The provision of liquid funds via a lender-of-last-resort facility has been the chief means by which governments have chosen to prevent or stay bank runs.
John Neville Keynes is best known for being the father of John Maynard Keynes and for writing The Scope and Method of Political Economy (1891). The lesser of these achievements was widely accepted as the definitive methodological tract in the field of political economy in the late-Victorian period. In this publication Keynes shed new light on many of the pressing methodological and epistemological problems of the day; he supplied the methodological underpinnings to Alfred Marshall's majestic synthesis of late-Victorian theoretical opinion, as articulated in his Principles of Economics (1890); and, whatis of paramount concern to me in this paper, he employed some deft rhetoric to hasten the end of the long and acrimonious methodological debate between the orthodox and historical economists that is now generally referred to as the English Methodenstreit or “battle of methods.” Keynes consciously strove to provide a solution to the “battle of methods” that would be acceptable to both the orthodox and historical economists and, for this reason, The Scope and Method is understandably characterized by a conciliatory tone and repeated, almost desperate, attempts to see value in arguments from both sides of the conceptual divide. Keynes nonetheless failed in his quest to be even-handed. He was a logician of the first order who was extremely impressed by the neat logical lines of the orthodox framework, and hence, for all his intellectual honesty and obvious good will, he could not help but interpret the debate through orthodox spectacles. The chief rhetorical ploy he drew upon to achieve this orthodox-leaning settlement between the principal antagonists was the unconscious one of the “passive-aggressive” in which the advocate repeatedly makes the outward motions of conceding ground while, in effect, conceding little. The specific mechanics of this strategy entailed reformulating each precept from the historicist conceptual framework so that it would not be in conflict with its nearest orthodox opposite (itself carefully reinterpreted by Keynes), either by showing that it was identical to this orthodox opposite or by arguing that different precepts were appropriate in different situations, and then dismissing the entire methodological debate—which was then in its third decade—as one long and lamentable misunderstanding. Keynes was ably assisted in executing this strategy by his Cambridge colleagues and, for this reason, the quest to settle the debate by providing orthodox interpretations of the precepts then at stake may be termed the “Cambridge solution.” Marshall and Henry Sidgwick played particularly important roles in carrying this rhetorical assault, as the former's more genuine sympathy for many of the historicist ideas and the latter's celebrated honesty made the Cambridge quest appear sincere.
This article is part of a wider historical research program in which I seek to examine the origins of past methodological debates. It is my opinion that economists ignore methodological and philosophical issues until either the doctrinal conclusions of the school to which they belong are challenged or they themselves contest the doctrinal conclusions of an alternative school. Once this occurs, economists select, reinterpret or construct methodological precepts in order to gain the maximum support for their position. Under this hypothesis the formation and articulation of methodological beliefs are largely endogenous to matters relating to economics; that is, the traditional causal process of methodology to theory to policy is turned on its head and becomes policy to theory to methodology. The aim of what follows is to illustrate this research program by examining the methodological framework expounded by T. E. Cliffe Leslie in the early stages of the English economic Methodenstreit or “battle of methods.”
Walter Bagehot is an excellent example of the mid-Victorian polymath. He was a banker, journalist, editor, biographer, literary critic, economist and political analyst. The educated reader of today remembers him as the author of The English Constitution, which, though published in 1867, remains one of the best introductions to the workings of the Westminster political system. Economists, on the other hand, vaguely recall him as the monetary commentator who wrote Lombard Street (1873b) and edited The Economist (1861–1877). Only a few historians of economic thought cite Bagehot for his participation in the English Methodenstreit. He played a significant role in this largely forgotten Victorian debate between the historical and orthodox economists. He was one of the first orthodox economists to respond to the historicist challenge, and, in doing so, he articulated a highly controversial relativist interpretation of the orthodox doctrines. Specifically, in response to the historicist claims that recent evidence gathered from custom-bound societies falsified the orthodox
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