Central Banking at a Crossroads
The money powers prey on the nation in times of peace and conspire
against it in times of adversity. The banking powers are more despotic than
monarchy, more insolent than autocracy, more selfish than bureaucracy.
They denounce as public enemies all who question their methods or throw
light upon their crimes.
—President Abraham Lincoln speaking on the third attempt to establish a central
bank in America, 1862
It is said that Government could not be safely entrusted with the power
of issuing paper money; that it would most certainly abuse it…. There
would, I confess, be great danger of this, if Government—that is to say,
the ministers—were themselves to be entrusted with the power of issuing
—David Ricardo, in “Plan for the Establishment of a National Bank,” 1846
THE GREAT CRISIS SHOOK THE POSTWAR BALANCE BETWEEN governments and markets. Rescuing banks and auto companies, issuing major stimulus programs, and re-regulating financial markets, governments became heavily involved in managing economies. This compounded precrisis concerns about the rise of “state capitalism” and “new mercantilism,” a world where governments would play an outsized role in regulating, owning, and prodding swaths of economic life previously the purview of the private sector. The profit motive, it was feared, would be replaced by political motivations.
The role of central banks was perhaps most novel and controversial. Monetary mavens were blamed for excessively loose monetary policy in the run-up to the crisis. Spearheaded by the US Federal Reserve, central banks aroused passions after joining the rescue effort with historic monetary expansion and credit infusions to ailing banks, emerging as kingmakers on Wall Street. The