Since the current financial crisis started in 2007, and particularly since it took a dramatic turn for the worse in the autumn of 2008, central banks have been in the limelight. ‘This time it's different’, some may say; but in reality, this crisis, like so many before it, has many historical parallels, not least with regard to the role played by central banks. At first sight, the failure of central bankers – and in particular of the Federal Reserve – to pre-emptively deflate the credit and real estate bubble of recent years closely resembles the failure to ‘lean against the wind’ manifested by their predecessors in the late 1920s. On both occasions, central banks have suffered much of the blame. At the same time, major differences stand out. The decisive, and in many ways unprecedented, activism displayed by central banks since 2007 contrasts starkly with their real or perceived inactivism in the early 1930s. So we do learn the right lessons from history after all? Perhaps so – or at least to some extent, which does not prevent us from making new mistakes. If we were really capable of learning lessons from history, the current crisis need not have occurred at all.

To learn from history requires understanding history. To understand the history of English and American central banking, one could hardly wish for a better and steadier guide than John Wood. As an economist, he wants to understand central bankers, and wants to understand why, at least part of the time, they act as bankers and not as economists would have them act. He does this by examining the reasons for the behaviour of central bankers in the United Kingdom and the USA from the late eighteenth century until the beginning of the twenty-first.

The first two chapters set the scene with an introduction to central banking and central bankers. Then follow three chapters reviewing the evolution of the Bank of England – mainly a discussion of the consecutive renewals of its charter – up to the First World War. The next four chapters deal with the history of central banking in the United States, from the two short-lived national banks in the early nineteenth century to the creation, rise, castigation and redemption of the Federal Reserve between 1914 and the 1960s. The pace of alteration then quickens. Chapter 10 recounts the bumpy ride of the Bank of England after 1914 up to the end of Bretton Woods. The next, more theoretical, chapter examines the different rules that at various times have been proposed, and sometimes followed, aimed at introducing a degree of automaticity in monetary policy-making, and thereby freeing it from ‘meddling by self-interested and uninformed groups’ (read: political pressure). Finally, the last two chapters deal with the evolution of central banking after the end of Bretton Woods, which John Wood interprets as a return of sorts to the beginnings of central banking, i.e. with a renewed emphasis on the independence of the central bank from government and with a double commitment – one to good behaviour on the part of the government, and one to price stability on the part of the central bank.

This is a well-written, highly readable book, although it does require a certain level of prior knowledge about the main themes and discussions in central banking. Most chapters are preceded by a useful table listing the main political and economic events as well as the names of the monetary policymakers. Throughout the book, Wood makes excellent use of his (mostly published) sources. He quotes extensively – often the quotes tell the story more or less by themselves – and he cleverly juxtaposes quotes from different eras, thereby demonstrating that time and circumstances may change but the basic issues in central banking by and large remain the same. This is indeed one of Wood's main conclusions. In essence, the book re-lives the debates of old on those fundamental issues that still dominate the current discourse on central banking and monetary policy: discretion versus rules, the lender-of-last-resort role, easy credit or tight money, convertibility and the role of reserves, fixed versus floating exchange rates, independent versus democratic (i.e. government-controlled) central banking.

In short, Wood's book offers a catalogue of central banking theory brought to life through a vivid depiction of more than two centuries of central banking practice. It is a vast subject that imposes certain choices. One may regret some of these choices as limitations. The book deals foremost with monetary policy, and while it does cover financial stability and lender-of-last-resort issues to some extent, almost nothing is said about the micro- and macro-prudential function of banking supervision and regulation; a function that – although not exclusively exercised by central banks – has played such a prominent role in the current crisis. Wood also makes little effort to place the history of Anglo-Saxon central banking in its broader international context, say, for instance, by a more in-depth development of the contrast with German or Swiss central banking and its attainment of high price stability in the absence of formal rules or contracts.

Reissued in 2009, this book dates from 2005 and takes the story up to 2000 only. It does not touch on the 2007–9 crisis. This is not to suggest that this invalidates the conclusions Wood draws from his historical journey, far from it; but it would have been interesting to see how he interprets the repercussions of this crisis on the nature and scope of central banking.

Wood argues that central bankers are a breed of their own, whose actions are sometimes ‘difficult to rationalize’ by economists, mainly because they tend to (re)act as bankers with a primary focus on the financial markets and want to keep their hands free to adapt to changing circumstances. However, it should not be forgotten that nowadays the great majority of central bankers are – like Wood himself – academically trained economists, not commercial bankers as in days of old. So, in that sense and armed with John Wood's lucid book, presumably, we should now find them easier to understand.