Understanding banks hasn’t always caused such difficulty for economists. In the first half of the twentieth century, theorists like Joseph Schumpeter outlined the role of banks in creating and allocating money. Unfortunately, the profession took a wrong turn in the 1960s.

By the turn of the millennium, macroeconomics had developed something of a blind spot on the issue. In the run-up to the financial crisis that began in 2007, the notion that banks might be critical to the functioning of the economy as a whole interested only a minority of savvy commentators and heterodox thinkers.

Following the financial crisis, this significant shortcoming was reversed – but only partly.

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