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Banks And The Design Of The Financial System: Underpinnings In Steuart, Smith And Hilferding

  • COSTAS LAPAVITSAS

    ()

    (Department of Economics, SOAS, University of London, UK)

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    Banks in bank-based financial systems tend to engage in long-term lending that requires substantial own capital to guarantee solvency. In market-based systems, in contrast, they tend to undertake short-term lending that requires adequate reserves to guarantee liquidity. Theoretical support for these two approaches to banking can be found in, respectively, Steuart and Smith. The innovative Marxist analysis of banking by Hilferding combined elements of both. Banks in the early stages of development are Smith-like but, as the scale of fixed investment in industry grows, they lend long-term and become Steuart-like, also developing 'commitment' relations with enterprises. However, Hilferding also implied, erroneously, that financial systems historically evolve in a bank-based direction. Based on Hilferding but also drawing on Japanese Marxist analysis of finance, it is suggested instead that bank behaviour in bank-based systems results from institutional changes imposed by policy-makers in order to achieve 'catching up.'

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    File URL: http://www.soas.ac.uk/economics/research/workingpapers/file28850.pdf
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    Paper provided by Department of Economics, SOAS, University of London, UK in its series Working Papers with number 128.

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    Length: 36 pages
    Date of creation: Nov 2002
    Date of revision:
    Handle: RePEc:soa:wpaper:128
    Contact details of provider: Postal: Thornhaugh Street, London WC1H OXG
    Web page: http://www.soas.ac.uk/economics/

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    1. Anthony Brewer, 1997. "An eighteenth-century view of economic development: Hume and Steuart," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 4(1), pages 1-22.
    2. David Laidler, 1981. "Adam Smith as a Monetary Economist," Canadian Journal of Economics, Canadian Economics Association, vol. 14(2), pages 185-200, May.
    3. Mayer, Colin, 1987. "The Assessment: Financial Systems and Corporate Investment," Oxford Review of Economic Policy, Oxford University Press, vol. 3(4), pages i-xvi, Winter.
    4. Lapavitsas, Costas, 1994. "The Banking School and the Monetary Thought of Karl Marx," Cambridge Journal of Economics, Oxford University Press, vol. 18(5), pages 447-61, October.
    5. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-52, May.
    6. Corbett, Jenny & Jenkinson, Tim, 1997. "How Is Investment Financed? A Study of Germany, Japan, the United Kingdom and the United States," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(0), pages 69-93, Supplemen.
    7. Steven Horwitz, 1994. "Complementary Non-Quantity Theory Approaches to Money: Hilferding's Finance Capital and Free-Banking Theory," History of Political Economy, Duke University Press, vol. 26(2), pages 221-238, Summer.
    8. Demirguc-Kunt, Ash & Maksimovic, Vojislav, 1996. "Stock Market Development and Financing Choices of Firms," World Bank Economic Review, World Bank Group, vol. 10(2), pages 341-69, May.
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