Central bank independence: A social economic and democratic critique

Abstract

The advent of quantitative easing by the world’s major central banks invites renewed questions about the meaning and role of central bank independence in an age of economic crisis. This article draws together insights from economic sociology, history and democratic theory to engage in further discussion about the proper role of central banks in democratic society. We stress some related themes. Our brief history of central banks aims to show how these banks have always been embedded in economic and political coalitions and conflicts, therefore qualifying the term independence; our study also aims to show that in satisficing between conflicting tasks, central banks need to maintain a balance between cognitive competences and normative expectations. Independence is better understood as a form of dependence on the coalition of interests that supported the financial climate prevailing before the global crisis of 2008, one of low wage-price inflation, high borrowing and debt, and loss of prudential control. We argue that independence amounts to a form of re-privatisation of central banks, and that they are increasingly suborned to the pressures of financial markets. At the same time, asset price inflation has sacrificed growth and employment and therefore prolongs the crisis. The economic measures now demanded by the financial crisis prompt new doubts about the independent central bank experiment, potentially in favour of the ex ante model of governmental oversight of central banks.

When Are Monetary Policy Preferences Egocentric? Evidence from American Surveys and an Experiment

“…This is important because American monetary policy is set by the Federal Reserve Board (FRB), a relatively autonomous bureaucracy insulated from popular pressure. Indeed, independent central banks, including the FRB, have often been criticized as nondemocratic institutions (e.g., Levy 1995Levy /1996Pixley, Whimster, and Wilson 2013). Yet in the post-Bretton Woods era (and even before), the FRB has consistently set short-term interest rates in response to domestic economic conditions (either inflation, growth, or employment) with relatively little regard for the U.S. dollar's stability and value in international markets.…”

Breaking the taboo: a history of monetary financing in Canada, 1930–1975

“…But these fiscal policies were enabled by accommodating debt‐management policies by central banks. Indeed, central banks were often subordinated to ministries of finance and had a wide range of goals aside from price stability and financial stability, including the maintenance of historically low interest rates on government debt and the maintenance of exchange‐rate parities (Cobham : 730; Epstein ; Goodhart : 2–4; Pixley et al : 39–41). Without supportive domestic monetary policy, it is not clear how such policies could have been enacted given the very high debt‐to‐GDP ratios facing most countries in the post‐WWII period.…”

“…Firstly, in countries which already had central banks, the deflation and unemployment of the Great Depression led to the abandonment of the Gold Standard and a rethink of monetary authorities’ role vis‐à‐vis government and the financial sector (Brown : chs. 14–20; Goodhart ; Pixley et al : 4; Vernengo and Caldentey ). In addition, in a number of former colonies, such as Canada, New Zealand, Australia and India, new central banks were set up to help establish national monetary sovereignty from Great Britain (Epstein : 4).…”

“…Examples include ‘independent’ central banks focused on achieving low consumer price inflation that maintains the value of creditor's assets (loans) over and above policies that support investment and employment or prevent rapid rises in asset prices, including house prices (Pixley, Whimster and Wilson ). The prohibition of monetary financing and subjection of fiscal policy to ‘market discipline’, which in reality means forcing states to borrow from the financial class (Ingham ) would equally fit within this theoretical critique.…”

Jenseits des heiligen Textes: Max Webers Fragestellung und die Perspektiven für ein weberianisches Denken

“…Nehmen wir die Wirtschaftssoziologie als Beispiel: Obwohl sie über Jahrzehnte weitgehend ignoriert wurde, zeigt die "Sozialöko-nomie" vom Typ, wie sie von Weber praktiziert wurde, Anzeichen dafür, ein neues positives Gehör in einem Umfeld zu finden, das durch wirtschaftliche Zusammenbrü-che und einen Vertrauensverlust in die orthodoxe "Theorie" nachdenklich gestimmt ist (Pixley et al 2013). Der springende Punkt solcher Wiederentdeckungen ist nicht, dass der weberianische Ansatz schon immer besser als alle anderen Alternativen mit den spezifischen Problemstellungen fertig wird, die wir behandeln möchten, sondern dass der Ansatz in sich selbst eine Palette von Instrumentarien und Perspektiven enthält, die sich als nützlich erweisen können, wenn sie in einfallsreicher Weise auf neue Probleme oder neuartige Sachverhalte in der Welt angewendet werden.…”