This chapter offers an example of the role of the Bank in European state finance. The kingdom of Prussia made heavy use of the Bank during the Seven Years War (1756—1763). Public finance in Prussia during this period was primitive, lacking basic features such as a bond market or central bank. Under heavy financial pressure, Prussian King Frederick II chose to finance much of the war through the production of debased coinage. The task of minting debased coins was outsourced to private contractors (“mint entrepreneurs”), who purchased much of the necessary silver in Amsterdam, making use of credit which was abundant in the Amsterdam market. Details of these transactions are revealed in the Bank’s ledgers. Frederick also relied on gold subsidies from Great Britain, which were paid via Amsterdam and can also be matched to Bank records. Finally, at the end of the war, Frederick called upon his entrepreneurs to engineer a reverse debasement (reinforcement). This activity once again relied heavily on Dutch resources, including remote smelting furnaces, Amsterdam credit, and Bank money. Traces of the entrepreneurs’ activity can again be seen in the Bank’s records.

This chapter sets out the methodology of the approach to behavioral economics developed in this book, emphasizing its rejection of the static “as if” approach of conventional economics and the latter’s view of rationality. It introduced the idea of a decision cycle (problem recognition, search, evaluation, choice, implementation and hindsight review), while emphasizing that how decisions are taken depends on their context. This leads to a pluralistic analysis where alternative perspectives share the idea that everything we do is based upon systems of operating rules and routines. The chapter explores the research methods of behavioral economics, including the roles of anecdotes, introspection, textual sources, questionnaires, experiments and computer simulations. Before closing by outlining the rest of the book, it introduces the evolutionary economics and evolutionary psychology perspectives that are closely related to the pre-1980 approaches to behavioral economics and kept building upon them after 1980 when behavioral economics was refashioned by Thaler with a focus on “heuristics and biases” that took the conventional approach to economic rationality as its reference point.