The classical monetary theory on bank liquidity and finance

Laurent Le MauxBy

Oxford Economic Papers, 2020, vol. 72, issue 3, 692-709

Abstract: This article investigates the classical monetary theory on bank liquidity and finance and especially the contribution of Thomas Tooke, John Stuart Mill and John Fullarton at the light of the debate on the Great Recession. These authors show how financial markets and banking system may collapse altogether after a rise of values in certain classes of securities or real estate markets. And they come to the view that competition between commercial banks creates the appearance of market discipline, while the expectation of scarcity in some specific markets leads to a speculative process, which in turn destabilizes the banking system and triggers the need for the lender of last resort.

JEL-codes: B12 E42 E51 (search for similar items in EconPapers)
Date: 2020
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