The Alchemists: Three Central Bankers and a World on Fire by Neil Irwin

Part I
RISE OF THE ALCHEMISTS,
1656–2006

ONE
Johan Palmstruch and the Birth of
Central Banking
e was a broken and desperate man, at the end. Johan Palmstruch,
a Latvian-born, Dutch-raised, Swedish-residing banker defended
himself against a prosecution that likely seemed more like an
inquisition. A nation wanted to know where its money had gone,
and the best answer Palmstruch could muster was to describe the chaos of
those final days of the world’s first central bank, when depositors and
government investigators lined up outside the bank’s doors, “snork, pork,
scolding and swearing.” Who, he asked, “in the midst of such daily tumult,
threatening, swearing, scolding and parleying, in danger of life and limb . . .
could note and thereby keep a book?”
The investigation into Palmstruch’s Stockholms Banco had discovered
not only that tens of thousands of daler were missing from its vault, but also
that the near failure of the bank had cost the Swedish crown a vast sum.
Palmstruch was ordered to repay what the bank had lost. When he couldn’t,
he was to be executed. This was, after all, 1668, not 2008, and Palmstruch’s
actions as a man with the power to print money at will had decimated
Swedes’ personal savings, wrecked their national economy, and forced the
government to intervene to prevent complete catastrophe.
Palmstruch’s sentence was commuted in 1669, and he was released
from prison in 1670. When history’s first central banker died a year later, he
was known not as a monetary wizard, but as a criminal who’d taken the
economy of one of Europe’s great powers on a wild ride. During the course

The Alchemists: Three Central Bankers and a World on Fire by Neil Irwin