Money, Banks and Finance in Economic Thought

Rethinking the role of banks: From entropic private banks as profitability agents to State-owned banks as agents of public policy

Scarsini Stefano, University of Bologna

Far from Whig’s approach to history, we have seen not only economical and societal progressions, yet also some regression, with a shining example constituted by European Union’s policies. These effects led us, despite the vast research by eminent economists about both the positive effects of market-fed commercial banks and the adoption of austerity policies, to hardly question the ethical basis of the financial system in its ineffectiveness on fostering sustainable growth and human development. Being based on this controversial faith in a neo-Walrasian natural equilibrium, this economic modus operandi has found legitimacy and, subsequently, realization, by the guise of the economic thought of two ignored authors, Perroux and Rueff, who asserted that the sole role of the private banks, guided by the Central bank, yet to the detriment of the well-being of the community, is to be the guarantor of a balanced public budget and zero public net debt - conditions for the maintenance of a sound currency – which could protect the accumulated capital of rentiers and the wealth-holders. It is precisely in this context that private banks, free to rule the social economy demonstrating their nihilism of chrematistics, that is its drive to an unlimited growth for its own sake, are unable to aim for full human development growth, public finance objectives and, ultimately, to the Keynesian ideal of socialization of finance. Although the overall image that emerges from the literature is the indisputable positive role of private banks, I will show how recent models of success didn’t originate from market forces. Consequently, herein it is underlined the importance of public banking as a counterbalancing source, through its endogenous forces, against the fatal game of profit maximization and thus debt accumulation. If on the one side, the necessity of a low-interest rate set by the state would beneficially limit speculative market interest rates, thus allowing an easier access for both social coexistence and human self-realization objectives, on the other side a socialization of the benefits led by state-owned banks would retake into consideration their role as agents of public policy and not as mere profitability agents. The proposed approach is mainly historical and it does not neglect the contribution of several heterodox authors’ debates concerning the regulation of the banking sector and, hence, a sort of variegated capitalism is therefore strongly advocated, which would be able to move away from the New Leviathan’s desire of infinite profits facing to the scarcity of resources in a finite world.

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Keywords: public finance, public bank, economic thought, European Union, heterodox economics, economic history, banking system