Book Review: Mervyn King: The end of Alchemy

Mervyn King: The End of Alchemy: Money, Banking and the Future of the Global Economy

By Yash Mishra,CFP®

In the very many books that I have read on economics, never have I seen one that starts with a a quote from the famed English poet TS Eliot– Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information? This tempted to me to pick up the book at first glance. As you read through the book, one is pleasantly surprised with the wide repertoire of references from Stefan Zweig, Thomas Carlyle, Secretary of state Truman and Friedrich Hayek to name a few.

In the book, there are reminisces about exchanges with other policy makers and one that stood out was with one that Mr Mervyn King’s exchange in Beijing in 2011, where the Chinese central banker at an unwind session observed:

“We in China have learned a good deal from the west about how competition and how a market economy supports industrialization and create higher living standards, But I don’t think you’ve quite got the hang of money and banking quite yet.”

In summary, this book is a substantive analysis of the 2008 financial crisis, seen through the lens of an academic who lived through and participated in managing that crisis as the Governor of the Bank of England. It goes on to analyse through the myriad of experiences as a key central banker and policy maker as to how and why money and banking have become the Achilles heel of the global economy. In other words, he examines the alchemy that runs through the financial system, whereby governments pretend that paper money can be turned into gold on demand and banks pretend that the short-term deposits used to finance longterm investments can be returned whenever depositors want their money back.

This in our view, is an essential read as this provides a ring side view of central bankers and shows how they do “whatever it takes, for however long it takes” to get economies out of recession in a global economic slowdown, even created by a pandemic .