The Banking School and the Law of Reflux in General

In his Lectures, Knut Wicksell ([1906] 1935, 172) assessed that the bank-ing principle had been “a vague name for an essentially vague thing. ” This “vague ” interpretation seemed to have taken a firm hold, for in the ensu-ing years much more attention was paid to the currency school. As a result, the literature on the mid-nineteenth-century British monetary debates has tended to undervalue the banking school’s contribution to the theory of money and banking. Marion Daugherty (1943, 246) significantly claimed that “whereas it is easy to describe the Currency theory because it formed an intelligibly connected set of ideas, the banking school views were far from constituting a coherent or unified theory. ” Frank Fetter ([1965] 1978, 191) explained the “vagueness, if not inconsistency, ” by the fact that “the banking school was not trying to develop monetary theory for later gen-erations. ” More recently, Denis O’Brien (1995, 66) restated that the cur-rency school was “perfectly clear, ” whereas the banking school literature was deemed “a much more cloudy domain. ” Not surprisingly, the quanti-tative literature broadly reflects the “vague ” or “cloudy ” interpretation. By contrast, another literature mentions several banking principles and revisits most of them. In this respect, Jürg Niehans (1978, 1987) upholds