REVIEW: Éric Monnet: "Balance of Power: Central Banks & the Fate of Democracies": The Age of the Central Banker Revisited

How technocrats became the unelected rulers of our economic fate: How did central banks evolve first into crisis managers and now into the de facto central planners and controllers of modern...

How technocrats became the unelected rulers of our economic fate…

How did central banks evolve first into crisis managers and now into the de facto central planners and controllers of modern economies? Political expediency and economic necessity led others to gradually push their own power onto these institutions, leaving them immense power in what is now effectively a Timocracy of the Central Bankers. Éric Monnet badly wants political stakeholders to reclaim some of this power, and so create an accountability and responsibility transmission belt from the democratic electorate through other officials to the central bank. But do many actual politicians want this? Are not they more satisfied with their current status, in which their powers are limited to the rights that Bagehot said Queen Victoria possessed—the right to be consulted, the right to encourage, and the right to warn?…

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Marcus Tullius Cicero once wisecracked that his friend and political ally Marcus Porcius Cato (later called “Uticensis”) believed they lived in the Republic of Plato while in fact they lived in the Sewer of Romulus.

But, for us, it is our curse and our blessing that we live neither in Plato’s Republic nor Romulus’s Sewer but rather in the Timocracy of the Central Banker. As Éric Monnet says in his Balance of Power: Central Banks & the Fate of Democracies, central banks to a very large share of modern governance in a way that has outgrown what their place in the institutional framework that makes up the state was set as:

The definition of central bank independence formulated at the end of the twentieth century was not well equipped to address the new economic and democratic challenges of the early twenty-first century… an unsustainable gap between what central banks actually do and the institutional framework that defines their responsibility…. As the twentieth-century economic anthropologist Karl Polanyi said, the central bank’s policy is always a form of interventionism that evolves over time in accord with the nature of the state… [and] choices made regarding distribution and power in society…. These objectives involve protecting the economy against the failures of banks and financial markets… a long-term management and insurance function… that includes the objective of a stable currency… but, most of the time, is not limited to it…

This immense scope makes Éric Monnet far from happy. He believes that central banking and central bankers must be brought under democratic political control—or at least be provided with a set of tools from which to draw democratic political legitimacy.

Central banks’ role as de facto insurance providers to financial markets and states… gives them a special place in the state apparatus and the economy…. [But] the central bank must be subject to democratic debate and institutional balance of power—not as a purely technical manager…

But what could that mean? And how could we accomplish it? And do we need to prioritize doing so, given all the other institutional-reform and institution-management tasks we have on our plate?

My bottom line: I finish Éric Monnet's Balance of Power: Central Banks and the Fate of Democracies and assess it as a thought-provoking and timely analysis. But as for Monnet’s call for greater democratic accountability and a more integrated policy framework? Politicians do not want to open all of those cans of not worms but snakes. What politicians want to have in terms of their rights vis-à-vis central banks today are the rights that Walter Bagehot claimed 150 years ago that British Queen Victoria had: “the right to be consulted, the right to encourage, and the right to warn”. They do not want any more. I do not see how Éric Monnet can change politicians’ minds on this, and I do not see any structural changes coming that will make politicians—of whatever ideology—change their minds on this, seek oversight responsibility, and be willing to be evaluated by voters on the basis of how well they execute that oversight responsibility.