The Confidence Game: How Unelected Central Bankers Are Governing the Changed Global Economy
By Steven Solomon
Simon and Schuster, 1995, 578 pp
These two books, both written by accomplished journalists, complement one another nicely. The first is serious but not scholarly. It has neither footnotes nor references. The authors adopt the currently fashionable view that central banks should be charged exclusively with achieving price stability and should be held publicly accountable to that objective. Other objectives, such as safety and soundness of banks, stability in financial markets, and smoothing real economic activity are subordinate. The doubtful wisdom of this framework for central banks does not undo the many other merits of this book. It covers the history, evolution, and contemporary travails of central banks, including their domestic and international roles and concerns. Despite occasional analytical flaws, it is a clear and informative exposition. The authors discuss adequately the prospective European monetary union.
In contrast, the book by Solomon offers action-filled, blow-by-blow accounts of central bankers during the emergencies of the 1980s: inflation, the debt crisis, the decline and stabilization of the dollar, stock market jitters, and forcing adequate capital on commercial banks. The details are better than the overall impression conveyed by the author, who is given to hyperbole. Chapter headings announce escaping from the "abyss," a "financial Dunkirk," and "Armageddon." We read endlessly about the dangers from the "uncontrolled, revolutionary political force of stateless money." The book concludes with endorsement of central bank independence (such as that already enjoyed by the U.S. Federal Reserve) combined with strong public accountability. Based on 300 interviews, the book draws heavily on direct quotations from participants in the various episodes; it is lively, informative, and revealing. As befits a contemporary history, it contains 64 pages of source notes.