I was first attracted to the history of monetary thought many years ago, puzzled by an enduring question: What is the right balance between the visible and invisible hands in economics? I thought then, and still think, that the appeal of the invisible hand is even less convincing in the fields of money and banking than in other fields. The necessity of interventions in money and banking, and more generally in finance, seem so obvious that I assumed that such interventions had a long history. I was surprised to learn that this was not the case. Rather, I soon learned that the classical conventional wisdom, represented by David Hume, by Adam Smith, and by David Ricardo in most of his writings, unreservedly adopted the invisible hand/no policy approach.

Most of the eighteenth- and nineteenth-century scholars who thought about the subject believed that the “natural order,” organized spontaneously around the precious metals, would suffice to establish a well-functioning monetary system. As we shall see, there were some dissenting views, but they had little influence. Rather, for many years, the dissenters were almost completely ignored. The recognition that it is up to society to regulate and direct the monetary system came to take center stage only toward the end of the nineteenth century.

The slow rise of a theory of monetary policy is the story told in this book. Understanding this story also means understanding the obstacles and stiff resistance that for so long delayed recognition of the failure of the invisible hand. The debate over the correct balance between the two hands is far from over, both in banking and in spheres outside of banking. Therefore, understanding the obstacles that stood in the way of a theory of central banking may help in present-day and future debates over similar issues. In any case, that is the constant hope of those of us who would study the history of thought not just for its own sake, but in the belief that important lessons can be gained from it.