Paean to Central Bankers

Walter Bagehot, writing of how the Bank of England acted to prevent an economic crisis in the wake of the collapse of banking giant Overend, Gurney & Co in 1866, mentioned that central bankers should take their resources and “advance it most freely for the liabilities of others. They must lend to merchants, to minor bankers, to ‘this man and that man’, whenever the security is good” (p 33). The Alchemists, Neil Irwin’s sweeping account of global policymakers’ responses to the financial crisis during 2007-12, is the story of how the world’s major central bankers struggled to implement Bagehot’s famous dictum, sometimes haltingly, with varying enthusiasm, and against strong political constraints, in order to prevent the collapse of the global financial system. It is also the story of how the rarefied club of central bankers boldly seized massive political power in the process of preventing economic catastrophe, often eclipsing in influence the heads of the governments they represented, often even gambling with their institutions’ political independence. Through this narrative, Irwin offers a timely meditation on that most peculiar of modern democratic institutions, the independent, technocratic, and professional-economist-run central bank.

History of Paper Money