Central Banking, the Discount Rate and Monetary Policy in the Works of Henry Thornton (1760-1815)

42 Pages Posted: 22 Dec 2010

Date Written: December 1, 2002

Abstract

Henry Thornton (1760-1815), whose major work - An Enquiry into the Nature and Effects of the Paper Credit of Great Britain - is celebrating its bicentennary in 2002, is considered today to be one of the most prominent classical monetary economist, in particular with regard to its seminal contribution to the theory of the lender of last resort. However, Thornton's original views about the rate of interest on bank credit have barely been commented so far. In this paper, we endeavour to link these views with his theory of central banking in order to demonstrate that Thornton advocated an active use of the Bank of England's discount rate for monetary policy purpose, i.e. to safeguard the value of money, instead of any direct action on the quantity of circulating banknotes. Nevertheless, Thornton does not appear to have conceived the Bank's rate as a true "key rate" of the credit market as in modern terms.

Keywords: History of the economic thought, central banking, interest rate, monetary policy

JEL Classification: B12, E52, E58

Suggested Citation

Mésonnier, Jean-Stéphane, Central Banking, the Discount Rate and Monetary Policy in the Works of Henry Thornton (1760-1815) (December 1, 2002). Banque de France Working Paper No. 98, Available at SSRN: https://ssrn.com/abstract=1728704 or http://dx.doi.org/10.2139/ssrn.1728704

Jean-Stéphane Mésonnier (Contact Author)

Banque de France ( email )

Paris
France

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