Central Bankers Don't Know Nothing

August 9 was a red-letter day in the Chantrill household. You'll never guess why.

Yep, yesterday was the day that A History of Central Banking in Great Britain and the United States arrived from Amazon.

I can tell you, it is a real page-turner. Seriously.

I'm afraid that I've only got through the first four chapters so far, so I can't give a full report on the book. In fact, the story so far only includes the history of the Bank of England up to 1844.

But the story so far is pretty simple. Central bankers are clueless when it comes to stabilizing the economy. Central banks are vehicles for lubricating government finance, and in Britain and the US they have done this job very well. Good work, chaps!

But we expect more of the central bankers. We expect them to lean against the wind. We expect them to lean against bubbles and booms and we expect them to step in to prevent collapse during banking crises.

Central bankers are very good at doing their job of acting as the government's banker. Unfortunately, they are lousy at doing what we want them to do, and that is to stop the big booms before they turn into bubbles and busts.

We think of the Bank of England as an august body with the wisdom of Solomon. Not a bit of it. The story of the Bank of England is one clueless mess after another. 1720 and the South Sea Bubble. 1745 and the panic of Bonnie Prince Charlie. 1797 and suspension of the gold standard in the Napoleonic Wars. 1819 and the deflation on the resumption of gold payments after the Napoleonic Wars. The crash of 1825.

But the Bank did a bang-up job of acting as the government's banker. The Brits ran the National Debt up to 250 percent of GDP by the battle of Waterloo. You can credit the Bank of England for that.

What excitement! What suspense! And there are still 300 pages left to go!