The economics used by governments is based on ideas from the 1870s, when economists adopted the language of science, but not the method. To make the maths easy to solve, they assumed the economy was simple, predictable, and static. Nobody believes these assumptions are true, but they still shape analysis that informs policy. When the economy is complex, uncertain, and changing, this kind of analysis can lead us to bad decisions.

The economics used by governments is based on ideas from the 1870s, when economists adopted the language of science, but not the method. To make the maths easy to solve, they assumed the economy was simple, predictable, and static. Nobody believes these assumptions are true, but they still shape analysis that informs policy. When the economy is complex, uncertain, and changing, this kind of analysis can lead us to bad decisions.

Chapter 2 explores how the economics literature is anything but conclusive on public banking. Reliant on fixed yet polarised tenets of public versus private ownership, its scholars offer contrasting evidence on and contending theories of public banks in economic development. This division within economics occurs along ideological lines. For heterodox ‘development’ views, there is good theory and evidence for public banks. For orthodox ‘political’ ones, the opposite. The aim of this chapter is not to resolve these antinomies but to illustrate them in order to move past them. The economics literature is too preoccupied with fixed notions of public and private ownership and this impedes understanding of how and why public banks evolve. By contrast, I argue for a dynamic political economy view of public banks. In this view, what public banks are depends instead on how social forces in class-divided societies make and remake them over time. That is, contested institutional functions give meaning to the public ownership form.