EXAMINING THE CONTRIBUTIONS OF THOMAS TOOKE TO MONETARY THEORY AND CURRENCY-BANKING POLICY

Abstract

The study of monetary theory and policy has played an important role in economic research for centuries. Thomas Tooke (1774-1858), a prominent English economist during the 19th century, is considered to be one of the most influential figures in the development of monetary theory and policy discussions during his time. Tooke's work can be divided into two periods, in the first period, he focused on the movements of the price level in England, while in the second period, he formulated his own ideas on money and prices, which became the basis of the Banking School position. Tooke's monetary theory developed mainly in the context of the Currency School-Banking School controversy in 1840s England. The controversy was stimulated by the post-Napoleonic stagnation in England and consequent instability in the economy. The end of the Napoleonic wars had two major consequences: a reduction in public expenditures and the problematic return to the convertibility of pound sterling to gold. To address the issue, the Bank Act of 1844 was enacted. The act aimed to regulate the banking system and introduced a new bank structure to govern the issuance of notes. The Currency School camp relied on the quantity theory and the Humean price-specie-flow mechanism in their analysis and believed the Bank of England could autonomously control the amount of money in circulation and prevent the outflow of gold through the price-specie-flow mechanism. On the other side of the debate was the Banking School camp, which believed in the endogeneity of money supply and the importance of the credit system. Tooke's monetary theory, incorporating Fullarton's idea of reflux, is essentially the banking school framework. The debate has contributed to a better understanding of monetary theory and policy.