banks evolve naturally, by showing that they are far from being uniquely capable of supplying essential banking services. I review historical evidence showing that Goodhart’s historical generalizations are inconsistent with the developments of the vast majority of central banks. History also shows that crucial banking services have tended to be successfully provided by other means, except when governments prevented their development. Finally, I consider whether central banks, if not essential, are at least preferable to alternative arrangements.

Suggested Citation

  • Pablo Paniagua, 2017. "The institutional rationale of central banking reconsidered," Constitutional Political Economy, Springer, vol. 28(3), pages 231-256, September.
    • Handle: RePEc:kap:copoec:v:28:y:2017:i:3:d:10.1007_s10602-016-9223-9
    DOI: 10.1007/s10602-016-9223-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10602-016-9223-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10602-016-9223-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Boot, Arnoud W A & Thakor, Anjan V, 1993. "Self-Interested Bank Regulation," American Economic Review, American Economic Association, vol. 83(2), pages 206-212, May.
    2. Charles W. Calomiris & Stephen H. Haber, 2015. "Fragile by Design: The Political Origins of Banking Crises and Scarce Credit," Economics Books, Princeton University Press, edition 1, number 10177-2.
    3. Goodhart, C. A. E., 2010. "The Changing Role of Central Banks," Working Papers 11-27, University of Pennsylvania, Wharton School, Weiss Center.
    4. Jean-Jacques Laffont & Jean Tirole, 1991. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1089-1127.
    5. Elinor Ostrom, 2010. "Beyond Markets and States: Polycentric Governance of Complex Economic Systems," American Economic Review, American Economic Association, vol. 100(3), pages 641-672, June.
    6. Calomiris, Charles W & Kahn, Charles M, 1996. "The Efficiency of Self-Regulated Payments Systems: Learning from the Suffolk System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 766-797, November.
    7. Charles Goodhart, 2010. "The changing role of central banks," BIS Working Papers 326, Bank for International Settlements.
    8. Timberlake, Richard H, Jr, 1984. "The Central Banking Role of Clearinghouse Associations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(1), pages 1-15, February.
    9. Rosen, Richard J, 2003. "Is Three a Crowd? Competition among Regulators in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 967-998, December.
    10. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    11. James Buchanan, 2008. "Same players, different game: how better rules make better politics," Constitutional Political Economy, Springer, vol. 19(3), pages 171-179, September.
    12. Peter Boettke & Christopher Coyne & Peter Leeson, 2007. "Saving government failure theory from itself: recasting political economy from an Austrian perspective," Constitutional Political Economy, Springer, vol. 18(2), pages 127-143, June.
    13. Kroszner, Randall S., 2000. "Obstacles To Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," Working Papers 158, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    14. James M. Buchanan, 2008. "Constitutional Political Economy," Springer Books, in: Readings in Public Choice and Constitutional Political Economy, chapter 17, pages 281-293, Springer.
    15. Richard A. Posner, 1974. "Theories of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 335-358, Autumn.
    16. Lake, Wilfred S., 1947. "The End of the Suffolk System," The Journal of Economic History, Cambridge University Press, vol. 7(2), pages 183-207, November.
    17. Broz, J. Lawrence, 1998. "The Origins of Central Banking: Solutions to the Free-Rider Problem," International Organization, Cambridge University Press, vol. 52(2), pages 231-268, April.
    18. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 371-400.
    19. Randall S. Kroszner & Philip E. Strahan, 2000. "Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," NBER Working Papers 7582, National Bureau of Economic Research, Inc.
    20. Hetzel,Robert L., 2012. "The Great Recession," Cambridge Books, Cambridge University Press, number 9781107011885.
    21. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309.
    22. Mr. Luis Ignacio Jácome, 2015. "Central Banking in Latin America: From the Gold Standard to the Golden Years," IMF Working Papers 2015/060, International Monetary Fund.
    23. Elinor Ostrom, 2000. "Collective Action and the Evolution of Social Norms," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 137-158, Summer.
    24. Randall S. Kroszner & Philip E. Strahan, 2000. "Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," CRSP working papers 512, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    25. Dowd, Kevin, 1994. "Competitive Banking, Bankers' Clubs, and Bank Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(2), pages 289-308, May.
    26. Demsetz, Harold, 1969. "Information and Efficiency: Another Viewpoint," Journal of Law and Economics, University of Chicago Press, vol. 12(1), pages 1-22, April.
    27. Selgin, George & White, Lawrence H, 1999. "A Fiscal Theory of Government's Role in Money," Economic Inquiry, Western Economic Association International, vol. 37(1), pages 154-165, January.
    28. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, December.
    29. Glasner,David, 2005. "Free Banking and Monetary Reform," Cambridge Books, Cambridge University Press, number 9780521022514.
    30. Cukierman, Alex, 1994. "Central Bank Independence and Monetary Control," Economic Journal, Royal Economic Society, vol. 104(427), pages 1437-1448, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pablo Paniagua Prieto, 2022. "The institutional evolution of central banks," Journal of Evolutionary Economics, Springer, vol. 32(3), pages 1049-1070, July.
    2. Van Den Hauwe, Ludwig, 2017. "Monetary Constitutionalism: Some Recent Developments," MPRA Paper 83052, University Library of Munich, Germany.
    3. Pablo Paniagua, 2023. "Money and the rule of Law," Constitutional Political Economy, Springer, vol. 34(2), pages 260-266, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pablo Paniagua Prieto, 2022. "The institutional evolution of central banks," Journal of Evolutionary Economics, Springer, vol. 32(3), pages 1049-1070, July.
    2. Salter, Alexander William & Young, Andrew T., 2018. "A theory of self-enforcing monetary constitutions with reference to the Suffolk System, 1825–1858," Journal of Economic Behavior & Organization, Elsevier, vol. 156(C), pages 13-22.
    3. Cécile Carpentier & Jean-Marc Suret, 2003. "The Canadian and American Financial Systems: Competition and Regulation," Canadian Public Policy, University of Toronto Press, vol. 29(4), pages 431-447, December.
    4. repec:wvu:wpaper:10-20 is not listed on IDEAS
    5. International Monetary Fund, 2006. "Regulatory Capture in Banking," IMF Working Papers 2006/034, International Monetary Fund.
    6. Young, Andrew T. & Dove, John A., 2013. "Policing the chain gang: Panel cointegration analysis of the stability of the Suffolk System, 1825–1858," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 182-196.
    7. Glenn Furton & Adam Martin, 2019. "Beyond market failure and government failure," Public Choice, Springer, vol. 178(1), pages 197-216, January.
    8. Sigbjørn Atle Berg & Øyvind Eitrheim, 2009. "Bank regulation and bank crisis," Working Paper 2009/18, Norges Bank.
    9. Gabriella Montinola & Ramon Moreno, 2001. "The political economy of foreign bank entry and its impact: theory and a case study," Pacific Basin Working Paper Series 2001-11, Federal Reserve Bank of San Francisco.
    10. Agoraki, Maria-Eleni K. & Kouretas, Georgios P. & Triantopoulos, Christos, 2020. "Democracy, regulation and competition in emerging banking systems," Economic Modelling, Elsevier, vol. 84(C), pages 190-202.
    11. Paniagua Pablo, 2016. "The Stability Properties of Monetary Constitutions," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 22(2), pages 113-138, December.
    12. Ms. Deniz O Igan & Thomas Lambert, 2019. "Bank Lobbying: Regulatory Capture and Beyond," IMF Working Papers 2019/171, International Monetary Fund.
    13. Friedrich Heinemann & Martin Schüler, 2004. "A Stiglerian View on Banking Supervision," Public Choice, Springer, vol. 121(1), pages 99-130, October.
    14. Knoll Bodo, 2011. "Vom Wert der Blase – Die Funktion der Spekulation in der Marktwirtschaft / On the Value of Bubbles – The Function of Speculation for a Market Order," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 62(1), pages 115-144, January.
    15. Heinemann, Friedrich & Schüler, Martin, 2002. "A Stigler View on Banking Supervision," ZEW Discussion Papers 02-66, ZEW - Leibniz Centre for European Economic Research.
    16. Louis Rouanet, 2021. "The interest group origins of the Bank of France," Public Choice, Springer, vol. 186(1), pages 119-140, January.
    17. Pablo Paniagua, 2016. "The robust political economy of central banking and free banking," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 29(1), pages 15-32, March.
    18. Nicholas A. Curott & Tyler Watts & Benjamin R. Thrasher, 2020. "Government-Cheerleading Bias in Money and Banking Textbooks," Econ Journal Watch, Econ Journal Watch, vol. 17(1), pages 1-98–151, March.
    19. Rania Adel Al-Bawwab, 2022. "The zecca mint: a self-enforcing monetary constitution in historic venice," Economics of Governance, Springer, vol. 23(1), pages 1-15, March.
    20. Maurizio Trapanese, 2020. "The regulatory cycle in banking: what lessons from the U.S. experience? (from the Dodd-Frank Act to Covid-19)," Questioni di Economia e Finanza (Occasional Papers) 585, Bank of Italy, Economic Research and International Relations Area.
    21. Bryan Caplan & Edward Stringham, 2003. "Networks, Law, and the Paradox of Cooperation," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 16(4), pages 309-326, December.

    More about this item

    Keywords

    Central banking; Clearinghouse; Clubs; Monetary institutions; Self-governance;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H1 - Public Economics - - Structure and Scope of Government
    • H4 - Public Economics - - Publicly Provided Goods
    • K2 - Law and Economics - - Regulation and Business Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:copoec:v:28:y:2017:i:3:d:10.1007_s10602-016-9223-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.