Portrait of Walter Bagehot

Bagehot on the monopoly central bank (1873)

Found in: The Works and Life of Walter Bagehot, vol. 6

The British journalist and editor of The Economist magazine Walter Bagehot (1826-1877) points out the “anomalous” and potentially “very dangerous” situation of a government controlled, monopoly central bank but can’t quite bring himself to suggest it be replaced by free competition:

Money & Banking

I shall have failed in my purpose if I have not proved that the system of entrusting all our reserve to a single board, like that of the Bank directors, is very anomalous; that it is very dangerous; that its bad consequences, though much felt, have not been fully seen; that they have been obscured by traditional arguments and hidden in the dust of ancient controversies.

But it will be said—What would be better? What other system could there be? We are so accustomed to a system of banking, dependent for its cardinal function on a single bank, that we can hardly conceive of any other. But the natural system—that which would have sprung up if Government had let banking alone—is that of many banks of equal or not altogether unequal size. In all other trades competition brings the traders to a rough approximate equality. In cotton spinning, no single firm far and permanently outstrips the others. There is no tendency to a monarchy in the cotton world; nor, where banking has been left free, is there any tendency to a monarchy in banking either.