The Alchemists: Three Central Bankers and a World on Fire Read Online Free PDF Page B

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 of half a decade, there had been a credit boom and an accompanying rise in the standard of living, then a surge of inflation, followed by a credit bust and a recession.
    In other words, over just a few short years, Sweden had experienced both the best and the worst of central banking. But Johan Palmstruch and everyone else involved in Stockholms Banco had also done something more: They had begun the modern era of global finance, and all that is great and awful that would emerge from it. To properly understand how the Boys in Basel responded to the financial conflagration of 2007 to 2012, it helps to understand how they came to wield such power to begin with. And that is a story that begins with Johan Palmstruch.
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    T he country may now be better known for minimalist furniture and pop music than for imperial designs, but for much of the seventeenth century Sweden was one of Europe’s great powers. It commanded an empire that stretched across Scandinavia and into what are now the Baltic nations and parts of present-day Germany, Poland, and Russia.
    The nation attained its prominence on the global stage despite lacking some of the advantages of its rivals in continental Europe. With one million or so citizens, Sweden was only one sixth as populous as Britain and one twentieth the size of France. Its agricultural sector wasn’t terribly productive either—after all, the country is dark and cold eight months a year. Food was so scarce that peasants mixed tree bark into their bread dough to make it go farther. But the Swedish economy wasn’t without strengths: Without the productive farming of France or Britain, it relied heavily on fishing and iron and copper mining. But for a truly vibrant commercial sector to exist, of course, there needs to be a medium of exchange, a method of trade more flexible than mere barter: salt, perhaps, or seashells or metal coins. In 1534, with Sweden newly established as an autonomous state, it minted its first daler. The similarity in pronunciation to the present-day U.S. currency is no coincidence.
    Well into the seventeenth century, however, the Swedes were having a hard time getting their daler into the hands of people who wanted them. They needed a system of institutions to store, distribute, and lend money. In Amsterdam, Hamburg, and London there had emerged companies that did just that, and in parts of Italy variations on the idea had been around for centuries. But the Swedish language had no word for it in the early 1600s. So in 1619 the king and members of the merchant class got together , borrowed the Italian term
banca,
and turned it into the Swedish word
bank.
They couldn’t agree on who would provide the start-up financing for these new institutions. King Gustavus Adolphus and his powerful chancellor, Axel Oxenstierna, wanted the towns of Sweden to fund the banks. The merchants in those towns wanted the king to take on the expense—and the risk. During the stalemate, three decades would go by in which Sweden lost ground in