walkitout (walkitout) wrote,

passages from _A History of Central Banking in Great Britain and the United States_, John H. Wood

I got through the last third or so of _The Tiger_ by telling myself that I could read the Central Banking history book I got from the library. I was so excited that I not only finished, I did so relatively quickly. Then I started Wood's book, and it's _so freaking awesome_ that I'm reading slowly because I don't want it to end. This basically never happens.

Wood tells a good chunk of (at least the beginning) of his story through quotations of people who were questioned after panics and asked to explain themselves (people at The Bank, people in government, etc.), and he then analyzes to what extent they said what they said because this was their understanding of what we call macroeconomics, and to what extent they said what they said because it was necessary that they say that at the time. And Wood is surprisingly good at this analysis (and may I just point out the book was published in 2005).

In describing events towards the ends of 1825 (there had been a South American driven boom that caused concern, but they raised rates fairly late and by the time they did, it actually made things worse; a bunch of other banks and commercial houses were already failing). They asked the government for help, either Exchequer bills (I think you could think of these as T-bills, but feel free to correct me) or to be allowed to stop payment (I think this means suspend convertibility -- gold reserves had been nearly wiped out by this point). A Bank Director is quoted recalling the Bank's request for assistance and the government's response.

"What answer did His Majesty's Government give to that? -- They resisted it from first to last. It was stated by the late Mr. Huskisson ... that he as a member of the Administration at that time suggested to the Bank that if their gold was exhausted they should place a paper against their door stating that they had not gold to pay with, but might expect to have gold to recommence payment in a short period; do you recollect such a suggestion? -- There was such a suggestion. What would, in your opinion, have been the consequences of that paper placed against the door of the Bank, without preparation to support commercial and financial credit? -- I hardly know how to contemplate it."

It is, indeed, difficult to imagine what might have happened next, but surely it would have dramatically changed the course of history. However much material Marx and Engels had to work with not so very many years later, this would have given them far, far, more.

I guess this gives us a metric of Truly Insane by which to gauge terrible financial policy by.

ETA: If you're wondering how it turned it, you have only to look at our own recent history to know they did the only thing you _can_ do when the government will not take action: you blow up the central bank's balance sheet.

"the Bank lent assistance "by every possible means, and in modes that we never had adopted before; we took in stock as security, we purchased exchequer bills, we made advances on exchequer bills, we not only discounted outright, but we made advances on deposit bills of exchange to an immense amount; in short by every possible means consistent with the safety of the Bank; and we were not upon some occasions over nice...""
Tags: economics, not-a-book-review, politics
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