Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

Business cycles, money and banks in Thomas Attwood's writtings

Grangeray Jonas, Université paris 13

Thomas Attwood (1783−1856) was a British economist, banker and a radical reformer. He intervened as an outsider in the two great English monetary controversies of the first half of the 19th century: the bullionist controversy and the controversy over the structure of the banking system. He was considered as a “monetary crank” by the classical economists [Ricardo, 1819-1821, Mill, 1848, Marx, 1867]. His image has been restored with the rediscovery of his monetary ideas by historians of economic thought at the beginning of the 20th century [for example Viner, 1937, Schumpeter, 1954]. Nevertheless, Attwood’s work is unknown to most economists today. Our contribution aims at describing the functioning and the role of the monetary and banking system in business cycles according to Attwood, and on this basis, at presenting his proposal for monetary reform: the introduction of an inconvertible State money issue. In the first section of our paper, we present Attwood’s position in the great monetary controversies of his time. We demonstrate that Attwood was clearly an anti-bullionist. According to Attwood (and contrary to bullionists), the increase in the market price of gold after the suspension of species payments was not a good indicator of an excess issue of inconvertible banknotes. “There never was an excess of paper money” [Attwood, 1828, p. 102] because banknotes cannot be said in excess before the achievement of full employment. On the banking system, Attwood was clearly in favor of a hierarchical banking system. In his defense of this banking structure, Attwood was a precursor of the Banking School; as in his anticipation that if the government prohibited banks to issue notes, they could continue to issue others means of payment like deposits. In the second section, we analyze the behavior of money in the business cycles, under different monetary regimes, as described by Attwood. We show that according to Attwood, whatever the monetary regime considered, the quantity of money declines procyclically, aggravating the deflationary depression rather than correcting it. The third section examines Attwood’s perspective on the deflationary depression in more details, highlighting Attwood’s anticipation of Fisher’s debt deflation theory, debt deflation that played a central role in Attwood’s description of the crisis. The final section is devoted to the study of Attwood’s proposal to regulate the business cycles, maintain full employment and permanent prosperity: the exogenous, countercyclical, issue of an inconvertible State paper-money through (what we call today) open market operations. In conclusion, we underline that Attwood can be considered as a pamphleteer with good economic intuitions, especially his understanding, long before most economists, of the benefits of a managed inconvertible currency, not tied to gold.

Area: Eshet Conference

Keywords: business cycles, money, banks, debt deflation

Please Login in order to download this file