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

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The Great Depression of the 21st Century Appendix I Appendix II An Analysis by Matthew Johnson Bibliography Foreword The early Roman silver coin was known as the drachma and was modelled on a coin used in the Greek south of the peninsula. It was later replaced with the smaller and lighter denarius. There was also a half denarius, called the quinarius and a quarter unit called the sestertius. Still later the system was supplemented with the victoriatus, somewhat lighter than the denarius and probably intended to facilitate trade with Rome’s Greek neighbours. The foundations of the Great Moderation were undercut at the beginning of the twenty-first century by fears of a Japan-style deflation and of being trapped in the zero lower bound. This set the stage for the Global Financial Crisis. The crisis was triggered by the collapse of a major credit-driven housing boom in the US and Europe, fostered by financial innovation, lax financial regulation, and loose monetary policy. It was allayed by enhanced lender-of-last-resort and credit policies and aggressive monetary and fiscal policies. A consequence of the crisis is that some central banks extended their financial stability mandate from lender of last resort to the prevention of credit-driven asset price booms (“leaning against the wind” policy)—which has not been proven to be successful ( Svensson, 2017) and to the use of preventative macro prudential policy. The Fed and others continued to worry about the zero lower bound and followed quantitative easing and forward-guidance policies with limited success in reaching their 2 percent inflation targets. If you wish to have a real understanding of history - look for the influence of the bankers. This is the key to understanding the past, the present and the future. Modern central banks evolved from the seventeenth to the twentieth centuries to satisfy several public needs:

Both authors mention that no meetings are ever transcribed or recorded, no agendas and no minutes are taken in the board rooms and meetings of the top banking sector. Both had years of experience in this matter. Both are straight shooters. To help understand the central-banking landscape of today, it might be of value to revisit how such banks and monetary policy evolved through history. Books on economics and banking are generally viewed as being abstruse, whose readers are confined mainly to academia and the business world. In this case we have a notable exception. Three other elements about the functional approach adopted by Ugolini are also worth mentioning. First, the discussion is overwhelmingly centered on the European, British, and American experiences. The book is silent about how central banking functions evolved in Canada, Asia, or Australasia. Second, the chapter on the issuance of money does not discuss how history, or the history of thought, might inform the current debate about the digitization of money. Finally, the discussion of the monetary policy function glosses over the evolution of policy regimes, such as exchange rate or inflation targeting, preferring instead to focus on its role as a means of regulating and taxing the public to ensure something called monetary stability. Unfortunately, the latter expression is never sufficiently clearly explained. Nevertheless, Ugolini is correct to underscore the importance of examining how monetary and fiscal policy interact. After all, this is an issue that is very much at the center of the debate about the future of central banking. Financial stability. While early central banks helped fund the government’s debt, they were also private entities that engaged in banking activities. Because they held the deposits of other banks they came to serve as a banker’s bank, facilitating transactions between banks. They became the repository for most banks in the banking system because of their large reserves and extensive networks of correspondent banks. These factors eventually allowed them to become a lender of last resort in the face of a banking panic. A later wave of central banks, e.g., the Federal Reserve in 1913 and the Swiss National Bank in 1907, were founded explicitly to provide financial stability.History is the most crucial subject of any educational system superseding science and the humanities in importance. Within its fabric, it holds the culture, traditions, beliefs, ethos and raison d’etre necessary for the continued existence of any people. If history is compromised by falsifications and omissions, which are frequently imposed by outsiders, then that civilisation will decay and finally collapse, as may be observed in the slow disintegration of Western civilisation since 1945. George Orwell expressed a similar sentiment in ‘1984’ when he wrote: The most effective way to destroy people is to deny and obliterate their own understanding of history. Also included were these words: “Goodson was a remarkable economist, reformer, researcher and author. Stephen provided a tremendous service for future freedom and prosperity by lifting the veil of secrecy of so many facts and facets of the history of central banking and the enslavement of mankind.” I do not have the expertise to say whether Goodson’s findings are accurate, but I do know that the raw nerves he touches are on account of central banking and the monetary system created thereunder being at the core of the persistent profound and inhumane differences in wealth distribution within any given country, and among countries. For this reason, for several years, my Party and I have argued that South Africa should reform its central banking and monetary system, even if that means placing our country out of step with iniquitous world standards.

This book is bound to be controversial and engender strong reactions. Why would a seemingly arid subject matter such as the history of central banking and of the monetary system give rise to such strong reactions? The solution is simple and self-evident. If we wish to obtain our liberation and sovereignty from the enslavement imposed by the private bankers, we must dismantle their fractional reserve system of banking and supporting central banks, or we ourselves shall be destroyed and consigned to oblivion.

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. Alan Greenspan, chairman of America’s Federal Reserve from 1987 to 2006, is one of the most controversial central bankers of all. His tenure included one of the longest periods of low inflation and solid growth in American history—later called the “Great Moderation”. But he also presided over the buildup of risks that led to the financial crisis of 2007-09. Sebastian Mallaby (a former Economist correspondent and husband of our editor-in-chief) provides a deeply critical but ultimately sympathetic portrayal of this polarising figure. 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".

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. 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. Before I read this book I almost didn't think there were any new revelations for me to uncover. Little did I know I was about to open my eyes to a worldview-crashing overview of history from an economic perspective. It's depressing to think of how much time I wasted studying economic and philosophical theories meant to paralyze me and rationalizing their contradictions, when in reality the principles of power are so few, so simple, and utterly supplant the garbage we're taught about markets and freedom.If we are to achieve real freedom, it is imperative that monetary reform be pursued with the same vigour and intensity as was displayed towards political reform during the struggle years. But that requires understanding the complex issues of how money is created, whom it belongs to and whose interests it serves.

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.Money Creation in the Modern Economy. By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate. Bank of England Quarterly Bulletin. Q1, 2014. 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. It also provides a record, both ancient and modern, of societies and civilizations that have flourished in an environment free from the burden of usury. The author offered the economic history behind the murders of Julius Caesar, Napoleon, Muammar Qaddafi (Real spelling Mu’ammar Muhammed al-Qathafi as the author provides it), JFK, and United States Congressman Louis T. McFadden after delivering a speech (fully included in the book) on the floor of Congress in which he exposed the Federal Reserve System in 1932. The discussion blends a history of events that reflect the growing importance of central banks in the global economy together with the history of thought about the balance between public and private roles in carrying out central banking functions. As a result, private banks and their connection with monetary authorities play an important role in the depiction of the evolution of central banking. For example, we see how the emergence of clearinghouses led to the creation of “conventional” central banks via the centralization of this function at the public level. Hence, this function is treated as a “natural monopoly.” The same is true of the evolution of many of the other functions examined. Nevertheless, the author is careful to highlight how in some countries, such as the United States, the tension between a role for government versus a preference for a strong role by the private sector in carrying out certain financial functions can explain certain cross-country differences in how central banks evolved when viewed through the lens of the functional approach. It may also be noted in passing that the experiences of Venice and Naples figure prominently in the discussion. 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.