Book review: The alchemists who rule our economies

Neil Irwin’s book attempts to throw some light on the unelected officials who exert such a huge influence over our economies, says Matthew Partridge.


The Alchemists: Inside The Secret World of The Central Bankers

By Neil Irwin Headline Business Plus, £14.99.

Central bankers even today do not enjoy a particularly high profile. German chancellor Angela Merkel has been burned in effi gy countless times by protestors in Athens and Madrid. Mario Draghi, head of the European Central Bank, has received far less attention beyond policymaking circles. Even Ben Bernanke, a partial exception to the rule, still receives less scrutiny than many US politicians.

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Washington Post journalist Neil Irwin tries to rectify this in his new book by throwing some light on the unelected officials who exert such influence over our economies. After a brief dramatic reconstruction of the beginning of the credit crunch, Irwin gives us a tour of how central banks became such a critical part of the global financial system.

Starting with the Swedish invention of paper money (in Europe at least), he goes on to examine the Victorian banking system before giving examples of how central-bank decisions can make or break crises. Irwin is even-handed, arguing, for example, that while excessive money printing in Weimar Germany led to hyperinfl ation, monetary overcaution played a big role in the Great Depression.

But the bulk of the book focuses on how the world's central bankers tried to deal with the credit crunch. Bernanke and the Federal Reserve receive the most space, reflecting the Fed's key role in the global economy and financial system. However, Irwin also looks at the policies that Draghi, and his predecessor Jean-Claude Trichet, pursued. The People's Bank of China also gets its own chapter.

This is no dry academic text, but neither is it a superficial narrative account. Irwin brings events to life without losing sight of the bigger issues. Material gained in his day-to-day reporting duties is supplemented by many interviews with former and current officials. He is critical of many of the decisions taken, and refreshingly candid about the inherent flaws in the euro project, for example.

The book would, however, benefit from a more detailed explanation of monetary and fiscal policy. Amazingly, the great monetary economist Milton Friedman is never mentioned. Irwin also pulls his punches at times. Near the end of the book he contrasts visiting officials from the Troika (the International Monetary Fund-backed team tasked with bailing out Europe) with supporters of thuggish Greek neo-Nazi party Golden Dawn. They represent, says Irwin, "two contrasting Europes: one lively, cosmopolitan, and content, the other austere, insular and full of fury". However, it's the arrogance of the former that is tragically giving rise to the latter.

As Raymond Zhong notes in The Wall Street Journal, "Alchemists in the end never did turn lead into gold."

'The Alchemists: Inside The Secret World of The Central Bankers' by Neil Irwin. Headline Business Plus, £14.99.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri