The book is immensely readable and contains pithy and wise observations on nearly every page that provoke thought about our current set of institutional financial arrangements currently in place. To the contrary, Bagehot was a wordsmith nonpareil. That doesn’t mean that Bagehot has nothing to offer scholars and practitioners of (central) banking today.
Lombard Street has become a classic in the sense of the word often attributed to Mark Twain: a book everyone cites but no one reads. The rest is part of a mythology that has arisen around Bagehot. Pronounce it “Bag-ih-hot” and you will expose yourself as a central banking outsider.Įxcept for the fact that “Bagehot” isn’t pronounced as written-it’s “BADGE-it,” in American English, “BADGE-ot” in the Queen’s English-there’s little about the above paragraph that is true. Indeed, to continue the religious imagery, Bagehot’s own name has become something of a shibboleth in central banking circles. It should simply follow Bagehot’s dictum: “lend freely, at a penalty rate, against good collateral.” This dictum-sometimes referred to as a Rule, sometimes as a Law-is the gospel for central bankers, as applicable to today’s markets as they were at the time he wrote it 140 years ago. In Lombard Street, Bagehot became the first to articulate what a central bank should do to prevent a panic from becoming a crisis.
Walter Bagehot is Victorian prophet of central banking, the author of the “ bible of central banking,” Lombard Street: A Description of the Money Market. Review of Lombard Street: A Description of the Money Market, by Walter BagehotĪmong central bankers and fellow traveling academics and financiers, a common trope has arisen to celebrate this once obscure nineteenth century editor of The Economist magazine. Misreading Walter Bagehot: What Lombard Street Really Means for Central Banking
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