Charles Goodhart
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Charles Albert Eric Goodhart, (born 23 October 1936) is a British
economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...
. He worked at the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
on its public policy from 1968–1985, and worked at the
London School of Economics The London School of Economics and Political Science (LSE), established in 1895, is a public research university in London, England, and a member institution of the University of London. The school specialises in the social sciences. Founded ...
from 1966–1968 and 1986–2002. Charles Goodhart's work focuses on central bank governance practices and monetary frameworks. He also conducted academic research into
foreign exchange market The foreign exchange market (forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. By trading volume, ...
s. He is best known for formulating Goodhart's Law, which states: "When a measure becomes a target, it ceases to be a good measure."


Early life and education

Charles Goodhart was born on 23 October 1936 in Oxford, England to Arthur Lehman Goodhart, an American residing in England, and his English wife, Cecily Carter.  His father studied law at
Trinity College, Cambridge Trinity College is a Colleges of the University of Cambridge, constituent college of the University of Cambridge. Founded in 1546 by King Henry VIII, Trinity is one of the largest Cambridge colleges, with the largest financial endowment of any ...
, eventually becoming a law don at Corpus Christi College. Following the family's move to
Oxford Oxford () is a City status in the United Kingdom, cathedral city and non-metropolitan district in Oxfordshire, England, of which it is the county town. The city is home to the University of Oxford, the List of oldest universities in continuou ...
, Charles' father became the Professor of
Jurisprudence Jurisprudence, also known as theory of law or philosophy of law, is the examination in a general perspective of what law is and what it ought to be. It investigates issues such as the definition of law; legal validity; legal norms and values ...
in 1936 and the Master of University College (1951–1963). While their father was Jewish, Cecily Carter brought up her three sons (
Philip Goodhart Sir Philip Carter Goodhart (3 November 1925 – 5 July 2015) was a British Conservative politician, the son of Arthur Lehman Goodhart. Biography Goodhart attended the Hotchkiss School in Lakeville, Connecticut. He contested Consett in 1950 ...
, William Goodhart and Charles Goodhart) as members of the
Church of England The Church of England (C of E) is the State religion#State churches, established List of Christian denominations, Christian church in England and the Crown Dependencies. It is the mother church of the Anglicanism, Anglican Christian tradition, ...
. During
World War II World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...
, Arthur Goodhart's outspoken opposition to
Nazism Nazism (), formally named National Socialism (NS; , ), is the far-right totalitarian socio-political ideology and practices associated with Adolf Hitler and the Nazi Party (NSDAP) in Germany. During Hitler's rise to power, it was fre ...
led to Charles (aged 2) being evacuated alongside his two elder brothers to the
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
. Upon their return, Charles joined his brother William Goodhart at the St Leonards branch of the (Oxford) Summerfields School. Charles was then accepted to
Eton College Eton College ( ) is a Public school (United Kingdom), public school providing boarding school, boarding education for boys aged 13–18, in the small town of Eton, Berkshire, Eton, in Berkshire, in the United Kingdom. It has educated Prime Mini ...
where he focused on the study of history and languages. After he finished school, he completed two years of compulsory national military service (1955–1956) in which he was involved with the
Hungarian Revolution of 1956 The Hungarian Revolution of 1956 (23 October – 4 November 1956; ), also known as the Hungarian Uprising, was an attempted countrywide revolution against the government of the Hungarian People's Republic (1949–1989) and the policies caused by ...
and the
Suez Crisis The Suez Crisis, also known as the Second Arab–Israeli War, the Tripartite Aggression in the Arab world and the Sinai War in Israel, was a British–French–Israeli invasion of Egypt in 1956. Israel invaded on 29 October, having done so w ...
and earned the rank of second lieutenant in the King's Royal Rifle Corps.


Cambridge (1957–1965)

In October 1957, Goodhart started studying
economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...
at
Cambridge University The University of Cambridge is a Public university, public collegiate university, collegiate research university in Cambridge, England. Founded in 1209, the University of Cambridge is the List of oldest universities in continuous operation, wo ...
, where he was a member of his father's college, Trinity. In his first year, he came in first in his course. He learnt under economists such as Nicky Kaldor, Richard Kahn,
Joan Robinson Joan Violet Robinson ( Maurice; 31 October 1903 – 5 August 1983) was a British economist known for her wide-ranging contributions to economic theory. One of the most prominent economists of the century, Robinson incarnated the "Cambridge Sc ...
, Michael Farrell, Frank Hahn and Robin Matthews. In his final year of study, he was paired in tutorials with Sir James Mirrlees. He completed his
undergraduate Undergraduate education is education conducted after secondary education and before postgraduate education, usually in a college or university. It typically includes all postsecondary programs up to the level of a bachelor's degree. For example, ...
course with
First Class Honours The British undergraduate degree classification system is a grading structure used for undergraduate degrees or bachelor's degrees and integrated master's degrees in the United Kingdom. The system has been applied, sometimes with significant var ...
. After completing his
undergraduate Undergraduate education is education conducted after secondary education and before postgraduate education, usually in a college or university. It typically includes all postsecondary programs up to the level of a bachelor's degree. For example, ...
degree at
Cambridge Cambridge ( ) is a List of cities in the United Kingdom, city and non-metropolitan district in the county of Cambridgeshire, England. It is the county town of Cambridgeshire and is located on the River Cam, north of London. As of the 2021 Unit ...
, Charles moved to the
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
in 1960 to begin research at
Harvard University Harvard University is a Private university, private Ivy League research university in Cambridge, Massachusetts, United States. Founded in 1636 and named for its first benefactor, the History of the Puritans in North America, Puritan clergyma ...
studying trade cycles. In June 1962, following the completion of his PhD thesis, which analysed United States monetary history (specifically why the economy rebounded in 1907 but not in 1929), Charles and his new wife travelled back to
Cambridge Cambridge ( ) is a List of cities in the United Kingdom, city and non-metropolitan district in the county of Cambridgeshire, England. It is the county town of Cambridgeshire and is located on the River Cam, north of London. As of the 2021 Unit ...
. Charles took up a Prize Fellowship at Trinity College and became an assistant lecturer in economics (1963–1964). He spent the next two years interpreting English monetary history by cumulating and analysing the monthly reports of the London Joint Stock Banks, which were published after the Barings crisis of 1890.


London School of Economics (1966–1968)

In 1964, Goodhart briefly joined the Department of Economic Affairs. During this time, he worked on White Papers, planning the growth of the energy, construction and housing sectors in England. Goodhart left the Department of Economic Affairs in 1966 when he joined the
London School of Economics The London School of Economics and Political Science (LSE), established in 1895, is a public research university in London, England, and a member institution of the University of London. The school specialises in the social sciences. Founded ...
as a lecturer on
monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rat ...
. During this time, he contributed to a study on English monetary policy "Monetary Policy in Twelve Industrial Countries" which was commissioned by the federal Reserve Bank of Boston. He also co-authored an article in the field of
political economy Political or comparative economy is a branch of political science and economics studying economic systems (e.g. Marketplace, markets and national economies) and their governance by political systems (e.g. law, institutions, and government). Wi ...
alongside R.J. Bhansali, which featured in the journal ' Political Studies'. He stayed at the
London School of Economics The London School of Economics and Political Science (LSE), established in 1895, is a public research university in London, England, and a member institution of the University of London. The school specialises in the social sciences. Founded ...
until 1968.


Career


Bank of England (1968–1985)

Charles left the
London School of Economics The London School of Economics and Political Science (LSE), established in 1895, is a public research university in London, England, and a member institution of the University of London. The school specialises in the social sciences. Founded ...
to work a temporary two-year assignment at the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
.  He found his expertise in
monetary economics Monetary economics is the branch of economics that studies the different theories of money: it provides a framework for analyzing money and considers its functions (as medium of exchange, store of value, and unit of account), and it considers how m ...
and his knowledge of Milton Friedman's ideas to be of high value.  He was allocated to the Economic Intelligence Department which was responsible for calculating and simulating
economic statistics Economic statistics is a topic in applied statistics and applied economics that concerns the collection, processing, compilation, dissemination, and analysis of economic data. It is closely related to business statistics and econometrics. It ...
as well as writing th
Bank of England's Quarterly Bulletin
His first job at the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
was to explain the concept of domestic credit expansion to individuals within the Bank, whilst conveying the Bank's viewpoints on such issues to outside economists. In 1970, he was tasked with empirically assessing the predictability of the demand for money, and had the results published in th
Bank of England's Quarterly Bulletin
in a paper called 'The Importance of Money'. During this time Goodhart served as the first secretary of the Monetary Review Committee, who provided summarised views of monetary developments to the
Chancellor Chancellor () is a title of various official positions in the governments of many countries. The original chancellors were the of Roman courts of justice—ushers, who sat at the (lattice work screens) of a basilica (court hall), which separa ...
and Treasury of England. Whilst attending a conference held by the
Reserve Bank of Australia The Reserve Bank of Australia (RBA) is Australia's central bank and banknote issuing authority. It has had this role since 14 January 1960, when the ''Reserve Bank Act 1959'' removed the central banking functions from the Commonwealth Bank. Th ...
in 1975, Goodhart wrote in his footnotes "whenever a government seeks to rely on a previously observed statistical regularity for control purposes, that regularity will collapse". This quote became known as Goodhart's Law. Goodhart's Law is commonly expressed as: "When a measure becomes a target, it ceases to be a good measure". In 1979, Goodhart jointly wrote a paper which was published in th
Bank of England's Quarterly Bulletin
This paper advised the new Thatcher government against implementing monetary base control. In the early 1980's, Goodhart joined the home finance division of the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
, under John Fford. In 1980 he was promoted to Senior Adviser at the Bank of England and stayed at this role until 1985. Following the events of Black Saturday (1983), Goodhart travelled to
Hong Kong Hong Kong)., Legally Hong Kong, China in international treaties and organizations. is a special administrative region of China. With 7.5 million residents in a territory, Hong Kong is the fourth most densely populated region in the wor ...
to assist in implementing a currency board system that was linked to the
United States dollar The United States dollar (Currency symbol, symbol: Dollar sign, $; ISO 4217, currency code: USD) is the official currency of the United States and International use of the U.S. dollar, several other countries. The Coinage Act of 1792 introdu ...
. This system helped solve the Hong Kong monetary crisis. Goodhart served on the Hong Kong Exchange Fund Advisory Council (an advisory board for the
Hong Kong Monetary Authority The Hong Kong Monetary Authority (HKMA) is the central bank, central banking institution of Hong Kong. It is a government authority founded on 1 April 1993 when the Office of the Exchange Fund and the Office of the Commissioner of Banking merge ...
) for more than a decade (1983–1997).


London School of Economics (1986–2002)

Following Goodhart's departure from the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
, he re-joined the
London School of Economics The London School of Economics and Political Science (LSE), established in 1895, is a public research university in London, England, and a member institution of the University of London. The school specialises in the social sciences. Founded ...
as the Norman Sosnow Professor of Banking and Finance. He co-founded the Financial Markets Group alongside Prof. Mervyn King, in 1986. In late 1987, he gave his first lecture: 'The foreign exchange market: a random walk with a dragging anchor', which was reprinted later in Economica. During this period (1988 – 1995) his work focused on
foreign exchange market The foreign exchange market (forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. By trading volume, ...
s, specifically analysing the
efficient-market hypothesis The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis ...
. To help with this research, Goodhart (with the help of
Reuters Reuters ( ) is a news agency owned by Thomson Reuters. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide writing in 16 languages. Reuters is one of the largest news agencies in the world. The agency ...
) built his own data series. He then collaborated with Swiss firm Olsen and Associates to lead conferences about the importance of high speed data analysis and collection. His results from his work were published in his book: 'The Foreign Exchange Market: Empirical Studies With High-Frequency Data'. Questions he asked Neil Shephard around 1991, encourage the latter to work on problems in financial econometrics. Goodhart helped advise and publicly supported the ''Reserve Bank of New Zealand Act (RBNZ) 1989'', which permitted the
Reserve Bank of New Zealand The Reserve Bank of New Zealand (RBNZ) () is the central bank of New Zealand. It was established in 1934 and is currently constituted under the ''Reserve Bank of New Zealand Act 2021''. The current acting governor of the Reserve Bank, Christian ...
to vary interest rates to help meet agreed inflation targets. In 1990, Goodhart was elected as a
Fellow of the British Academy Fellowship of the British Academy (post-nominal letters FBA) is an award granted by the British Academy to leading academics for their distinction in the humanities and social sciences. The categories are: # Fellows – scholars resident in t ...
. In 1997 he was appointed a CBE for services to
monetary economics Monetary economics is the branch of economics that studies the different theories of money: it provides a framework for analyzing money and considers its functions (as medium of exchange, store of value, and unit of account), and it considers how m ...
. From late 1997 until May 2000, he was a member of the Bank of England Monetary Policy Committee. He retired from the
London School of Economics The London School of Economics and Political Science (LSE), established in 1895, is a public research university in London, England, and a member institution of the University of London. The school specialises in the social sciences. Founded ...
in 2002 at which point he was appointed Emeritus Professor of Banking and Finance. Following his retirement, Goodhart continued to write academic articles and books. He assisted in the British Parliament's review of approaches to
monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rat ...
in 2007. Four years prior to the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
, Goodhart identified how the global economy was financially unstable in his Per Jacobsson lecture 'Some New Directions for Financial Stability?'. In the years after the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
, much of his work has focused on fixing regulation to provide
financial stability Financial stability is the absence of system-wide episodes in which a financial crisis occurs and is characterised as an economy with Volatility (finance), low volatility. It also involves financial systems' stress-resilience being able to cope wi ...
for the economy, specifically providing reforms that "diminish the extent and volatility of the
credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
and leverage cycles".Goodhart, C.A.E. (2011b)
'The Emerging New Architecture of Financial Regulation'.
Chapter 1 in ''Monetary Policy and Financial Stability in the Post-crisis Era''. South African Reserve Bank Conference Series 2010, South African Reserve Bank 90th Anniversary. Pretoria: South African Reserve Bank: 1–5
In an article included as part of the
South African Reserve Bank The South African Reserve Bank (SARB) is the central bank of South Africa. It was established in 1921 after Parliament passed an act, the "Currency and Bank Act of 10 August 1920", as a direct result of the abnormal monetary and financial condi ...
Conference, Goodhart assessed the actions taken to provide global financial stability and concluded: "proposed reforms are incomplete and/or partially misdirected". In 2015, Goodhart critiqued the Warsh Review of the Bank of England's policy on monetary process. He was also an economic consultant at
Morgan Stanley Morgan Stanley is an American multinational investment bank and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in 42 countries and more than 80,000 employees, the firm's clients in ...
from 2009 until 2016, when he retired at the age of 80. At the 2021
Central Banking Central is an adjective usually referring to being in the center of some place or (mathematical) object. Central may also refer to: Directions and generalised locations * Central Africa, a region in the centre of Africa continent, also known as ...
Awards, Goodhart was awarded the Central Banking Lifetime Achievement Award for his work on monetary frameworks,
risk management Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, Threat (sec ...
and
foreign exchange market The foreign exchange market (forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. By trading volume, ...
s as well as his involvement in the Hong Kong peg, the independence of the Royal Bank of New Zealand and the creation of Goodhart's Law.


Influence


Goodhart's Law

One of Charles Goodhart's most prominent contributions to
monetary economics Monetary economics is the branch of economics that studies the different theories of money: it provides a framework for analyzing money and considers its functions (as medium of exchange, store of value, and unit of account), and it considers how m ...
is known as Goodhart's Law. Charles wrote this law in the
footnotes In publishing, a note is a brief text in which the author comments on the subject and themes of the book and names supporting citations. In the editorial production of books and documents, typographically, a note is usually several lines of t ...
of his paper Problems of monetary management: the UK experience for the
Reserve Bank of Australia The Reserve Bank of Australia (RBA) is Australia's central bank and banknote issuing authority. It has had this role since 14 January 1960, when the ''Reserve Bank Act 1959'' removed the central banking functions from the Commonwealth Bank. Th ...
during his time at the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
(1975). The law states that: "whenever a government seeks to rely on a previously observed statistical regularity for control purposes, that regularity will collapse". Although written initially as a witty comment about monetary targeting, the underlying thought behind this notion was taken very seriously and was linked to the
Lucas Critique The Lucas critique argues that it is naïve to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data. More formally, it states t ...
of evaluation and policy modelling. This law was generalised by
anthropologist An anthropologist is a scientist engaged in the practice of anthropology. Anthropologists study aspects of humans within past and present societies. Social anthropology, cultural anthropology and philosophical anthropology study the norms, values ...
Marilyn Strathern beyond the world of statistics. The most commonly used version of Goodhart's Law comes from Strathern's paper: "When a measure becomes a target, it ceases to be a good measure". In reflection to the creation of Goodhart's Law, Charles wrote: "it does feel slightly odd to have one's public reputation largely based on a minor footnote".


Research

Goodhart pioneered the integration of
macroeconomics Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (econ ...
and
finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...
, bringing them together in the
monetary Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: med ...
and regulatory policies of
central bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...
s. He advocates for policies that are supported by a strong theoretical base and backed up by
empirical evidence Empirical evidence is evidence obtained through sense experience or experimental procedure. It is of central importance to the sciences and plays a role in various other fields, like epistemology and law. There is no general agreement on how the ...
and data. To provide this
empirical evidence Empirical evidence is evidence obtained through sense experience or experimental procedure. It is of central importance to the sciences and plays a role in various other fields, like epistemology and law. There is no general agreement on how the ...
, Goodhart used economic models that can be expressed in the mathematic form. He found value in
mathematical model A mathematical model is an abstract and concrete, abstract description of a concrete system using mathematics, mathematical concepts and language of mathematics, language. The process of developing a mathematical model is termed ''mathematical m ...
s as they can be integrated with real world data – exposing their usefulness and any underlying interactions. He is quoted saying: "It is only by constructing a mathematical
institutional economics Institutional economics focuses on understanding the role of the Sociocultural evolution, evolutionary process and the role of institutions in shaping Economy, economic Human behavior, behavior. Its original focus lay in Thorstein Veblen's instin ...
that one can study the economic system in a rigorous and analytical manner".Goodhart, C.A.E. (2013).
Narratives of the Great Financial Crisis (GFC): Why I Am Out of Step'
''Journal of Financial Perspectives'', 1(3): 13–19.
Throughout his career, Goodhart played a role in improving the practice of
financial regulation Financial regulation is a broad set of policies that apply to the financial sector in most jurisdictions, justified by two main features of finance: systemic risk, which implies that the failure of financial firms involves public interest consi ...
and
central banking Central is an adjective usually referring to being in the center of some place or (mathematical) object. Central may also refer to: Directions and generalised locations * Central Africa, a region in the centre of Africa continent, also known as ...
by making it easier for governments and central bankers to benefit public welfare by dampening economic cycles.


Selected works

Google Scholar Google Scholar is a freely accessible web search engine that indexes the full text or metadata of Academic publishing, scholarly literature across an array of publishing formats and disciplines. Released in Beta release, beta in November 2004, th ...
listed Charles Goodhart being the author or co-author of 539 articles and books by the end of 2017. His most cited works include ''Money, Information and Uncertainty'' and ''The Evolution of Central Banks.''


References


External links

* * {{DEFAULTSORT:Goodhart, Charles 1936 births Living people Academics of the London School of Economics Alumni of Trinity College, Cambridge Harvard Graduate School of Arts and Sciences alumni British economists Commanders of the Order of the British Empire Jewish British scientists Fellows of the British Academy Lehman family Honorary Fellows of the London School of Economics Institute for New Economic Thinking