The Bank of England: a socio-economic inquiry into private money creation, public debt financing and the long run implications for inequality in Britain and beyond

Abstract

This socio-economic inquiry investigates the roots of inequality and how this scourge was woven in the social fabric with the design of the institutional framework of private money and public debt for the benefit of a tight group of institutional entrepreneurs. Thus, I first examine the founders of the Bank of England and contextualise their role in the erection of this key capitalist firm, making use of historical organisation studies in the explicating mode. I find that the well-honed official narrative about the founding fathers of the Bank of England (William Paterson, Charles Montagu and Michael Godfrey) disintegrates once Pikettian examination across time and space is conducted. By juxtaposing theory and empirical evidence, I show that the French Church community of Threadneedle Street is a better identifier behind its creation. In the next chapter, by adopting the same research framework in the narrating mode, I reason that the credit issuance denationalisation by this small faction of identifiable Whig entrepreneurs and concurrently the legitimisation of this new social order with the Bank of England as its focal point was the centrepiece of the institutional shift in the late 17th century. This has resulted, contrary to North and Weingast’s promulgated hypothesis, in a rent-extracting institutional framework governed by a system of private money and public debt, where political resources flow from the many taxpayers to the few (Bank) shareholders through the fiscal apparatus. Chapter 3 then compares the current with the erstwhile institutional order with respect to the system of tax appropriation from the general public by using a novel approach which is in stark contrast with scholars who measure inequality within the same framework. This is followed by two empirical tests utilising a 250-year data set on the United Kingdom, which demonstrates the rent-extracting nature of the current pecuniary system. The qualitative and quantitative results place credit institutions at the centre of a rent-seeking institutional order that has defined societal rules on one hand and drawn resources from all other tax-paying layers of society on the other. Policy implications are discussed, including a proposal that aims to remedy the contemporary income and wealth inequality via the founding of a constellation of community banks with wide ownership structure, granulating the benefits from credit (money) creation and allocation, without the need for a large-scale redistribution and public sacrifice through rescinding national debt.

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