Die Banking-Currencey-Kontroverse — Beitrag Nr. X

Abstract

The Banking-Currency Controversy – Essay No. X

The essay deals with the historical controversy during the first half of the past century on the appropriate organization of English monetary structure. The debate, vestiges of which have endured up to the present, colouring topical problems of current monetary theory, is depicted in the literature in varying and in part contradictory manners. The essay sets out to resolve some of the discrepancies and to attain a synthesis of partly conflicting positions. Although the controversial point of what means of payment were, or were not, to be regarded as money played an important role in the debate, the conceptions of the two schools on this point were less remote from each other than is often described. Actually, the problem of how-money and credit exerted an influence of the trade cycle and prices was the crucial issue on which dissension prevailed. While in principle the currency theory adopted a standpoint oriented to the money supply and ascribed inflationary phenomena primarily to excessive growth of the money supply, the banking school proceeded from the contrary conception that the money supply was essentially governed by demand and excessive expansion on the part of the banks against the will of the public was basically impossible and hence hardly probable. In this, their argumentation was based on the so-called closed-circuit principle. True, the currency school emerged from the debate as the political victors, since their conceptions were largely translated into action in Peel’s second bank act of 1844; but from the theoretical viewpoint it must be affirmed that banking theorie had the “more modern” approach. That does not mean to say, however, that in those days its monetary policy concept would have been capable of ensuring a disturbance-free system of banking and credit.