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This chapter investigates the debt stage in the relationship between Congress and the IMF and World Bank that was triggered by the external shocks of the 1982 Mexican default, subsequent Latin American debt crisis, and the end of the Cold War. The chief endogenous change was the increasing use of omnibus legislation in the period of divided government that followed the election of Ronald Reagan. The chapter argues that omnibus bills were effective vehicles for issues related to the IMF and World Bank. Through them, party leaders could secure funding for the IMF and World Bank, yet prevent individual members from having to take a public stand on an individual measure. However, by the end of the stage, the same external changes altered domestic constituencies of support. As the banking industry recovered from the debt crisis and other forms of credit appeared, the money-center banks directed a smaller percentage of transnational capital flows. Congressional advocacy efforts on behalf of environmental activists were directed at the World Bank’s activities. Use of legislative procedure allowed members of Congress to advocate for policy change on issues such as African development, the “Pelosi Amendment,” and the World Bank inspection panel.

The essence of central banking is the issuance of central bank money—being itself defined as dominant financial money used at a large scale for payments and being of the highest possible credit and liquidity quality amongst all financial assets, such that payment through it is accepted as settlement of any other financial claim. This chapter elaborates on the nature of central bank money and reviews the pre-1800 theory and practice of central bank money issuance. It is shown that the nature of central bank money and its benefits were well understood by early authors. Moreover, the 25 central banks that issued (or at least aimed at) issuing central bank money before 1800 are introduced. The types of central bank money (deposits, banknotes, certificates of deposits) are briefly reviewed.

The annex presents, with a common template, a catalogue of 25 pre-1800 central banks. While it benefits considerably from previous surveys, it has a narrower focus on central bank operations and balance sheets, and on the genealogy of central banking. It also includes some banks which are not contained in the previous surveys of Roberds and Velde (the Bank of Scotland, the Banco di Santo Spirito di Roma, the American settlers’ land bank projects, the central bank projects of Leipzig and Cologne, the Copenhagen bank, the Russian Assignation Banks, the Banco Nacional de San Carlo, the Bank of North America, and the Bank of the United States). Not all institutions completely fulfil the definition of a central bank, and particularly not for the entire lifetime of its existence. However, all banks included had, at least in the way they were conceived, important elements of central banking, and thereby at least illustrate the challenges that central bank design faced pre-1800.

The chapter discusses three myths that underlie current conceptualizations of money, credit, and creditworthiness. The first --that money is fungible--describes it as a neutral means of accounting for value, and a quantitative metric to compare qualitatively different commodities. The myth of banks as institutions of intermediation defines them as organizations charged with the allocation and distribution of scarce financial resources (capital). Finally, the myth of creditworthiness as objective assessment understands the criteria by which borrowers are granted credit as a function of the traits of the borrower: the better these criteria capture such underlying traits, the better the odds that the financial obligation will be met in the future. Each of these myths ignores how money, credit, and creditworthiness are always contested, with certain bankers striving to reinforce the boundaries drawn around each phenomenon, while other bankers strive to transgress those boundaries.

Chapter 1 first restates the present dominant view on the nature and origin of central banking, which can be summarized as follows: (1) Defining central banking is ‘by no means straightforward’; (2) the Riksens Ständers Bank and the Bank of England would have been the first sort-of central banks; (3) early central banks did not have a policy mandate and the orientation towards public objectives would go back only to the nineteenth century; (4) there has been no concept of central banking before 1800; (5) early central banking developed out of the largest commercial banks; (6) the lender of last resort (LOLR) would have developed only in the second half of the nineteenth century or even later. Second, the chapter reviews a recent literature which started again to question this view. It is explained how this book will take up the challenge to correct the myth about the origins of central banking.

This chapter describes the payments system that existed in the US between 1900 and the beginning of World War I. The discussions cover the gold standard; Treasury money; bank money; the problem of an inelastic currency; the Aldric–Vreeland Act of May 20, 1908; and the Federal Reserve Act and Federal Reserve money.

This chapter addresses the origins and laws of money. Exchange, barter, tribute, taxes, and debt are properly distinguished and connected to the rise of various forms of money. Price is developed as the monetary expression of a commodity’s quantitative worth. The evolution of money is traced across cultures and times, leading to private and state-issued coins, convertible and inconvertible tokens, state fiat money, and bank money. Three essential functions of money are identified and some striking long-term empirical patterns are displayed. Classical and Marxian theories of commodity-based money are analyzed and compared with long-term empirical patterns obtaining prior to the advent of modern fiat money. It is argued that under modern fiat money the national price level is directly determined by monetary and macroeconomic factors so this aspect, along with the claims of neo-Chartalist monetary theories, is deferred to chapter 15.

This chapter presents the doctrines that support the notion of ‘transferable deposit’ as the historical explanation to ‘bank money’. It discusses the medieval practice of bailment of money as the ancestor of the bank deposit, and the emergence of the modern legal doctrine of the bank deposit from the medieval bailment of money. As a legal concept, the bailment of money denotes the delivery of money for a particular, or in effect, any given purpose. Where the purpose was not carried out, inasmuch as the bailee was not obligated to keep the specific coins separately, he was not liable to the bailor for the money in detinue. The chapter connects this notion to the modern monetary system where both ‘central-bank money’ and ‘commercial-bank money’ are in the form of credit to a bank account and the extinguishment of one debt, and the creation of another, facilitate a legal basis for the ‘transferable deposit’ and its use as ‘bank money’.

The Introduction describes the main themes and objectives of the book and provides an overview of its content. First, the current dominant view on the origins of central banking is recalled and challenged, and it is outlined what alternative view this book will propose, namely that central banking dates back to before 1800 and that a number of European continental institutions played a major role in its development. Then an overview of the chapters of the book is provided: Chapter 1 restating the currently dominant view on the origins of central banking; Chapter 2 on money issuance; Chapter 3 on the relation with the government; Chapter 4 on lending to the private sector; Chapter 5 on the lender-of-last resort; Chapter 6 on the overall balance sheet of early central banks; and Chapter 7 restating the rehabilitation of early central banking; The annex schematically reviews a total of 25 central banks operating before 1800.

The extension of refinancing credit from the printing press through a lowering of collateral requirements enabled the crisis countries to finance their current account deficits, buy foreign assets and repay their external private debts. The resulting net payment orders, which the other central banks of the Eurozone are obliged to honour by issuing “outside money”, are measured by the Target balances. Three quarters of the Eurozone’s stock of central bank money originates from liquidity creating operations in the six crisis-stricken countries. In Finland and Germany, by contrast, at the peak of the crisis all of the central bank money issued by the national central banks was outside money, originating from elsewhere in the Eurozone.

This chapter summarizes the case for considering money as a legal institution. The Western liberal tradition, represented here by John Locke’s iconic account of money, describes money as an item that emerged from barter before the state existed. Considered as an historical practice, money is instead a method of representing and moving resources within a group. It is a way of entailing or fixing material value in a standard that gains currency because of the unique cash services it provides. The evidence to that end comes from coin itself, the practice of free-minting, judicial commentary, and academic theorizing. As the second half of the chapter details, the relationships that make money work are matters of governance carried out in law. Thus law defines public debt, allocates authority to create money, and determines what counts as a ‘commodity’. Comparing medieval, early American, and modern money law on money demonstrates the dramatic importance of that legal engineering.

This chapter discusses Milton Friedman’s approach to economic analysis in the context of his scholarly work and of his work as a teacher and mentor of dissertation students. To do so, it draws not only on his published writings but also on biographical material and on my own personal recollections. Friedman was a price theorist par excellence. He was also a sophisticated and a highly competent empirical researcher. Both these attributes are explored in the chapter. In the discussion of his research, three areas in particular are covered: the consumption function, the Phillips curve, and monetary history.