EconPapers    
Economics at your fingertips  
 

Control of Finance as a Prerequisite for Successful Monetary Policy: A Reinterpretation of Henry Simons's Rules versus Authorities in Monetary Policy

Thorvald Moe

Economics Working Paper Archive from Levy Economics Institute

Abstract: Henry Simons's 1936 article "Rules versus Authorities in Monetary Policy" is a classical reference in the literature on central bank independence and rule-based policy. A closer reading of the article reveals a more nuanced policy prescription, with significant emphasis on the need to control short-term borrowing; bank credit is seen as highly unstable, and price level controls, in Simons's view, are not be possible without limiting banks' ability to create money by extending loans. These elements of Simons's theory of money form the basis for Hyman P. Minsky's financial instability hypothesis. This should not come as a surprise, as Simons was Minsky's teacher at the University of Chicago in the late 1930s. I review the similarities between their theories of financial instability and the relevance of their work for the current discussion of macroprudential tools and the conduct of monetary policy. According to Minsky and Simons, control of finance is a prerequisite for successful monetary policy and economic stabilization.

Keywords: Monetary Policy; Financial Stability; Narrow Banking; Financial Regulation (search for similar items in EconPapers)
JEL-codes: B22 E42 E52 G28 (search for similar items in EconPapers)
Date: 2012-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-hme, nep-hpe, nep-mon, nep-pke and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.levyinstitute.org/pubs/wp_713.pdf (application/pdf)

Related works:
Journal Article: Control of Finance as a Prerequisite for Successful Monetary Policy: A Reinterpretation of Henry Simons’ “Rules versus Authorities in Monetary Policy” (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_713

Access Statistics for this paper

More papers in Economics Working Paper Archive from Levy Economics Institute
Bibliographic data for series maintained by Elizabeth Dunn (edunn@levy.org this e-mail address is bad, please contact repec@repec.org).

 
Page updated 2025-03-30
Handle: RePEc:lev:wrkpap:wp_713