Central Banks: Monopoly or Public Service?

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Central Banks: Monopoly or Public Service?

from Asad Zaman

The Reagan-Thatcher revolution in the late 1970’s consisted of a move towards free markets, and away from government regulation and control. Of central importance in this move was the deregulation of financial institutions. We would like to understand WHY this change took place, and WHAT were the effects of this change on the working of the USA/UK economies.

Summary of Basic Facts: Financial de-regulation, guided by an ideological belief that free financial markets would work better than regulated ones, was at the heart of the Reagan-Thatcher revolution. The evils of free financial sector had clearly been recognized in the Great Depression, The Emergency Banking Act of 1933 and other regulatory measures wrapped a large number of chains around the financial monster, which is a powerful source of energy, but capable of wild rampages on occasions. Among the most important of these measures is the Glass-Steagall Act, which prevented banks from speculating (with the depositors money). The ideological arguments in favor of financial de-regulation made to support financial de-regulation are just old wine in new bottles – variants of the arguments made by Bagehot, which are the subject of the opening pages of Chapter 2 of Goodhart’s Evolution of Central Banking.  read more