Abstract
In Central Banks, Democratic States and Financial Power, Jocelyn Pixley argues that the course of monetary policy is determined by the structural position that central banks occupy within the broader field of institutional struggles over the production of money. Central banks, she points out, “obey orders given from top down by states and global Wall Street, which hardly worry about various ways of knowing (anything)” (p. 363). This is why “monetary policy is always political, and no amount of pretentions to its technical nature can hide money’s divisive character and precariousness” (p. 356).
To make her case, Pixley takes us on a journey across twentieth- and twenty-first-century monetary history with a focus on U.S., British, and Australian monetary affairs. She starts with war finance during World War I and ends with central banks’ responses to the Global Financial Crisis.
Illuminating socio-structural influences in monetary affairs, revealing the true political nature of central banking, and debunking the idea of politically neutral central bank independence are important but hardly new in the literature. Since the 1970s, public choice scholars have recognized these issues (Chant and Acheson 1972; Acheson and Chant 1973). They have warned that central bankers are self-interested agents who aim at maintaining or increasing their discretion, independence, or flexibility (Chant and Acheson 1986; Woolley 1984), seek maximum budget (Toma 1982), and strive for an ever-expanding staff (Shugart and Tolison 1983). They have argued that central banking meets the particularistic interests of the state and commercial banks (Wagner 1986). And to prove this, public choice theorists have specifically looked at executive-central bank relations, legislative-central bank relations, and commercial bank-central bank relations (Havrilesky 1990). In the end, this literature has shown that central bankers face multiple principals—the executive, the legislative, the bankers, and even the economists (Woolley 1984). It has acknowledged that politicians want to stay in power and bankers want to keep making profits and that, since the power of central banks crucially depends on both groups, they do not light-heartedly dismiss the latter (Grier 1986).
Since the early 1990s, scholars within the field of macro-political economy of central bank independence have also recognized that central bank independence is endogenous and crucially depends on the underlying structure of the economy, on the political system within which the central bank is embedded, on a series of social institutions, and even on culture (Tognato 2012:26–37). It is a consequence of structures, but also of process.
In light of such literatures, saying that commercial banks’ and states’ interests influence monetary policy, that money is profoundly political, and thus that central bank independence is not aloof from politics hardly constitutes a breakthrough. Pixley’s claim, though, goes well beyond that. To Pixley, commercial banks’ and warmongering states’ interests are the determinants of monetary policy.
To support such a claim, scholars may take two alternative research routes. They may check whether the actual monetary policy behavior of a central bank departs from the bank’s own monetary model and then establish through correlational analysis whether state and commercial bank interests systematically explain such departures. Or, alternatively, they may resort to in-depth case studies to show how such interests may end up controlling the course of monetary policy.
At first sight, Pixley seems to take this second route. To convincingly ground her strong analytical claim, though, she would need to show how commercial bank and state interests manage to go past epistemic, structural economic, macro-political, socio-institutional, and cultural elements that might, or might not, pull in a different direction and how the former end up circumventing, neutralizing, co-opting, or aligning with the latter. This, in turn, would require a systematic reconstruction of the assemblages of ideas, practices, institutional procedures, actors, technologies, and institutions that make up the field of central banking and compete within it against each other at specific times and places. Pixley, however, stops short of that. While she addresses many relevant elements that might make up such assemblages—in some chapters more than in others, though hardly in a systematic manner across the book—she still pays little attention to the topography of the field under examination and almost completely overlooks the processes within it.
Quite possibly, this is due to the fact that her seven empirical chapters focus on long periods of monetary history. Pinning down process for the purpose of tracking how commercial bank and state interests may actually shape central banking would be more manageable by focusing, instead, on critical junctures in monetary politics—punctual controversies, institutional conflicts, or scandals—that would lend themselves to better testing her strong hypothesis.
By throwing process out the window, Pixley also runs into paradoxes and self-contradictions. For example, according to the book, the return to success of monetarism in the 1970s had to do with the fact that it played into the interests of the banking sector; and thus, by adopting it, central banks could justify on epistemic grounds their alignment with commercial bank interests. In other words, demand simply met its supply. By removing process from her analysis and by doing away with the social embeddedness of demand and supply (for ideas), Pixley curiously joins neoclassical economists in their reductionism in spite of her obvious disdain for them throughout her book.
Then Pixley dismisses orthodox monetarist central bankers as “indecent,” “uncivil,” “tongue-forked,” “pre-modern,” unconcerned with people’s well-being, and fanatic on the ground that they favor hard money, which in her view tilts the socio-political balance within society in favor of bankers and away from wage earners and a more progressive democratic politics. By overlooking the social embeddedness of orthodox (monetarist) central banking, though, and by essentializing it, Pixley stumbles into a self-contradiction. The monetarist inclinations of the Bundesbank, after all, fell into a societal configuration that did not put down wage earners or do away with progressive social programs. Pixley even recognizes that, though in passing. If this is the case, then, monetarism per se cannot be “indecent.” What matters in terms of outcomes is the assemblage within which it is embedded and how that assemblage works.
In conclusion, Pixley vehemently denounces the interests of commercial banks and warmongering states as the deep determinants of monetary policy. While the influence of the former over the latter is clear from her account, and from prior literatures, determination is much less evident. Scholars, however, may now build on her book to prove it while, we can hope, maintaining the intense moral passion that exudes from the pages of Pixley’s book.