Rethinking the Role of Banks in Economics Education

What is it?

Banks play a major role in our economy, yet we know that in economics courses around the world the teaching around the role of banks in the economy, and in the creation of money, often isn’t based on empirical evidence. Neither does teaching draw on a plurality of perspectives to encourage critical assessment of banks’ functions.

Rethinking the Role of Banks in Economics Education is a student-led campaign to bring positive change to economics education. In this campaign, we are challenging the current teaching of the role of banks in our economics and business courses, which leaves us without an understanding of how banks function in the real-world.

Economics textbooks across the world, some of them first published in the 1960s, continue to teach students a model of the monetary system in which commercial banks act as intermediaries, that only move existing money around the system, like lubricant in a machine. Many economics courses rely on the models in these textbooks, without recognising the empirical evidence that undermines them. This gives an unbalanced view of the way the monetary system functions and of the role of banks in the economy.

Research from the Bank of England, the Bundesbank and countless other central banks and academics demonstrates that banks create money when they extend loans. Yet, this information is often disregarded in the name of creating ‘useful simplifications’ for students to understand. Many students who go on to become policy-makers will rely on the education they received in their economics courses. Why teach students models of the financial sector and its role in the creation of money that completely mislead learners?

Since April 2019, students frustrated with the misleading curriculum on banks they are receiving have come together to address this issue. We’re inviting Rethinkers across our network to join us in calling on our universities to stop teaching us out-dated models and start teaching us how banks actually work. How can we expect economists to analyse the economy when they don’t know how banks run?

As we speak, students from across the network are writing letters to their economics departments calling for them to review the current teaching and textbooks in their courses and bring it up to date with the latest evidence. These letters will be submitted in the final week of October.

Rethinking Economics International is also publishing an open letter, signed by economists, civil society organisations and influential thinkers who support the calls for a more balanced and real-world-based education for economists. Look out for this in the first week of November!

Getting involved

This is an exciting opportunity for the Rethinking Economics network to push for reform of a key element of economics education and to ensure it is grounded in the real-world.

If you are interested in the campaign and want to get involved please email campaigns@rethinkeconomics.org.

For more information on the history of the campaign see Pluralism in Economics Maastricht (PINE) PINE were the first group to take action and raise this issue with their university.  Their letter received coverage in the Dutch press [here and here], German Politics and Business editorial, Makroskop, Danish media, and English-language outlets [Observant, Diplomat, and Alliance for Just Money]. The strength of evidence backing-up the letter has encouraged the University of Maastricht to create a discussion group involving student representatives and members of the teaching staff. It also inspired the creation of the Rethinking the Role of Banks in Economics Education campaign.