Monetary Theory and Policy from Hume and Smith to Wicksell: Money, Credit, and the Economy(Historical Perspectives on Modern Economics)

This book provides a comprehensive survey of the major developments in monetary theory and policy from David Hume and Adam Smith to Walter Bagehot and Knut Wicksell. In particular, it seeks to explain why it took so long for a theory of central banking to penetrate mainstream thought. The book investigates how major monetary theorists understood the roles of the invisible and visible hands in money, credit and banking; what they thought about rules and discretion and the role played by commodity-money in their conceptualizations; whether or not they distinguished between the two different roles carried out via the financial system - making payments efficiently within the exchange process and facilitating intermediation in the capital market; how they perceived the influence of the monetary system on macroeconomic aggregates such as the price level, output and accumulation of wealth; and finally, what they thought about monetary policy.

Table of Contents:
Introduction; Part I. Analytical and Historical Foundations: 1. Monetary theory circa 1750: David Hume; 2. Mid-eighteenth-century British financial system; 3. Adam Smith: the case for laissez faire in money and banking; 4. 'Monetary theories of credit' in exchange; Part II. Debating Monetary Theory under Inconvertibility: 5. New reality: the restriction period, 1797–1821; 6. Boyd versus Baring: the early round in the bullion debate; 7. Henry Thornton: ahead of his times; 8. Ricardo versus Bosanquet: the famous round in the Bullion debate; 9. 'Credit theories of money' in exchange and intermediation; Part III. Debating: Laissez Faire, Rules and Discretion: 10. From the resumption to 1837: more crises; 11. The currency school trio: Loyd, Torrens, Norman; 12. The banking school trio: Tooke, Fullarton, Wilson; 13. Neither discretion nor rules: Joplin and the free banking school; Part IV. The Road to Defensive Central Banking: 14. Bagehot and a new conventional wisdom; 15. Does Karl Marx fit in?; 16. Marshall and bi-metallism; Part V. A New Beginning: Towards Active Central Banking: 17. Wicksell's innovative monetary theory; 18. The puzzling slow rise of a theory of central banking: between the lender of last resort, passive and active monetary policy.

About the Author :
Arie Arnon is Associate Professor of Economics at Ben-Gurion University and Head of the Economics and Society Program at Van Leer Jerusalem Institute, Israel. Professor Arnon's areas of research include the history of economic thought, macroeconomics and monetary theory. His books include Thomas Tooke: A Pioneer of Monetary Theory (1991), The Palestinian Economy: Between Imposed Integration and Voluntary Separation (1997, coauthored with I. Luski, A. Spivak and J. Weinblatt) and The Open Economy Macromodel: Past, Present, and Future (2002, coedited with W. Young). Professor Arnon has published articles in History of Political Economy, the Oxford Economic Papers, the Economic Journal and the Middle East Journal. He has served on the editorial boards of the European Journal of the History of Economic Thought, Economic Quarterly and Social Security: Journal of Welfare and Social Security Studies. He has held visiting positions at the University of California, Berkeley, Stanford University, the University of Pennsylvania, The New School and the School of Oriental and African Studies, University of London. He has also served as a Senior Economist in the Research Department of the Bank of Israel and as a consultant to the World Bank. Since 2002 Professor Arnon has been the coordinator of the Israeli team in the Aix Group, where experts from the Palestinian Authority, Israel, and the international community discuss various economic aspects of the conflict and develop scenarios and policy alternatives for a permanent peace settlement. A recent publication of the group is entitled Economic Dimensions of a Two State Agreement Between Israel and Palestine (2007).

Review :
Reviews of the hardback: 'This is the first history of the development of monetary ideas from Hume to Wicksell since Charles Rist's 1938 classic Histoire des doctrines relatives au credit et à la monnaie. Arie Arnon brings together a large literature and skilfully covers historical aspects of some of the main issues in monetary theory and policy that will attract the attention of historians of thought and monetary theoreticians alike.' Mauro Boianovsky, Universidade de Brasilia 'Arie Arnon's book is a great achievement. Meticulously researched and lucid, it lays out the roots of modern monetary and banking theory in the controversies that convulsed England's rise as an industrial and trading power. Confronting financial innovation, crises, and the need for macroeconomic balance – as we do today – 'practical theorists' from Henry Thornton onwards developed the understanding of credit-based money that provides foundations for today's central banking and financial regulation. Monetary Theory and Policy from Hume and Smith to Wicksell is one of those rare books that redefines its field. It is indispensable reading for thoughtful bankers and economists alike.' Laurence Harris, University of London 'Arie Arnon's ambitious history of monetary theory and policy is history of economic thought at its very best. It provides an authoritative account of monetary doctrine from the eighteenth through nineteenth centuries, attending impressively to the strong interconnection between ideas and financial environment, and throughout taking under consideration a notoriously massive secondary literature. But it does more than that. The study impresses on the reader the high relevance for our own day of insights developed as much as two hundred years ago. Our policy makers, not only academic economists, would be well advised to take this book seriously.' Samuel Hollander, University of Toronto 'Arnon follows a new path through this well-traveled country, paying rather more attention than earlier guides to theoretical signposts, and a little less to policy markers. He has written a subtly original and thoroughly absorbing book.' David E. W. Laidler, University of Western Ontario 'An impressive survey of the major developments in monetary theory and associated positions on policy from the eighteenth to the nineteenth centuries. A fine, scholarly reconstruction and a very readable account of the logical structure of money and credit theories, particularly instructive and relevant in the current financial crisis.' Maria Cristina Marcuzzo, Università di Roma 'La Sapienza' 'Arie Arnon's history of monetary theory and policy from Hume to Wicksell provides an excellent roadmap to understanding the nature and evolution of the British tradition. The book is well researched and clearly written. Every chapter is good; some, such as Chapter 11 on the Currency School, are simply outstanding. This is a book that monetary historians will want to acquire.' Neil T. Skaggs, Illinois State University