Published by EH.NET (June 2008)

D. P. O’Brien, The Development of Monetary Economics: A Modern Perspective on Monetary Controversies. Cheltenham, UK: Edward Elgar, 2007. xv + 265 pp. $115 (hardcover), ISBN: 978-1-84720-260-4.

Reviewed for EH.Net by Robert W. Dimand, Department of Economics, Brock University.

The eminent historian of classical political economy Denis O’Brien, Professor Emeritus of Economics at the University of Durham, has gathered together his work on monetary economics from Jean Bodin in the sixteenth century to Thomas Joplin and Walter Bagehot in the nineteenth century. Some of the chapters have been previously published, while others are new. All have been written since his Thomas Joplin and Classical Economics (1993) (one chapter of which is reprinted here) and since his earlier collection, Methodology, Money and the Firm (2 volumes, 1994). A companion volume collects his writings in the same period on non-monetary aspects of classical economics. Seven of the nine chapters (not counting the five-page introduction) have been published from 1993 to 2003, but the book is a unified, coherent historical analysis of the classical theory of monetary policy and its roots, parts of which were published as the project progressed, rather than an ex post assemblage of disparate essays. Any scholar interested in the Currency School/Banking School debate or in the emergence of the concept of a lender of last resort will need, and want, to read this material. Any such scholar will, indeed, have already read parts of the book that have appeared in prominent and easily accessible places, such as the three chapters published in History of Political Economy (on Jean Bodin’s quantity-theoretic analysis of inflation in 2000, on monetary base control and the 1844 Bank Charter Act in 1997, and on the concept of lender of last resort in 2003). An essay on Bagehot and stabilization appeared in the Scottish Journal of Political Economy in 2001, and two chapters, on the Banking School/Currency School controversy and on the stability analysis of those two schools, are reprinted from Blaug et al., The Quantity Theory of Money from Locke to Keynes and Friedman (1995). But the two new chapters, on John Law’s Money and Trade (1705) and on John Locke’s debate with his critics about the rate of interest (the two chapters being linked by Law’s borrowing of Locke’s argument that a plentiful supply of money encourages economic growth), are also necessary reading for anyone studying that era of monetary economics, and it is well worth rereading the other essays together as components of a connected historical narrative and analysis. O’Brien argues that a close look at the critiques of Locke by Joseph Massie and David Hume, and at their empirical claims about how the interest rate is related to the profit rate, reveals that historians of economics have been too generous to Massie and Hume as critics of Locke, and too harsh on Locke. Given the extent and accessibility of the reprinted chapters, and given the price of academic books, the temptation is to persuade one’s university library to order the book, rather than buying a personal copy. Apart from the chapter on Jean Bodin, in which the Salamanca School is also discussed, the story is exclusively British (and David Hume appears primarily as a critic of Locke, rather than as a pioneering theorist of international monetary equilibrium).

As O’Brien’s readers have come to expect, these essays are erudite and clearly argued, and include rational reconstruction of earlier theorizing as formal models. Chapter 9, the one chapter from O’Brien (1993) reprinted in the present volume, is “Joplin’s Model: A Formal Statement.” (O’Brien discerns in Joplin a complex model that anticipated the neo-Keynesian synthesis of income-expenditure and monetary models.) Chapter 3 includes “A Formal Statement of Law’s Model.” Chapter 8, on Bagehot, includes “A Formal Treatment of Stability” (showing that the model is stable when Bagehot’s prescription is followed for the Bank Rate, emphasized by Bagehot as the core policy tool). Chapter 10 is a formal treatment of the stability analysis of the Banking and Currency Schools with an inbuilt cycle and with the money supply (rather than the Bank Rate) as the policy variable. As O’Brien (p. 5) summarizes the findings of Chapter 10, “Employing a formal treatment, it proves possible to demonstrate that the prescriptions of the Currency School would, had they targeted the right money supply, have been stabilizing, while those of the Banking School left the price level indeterminate and magnified fluctuations. At best, and only after filling a major gap in the theoretical position of the Banking School, any equilibrium would only be a saddle point.” The clause about targeting the right money supply is crucial. O’Brien presents careful regression analysis in Chapter 6 to argue that the British price level was controlled by the country bank note issue rather than by the Bank of England note issue, and that the Bank of England note issue did not act as a monetary base controlling the country bank note issue, so that Thomas Joplin (in many ways the hero of O’Brien’s story) was correct that the Bank Charter Act of 1844 targeted the wrong money supply. The Currency School’s advocacy of counter-cyclical control of the money supply by the Bank of England to stabilize the price level and the balance of payments had a sounder theoretical basis than the Banking School’s leaning to a more passive money supply, but, as a matter of fact rather than theory, the Bank of England did not control the British money supply.

Not only was Joplin insightful in his critique of the Bank Act of 1844, but, according to O’Brien, Joplin’s analysis of the liquidity crisis of 1825 set out the case for a lender of last resort that is usually attributed to Walter Bagehot (with earlier partial discussions by Sir Francis Baring and Henry Thornton). Joplin stressed the importance of a central reserve that would enable the lender of last resort to lend freely at a penalty rate during a liquidity crisis (contrast the actions of the Federal Reserve since August 2007, expanding credit during a liquidity squeeze but also repeatedly lowering its target for the overnight inter-bank rate) and argued that lending by the lender of last resort during a liquidity crisis would not raise the price level because of the increase in demand for precautionary balances. O’Brien (pp. 163-66) notes that Joplin’s 1825 analysis was immediately taken by Vincent Stuckey, of the banking firm Stuckey and Bagehot, and speculates that, through Stuckey, Joplin’s 1825 article influenced Stuckey’s nephew Walter Bagehot.

O’Brien’s blend of careful reading, historical context, representation by formal models, and cliometrics is skilful and lucid. These essays are of lasting value and have established O’Brien alongside David Glasner, Thomas Humphrey, David Laidler, Anna Schwartz, and Neil Skaggs as one of the foremost authorities on British classical monetary economics. This has been one of the most studied areas of the history of economic thought, yet, as O’Brien demonstrates, there are still new and important things to say about the subject.


Mark Blaug, Walter Eltis, D.P. O’Brien, Don Patinkin, Robert Skidelsky, and G. Wood, 1995. The Quantity Theory of Money from Locke to Keynes and Friedman. Aldershot, UK: Edward Elgar.

John Law. 1705. Money and Trade Considered with a Proposal for Supplying the Nation with Money. Edinburgh: Andrew Anderson. Reprinted New York: A. M. Kelley, 1966.

D.P. O’Brien, 1993. Thomas Joplin and Classical Macroeconomics: A Reappraisal of Classical Monetary Thought. Aldershot, UK: Edward Elgar.

D.P. O’Brien, 1994. Methodology, Money and the Firm, 2 volumes. Aldershot, UK: Edward Elgar.

Robert W. Dimand is Professor of Economics, Brock University, St. Catharines, Ontario, Canada. Email: He recently published on “Macroeconomics, Origins and History of” and “Monetary Economics, History of,” in The New Palgrave Dictionary of Economics, second edition (2008).