Money, Banks and Finance in Economic Thought

Sismondi on Money, Banking, Credit and Crises: An Attempt at a Synthesis

Pascal Bridel Pascal, Centre Walras-Pareto . Université de Lausanne

Abstract of a proposed paper for the Sismondi session This contribution intends to discuss the evolution of Sismondi’s Banking and Credit Theories and his attempt to connect them with his trade cycle theory. Besides some references to Sismondi’s vast correspondence, this article is centred on the monetary chapters of his 1803 Richesse commerciale (Book I, chapters V and VI), his little-studied 1810 article on paper-money, the monetary chapters of his Nouveaux Principes d’économie politique (1819 and 1827) and, last but not least, his 1838 ultimate essay on circulating capital and banks. In a first part, and after some brief considerations on Sismondi’s early publications around Richesse commerciale, an attempt is made to contextualise his monetary thought in relation with Napoleonic war financing in Continental Europe. In connection with his Smithian source of inspiration, Sismondi’s theoretical framework is then presented and discussed. Connections with the upcoming flood of literature in England on the bullion controversy are offered and questions are asked i) why Sismondi did not take part in a debate he partly anticipated in his 1810 article; and ii) how he dealt theoretically with the Austrian 1797 suspension of convertibility; iii) how he urged an prompt return to such a convertibility based on a discussion of the comparative states of Continental and English banking systems (thanks to her banking system England can afford a Ricardian scheme which is out of reach for Austria). Remarks are then offered on the author’s opinion on the progressive emergence of an ‘art of public borrowing’ according to which the people who provided the money also controlled the government (the so-called Anglo-Dutch model). In a second part, the paper suggests a detailed analysis of the evolution Sismondi’s opinion on the nature of the banking system and the part it plays in his trade cycle theory. His initial sympathy with the Smithian fractional-reserve banking system (1803) is progressively replaced by a very sceptical approach (1827 and 1838) to the banking system as a major cause of the instability resulting from an accelerating economic growth rate. As a matter of fact, but with some reservations for the English banking system, fractional-reserve banking is seen by Sismondi as a major element of his critique of the dominant Ricardian chrematistic approach to economic theory: to maximise production with the help of the banking system within an intrinsically instable economic organisation of society is the surest recipe to ruin the first two components of his trilogy liberty-happiness-wealth. Finally, some reflections are offered on the explicit connection Sismondi establishes between the (ab-)use of inconvertible paper money and bank credit and the partial collapse of the social contract initiated by governments and banks promoting them.

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Keywords: Sismondi Money Cycle Banking