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A History of Central Banking in Great Britain and the United States (Studies in Macroeconomic History)

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Yanis Varoufakis, the proud radical leftist Greek economist and former minister of finance in Greece, calls ‘them’ the bankruptocracy in his book, Adults In The Room: my battle with Europe’s deep establishment. He has written several other books on the topic as well, including The Global Minotaur: America, Europe and the Future of the Global Economy and Modern Political Economics: Making Sense of the Post-2008 World. He is a popular and internationally well-known writer, author, and professor of economics.

The first money used in Rome was the cow. This was not true money, but a barter system. Many early peoples used cattle as a medium of exchange. According to the legend of Herakles and the Augean stables, the cattle kept there, over 3,000 in number, represented the treasury of King Augeas. THE COPPER AGE (753 – 267BC) The book, published in 2016, goes to lengths to understand Mr Greenspan’s psychology, not only his adventures in the halls of power. He was once a jazz musician, loves tennis and counts Ayn Rand as a major intellectual influence—Mr Greenspan introduced her to President Gerald Ford. It assesses what Mr Greenspan’s career might tell us about the Fed’s response to the mortgage bubble of the 2000s. Contrary to common perception, he was not married to simple economic models and had no fantasies about “efficient markets” or “rational behaviour”. Instead he had a keen eye for economic data and stressed the importance of finance to the economy before it became vogue after the crisis. His mistake, then, was in miscalculating how risks in the mortgage market could be systemically harmful. The book offers an explanation for this: over his career he had been able to prevent many bubbles from causing widespread harm, such as in the panic of 1987, so he paid less attention to the buildup of risks in the 2000s. However, he was less than decisive in quelling the risks he was aware of. As Mr Mallaby puts it: “Greenspan was the man who knew. He was not the man who acted.” Read a longer review by Martin Wolf published in The Economist. The cultural and material progress of a civilization will often relate to the degree by which it is free from the influence of debt, and the degradation that results when the money-lenders are permitted to abuse their power. Hence, Goodson shows that both World Wars, the Napoleonic wars, the American Revolution, the rise and fall of Julius Caesar, the regicide of Charles I of England, the overthrow of Gaddafi in Libya and the revolution against Tsar Nicholas, among much else in history relate to this “Hidden Hand”. The ‘scam’ of the money-lenders is the ability to literally create money from nothing, and then lend and accumulate interest on “credit,” and then re-lend that interest for further interest, in perpetuity, that creates pervasive, worldwide debt, from the individual, to the family, to the entire state. Pierre Siklos is Professor of Economics at Wilfrid Laurier University and the Balsillie School of International Affairs. His latest books on central banking are Central Banks into the Breach: From Triumph to Crisis and the Road Ahead and The Economics of Central Banking, co-edited with David Mayes and Jan-Egbert Sturm, both published by Oxford University Press

Ugolini concludes as follows: “central banking is deeply rooted in the economic and political context in which it happens to operate, and that the evolution of the former closely depends on the evolution of the latter” (p. 271). Readers of “institutionalist” style books of central banking would have reached the same conclusions. Hopefully, this is welcome as it means that the functional and institutional approaches yield similar results but this also means that no fundamentally new insights about the evolution of central banking are generated. Ugolini has written a compact history of the critical functions of central banks emphasizing how the forces of centralization spurred or prevented financial innovations. The approach taken is a fresh one and will be useful, especially to scholars who are interested in specific areas where central banks have played an important role in economic development over time. That said, does the book provide new insights into central banks and their functions? This is debatable. For example, while financial stability is often mentioned it is not treated as a separate function. This is a shame in light of the ongoing debate about whether central banks are possibly over-burdened with responsibilities. It is also relevant for the question of the degree of centralization of the various functions considered at the level of a single institution. Stated differently, greater emphasis by the author on governance matters might have helped.

Modern central banks evolved from the seventeenth to the twentieth centuries to satisfy several public needs: The approach taken is a fresh one and will be useful, especially to scholars who are interested in specific areas where central banks have played an important role in economic development over time.” (Pierre Siklos, EH Net, eh.net, November, 2019)As time went on, the Romans took to using, instead of cattle, irregular lumps of copper or bronze. These lumps were called aes rude (rough metal) and had to be weighed for each transaction. This often-cited short paper lucidly explains how commercial banks create money and central banks influence that process. It dispels many common misconceptions about money. For instance, most introductory economic textbooks say that commercial banks lend out the money that savers deposit in them. In fact banks can lend money and create corresponding deposits even without savings flowing in–in other words, banks are quite literally creating “new money” when they make a loan and a corresponding deposit. This does not mean banks can lend with abandon. There are other constraints, such as the creditworthiness of borrowers, the interest rate at which banks lend which is influenced by the central bank and regulations on lending. Consider a consumer who buys an item from a vendor using money borrowed from a bank. The bank must settle the transaction with the vendor’s bank using reserves held at the central bank. If the borrower never repays the loan, then the bank’s reserves will not be replenished, reducing its ability to lend further. For any nation/state/society/community to have full sovereignty and independence in its affairs, absolute control over the means it employs to exchange goods and services must reside with the organs which represent the people, and must not be delegated to private individuals. Central banks learned to be lenders of last resort and provide financial stability but the pursuit of “too big to fail” led to the development of fiscally resolved banking crises. The Global Financial Crisis was a major departure from the post–Great Depression experience for many advanced countries, but the lessons learned then prevented another financial crisis in 2020. However, the expansion of banks’ toolkits to include credit policy, a form of fiscal policy, threatens central-bank independence. Up to 300BC there was an unsurpassed increase in public and private wealth of the Romans. This may be measured in the gain in land. After the conclusion of the Second Latin War in 338BC and the defeat of the Etruscans, the Roman Republic increased in size from 2,135 square miles (5,525 sq km) to 10,350 square miles (26,805 sq km) or 20% of peninsular Italy. In tandem with the expansion of its land area the population rose from about 750,000 to one million with 150,000 persons living in Rome itself.

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