Reading Course: Central Bank History

I am in process of creating an online course on the history of Central Banking. The era of online courses has been forced upon us by the Corona Virus, though I have been meaning to do this for a long time. The WEA Pakistan Blog seems like a great place to do a beta-test. I would like to start by inviting the audience to read through Charles Goodhart’s book on the Evolution of Central Banking. We would plan to read one chapter a week and discuss it on posts and/or comments on posts on this blog. Those who formally register on the Google Form: History of Central Banking will be put on an email discussion group for the book, and also get a link to download a copy of the book itself. Some motivation for why it is worth reading this book is given below:

Conventional Macro teaches us that Money is a VEIL – It hides the working of the real economy. Conventional Macro Models currently in use are RBC – Real Business Cycles – in which there is no role for money.

This is exactly the OPPOSITE of truth. Money is at the HEART of economics. We cannot understand the economy without understanding the role of money in the economy. However, conventional economics with its math and models actually HIDES the role of money. The best way to understand money is to study the EVOLUTION of role of money – how it started to be used and how this used changed with time.

For this purpose, it is convenient to start with a study of the history of CENTRAL BANKING – because Central Banks are at the heart of how money operates. The way money works has changed radically, several times, over the twentieth century, But to understand what happened in the 20th Century it is useful to go back to the beginning, and trace developments.

Although a lot of work is involved in getting a deep understanding of these matters, you can start by watching my video lecture on the history of money. This will give an overall picture – but the lecture is highly condensed and goes over a huge amount of material in a very short time.

For the proposed reading course, it is not required to watch this 90 minute lecture – it will give you a broad perspective on what we hope to do, but it is not essential background.

What will be REQUIRED to participate and benefit from this course is to read ONE chapter every week from the attached book and to discuss it in this email group The book is by Charles Goodhart and is called the Evolution of Central Banking. (See Google Form: History of Central Banking  to register for email group and get access to book). I will try to make weekly posts on progress, as we read through the book here.

Please read the first chapter and then we will discuss this chapter, and go through one chapter per week in this way. Today is SUNDAY April 19th, so new chapters will be assigned every Sunday. During the week I will give some questions to guide discussions and comments on email group. Readers not on email group can comment here on the blog. I will use this material as the basis for an online course on Central Banking. This material should be required for anyone who wishes to understand monetary policy – what it is, why it is, why do we use discount rates today, instead of the quantity of money which is supposed to be the target of monetary policy according the macro textbooks.

This material is what SHOULD be taught in a macro course. Unfortunately, due to majorly mistaken ideas about methodology, this is not done. One of the most important reasons for this is “Physics Envy” (see John Rapley: Few Things are as Dangerous as Economists with Physics Envy). The idea that economics should be a “Science” led to the forgetting of history, which was a disaster for the discipline. For more details about this disaster, see Method or Madness? The only path to recovery involves learning institutional history (for starters), which is what this reading course intends to do.

POSTSCRIPT: Next post provides a readers guide to the first three pages of the introductory chapter: Readers Guide: p1-3 of Goodhart on CB

Date posted: April 19, 2020
Author: Asad Zaman
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