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Lords of Finance: The Bankers Who Broke the World
With penetrating insights for today, this vital history of the world economic collapse of the late 1920s offers unforgettable portraits of the four men whose personal and professional actions as heads of their respective central banks changed the course of the twentieth century
It is commonly believed that the Great Depression that began in 1929 resulted from a confluence of events beyond any one person’s or government’s control. In fact, as Liaquat Ahamed reveals, it was the decisions taken by a small number of central bankers that were the primary cause of the economic meltdown, the effects of which set the stage for World War II and reverberated for decades.
In Lords of Finance, we meet the neurotic and enigmatic Montagu Norman of the Bank of England, the xenophobic and suspicious Émile Moreau of the Banque de France, the arrogant yet brilliant Hjalmar Schacht of the Reichsbank, and Benjamin Strong of the Federal Reserve Bank of New York, whose façade of energy and drive masked a deeply wounded and overburdened man. After the First World War, these central bankers attempted to reconstruct the world of international finance. Despite their differences, they were united by a common fear—that the greatest threat to capitalism was inflation— and by a common vision that the solution was to turn back the clock and return the world to the gold standard.
For a brief period in the mid-1920s they appeared to have succeeded. The world’s currencies were stabilized and capital began flowing freely across the globe. But beneath the veneer of boom-town prosperity, cracks started to appear in the financial system. The gold standard that all had believed would provide an umbrella of stability proved to be a straitjacket, and the world economy began that terrible downward spiral known as the Great Depression.
As yet another period of economic turmoil makes headlines today, the Great Depression and the year 1929 remain the benchmark for true financial mayhem. Offering a new understanding of the global nature of financial crises, Lords of Finance is a potent reminder of the enormous impact that the decisions of central bankers can have, of their fallibility, and of the terrible human consequences that can result when they are wrong.
It is commonly believed that the Great Depression that began in 1929 resulted from a confluence of events beyond any one person’s or government’s control. In fact, as Liaquat Ahamed reveals, it was the decisions taken by a small number of central bankers that were the primary cause of the economic meltdown, the effects of which set the stage for World War II and reverberated for decades.
In Lords of Finance, we meet the neurotic and enigmatic Montagu Norman of the Bank of England, the xenophobic and suspicious Émile Moreau of the Banque de France, the arrogant yet brilliant Hjalmar Schacht of the Reichsbank, and Benjamin Strong of the Federal Reserve Bank of New York, whose façade of energy and drive masked a deeply wounded and overburdened man. After the First World War, these central bankers attempted to reconstruct the world of international finance. Despite their differences, they were united by a common fear—that the greatest threat to capitalism was inflation— and by a common vision that the solution was to turn back the clock and return the world to the gold standard.
For a brief period in the mid-1920s they appeared to have succeeded. The world’s currencies were stabilized and capital began flowing freely across the globe. But beneath the veneer of boom-town prosperity, cracks started to appear in the financial system. The gold standard that all had believed would provide an umbrella of stability proved to be a straitjacket, and the world economy began that terrible downward spiral known as the Great Depression.
As yet another period of economic turmoil makes headlines today, the Great Depression and the year 1929 remain the benchmark for true financial mayhem. Offering a new understanding of the global nature of financial crises, Lords of Finance is a potent reminder of the enormous impact that the decisions of central bankers can have, of their fallibility, and of the terrible human consequences that can result when they are wrong.
564 pages, Hardcover
First published January 1, 2009
About the author
Liaquat Ahamed
9 books137 followersLiaquat Ahamed has been a professional investment manager for 25 years. He has worked at the World Bank in Washington, D.C., and the New York based partnership of Fischer Francis Trees and Watts, where he served as Chief Executive.
He is currently an advisor to several hedge fund groups, including the Rock Creek Group and the Rohatyn Group, is a director of Aspen Insurance Co., and is on the board of Trustees of the Brookings Institution. He has degrees in economics from Harvard and Cambridge Universities.
He is currently an advisor to several hedge fund groups, including the Rock Creek Group and the Rohatyn Group, is a director of Aspen Insurance Co., and is on the board of Trustees of the Brookings Institution. He has degrees in economics from Harvard and Cambridge Universities.
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January 9, 2020An honest title for this book would be the 1001 Nights of International Finance from the eve of the First World War to Bretton Woods. We are tumbled from one story to another detail many of which are completely irrelevant (Madame Caillaux shooting the editor of Le Figaro, the First Name Club failing to set up a US central bank, the names of Poincare's pet dog and cat (which was a Siamese)) but which are included because they are entertaining. This is an undisciplined book written by somebody always prepared to be diverted. It is entertaining, but reading it is at times a game trying to find the subject and focus of the book. Which is how Napoleon's victory at Austerlitz in 1805 saved the Banque de France gets into a book ostensibly about the central bankers of Germany, France, Britain and the USA around 1929 - it is a gruelling marathon through a porridge of information to reach the Wall Street Crash which doesn't occur until we are 7/10ths of the way through the book.
This book won a prize and this tells us a lot about the business of book prizes. Firstly it is a question of Zeitgeist, a book about economic turmoil published during economic turmoil fits the bill. Secondly the wealth of detail gives it a wow factor. It is constantly diverting and entertaining. This means that the book is also, for all that author's appraises Keynes as brilliant in an age of non-Keynesian approaches to the economy (at least in the countries under discussion), conservative. Montague Norman, Governor of the Bank of England in the inter-war period and allegedly one of the four central characters in the book, is described as having "the task of nursing a crippled economy back to health" (p148) but there is no consideration of the limitations formal and informal (in terms of the presumptions and categories that litter our minds) that shaped his actions and determined his actions. Instead we are invited to accept this as a purely human story, yet reading critically the question is how dif1ferent would things have been had another person had his job given they would have experienced the same institutional restraints, had a broadly similar set of mental models and been subject to the same events. .
Because there is no analysis the implicit subtext is that this is just the way the world is. There are scandalous divorces, high level talks that lead to nothing and the unemployment of millions of people - oh so sad. We may watch, and even have opinions as to how scandalous any particular divorce is, or as to the appropriatenessof owning a Siamese cat, but in Ahamed's world the conception of a different ordering of international finance is beyond the realms of thoughtcrime, Bretton Woods the height of radicalism. A gaudy carousel rotates before us, the children cry and laugh, but the painted wooden horses distract us from what drives the whole contraption. Galbraith's book The Great Crash even though it only addresses the USA, is a far better book on 1929 and its aftermath. That book is focused, this by contrast is a hippopotamus wallowing in one story after another, one character sketch follows another of people who will disappear from the narrative a page after beginning introduced while from time to time those Lords of Finance like Harun al-Rashid or Sindbad in the Arabian Nights will pop up for a story or two before vanishing before the next diverting divorce, irrelevant or inaccurate detail . If the author is trying to make a point by describing some of the eccentricities of the various politicians attending international financial meetings, like Senator Pittman from Nevada who was found naked in a kitchen sink at Claridges doing a passable impression of a statue in a fountain, then it is a point that he studiously avoids ever making explicit. This is a book at once both readable and without value.
I was struck how blasé Ahamed was about the Florida land bubble in the USA. In a way that seems fundamental in that revealing something of the culture - a preparedness of one group of people to create a market to sell low value assets for high prices to ignorant investors, a process which was backed by the banks. This was to be repeated on a larger scale in the run up to the Wall Street Crash through stock market manipulation using the media and endorsements.
On the other hand the lack of analysis makes this a very open text. In the note to the bibliography the author backs identifying "the Gold Standard as chief culprit for transmitting depression around the world" (p533) but reading we can see the financial crisis made clear how dependent the world was on short term lending from the USA - at the same time banks were collapsing there (only around half holding a quarter of all US deposits were backed by the Federal Reserve which seems to have operated on an 'opt-in if you fancy' basis) and scandals were coming to light leading to abrupt withdrawals of credit all round. Gold Standard or no Gold Standard there would have been a world wide crisis.
This is for me the interesting part of the story - the role of confidence and psychology. The Gold Standard was all about confidence. The USA was setting its interest rates based on the state of the US economy already in the mid 20s when technically the Gold Standard required that they should be determined by the flow of gold into the economy. Central bankers were keen to move back on it and loath to move off it out of a concern for reputation and business confidence and those are considerations that also have an economic impact. Social attitudes show up when on a couple of occasions central bankers decide not to bail out enterprises because they are owned by Jews (and in one case by the 'wrong sort' of Jew at that).
It is also striking how the author glosses over the causes of the Wall Street Crash of 1929 and this I feel is explained by the author's note to the bibliography. While in the text Ahamed praises Keynes, in the bibliography he says his thinking has been framed by Milton Friedman (among others). Rather than address the tension between the idea of having a managed international economy and a deregulated one Ahamed perhaps chose to avoid analysis - that way he could admire both men without ever having to address the differences in their attitudes.
Possibly there is a slim, focused, analytical book trapped inside what we've got but it would take a surgical level of editing to bring it out. Readable but unfocused, this is the kind of book that leaves you feeling over informed while understanding less than before.
This book won a prize and this tells us a lot about the business of book prizes. Firstly it is a question of Zeitgeist, a book about economic turmoil published during economic turmoil fits the bill. Secondly the wealth of detail gives it a wow factor. It is constantly diverting and entertaining. This means that the book is also, for all that author's appraises Keynes as brilliant in an age of non-Keynesian approaches to the economy (at least in the countries under discussion), conservative. Montague Norman, Governor of the Bank of England in the inter-war period and allegedly one of the four central characters in the book, is described as having "the task of nursing a crippled economy back to health" (p148) but there is no consideration of the limitations formal and informal (in terms of the presumptions and categories that litter our minds) that shaped his actions and determined his actions. Instead we are invited to accept this as a purely human story, yet reading critically the question is how dif1ferent would things have been had another person had his job given they would have experienced the same institutional restraints, had a broadly similar set of mental models and been subject to the same events. .
Because there is no analysis the implicit subtext is that this is just the way the world is. There are scandalous divorces, high level talks that lead to nothing and the unemployment of millions of people - oh so sad. We may watch, and even have opinions as to how scandalous any particular divorce is, or as to the appropriatenessof owning a Siamese cat, but in Ahamed's world the conception of a different ordering of international finance is beyond the realms of thoughtcrime, Bretton Woods the height of radicalism. A gaudy carousel rotates before us, the children cry and laugh, but the painted wooden horses distract us from what drives the whole contraption. Galbraith's book The Great Crash even though it only addresses the USA, is a far better book on 1929 and its aftermath. That book is focused, this by contrast is a hippopotamus wallowing in one story after another, one character sketch follows another of people who will disappear from the narrative a page after beginning introduced while from time to time those Lords of Finance like Harun al-Rashid or Sindbad in the Arabian Nights will pop up for a story or two before vanishing before the next diverting divorce, irrelevant or inaccurate detail . If the author is trying to make a point by describing some of the eccentricities of the various politicians attending international financial meetings, like Senator Pittman from Nevada who was found naked in a kitchen sink at Claridges doing a passable impression of a statue in a fountain, then it is a point that he studiously avoids ever making explicit. This is a book at once both readable and without value.
I was struck how blasé Ahamed was about the Florida land bubble in the USA. In a way that seems fundamental in that revealing something of the culture - a preparedness of one group of people to create a market to sell low value assets for high prices to ignorant investors, a process which was backed by the banks. This was to be repeated on a larger scale in the run up to the Wall Street Crash through stock market manipulation using the media and endorsements.
On the other hand the lack of analysis makes this a very open text. In the note to the bibliography the author backs identifying "the Gold Standard as chief culprit for transmitting depression around the world" (p533) but reading we can see the financial crisis made clear how dependent the world was on short term lending from the USA - at the same time banks were collapsing there (only around half holding a quarter of all US deposits were backed by the Federal Reserve which seems to have operated on an 'opt-in if you fancy' basis) and scandals were coming to light leading to abrupt withdrawals of credit all round. Gold Standard or no Gold Standard there would have been a world wide crisis.
This is for me the interesting part of the story - the role of confidence and psychology. The Gold Standard was all about confidence. The USA was setting its interest rates based on the state of the US economy already in the mid 20s when technically the Gold Standard required that they should be determined by the flow of gold into the economy. Central bankers were keen to move back on it and loath to move off it out of a concern for reputation and business confidence and those are considerations that also have an economic impact. Social attitudes show up when on a couple of occasions central bankers decide not to bail out enterprises because they are owned by Jews (and in one case by the 'wrong sort' of Jew at that).
It is also striking how the author glosses over the causes of the Wall Street Crash of 1929 and this I feel is explained by the author's note to the bibliography. While in the text Ahamed praises Keynes, in the bibliography he says his thinking has been framed by Milton Friedman (among others). Rather than address the tension between the idea of having a managed international economy and a deregulated one Ahamed perhaps chose to avoid analysis - that way he could admire both men without ever having to address the differences in their attitudes.
Possibly there is a slim, focused, analytical book trapped inside what we've got but it would take a surgical level of editing to bring it out. Readable but unfocused, this is the kind of book that leaves you feeling over informed while understanding less than before.
December 29, 2017
Like many former American school students, I studied the Great Depression from a social standpoint in depth across many American history courses. The classes focused on Black Tuesday and the country plunging into a depression, yet not relaying to students what a financial depression actually was. We studied President Roosevelt's programs for recovery as well as how the hard times effected average American people. Yet, lacking in the courses I took in school were the financial causes for this worldwide economic depression and what a depression actually. When the nonfiction Pulitzer group here on goodreads selected Lords of Finance as a group read for early next year, I had my curiosity piqued; so piqued, in fact, that I made it a point of finishing this Pulitzer winner before the end of this calendar year. In reading Lords of Finance as my last nonfiction book of 2017, I thoroughly enjoyed the week I spent immersing myself in the history of worldwide economics and banking.
Liaquat Ahamed has been an investment banker for over twenty five years. After the 1997 through 1998 Asian depression that was thankfully averted before it reached worldwide proportions, Ahamed thought hard about the worldwide depression between the years of 1929-33. What had caused the depression and could it happen again. It nearly did with the bursting of the United States housing bubble in 2007 but was thwarted in time before it reached 1930 levels. This lead to Ahamed taking a leave of absence from his position at respected money lending firms in order to research the history that lead to this book. He used as his focal points the heads of the banks of the four major players on the world stage during the 1920s: Germany, France, England, and the United States; and their personal roles in the causes leading up to the depression and their plans for leading the world out of it. Over the course of the book, Ahamed wove in each character's personal history in order to frame his unique role in the actions that would lead to this international economic downturn.
Following the 1919 Versailles Peace Accords, Germany was ordered to pay war reparations to the allied nations of France, England, and the United States. Likewise, France and England owed money to the United States for lending them money to aid the allied cause. The money owed by these nations to the United States translates into billions if not trillions of dollars in today's economy. As early as the early 1920s, Germany was already headed on the path toward depression. The leader of the Reich bank Hjalmer Schacht believed that for Germany to avert depression was two fold: to go back on the international gold standard that had been prevalent prior to the war and to have the other countries relieve her of reparations. France took a tough position and refused to excuse the reparations, demanding millions of dollars in payments over the course of the next fifty years, which Germany had no means of paying. In this scenario, Germany would be subservient to France for the next three generations.
The United States and England lead by bank heads Benjamin Strong and Montague Norman respectively saw both the dangers of relieving Germany of reparations and putting their countries back on the gold standard. The Bank of England did not possess much in the way of gold, as most gold at the time was concentrated in both France and the United States. Should the leaders of the western world go back on the gold standard, most worldwide money would filter back to the United States, sucking money from the European continent, and throwing her countries into a tailspin. Strong and Norman communication by weekly letter, face to face meetings two to three times a year, and later by transatlantic cable and telephone. While Norman favored the return to the gold standard, Strong promoted the Dawes Plan that would lessen German reparations and hopefully return the nation to prewar standards. The French balked at Strong's ideas and its banking leader Emile Moreau was staunchly opposed to Strong at many of the summits of international banking heads held throughout the interwar years. Strong may have been a visionary; however, he was sickly, and he died prior to the outbreak of the depression. His successor George Harrison did not measure up and did not enjoy as much of a personal relationship with Norman as did Strong. It is difficult for Ahamed to state if Strong had not died young that the depression would have been averted, but he does point out that when Strong died, his ideas and visionary plans died with him.
Both President Roosevelt and Adolf Hitler make an appearance in this book, but not until the fifth part focusing on the depression itself and steps to lead the world out of it. Hjalmer Schact foresaw the Nazi party as not being able to economically manage Germany and became the country's treasury head following the Nazi overthrow of the Reichstag in 1933. Yet, Schacht distanced himself from the Nazis, stating that his position was to manage the country's money and he did not ascribe to the party's fanatical ideals. He even appealed to foreign Jews to sponsor German Jews prior to the onset of the Holocaust as a means of saving their lives, but this plan was thwarted and Schact was removed from his position. He did note that liquidating Germany of her Jewish bankers could potentially ruin the country's economy but to no avail. As a result, Germany focused on wartime industries to boost her economy whereas her day to day living situation did not improve much until after the second war and the introduction of the Marshall Plan. Although not an official member of the Nazis, Schacht was tried at Nuremburg and later acquitted in 1950. Aligned with Norman of England, his plans plunged the world into depression rather than boost it out of it.
As in the history books I learned from, Roosevelt's role here is that of a motivator. His fireside chats meant to boost his country's morale did little to curb the depression overtaking his country. Harrison alongside members of Roosevelt's cabinet were little equipped to deal with the economic ruins facing their country, and, unfortunately, it was not until the United States entered the second war that her economy, with the influx of war time industries, took a turn for the better. The bulk of the depression, however, ended in 1933, after Roosevelt's inauguration. Ironically, President Hoover called for many of the same policies as did Roosevelt but the latter president would not sign off on them until he took office. Immediately, Roosevelt stepped in to take the United States off of the gold standard. This measure inevitably lead to a suspension of banking and fireside morale boosting chats, but it also temporarily removed the United States as being dependent on European nations to set its economic policies, setting a slow course toward economic growth and recovery.
Being someone who enjoys history but finds economics challenging, I found Ahamed's research to be fascinating. I knew little of the world banking heads during the 1920s who did their best to avert worldwide depression yet inevitably were the four key players who depended on the gold standard as well as war reparations that plunged the world into economic panic. It would take another war and less reparations to finally lead the world back to economic prosperity. Banking heads Schacht, Moreau, Norman, and Strong are all fascinating characters who usually take a back seat when discussing history to the well known heads of state. Yet, it is these bankers who set worldwide economic policy that played as large a role as any in setting the interwar year policy toward gold dependency and eventually depression. Ahamed ends with a brief mention of could another depression happen, citing 1997-8 and 2007 and contrasting these years with 1929-33. Hopefully, today's world leaders have studied his book, so that they know what steps to take to avert a worldwide economic crisis. A fascinating read, Lords of Finance was a worthy book to end my nonfiction reading year with.
5 stars
Liaquat Ahamed has been an investment banker for over twenty five years. After the 1997 through 1998 Asian depression that was thankfully averted before it reached worldwide proportions, Ahamed thought hard about the worldwide depression between the years of 1929-33. What had caused the depression and could it happen again. It nearly did with the bursting of the United States housing bubble in 2007 but was thwarted in time before it reached 1930 levels. This lead to Ahamed taking a leave of absence from his position at respected money lending firms in order to research the history that lead to this book. He used as his focal points the heads of the banks of the four major players on the world stage during the 1920s: Germany, France, England, and the United States; and their personal roles in the causes leading up to the depression and their plans for leading the world out of it. Over the course of the book, Ahamed wove in each character's personal history in order to frame his unique role in the actions that would lead to this international economic downturn.
Following the 1919 Versailles Peace Accords, Germany was ordered to pay war reparations to the allied nations of France, England, and the United States. Likewise, France and England owed money to the United States for lending them money to aid the allied cause. The money owed by these nations to the United States translates into billions if not trillions of dollars in today's economy. As early as the early 1920s, Germany was already headed on the path toward depression. The leader of the Reich bank Hjalmer Schacht believed that for Germany to avert depression was two fold: to go back on the international gold standard that had been prevalent prior to the war and to have the other countries relieve her of reparations. France took a tough position and refused to excuse the reparations, demanding millions of dollars in payments over the course of the next fifty years, which Germany had no means of paying. In this scenario, Germany would be subservient to France for the next three generations.
The United States and England lead by bank heads Benjamin Strong and Montague Norman respectively saw both the dangers of relieving Germany of reparations and putting their countries back on the gold standard. The Bank of England did not possess much in the way of gold, as most gold at the time was concentrated in both France and the United States. Should the leaders of the western world go back on the gold standard, most worldwide money would filter back to the United States, sucking money from the European continent, and throwing her countries into a tailspin. Strong and Norman communication by weekly letter, face to face meetings two to three times a year, and later by transatlantic cable and telephone. While Norman favored the return to the gold standard, Strong promoted the Dawes Plan that would lessen German reparations and hopefully return the nation to prewar standards. The French balked at Strong's ideas and its banking leader Emile Moreau was staunchly opposed to Strong at many of the summits of international banking heads held throughout the interwar years. Strong may have been a visionary; however, he was sickly, and he died prior to the outbreak of the depression. His successor George Harrison did not measure up and did not enjoy as much of a personal relationship with Norman as did Strong. It is difficult for Ahamed to state if Strong had not died young that the depression would have been averted, but he does point out that when Strong died, his ideas and visionary plans died with him.
Both President Roosevelt and Adolf Hitler make an appearance in this book, but not until the fifth part focusing on the depression itself and steps to lead the world out of it. Hjalmer Schact foresaw the Nazi party as not being able to economically manage Germany and became the country's treasury head following the Nazi overthrow of the Reichstag in 1933. Yet, Schacht distanced himself from the Nazis, stating that his position was to manage the country's money and he did not ascribe to the party's fanatical ideals. He even appealed to foreign Jews to sponsor German Jews prior to the onset of the Holocaust as a means of saving their lives, but this plan was thwarted and Schact was removed from his position. He did note that liquidating Germany of her Jewish bankers could potentially ruin the country's economy but to no avail. As a result, Germany focused on wartime industries to boost her economy whereas her day to day living situation did not improve much until after the second war and the introduction of the Marshall Plan. Although not an official member of the Nazis, Schacht was tried at Nuremburg and later acquitted in 1950. Aligned with Norman of England, his plans plunged the world into depression rather than boost it out of it.
As in the history books I learned from, Roosevelt's role here is that of a motivator. His fireside chats meant to boost his country's morale did little to curb the depression overtaking his country. Harrison alongside members of Roosevelt's cabinet were little equipped to deal with the economic ruins facing their country, and, unfortunately, it was not until the United States entered the second war that her economy, with the influx of war time industries, took a turn for the better. The bulk of the depression, however, ended in 1933, after Roosevelt's inauguration. Ironically, President Hoover called for many of the same policies as did Roosevelt but the latter president would not sign off on them until he took office. Immediately, Roosevelt stepped in to take the United States off of the gold standard. This measure inevitably lead to a suspension of banking and fireside morale boosting chats, but it also temporarily removed the United States as being dependent on European nations to set its economic policies, setting a slow course toward economic growth and recovery.
Being someone who enjoys history but finds economics challenging, I found Ahamed's research to be fascinating. I knew little of the world banking heads during the 1920s who did their best to avert worldwide depression yet inevitably were the four key players who depended on the gold standard as well as war reparations that plunged the world into economic panic. It would take another war and less reparations to finally lead the world back to economic prosperity. Banking heads Schacht, Moreau, Norman, and Strong are all fascinating characters who usually take a back seat when discussing history to the well known heads of state. Yet, it is these bankers who set worldwide economic policy that played as large a role as any in setting the interwar year policy toward gold dependency and eventually depression. Ahamed ends with a brief mention of could another depression happen, citing 1997-8 and 2007 and contrasting these years with 1929-33. Hopefully, today's world leaders have studied his book, so that they know what steps to take to avert a worldwide economic crisis. A fascinating read, Lords of Finance was a worthy book to end my nonfiction reading year with.
5 stars
May 3, 2021
The collapse of the world economy in 1929 was the main economic event of the 20th century. No country managed to escape it. The misery it brought hung over the world for ten years, corrupting every aspect of social and material life and destroying the future of a whole generation. The “low, dishonest decade” in Europe, the rise of Hitler and Nazism, and the eventual slide of many countries into the Second World War all came out of it.
In his book, Liaquat Ahamed tells the story of the descent from the roaring 20s into the Great Depression by looking over the shoulders of the men in charge of the four principal banks of the world: Montagu Norman (Bank of England), Benjamin Strong (New York Federal Reserve Bank), Hjalmar Schacht (Reichsbank), and Émile Moreau (Banque de France), who had joined forces in order to reconstruct the global financial machinery after WWI.
Among the myriad casualties of the Great War was the world’s financial system. During the second half of the 19th century, an elaborate apparatus of international credit, based in London, had been built on the foundations of the gold standard and brought about worldwide expansion of trade and prosperity. In 1919, however, the apparatus was ruined; France, Germany, and Britain were all nearly bankrupt, their population impoverished, their currencies collapsing, and only the USA had emerged from the war economically stronger.
Lords of Finance traces the efforts of the four central bankers to reconstruct the system of international finance. It shows how, for a short period in the mid-20s, they seemed to have succeed: capital started to flow freely across the globe and the world’s currencies were stabilized. Yet, beneath the facade of economic boom, cracks began to appear and the gold standard, on which all relied to provide stability, let down everyone’s expectations.
In the final chapters of the book, Ahamed depicts the panicky and eventually fruitless attempts of the bankers as they struggled to prevent the world economy from plummeting straight to the bottom of the financial precipice known as the Great Depression.
Liaquat Ahamed has created an outstanding historical work with in-depth portraits of the four imminent bankers, insightful observations, impressive bibliography, and great number of footnotes. The content and the style of Lords of Finance deserve nothing short of 5 stars. Highly recommendable!
In his book, Liaquat Ahamed tells the story of the descent from the roaring 20s into the Great Depression by looking over the shoulders of the men in charge of the four principal banks of the world: Montagu Norman (Bank of England), Benjamin Strong (New York Federal Reserve Bank), Hjalmar Schacht (Reichsbank), and Émile Moreau (Banque de France), who had joined forces in order to reconstruct the global financial machinery after WWI.
Among the myriad casualties of the Great War was the world’s financial system. During the second half of the 19th century, an elaborate apparatus of international credit, based in London, had been built on the foundations of the gold standard and brought about worldwide expansion of trade and prosperity. In 1919, however, the apparatus was ruined; France, Germany, and Britain were all nearly bankrupt, their population impoverished, their currencies collapsing, and only the USA had emerged from the war economically stronger.
Lords of Finance traces the efforts of the four central bankers to reconstruct the system of international finance. It shows how, for a short period in the mid-20s, they seemed to have succeed: capital started to flow freely across the globe and the world’s currencies were stabilized. Yet, beneath the facade of economic boom, cracks began to appear and the gold standard, on which all relied to provide stability, let down everyone’s expectations.
In the final chapters of the book, Ahamed depicts the panicky and eventually fruitless attempts of the bankers as they struggled to prevent the world economy from plummeting straight to the bottom of the financial precipice known as the Great Depression.
Liaquat Ahamed has created an outstanding historical work with in-depth portraits of the four imminent bankers, insightful observations, impressive bibliography, and great number of footnotes. The content and the style of Lords of Finance deserve nothing short of 5 stars. Highly recommendable!
April 16, 2013
Ahamed has written a fascinating account of how four central bankers were at the core of the economic madness that gripped the world after World War I and led to the second great war.
The personalities are interesting, and the scent of the times wafts from the pages sufficient to sting the nostrils. This is a book written for a popular audience. No great knowledge of economics is required. But that sure would help. It is not only our elected officials, Wall Street brokers and government officials who are ignorant of the rules of economics. I, and surely many of you are as well.
For me, it is a sort of blockage, like being able to read music. I taught myself to play the guitar at age 15, not well, but at all, and played for some years thereafter, writing a few songs, even performing on stage a few times, but I was never able to learn to read music. I tried several times, but was never able to get past a crude identification of the difference between whole, half and quarter notes. In the same way, whenever I have tried to crack the code that is economics, the result was intellectual cacophony. As that pertains here, while the story is fascinating, and the wealth of information proffered expands our knowledge of the times, one can only grasp a percentage of what is offered if one is economically tone deaf. I just do not get how a currency can be based upon the presence of gold or any other substance for that matter. Why not seashells or jelly beans? As a considerable portion of the book focuses on the ramifications of the gold standard, my intellectual economic disability severely reduces the understanding I can gain here. If you get the gold standard and are comfortable with discussions of macro economics, this will be mother’s milk for you. Great stuff. For the rest of us, it is a fascinating look at a tumultuous period with color portraits of some of the central players in the world economy.
Ahamed appears to be blaming the four economic titans on which he focuses for the ensuing economic and military maelstrom. But what should they have done, what could they have done, had the power to do, differently that would have changed the outcome? To lay blame at their door seems a convenient way to personalize blame for undercurrents that are all too widespread in humanity, short-sidedness, greed, mean-spiritedness, and downright stupidity. OK, wise guy, what should they have done? Yes, people, individuals, particularly powerful, influential individuals matter. But history is not just a series of he did this and she did that. There are currents to history that flow, regardless of how large the fish may be that inhabit the waters. The economic miseries of today are not merely a product of the madness of King Dubyah. The latter reflects the former and not the other way around.
One reason to read this book is to see how our current fiscal crisis might resemble those of the past. And indeed it does. Perhaps the mis-steps that were taken might be avoided today if we are to learn from history. But if there is one thing that we learn from history it is that people rarely, if ever, learn from history. It is an easy and interesting read. Whatever the conclusions the author may draw from his story, and whatever the cranial incapacities of an individual reader, the story itself is quite intriguing.
The personalities are interesting, and the scent of the times wafts from the pages sufficient to sting the nostrils. This is a book written for a popular audience. No great knowledge of economics is required. But that sure would help. It is not only our elected officials, Wall Street brokers and government officials who are ignorant of the rules of economics. I, and surely many of you are as well.
For me, it is a sort of blockage, like being able to read music. I taught myself to play the guitar at age 15, not well, but at all, and played for some years thereafter, writing a few songs, even performing on stage a few times, but I was never able to learn to read music. I tried several times, but was never able to get past a crude identification of the difference between whole, half and quarter notes. In the same way, whenever I have tried to crack the code that is economics, the result was intellectual cacophony. As that pertains here, while the story is fascinating, and the wealth of information proffered expands our knowledge of the times, one can only grasp a percentage of what is offered if one is economically tone deaf. I just do not get how a currency can be based upon the presence of gold or any other substance for that matter. Why not seashells or jelly beans? As a considerable portion of the book focuses on the ramifications of the gold standard, my intellectual economic disability severely reduces the understanding I can gain here. If you get the gold standard and are comfortable with discussions of macro economics, this will be mother’s milk for you. Great stuff. For the rest of us, it is a fascinating look at a tumultuous period with color portraits of some of the central players in the world economy.
Ahamed appears to be blaming the four economic titans on which he focuses for the ensuing economic and military maelstrom. But what should they have done, what could they have done, had the power to do, differently that would have changed the outcome? To lay blame at their door seems a convenient way to personalize blame for undercurrents that are all too widespread in humanity, short-sidedness, greed, mean-spiritedness, and downright stupidity. OK, wise guy, what should they have done? Yes, people, individuals, particularly powerful, influential individuals matter. But history is not just a series of he did this and she did that. There are currents to history that flow, regardless of how large the fish may be that inhabit the waters. The economic miseries of today are not merely a product of the madness of King Dubyah. The latter reflects the former and not the other way around.
One reason to read this book is to see how our current fiscal crisis might resemble those of the past. And indeed it does. Perhaps the mis-steps that were taken might be avoided today if we are to learn from history. But if there is one thing that we learn from history it is that people rarely, if ever, learn from history. It is an easy and interesting read. Whatever the conclusions the author may draw from his story, and whatever the cranial incapacities of an individual reader, the story itself is quite intriguing.
May 10, 2009
Yawn.
Screw waterboarding, let’s make the terrorists read this book cover to cover. Its length is only dwarfed by its lack of pace.
In theory, this is a 500 page book about the four central bankers whose missteps led to the Great Depression and sinking of the global economy in the 1930s. However, maybe half of the book is about those central bankers (who are exceedingly boring) while the other half is about the minutiae of the international financial wranglings of the time and the myriad people behind them. The author introduces a new person on just about every page and then describes that person’s background, schooling, temperament, and even appearance but then after one paragraph that person is never heard from again. This leads to a disjointed flow of the book as if the author is stepping on the gas but his car is in neutral.
This book should really be a 5ish page magazine article or simply the 8 page epilogue (which was the best part of the book and not just because it marked the end) where you learn all you need to know which is the following:
1. WWI screwed up the global economy and the reparations put on Germany made things worse since they couldn’t pay.
2. After WWI Germany inflated their currency, Britain deflated it, while France found a middle ground and along with the US was able to build a strong economy (the US because of their late entry into the war and gold reserves, France because of keeping their currency at a discount to Britain made their goods relatively cheaper in the world economy).
3. In the 1920s, the 4 central bankers profiled in the book (US, France, England, Germany) insisted on sticking to the gold standard which was an outdated and arbitrary system (especially with the US holding most of the reserves) and led to the eventual panic/depression. I believe this is the author’s main point, other than trying to cure insomnia.
4. During this time the Dawes plan and then the Young plan cut reparations and led to continued squabbling within Europe.
5. The US stock market was overvalued (partly caused by a Fed move) and crashed thus leading to US bank failures and the US to stop loans to Germany which was still saddled with reparations and bank failures of their own. This in turn spurred further global panic and bank runs in all countries.
6. The second generation of central bankers went off the gold standard (the US waiting until FDR to do it) and soon afterwards each of the economies began to recover.
7. John Maynard Keynes predicted it all and was a genius (no idea if this is true, but so says this author).
Thank me later for the 8 hours of your life I just saved you.
Screw waterboarding, let’s make the terrorists read this book cover to cover. Its length is only dwarfed by its lack of pace.
In theory, this is a 500 page book about the four central bankers whose missteps led to the Great Depression and sinking of the global economy in the 1930s. However, maybe half of the book is about those central bankers (who are exceedingly boring) while the other half is about the minutiae of the international financial wranglings of the time and the myriad people behind them. The author introduces a new person on just about every page and then describes that person’s background, schooling, temperament, and even appearance but then after one paragraph that person is never heard from again. This leads to a disjointed flow of the book as if the author is stepping on the gas but his car is in neutral.
This book should really be a 5ish page magazine article or simply the 8 page epilogue (which was the best part of the book and not just because it marked the end) where you learn all you need to know which is the following:
1. WWI screwed up the global economy and the reparations put on Germany made things worse since they couldn’t pay.
2. After WWI Germany inflated their currency, Britain deflated it, while France found a middle ground and along with the US was able to build a strong economy (the US because of their late entry into the war and gold reserves, France because of keeping their currency at a discount to Britain made their goods relatively cheaper in the world economy).
3. In the 1920s, the 4 central bankers profiled in the book (US, France, England, Germany) insisted on sticking to the gold standard which was an outdated and arbitrary system (especially with the US holding most of the reserves) and led to the eventual panic/depression. I believe this is the author’s main point, other than trying to cure insomnia.
4. During this time the Dawes plan and then the Young plan cut reparations and led to continued squabbling within Europe.
5. The US stock market was overvalued (partly caused by a Fed move) and crashed thus leading to US bank failures and the US to stop loans to Germany which was still saddled with reparations and bank failures of their own. This in turn spurred further global panic and bank runs in all countries.
6. The second generation of central bankers went off the gold standard (the US waiting until FDR to do it) and soon afterwards each of the economies began to recover.
7. John Maynard Keynes predicted it all and was a genius (no idea if this is true, but so says this author).
Thank me later for the 8 hours of your life I just saved you.
November 12, 2015
Ahamed profiles four central bankers who defined monetary policy in the decade leading to the 1929 crash. Montagu Norman, the Governor of the Bank of England; Benjamin Strong of the New York Federal Reserve Bank; Hjalmar Schacht of the Reichsbank; and Émile Moreau of the Banque de France. While their personalities played a role, far more important was their adherence to the gold standard which straitjacketed their banks culminating in the Great Depression. German reparations for WWI were problematic, but it was the restraints of the gold standard coupled with a reluctance of governments to interfere with market forces that doomed the world to depression. Well written and informative, I enjoyed this book and recommend it to those with an interest in economics, monetary policy and the depression. My blow by blow account below will give those interested a fair representation of what Ahmed covers, although Ahmed does it with considerably more style.
WWI devastated the economies of Europe and transferred world economic leadership from London to New York. In order to support the war England borrowed heavily from the US. France borrowed from both Britain and the US. Germany without other resources simply printed money. The Versailles Treaty called for Germany to pay huge reparations to Britain and France. Germany, essentially bankrupt, could not pay. The US expected repayment of its loans from England and France which they could not pay without the reparations from Germany. Britain and France tried unsuccessfully to link the amount they received from Germany to the amount paid to the US. The US would have none of it. Perceptive financial leaders saw that if this situation were to continue Europe would never recover and Germany could become chaotic. To pay reparations Germany printed more money causing runaway inflation. By 1923 German pay scales and prices changed daily. Anything earned had to be spent immediately before it lost its value. There was tremendous resentment in Germany for having to pay reparations to its conquerors. In turn France and England resented the US for its firm stance on loan repayment. They felt America did not appreciate that they had sacrificed millions of lives to protect the world from the Kaiser.
Before the war, the major participants were all on the gold standard. The amount of currency in circulation was determined by the amount of gold in the central bank based on its exchange rate. During the war the Europeans desperate for cash began printing money not backed by gold. This, exacerbated by the scarcity of items for purchase, led to inflation and devaluation of the currencies. The US had a different problem. It accumulated vast quantities of gold from Europe in payment for war supplies. Abiding by the gold standard meant that more currency had to be issued even though the goods available for purchase were not increasing in proportion. Thus inflation occurred in America too. This was tempered by the beginning of Open Market Operations, the Feds buying and selling of securities to increase or contract the money supply. In this case they sold securities to pull in currency from circulation. This innovation was the brainchild of Benjamin Strong who had come from the House of Morgan. A devoted civil servant Strong took it upon himself to meet European financial leaders including Montagu Norman. If not for Strong’s new idea, inflation in the US would have gotten much worse. Today the Fed relies on Open Market Operations as a primary tool to control the value of the dollar.
In 1923 a new German government led by Chancellor Gustav Stresemann brought Hjalmar Schacht into the Treasury Department as currency tsar. This position was created to administer a new currency, the Rentenmark, based on the value of German land which the government could tax. The Reichsbank was still printing the Reichsmark by the wagonload. Schacht however pegged the value of his currency to that of the prewar mark and with great discipline held it there. Once everyone realized the Rentenmark was stable it soon replaced the old currency. In 1924 Schacht took over at the Reichsbank with Germany’s inflation problem solved. Now a hero at home he still had the problem of reparations.
Schacht went to London to meet with Norman and boldly proposed that the Bank of England lend Germany money to pay reparations which would send the money back to Britain. The pound would be used as backing for German currency. This part impressed Norman who was trying to restore the pound’s position as a reserve currency. Perhaps more important Schacht impressed the Dawes Committee. Dawes was assigned by President Harding to lead an international committee to resolve the reparations issue. But it was another American, GE Chairman Owen Young, whose ideas led to a resolution. Realizing that they could not get agreement to lower the total amount of reparations he proposed that the amount of payment for the next several years be lowered to a more reasonable level ignoring the total amount due. Further he proposed that American banks loan Germany the money for the first year’s payment. The banks would be guaranteed that repayment of their loans had priority over reparations. The idea was to give the German economy time to recover so it could meet its obligations. With the guarantee US banks saw this as a profitable venture and it began a cycle of American lending to Germany. Dawes was rewarded by becoming Calvin Coolidge’s VP.
In 1925 England returned to the gold standard in what Churchill, the newly appointed Chancellor of the Exchequer, would much later call, “the biggest blunder in his life”. Urged on by Strong with whom Norman had recently met in New York, Norman pushed the gold standard on Churchill as a way to keep the currency from being manipulated for political reasons. Churchill understood little about economics and had to rely solely on the opinions of others. Keynes told Churchill to stay off the gold standard saying it would tie Britain to America where all the gold was, force unemployment, lead to high interest rates and bring down the English economy. Churchill sided with Norman. Keynes was right.
In France in 1926, the franc began to stabilize. This was due to Moreau who was brought in as Governor of the Banque de France that year. More political than economic expert, Moreau, unlike Churchill, heeded the right advice, which called for a lower but controlled value for the franc. This reduced the amount of the French debt. Unlike Germany where inflation wiped out all debt ruining its middle class, or England where Norman maintained a high value for the pound that brought recession, the French positioned the franc in the middle. Finding the sweet spot and keeping it there with purchases and sales of foreign currencies, Moreau brought France prosperity.
Back in the US, Strong’s innovative monetary policy helped keep inflation low and interest rates low at the same time the economy was robust due to growth in automobiles, radios and appliances. By 1926 many became concerned that the stock market might be entering a bubble. Given solid industrial growth, stock valuations were not yet out of line. However, low interest rates did facilitate a growing trend to take out loans to buy stocks. Strong did not see the stock market as the Feds concern, but he was concerned about the increasing number of loans going to Germany which were often spent on projects of little economic value. American bankers chasing profits bent over backwards to provide Germany loans. Germany prospered and accumulated too much debt for its creditors to let it fail. In 1927 Strong invited his counterparts, Norman, Schacht and Moreau, to New York. Moreau sent his economic expert, the English speaking Charles Rist. Schacht concurred in the fear of possible bankruptcy from the high amount of German debt. Norman was worried about the impossibility of maintaining the value of the British pound tied to the gold standard given Britain’s weak economy. Only Rist in France was satisfied with his situation. Following the meeting Strong decided against much internal dissension to lower US interest rates thus deferring to Norman to strengthen the pound. Strong ignored that lowering interest rates fueled speculation in the stock market which was now poised to head from reasonable valuations to stratospheric ones.
In 1928 Strong, who had a long history of tuberculosis, unexpectedly died in surgery. By this time, many in government and at the Fed including Strong’s successor, George Harrison, realized stock market speculation was leading to disaster. Harrison raised interest rates but the horse was out of the barn. Norman even came to the US to lobby Harrison for a further, albeit temporary, rate increase to slow the market down. Norman saw the US stock market as a greater risk to Britain than loss of value of his beloved pound. But the Fed was constrained. Raising rates further would hurt American farmers who were already suffering as credit was being diverted to Wall Street. The Fed also feared forcing Britain off the gold standard. However interest rates were high enough with the stock market eating up much of the available credit that reasonable long term loans to Germany stopped. So called “hot money”, short term loans at high rates, were available and Germany took them. With Germany now heading into recession and facing financial disaster a meeting was held in Paris in 1929 with Schacht, Moreau, Owen Young for the Americans and Sir Josiah Stamp of the original reparations commission for the British. Schacht proposed reduced reparations payments given Germany’s fragile situation. Moreau felt Germany had enough time to get its act together and Germany should resume full payments. After much drama, Schacht agreed to allied terms for reparations payments but the underlying worldwide credit issues were not dealt with at all. As the US stock market sucked up all credit, not just US farmers, but farmers worldwide faced depression taking down countries from Australia to Canada to Argentina. Even worse was that gold was leaving European central banks for America to feed the beast of Wall Street. With their currencies tied to the gold standard the Europeans had to raise interest rates turning their economies first to recession then depression. In August of 1929 the Fed raised its discount rate to stem the market bubble with little impact, but in Britain, now in a deep recession, this exacerbated the drain of gold leaving Norman to face the prospect of abandoning the gold standard and loss of faith in the pound.
In the fall of 1929, the stock market crashed quickly losing 40% of its value. Harrison bought treasuries to inject money into the banking system. By the summer of 1930 he had purchased $500 million and had prevented bank failures. He also lowered interest rates. Still the economy deteriorated, although as Ahmed notes the US had actually entered a recession before the crash. Still Ahmed credits the psychological impact of the crash as a primary factor leading to the depression. My own take is that other factors may have been more important. Kennedy in Freedom From Fear points out that income inequality left most people with little to spend and in debt to the hilt causing a recession before the crash. And as Ahmed did mention farmers had been in a depression for years before the crash. The stock market crash did dry up credit which particularly hurt Germany which could not meet its payments including to its many US creditors. The impact of this would kick in later forcing a depressed economy deeper into depression when the US government did not support at risk banks.
In 1930 the Bank of the United States, a private institution, became the first major bank to fail. Soon other banks began to follow suit as people pulled deposits and banks called in loans to boost reserves in a downward spiral. But tight credit caused even greater havoc overseas. Germany could not even pay its government workers without fresh loans which were near impossible to get. Then the 1930 election in which the Nazi’s became the second most powerful party in the Reichstag scared investors and capital flew out of the country. Britain’s strict adherence to the gold standard already bringing it a deep recession now headed into depression as credit dried up. Only France where the gold standard was mitigated by Moreau’s deft currency manipulations was prospering. In May 1931 Austria’s largest bank, Credit Anstalt, failed. This set off a loss of confidence across Germany as well as Austria leading to bank runs and more capital fleeing the country. Attempts by the US to stem the tide with a debt moratorium, which the French after much delay reluctantly agreed to, were too late. Major German corporations and banks failed and the banks were closed. Marks were no longer honored abroad and one-third of able bodied Germans were unemployed. Schacht who had alienated his political supporters with emotional tirades and resigned his position a year earlier now warmed up to the Nazis.
In 1931 Britain finally went off the gold standard. After exhausting all sources of loans, Britain realized the game was up. The pound depreciated 30% but now deflation was halted and recovery could finally begin. Next the US came under pressure as panicky holders of dollars suspected the US was next and began demanding their gold. By 1933, the New York Fed’s gold was totally depleted and it could no longer support the dollar. Bank runs had ensued all over the country and as FDR was inaugurated many states had instituted bank holidays. Unemployment was at twenty five percent and industrial output was in a tailspin with steel production at 12% of capacity. Prices had fallen 30%. The chaos of Europe in the prior year had now overtaken the US. FDR acted quickly taking the US off of the gold standard and even purchasing gold to further devalue the dollar. Prices rose, interest rates were low, it again became smart to borrow, the money supply increased, stock prices went up, and by the end of FDR’s first term industrial production doubled and GDP increased 40%.
Schacht became Hitler’s Minister of Economics and Reichsbank president in 1934. While giving lip service to the gold standard, he issued alternative currencies expanding the money supply, stopping deflation and financing Hitler’s industrialization and militarization. Schacht objected to the maniacal focus on rearmament while consumer goods were still expensive and often not available. He also was put off by the virulent anti-Semitism. In 1937 Goering forced him out of office. He was tried at Nuremberg but acquitted since he was not in office during the war. He died in 1970 at the age of 93. Norman remained as Governor of the Bank of England but with reduced influence and died in 1950. Moreau who left the Banque de France in 1930 for better paying private positions, also died in 1950. Harrison went on to the Manhattan Project authoring the famous cable to Truman at the Potsdam Conference announcing the success of the first atom bomb. He died in 1958.
WWI devastated the economies of Europe and transferred world economic leadership from London to New York. In order to support the war England borrowed heavily from the US. France borrowed from both Britain and the US. Germany without other resources simply printed money. The Versailles Treaty called for Germany to pay huge reparations to Britain and France. Germany, essentially bankrupt, could not pay. The US expected repayment of its loans from England and France which they could not pay without the reparations from Germany. Britain and France tried unsuccessfully to link the amount they received from Germany to the amount paid to the US. The US would have none of it. Perceptive financial leaders saw that if this situation were to continue Europe would never recover and Germany could become chaotic. To pay reparations Germany printed more money causing runaway inflation. By 1923 German pay scales and prices changed daily. Anything earned had to be spent immediately before it lost its value. There was tremendous resentment in Germany for having to pay reparations to its conquerors. In turn France and England resented the US for its firm stance on loan repayment. They felt America did not appreciate that they had sacrificed millions of lives to protect the world from the Kaiser.
Before the war, the major participants were all on the gold standard. The amount of currency in circulation was determined by the amount of gold in the central bank based on its exchange rate. During the war the Europeans desperate for cash began printing money not backed by gold. This, exacerbated by the scarcity of items for purchase, led to inflation and devaluation of the currencies. The US had a different problem. It accumulated vast quantities of gold from Europe in payment for war supplies. Abiding by the gold standard meant that more currency had to be issued even though the goods available for purchase were not increasing in proportion. Thus inflation occurred in America too. This was tempered by the beginning of Open Market Operations, the Feds buying and selling of securities to increase or contract the money supply. In this case they sold securities to pull in currency from circulation. This innovation was the brainchild of Benjamin Strong who had come from the House of Morgan. A devoted civil servant Strong took it upon himself to meet European financial leaders including Montagu Norman. If not for Strong’s new idea, inflation in the US would have gotten much worse. Today the Fed relies on Open Market Operations as a primary tool to control the value of the dollar.
In 1923 a new German government led by Chancellor Gustav Stresemann brought Hjalmar Schacht into the Treasury Department as currency tsar. This position was created to administer a new currency, the Rentenmark, based on the value of German land which the government could tax. The Reichsbank was still printing the Reichsmark by the wagonload. Schacht however pegged the value of his currency to that of the prewar mark and with great discipline held it there. Once everyone realized the Rentenmark was stable it soon replaced the old currency. In 1924 Schacht took over at the Reichsbank with Germany’s inflation problem solved. Now a hero at home he still had the problem of reparations.
Schacht went to London to meet with Norman and boldly proposed that the Bank of England lend Germany money to pay reparations which would send the money back to Britain. The pound would be used as backing for German currency. This part impressed Norman who was trying to restore the pound’s position as a reserve currency. Perhaps more important Schacht impressed the Dawes Committee. Dawes was assigned by President Harding to lead an international committee to resolve the reparations issue. But it was another American, GE Chairman Owen Young, whose ideas led to a resolution. Realizing that they could not get agreement to lower the total amount of reparations he proposed that the amount of payment for the next several years be lowered to a more reasonable level ignoring the total amount due. Further he proposed that American banks loan Germany the money for the first year’s payment. The banks would be guaranteed that repayment of their loans had priority over reparations. The idea was to give the German economy time to recover so it could meet its obligations. With the guarantee US banks saw this as a profitable venture and it began a cycle of American lending to Germany. Dawes was rewarded by becoming Calvin Coolidge’s VP.
In 1925 England returned to the gold standard in what Churchill, the newly appointed Chancellor of the Exchequer, would much later call, “the biggest blunder in his life”. Urged on by Strong with whom Norman had recently met in New York, Norman pushed the gold standard on Churchill as a way to keep the currency from being manipulated for political reasons. Churchill understood little about economics and had to rely solely on the opinions of others. Keynes told Churchill to stay off the gold standard saying it would tie Britain to America where all the gold was, force unemployment, lead to high interest rates and bring down the English economy. Churchill sided with Norman. Keynes was right.
In France in 1926, the franc began to stabilize. This was due to Moreau who was brought in as Governor of the Banque de France that year. More political than economic expert, Moreau, unlike Churchill, heeded the right advice, which called for a lower but controlled value for the franc. This reduced the amount of the French debt. Unlike Germany where inflation wiped out all debt ruining its middle class, or England where Norman maintained a high value for the pound that brought recession, the French positioned the franc in the middle. Finding the sweet spot and keeping it there with purchases and sales of foreign currencies, Moreau brought France prosperity.
Back in the US, Strong’s innovative monetary policy helped keep inflation low and interest rates low at the same time the economy was robust due to growth in automobiles, radios and appliances. By 1926 many became concerned that the stock market might be entering a bubble. Given solid industrial growth, stock valuations were not yet out of line. However, low interest rates did facilitate a growing trend to take out loans to buy stocks. Strong did not see the stock market as the Feds concern, but he was concerned about the increasing number of loans going to Germany which were often spent on projects of little economic value. American bankers chasing profits bent over backwards to provide Germany loans. Germany prospered and accumulated too much debt for its creditors to let it fail. In 1927 Strong invited his counterparts, Norman, Schacht and Moreau, to New York. Moreau sent his economic expert, the English speaking Charles Rist. Schacht concurred in the fear of possible bankruptcy from the high amount of German debt. Norman was worried about the impossibility of maintaining the value of the British pound tied to the gold standard given Britain’s weak economy. Only Rist in France was satisfied with his situation. Following the meeting Strong decided against much internal dissension to lower US interest rates thus deferring to Norman to strengthen the pound. Strong ignored that lowering interest rates fueled speculation in the stock market which was now poised to head from reasonable valuations to stratospheric ones.
In 1928 Strong, who had a long history of tuberculosis, unexpectedly died in surgery. By this time, many in government and at the Fed including Strong’s successor, George Harrison, realized stock market speculation was leading to disaster. Harrison raised interest rates but the horse was out of the barn. Norman even came to the US to lobby Harrison for a further, albeit temporary, rate increase to slow the market down. Norman saw the US stock market as a greater risk to Britain than loss of value of his beloved pound. But the Fed was constrained. Raising rates further would hurt American farmers who were already suffering as credit was being diverted to Wall Street. The Fed also feared forcing Britain off the gold standard. However interest rates were high enough with the stock market eating up much of the available credit that reasonable long term loans to Germany stopped. So called “hot money”, short term loans at high rates, were available and Germany took them. With Germany now heading into recession and facing financial disaster a meeting was held in Paris in 1929 with Schacht, Moreau, Owen Young for the Americans and Sir Josiah Stamp of the original reparations commission for the British. Schacht proposed reduced reparations payments given Germany’s fragile situation. Moreau felt Germany had enough time to get its act together and Germany should resume full payments. After much drama, Schacht agreed to allied terms for reparations payments but the underlying worldwide credit issues were not dealt with at all. As the US stock market sucked up all credit, not just US farmers, but farmers worldwide faced depression taking down countries from Australia to Canada to Argentina. Even worse was that gold was leaving European central banks for America to feed the beast of Wall Street. With their currencies tied to the gold standard the Europeans had to raise interest rates turning their economies first to recession then depression. In August of 1929 the Fed raised its discount rate to stem the market bubble with little impact, but in Britain, now in a deep recession, this exacerbated the drain of gold leaving Norman to face the prospect of abandoning the gold standard and loss of faith in the pound.
In the fall of 1929, the stock market crashed quickly losing 40% of its value. Harrison bought treasuries to inject money into the banking system. By the summer of 1930 he had purchased $500 million and had prevented bank failures. He also lowered interest rates. Still the economy deteriorated, although as Ahmed notes the US had actually entered a recession before the crash. Still Ahmed credits the psychological impact of the crash as a primary factor leading to the depression. My own take is that other factors may have been more important. Kennedy in Freedom From Fear points out that income inequality left most people with little to spend and in debt to the hilt causing a recession before the crash. And as Ahmed did mention farmers had been in a depression for years before the crash. The stock market crash did dry up credit which particularly hurt Germany which could not meet its payments including to its many US creditors. The impact of this would kick in later forcing a depressed economy deeper into depression when the US government did not support at risk banks.
In 1930 the Bank of the United States, a private institution, became the first major bank to fail. Soon other banks began to follow suit as people pulled deposits and banks called in loans to boost reserves in a downward spiral. But tight credit caused even greater havoc overseas. Germany could not even pay its government workers without fresh loans which were near impossible to get. Then the 1930 election in which the Nazi’s became the second most powerful party in the Reichstag scared investors and capital flew out of the country. Britain’s strict adherence to the gold standard already bringing it a deep recession now headed into depression as credit dried up. Only France where the gold standard was mitigated by Moreau’s deft currency manipulations was prospering. In May 1931 Austria’s largest bank, Credit Anstalt, failed. This set off a loss of confidence across Germany as well as Austria leading to bank runs and more capital fleeing the country. Attempts by the US to stem the tide with a debt moratorium, which the French after much delay reluctantly agreed to, were too late. Major German corporations and banks failed and the banks were closed. Marks were no longer honored abroad and one-third of able bodied Germans were unemployed. Schacht who had alienated his political supporters with emotional tirades and resigned his position a year earlier now warmed up to the Nazis.
In 1931 Britain finally went off the gold standard. After exhausting all sources of loans, Britain realized the game was up. The pound depreciated 30% but now deflation was halted and recovery could finally begin. Next the US came under pressure as panicky holders of dollars suspected the US was next and began demanding their gold. By 1933, the New York Fed’s gold was totally depleted and it could no longer support the dollar. Bank runs had ensued all over the country and as FDR was inaugurated many states had instituted bank holidays. Unemployment was at twenty five percent and industrial output was in a tailspin with steel production at 12% of capacity. Prices had fallen 30%. The chaos of Europe in the prior year had now overtaken the US. FDR acted quickly taking the US off of the gold standard and even purchasing gold to further devalue the dollar. Prices rose, interest rates were low, it again became smart to borrow, the money supply increased, stock prices went up, and by the end of FDR’s first term industrial production doubled and GDP increased 40%.
Schacht became Hitler’s Minister of Economics and Reichsbank president in 1934. While giving lip service to the gold standard, he issued alternative currencies expanding the money supply, stopping deflation and financing Hitler’s industrialization and militarization. Schacht objected to the maniacal focus on rearmament while consumer goods were still expensive and often not available. He also was put off by the virulent anti-Semitism. In 1937 Goering forced him out of office. He was tried at Nuremberg but acquitted since he was not in office during the war. He died in 1970 at the age of 93. Norman remained as Governor of the Bank of England but with reduced influence and died in 1950. Moreau who left the Banque de France in 1930 for better paying private positions, also died in 1950. Harrison went on to the Manhattan Project authoring the famous cable to Truman at the Potsdam Conference announcing the success of the first atom bomb. He died in 1958.
July 3, 2023
This is a fascinating account of the "most exclusive club in the world," the quartet of central bankers from the US, France, Germany, and England who were tasked with reconstructing the international financial system after World War I. Rather than averting catastrophe, this group of men ended up presiding over the greatest collapse that the global economy had ever seen. This well-researched book goes deep into the root causes of the collapse, such as reparations, the gold standard, and post-war isolationist agendas, and paints a vivid picture of the world in a time of crisis.
I thought this book was a really nice compliment to Erik Larson's In the Garden of Beasts: Love, Terror, and an American Family in Hitler's Berlin which I read earlier this year. Larson profiles William Dodd, America's ambassador to Germany from 1933 - 1937, and his struggles with diplomatic relations in Germany. Larson touches on the economic pressures resulting from reparations and isolationist ideologies, and I actually wish I had read the books in reverse order since Ahamed's detailed account of post WWI economics and politics helped me more fully appreciate the challenges Dodd was facing.
The Epilogue is a strong finish to this thought-provoking book as the author recounts subsequent global financial crises and provides context on how they compare to causes of the Great Depression. I learned a lot from this intriguing story of central bankers and economic turmoil, and I highly recommend this one for fans of world history.
I thought this book was a really nice compliment to Erik Larson's In the Garden of Beasts: Love, Terror, and an American Family in Hitler's Berlin which I read earlier this year. Larson profiles William Dodd, America's ambassador to Germany from 1933 - 1937, and his struggles with diplomatic relations in Germany. Larson touches on the economic pressures resulting from reparations and isolationist ideologies, and I actually wish I had read the books in reverse order since Ahamed's detailed account of post WWI economics and politics helped me more fully appreciate the challenges Dodd was facing.
The Epilogue is a strong finish to this thought-provoking book as the author recounts subsequent global financial crises and provides context on how they compare to causes of the Great Depression. I learned a lot from this intriguing story of central bankers and economic turmoil, and I highly recommend this one for fans of world history.
March 15, 2010
I returned to and finished this book on audible -- driving about the local streets -- to and from work -- and driving the kids hither & thither... what it lacks as a book (and my opinion about the issue of reparations has not been changed by L.A.'s arguments) -- that it is somewhat shallow qua analysis -- it gains as an audible -- in that it is very strong on narrative.
The result is that the author often strives for effect, rather than truth -- there is a rhetorical element, common to many books, of course. At any rate, I'm glad I finished it, as it fills in many of the blanks.
Take two...
(I've lost interest -- the book is second-rate. The hedge fund guys thinking they're historians... because they can spot a trend. Good reading for those with the time to spare)
I've lowered my rating. This book is good, and got off to a rousing start. Well-written, fascinating... and it is certainly informative. For anyone looking for a good book on the Depression, and real page-turner (not kidding), this might be it. But then I got to chapter 7, and Ahamed's discussion of the Weimar inflation. It is awful. It seems to be contaminating by the writings of Niall Ferguson, that arch-reactionary who argued, in Pity of War, that the Great War was Britain's fault (not Germany's), and Ahamed blames the inflation on reparations, which is bunk.
This view was debunked by both Jens Parsson (http://mises.org/web/4017 a tremendously good book) AND Bresciani-Turroni (http://www.questia.com/PM.qst?a=o&...). The reparations had NOTHING to do with the inflation, and the claim that it did was due to ultra-nationalist German propaganda -- meaning everyone to the right of Rosa Luxemburg.... (If anybody REALLY wants to know about this issue, email me and I'll forward some notes on the topic....)
The fact is, contrary to popular myth, Versailles was too mild. Proof? 1939-1945. Had the Entente pressed on for another two weeks after November 11th, the German experiment in unification would have ended then and there.
Chapter 8, which deals with the US handling of the Allied war debts -- another sorry chapter in our history -- is much better, though by now it has become clear to me that the author's knowledge is second-hand, and not free of Neoclassical conventions....
The book, at any rate, was finished during the current market crisis, and the author is informed. He is a money manger, not an academic -- which is, in part, a plus.
I do expect to keep at it, and to finish this book -- deo volente
The result is that the author often strives for effect, rather than truth -- there is a rhetorical element, common to many books, of course. At any rate, I'm glad I finished it, as it fills in many of the blanks.
Take two...
(I've lost interest -- the book is second-rate. The hedge fund guys thinking they're historians... because they can spot a trend. Good reading for those with the time to spare)
I've lowered my rating. This book is good, and got off to a rousing start. Well-written, fascinating... and it is certainly informative. For anyone looking for a good book on the Depression, and real page-turner (not kidding), this might be it. But then I got to chapter 7, and Ahamed's discussion of the Weimar inflation. It is awful. It seems to be contaminating by the writings of Niall Ferguson, that arch-reactionary who argued, in Pity of War, that the Great War was Britain's fault (not Germany's), and Ahamed blames the inflation on reparations, which is bunk.
This view was debunked by both Jens Parsson (http://mises.org/web/4017 a tremendously good book) AND Bresciani-Turroni (http://www.questia.com/PM.qst?a=o&...). The reparations had NOTHING to do with the inflation, and the claim that it did was due to ultra-nationalist German propaganda -- meaning everyone to the right of Rosa Luxemburg.... (If anybody REALLY wants to know about this issue, email me and I'll forward some notes on the topic....)
The fact is, contrary to popular myth, Versailles was too mild. Proof? 1939-1945. Had the Entente pressed on for another two weeks after November 11th, the German experiment in unification would have ended then and there.
Chapter 8, which deals with the US handling of the Allied war debts -- another sorry chapter in our history -- is much better, though by now it has become clear to me that the author's knowledge is second-hand, and not free of Neoclassical conventions....
The book, at any rate, was finished during the current market crisis, and the author is informed. He is a money manger, not an academic -- which is, in part, a plus.
I do expect to keep at it, and to finish this book -- deo volente
January 14, 2016
Lords of Finance tracks the lives of the central bankers of the USA, Great Britain, France and Germany from 1900 to about 1950, and explains how their fiscal policy led to the Great Depression.
While this important book is definitely worth reading, I can't really understand why it won a Pulitzer. It's a bit of a slog before the depression but the storytelling and quality of writing picks up once 1929 arrives. Recommended for anyone who likes books about finance, tycoons, or wants A really good understanding of how the gold standard works, or doesn't
While this important book is definitely worth reading, I can't really understand why it won a Pulitzer. It's a bit of a slog before the depression but the storytelling and quality of writing picks up once 1929 arrives. Recommended for anyone who likes books about finance, tycoons, or wants A really good understanding of how the gold standard works, or doesn't
February 28, 2013
Even given his opening epigraph claiming that biography was the only way to understand history, Ahamed spends surprisingly little time describing each of the bankers as people. Sure, there are the vivid descriptions of their personalities and the expected personal details that helps to explain some of their behavior, but more important to the story is the unique situations each of them faced in their respective home countries: Moreau in France, Schacht in Germany, Norman in England, and Strong in the United States.
Those three European countries ended World War I financially devastated—not just in terms of direct casualties from the war, but also from the loans needed to finance it. The United States, on the other hand, was on the other side of those loans; removed from most of the financial and human effects of the war, after cessation of hostilities the US found itself newly-elevated in the world order.
But beyond the mere balance-book debts and deficits was a deeper issue: their common reliance on the gold standard. All four had suspended matching their currency to the gold available during the war, but afterwards, desperately wanted to get back on the system for perceived stability.
But then they encountered the first crisis: what should they peg their currencies to now? The money supply had grown in all countries as the government pumped out bills to finance their militaries, and on top of that, their gold reserves had drastically changed as well. While the United States' gold reserves had newly-swelled due to their loans, all three European countries found their reserves drastically diminished.
It's fair to say that the gold standard—in all its allure and limitations—forms the central driver of the book. Each struggled to decide when to go back on the system, and stubborn domestic politics complicated acceptance of a devalued currency for most of the European nations. Their ties to gold sharply limited their available actions during the tumultous decade that followed, and sealed their fate with the catastrophic crash. It continues to be astonishing that there exists a faction of Americans—national politicians, even—who advocate for a return to the gold standard and ignore all history that says otherwise.
And then there were the reparations. Under threat of resuming hostilities, the Allies pried a stiff price out of defeated Germany. Not only was land ceded to France and others, and not just there army largely stood-down, but Germany found itself owing billions to France, the US, and the UK. Again, internal politics played a strong role here; the US argued for lower reparations in the interests of the world economy (and because they wanted to disengage with Europe at the time), while the UK and France wanted to squeeze Germany dry, extracting as many kilograms of flesh as they could.
All these tensions recur throughout the book, and it adds a shocking level of detail to what I previously knew about the crash. Again, while Ahamed claims his project is a four-fold biography of these lead bankers, his actual aims are far more grand: a well-written, accessible look at how and why the financial system failed. Unlike his presumptive thesis that hubris and personal factors led to the crash (as his title and other paratext would have you believe), the book's verdict is far more nuanced and damning. Given the financial systems at play and the political situations at the time, it's hard to imagine how any combination of personalities could navigated the troubles.
But that's not to say the book is entirely fatalist; there is one lone speck of light in the darkness, and his name was John Maynard Keynes. While he doesn't get as much attention as the four main characters, he acts as a hectoring marginalia to most of the decisions of the time. Keynes was utterly prescient, and has rightfully seen a resurrection after the crash of 2008. But he is the Cassandra of his tale, predicting the coming crash, and unable to do much more than step out of the way.
Those three European countries ended World War I financially devastated—not just in terms of direct casualties from the war, but also from the loans needed to finance it. The United States, on the other hand, was on the other side of those loans; removed from most of the financial and human effects of the war, after cessation of hostilities the US found itself newly-elevated in the world order.
But beyond the mere balance-book debts and deficits was a deeper issue: their common reliance on the gold standard. All four had suspended matching their currency to the gold available during the war, but afterwards, desperately wanted to get back on the system for perceived stability.
But then they encountered the first crisis: what should they peg their currencies to now? The money supply had grown in all countries as the government pumped out bills to finance their militaries, and on top of that, their gold reserves had drastically changed as well. While the United States' gold reserves had newly-swelled due to their loans, all three European countries found their reserves drastically diminished.
It's fair to say that the gold standard—in all its allure and limitations—forms the central driver of the book. Each struggled to decide when to go back on the system, and stubborn domestic politics complicated acceptance of a devalued currency for most of the European nations. Their ties to gold sharply limited their available actions during the tumultous decade that followed, and sealed their fate with the catastrophic crash. It continues to be astonishing that there exists a faction of Americans—national politicians, even—who advocate for a return to the gold standard and ignore all history that says otherwise.
And then there were the reparations. Under threat of resuming hostilities, the Allies pried a stiff price out of defeated Germany. Not only was land ceded to France and others, and not just there army largely stood-down, but Germany found itself owing billions to France, the US, and the UK. Again, internal politics played a strong role here; the US argued for lower reparations in the interests of the world economy (and because they wanted to disengage with Europe at the time), while the UK and France wanted to squeeze Germany dry, extracting as many kilograms of flesh as they could.
All these tensions recur throughout the book, and it adds a shocking level of detail to what I previously knew about the crash. Again, while Ahamed claims his project is a four-fold biography of these lead bankers, his actual aims are far more grand: a well-written, accessible look at how and why the financial system failed. Unlike his presumptive thesis that hubris and personal factors led to the crash (as his title and other paratext would have you believe), the book's verdict is far more nuanced and damning. Given the financial systems at play and the political situations at the time, it's hard to imagine how any combination of personalities could navigated the troubles.
But that's not to say the book is entirely fatalist; there is one lone speck of light in the darkness, and his name was John Maynard Keynes. While he doesn't get as much attention as the four main characters, he acts as a hectoring marginalia to most of the decisions of the time. Keynes was utterly prescient, and has rightfully seen a resurrection after the crash of 2008. But he is the Cassandra of his tale, predicting the coming crash, and unable to do much more than step out of the way.
July 11, 2015
Economics plays a decisive role in shaping and guiding our lives. For most of us, it is not an easy subject to understand. I am the holder of an Economics degree (cum laude) from my college days. Even so, there are still many things about economics and finance that either elude my grasp or I partially understand, for both disciplines are fluid and dynamic, ever evolving, ever changing.
For that reason, I sought out this book, "Lords of Finance: The Bankers Who Broke the World", to help me to begin to understand the various historical and economic factors that led to and touched off the Great Depression and any parallels between events of yesteryear and today. Certainly, I've learned a lot about the 4 principal personalities in the world banking system during the 1920s who sought to promote and build a solid world economic system in the post-World War I era pegged to the gold standard. The foursome were "the neurotic and enigmatic Montagu Norman of the Bank of England; the xenophobic and suspicious Emile Moreau of the Banque de France; the arrogant yet brilliant Hjalmar Schacht of the Reichsbank; and Benjamin Strong of the Federal Reserve Bank of New York, whose facade of energy and drive masked a deeply wounded and overburdened man."
Reading this book taught me that the collapse in the world economic system in 1929 was not inevitable. The author identifies 3 culprits that he deems culpable of contributing to events that caused the Great Depression:
(1) "... the politicians who presided over the Paris Peace Conference [of 1919]. They burdened a world economy still trying to recover from the effects of war with a gigantic overhang of international debts. Germany began the 1920s owing some $12 billion in reparations to France and Britain; France owed the United States and Britain $7 billion in war debts, while Britain in turn owed $4 billion to the United States." Expressed in today's money, that would be the equivalent of Germany owing $2.4 trillion, France owing $1.4 trillion, and Britain $800 billion. Grappling with such heavy debt during the 1920s made it a onerous challenge for the financial statesmen of the day to take on. The debt issue also poisoned international relations and created a fissure in the world financial system that gave rise to pressures that would cause it to collapse in October 1929.
(2) "[t]he second group to blame were the leading central bankers of the era" --- i.e. Montagu Norman, Emile Moreau, Hjalmar Schacht, and Benjamin Strong. "Even though they, especially Schacht and Norman, spent much of the decade struggling to mitigate some of the worst political blunders behind reparations and war debts, more than anyone else they were responsible for the second fundamental error of economic policy in the 1920s: the decision to take the world back onto the gold standard."
(3) "... the Great Depression was caused by a failure of intellectual will, a lack of understanding about how the economy operated. No one struggled harder in the lead-up to the Great Depression and during it to make sense of the forces at work than Maynard Keynes [the distinguished British economist]." He believed that if what he regarded as "muddled thinking" could be eliminated in economic matters, "then society could allow the management of its material welfare to take a backseat to what he thought were the central questions of existence, to the 'problems of life and of human relations, of creation, behavior and religion.' "
This is a magisterial work that, I believe, anyone should read with care and patience (given the weightiness of the subject) to gain a better understanding on a fundamental level of how economies work and function. You'll be glad that you did.
For that reason, I sought out this book, "Lords of Finance: The Bankers Who Broke the World", to help me to begin to understand the various historical and economic factors that led to and touched off the Great Depression and any parallels between events of yesteryear and today. Certainly, I've learned a lot about the 4 principal personalities in the world banking system during the 1920s who sought to promote and build a solid world economic system in the post-World War I era pegged to the gold standard. The foursome were "the neurotic and enigmatic Montagu Norman of the Bank of England; the xenophobic and suspicious Emile Moreau of the Banque de France; the arrogant yet brilliant Hjalmar Schacht of the Reichsbank; and Benjamin Strong of the Federal Reserve Bank of New York, whose facade of energy and drive masked a deeply wounded and overburdened man."
Reading this book taught me that the collapse in the world economic system in 1929 was not inevitable. The author identifies 3 culprits that he deems culpable of contributing to events that caused the Great Depression:
(1) "... the politicians who presided over the Paris Peace Conference [of 1919]. They burdened a world economy still trying to recover from the effects of war with a gigantic overhang of international debts. Germany began the 1920s owing some $12 billion in reparations to France and Britain; France owed the United States and Britain $7 billion in war debts, while Britain in turn owed $4 billion to the United States." Expressed in today's money, that would be the equivalent of Germany owing $2.4 trillion, France owing $1.4 trillion, and Britain $800 billion. Grappling with such heavy debt during the 1920s made it a onerous challenge for the financial statesmen of the day to take on. The debt issue also poisoned international relations and created a fissure in the world financial system that gave rise to pressures that would cause it to collapse in October 1929.
(2) "[t]he second group to blame were the leading central bankers of the era" --- i.e. Montagu Norman, Emile Moreau, Hjalmar Schacht, and Benjamin Strong. "Even though they, especially Schacht and Norman, spent much of the decade struggling to mitigate some of the worst political blunders behind reparations and war debts, more than anyone else they were responsible for the second fundamental error of economic policy in the 1920s: the decision to take the world back onto the gold standard."
(3) "... the Great Depression was caused by a failure of intellectual will, a lack of understanding about how the economy operated. No one struggled harder in the lead-up to the Great Depression and during it to make sense of the forces at work than Maynard Keynes [the distinguished British economist]." He believed that if what he regarded as "muddled thinking" could be eliminated in economic matters, "then society could allow the management of its material welfare to take a backseat to what he thought were the central questions of existence, to the 'problems of life and of human relations, of creation, behavior and religion.' "
This is a magisterial work that, I believe, anyone should read with care and patience (given the weightiness of the subject) to gain a better understanding on a fundamental level of how economies work and function. You'll be glad that you did.
August 27, 2017
Lords of Finance: The Bankers Who Broke the World is an intricate, in-depth look at the men who were in charge of the financial structures of the four biggest economies during the lead up to The Great Depression. Starting as early as 1919 and the Treaty of Versailles, Liaquat Ahamed gives us a detailed account of the triumphs and, most importantly, the mistakes these men made in the economic well being of their own countries and, consequently, of the rest of the modern world.
The major characters in this story are Montague Norman of the Bank of England who was considered the most influential of the four; Benjamin Strong head of the newly formed Federal Reserve Bank of New York; Hjalmar Schacht of the Reichsbank and Émile Moreau from the Banque de France. For the most part, these four men were in charge of the central banking (The U.S. used the Federal Reserve system, established in 1911 in lieu of a "central" bank) system in each of their countries and so, controlled the ebb and flow of first gold, and then, cash reserves which affected commerce at this critical period between the wars. Also included are many other financiers, economists, and politicians who played major parts in the pivotal economic events of the twenties and thirties.
Ahamed identifies several major "blunders" he feels led to the massive economic dislocation of the Great Depression. One, the decisions of the politicians at the Paris Peace Conference for the huge reparations bill, the continuing insistence on full repayment of war debts which placed a heavy burden on all of the fragile recovering economies. Two, the unwise decision made by these four leading bankers to return to return to the gold standard. John Maynard Keynes, the new, young economist with maverick ideas opposed a return to the gold standard and Winston Churchill, Chancellor of the Exchequer in 1925 was not totally in favor either but, eventually, the decision was made to return to it. The largest error for Mr.Ahamed seems to be a failure on the part of the bankers to ever get a true understanding of the post war economy and a failure to show leadership when they did understand.
Lords of Finance is an excellent discussion of money and how it worked in the economies of that time. It is written in an easy to follow way and presented in such an interesting manner that it occasionally has the feel of a thriller. Events cascade upon themselves, sometimes in a frenzy, and the fact that, as readers, we know the particular outcomes doesn't dimish the tension and relief of discovering what happened all over again. Highly recommend this Pulitzer winner to anyone who is interested in what money does and where it goes and what happens when it misbehaves.
The major characters in this story are Montague Norman of the Bank of England who was considered the most influential of the four; Benjamin Strong head of the newly formed Federal Reserve Bank of New York; Hjalmar Schacht of the Reichsbank and Émile Moreau from the Banque de France. For the most part, these four men were in charge of the central banking (The U.S. used the Federal Reserve system, established in 1911 in lieu of a "central" bank) system in each of their countries and so, controlled the ebb and flow of first gold, and then, cash reserves which affected commerce at this critical period between the wars. Also included are many other financiers, economists, and politicians who played major parts in the pivotal economic events of the twenties and thirties.
Ahamed identifies several major "blunders" he feels led to the massive economic dislocation of the Great Depression. One, the decisions of the politicians at the Paris Peace Conference for the huge reparations bill, the continuing insistence on full repayment of war debts which placed a heavy burden on all of the fragile recovering economies. Two, the unwise decision made by these four leading bankers to return to return to the gold standard. John Maynard Keynes, the new, young economist with maverick ideas opposed a return to the gold standard and Winston Churchill, Chancellor of the Exchequer in 1925 was not totally in favor either but, eventually, the decision was made to return to it. The largest error for Mr.Ahamed seems to be a failure on the part of the bankers to ever get a true understanding of the post war economy and a failure to show leadership when they did understand.
Lords of Finance is an excellent discussion of money and how it worked in the economies of that time. It is written in an easy to follow way and presented in such an interesting manner that it occasionally has the feel of a thriller. Events cascade upon themselves, sometimes in a frenzy, and the fact that, as readers, we know the particular outcomes doesn't dimish the tension and relief of discovering what happened all over again. Highly recommend this Pulitzer winner to anyone who is interested in what money does and where it goes and what happens when it misbehaves.
November 14, 2009
In the early 1930s, a reporter asked John Maynard Keynes whether anything like the Great Depression had ever happened before. His reply: "Yes, it was called the Dark Ages, and it lasted four hundred years." This book is about the four central bankers (of the U.S., Great Britain, France, and Germany) who presided over the economic collapse between the World Wars. Imagine something much worse than the banking crisis of 2007 taking place after a brutal war in which millions of men were killed and in countries where governments might change every few months, while Bolsheviks and Nationalists threatened government stability. That, in a nutshell, is what this book describes.
The author provides biographical information on all four men, but this isn't really a biography; the men's lives are used to enliven the book and personify national attitudes. The author shows how economic problems grew in the late teens and early twenties as an extended series of currency crises. Despite the U.S. holding a disproportionate amount of the world's gold reserves in the wake of the war, England and France were determined to go back on the gold standard, regardless of the short term pain. Meanwhile, Germany suffered catastrophic inflation. Then, in the late twenties and early thirties, the crisis spread into banking, becoming what we know as the Great Depression.
There are slow parts, but I thought the author did a good job of untangling complicated economic situations where it can be difficult to distinguish cause and effect. He also used economics to link World War I and World War II--events that are so often treated separately--in a worthwhile way.
The author provides biographical information on all four men, but this isn't really a biography; the men's lives are used to enliven the book and personify national attitudes. The author shows how economic problems grew in the late teens and early twenties as an extended series of currency crises. Despite the U.S. holding a disproportionate amount of the world's gold reserves in the wake of the war, England and France were determined to go back on the gold standard, regardless of the short term pain. Meanwhile, Germany suffered catastrophic inflation. Then, in the late twenties and early thirties, the crisis spread into banking, becoming what we know as the Great Depression.
There are slow parts, but I thought the author did a good job of untangling complicated economic situations where it can be difficult to distinguish cause and effect. He also used economics to link World War I and World War II--events that are so often treated separately--in a worthwhile way.
October 16, 2023
I really enjoyed this book the first time I read it and even at the second reading found it great fun but a second look reveled clearly what I had felt the first time around - although chock full of amusing stories and anecdotal information he really doesn't make an argument that a few men the central bankers of Britain, France, Germany and the USA - oh but yeah at that stage the USA didn't have a proper central bank but that is one of the many things he ignores as it is inconvenient to his argument. Of course these bankers (and of them all Montague Norman gets the most coverage others particularly Moreau of the Bank of France get very little page time) were important but by ignoring the politics he tells only part of the story.
At one point he says: '...the neurotic and enigmatic Montagu Norman of the Bank of England; the xenophobic and suspicious Emile Moreau of the Banque de France; the arrogant yet brilliant Hjalmar Schacht of the Reichsbank; and the dynamic Benjamin Strong of the New York Federal Reserve Bank. These men were as prominent then as Alan Greenspan and Hank Paulson are in our time...' and indeed how many people today, outside of financial circles and even there they would be well over middle aged, in 2022 could tell you anything about Greenspan or Paulson? Bankers are important but the days when they had real power ended long before the first world war.
An amusing, but flawed book.
At one point he says: '...the neurotic and enigmatic Montagu Norman of the Bank of England; the xenophobic and suspicious Emile Moreau of the Banque de France; the arrogant yet brilliant Hjalmar Schacht of the Reichsbank; and the dynamic Benjamin Strong of the New York Federal Reserve Bank. These men were as prominent then as Alan Greenspan and Hank Paulson are in our time...' and indeed how many people today, outside of financial circles and even there they would be well over middle aged, in 2022 could tell you anything about Greenspan or Paulson? Bankers are important but the days when they had real power ended long before the first world war.
An amusing, but flawed book.
May 28, 2009
This was a bit of a work-related read. I changed jobs recently, and in my current position I am monitoring Congress' proposed regulatory reform of the banking industry. So, I thought I would add a little historical depth to my analysis.
This is obviously a timely book with many frightening parallels that you will recognize from the headlines in your morning paper. However, as someone who continues to be drawn to the inter-war period, it also filled in some gaps.
Most folks interested in history can at least give you a knee-jerk sketch of Hitler's rise to power. They will mention the "crushing" terms of Versailles that gave rise to German resentment. They will talk about the weakness of Weimar Germany's democratic institutions. They will likely also point to the Great Depression, and if they REALLY know something, they will point to the war debts.
Reading this book adds another deeply troubling layer to the challenges facing the West when trying to confront Hitler. Basically, the "roarin' 20s" were based on something of an economic ponzi scheme, not dissimilar to the circle of debt and purchase that we have created between the United States and the People's Republic of China.
Essentially, after the war, everyone was broke. As students of WWI will appreciate, US participation in that war was a bit reluctant. For a while, we called ourselves an "associate" power, rather than an ally. Our attitude towards war debt reflected this. Why should we subsidize the British and French empires? We lent them money, they should pay. Well, where did Britain and France -- especially France -- want to get the cash to pay us? Why Germany of course.
That brought us to a circle of reparations. The US government (though not the American people) appreciated that no one really had the capacity to pay any of these debts. So what did we do with our new found economic strength? Well, we made loans to Germany. The amounts were basically just enough for England and France to collect from Germany what they owed to us.
The difficult part was whenever a kink developed in this system -- weakness in the German economy, absence of Gold in Britain -- the whole damn edifice would threaten to collapse, and then everyone would get together and try to renegotiate the whole deal. So, things I vaguely remembered from AP History in high school like "the Dawes" plan, took on real meaning. For the entire period of the interwar years, diplomacy between the US, Britain, France and Germany was totally poisoned by these debts. Everyone was mad at everyone else, and extremely anxious because the stakes were in fact, life and death.
So enter Liaquat Ahamed to paint a picture of the heads of the Central Banks of these four great powers. Montagu Norman of the Bank of England obviously takes center stage, but not far behind him is his friend with the real money, Benjamin Strong of the Federal Reserve of New York. No story would be complete without the petulant French, so Emile Morceau of the Banque de France takes that role. And excepting the type-cast, arrogant, insufferable but brilliant German is Hjalmer Schacht of the Reichsbank of Germany.
The petty rivalries and dealings between these four men are the foundation of the book. I think Ahamed gives us a very definite sense of the individuals and their peculiarities. They get it all wrong, but you get a sense of why they made the choices they did.
Ahamed certainly leaves an enormous burden of blame on Norman's fixation on the return to the Gold Standard. It certainly wrecked Britain's economy, and resultingly -- as Norman's friend Ben Strong of the NY Fed. tried to prop up the UK with low US interest rates, he created a giant stock bubble. I think we all know what happens to giant stock bubbles don't we?
Heroes? Well, two. First Ahamed certainly thinks that Keynes got most of it right. He saw the disaster coming. He tried to warn everyone. Some even listened, but in the end, the 4 central bankers had their way.
Another person singled out for some glory was FDR. He refused to be held captive to old banking orthodoxy. He utterly rejected the Gold standard -- though the US had ample gold reserves -- because he felt it would hold back price inflation, as the US was in a deep deflationary spiral. He was right, and within a year, Roosevelt had stopped the hemmoraging of the US economy and even turned a corner.
Finally, the French. Believe it or not, France made the best of the interwar years in terms of their economy. Regrettably, they attempted to use this economic strength for petty political aims, both vis a vis the English and the Germans. Ahh, the Gauls, when will they learn?
Single biggest light bulb from this read -- the Great Depression was basically a two step disaster. I always kinda thought we had Black Tuesday and then the banks started going under. Not so. Its almost 2 years between Black Tuesday and the banks going under.
Basically the stock market crash occurs -- but many in the Government think its actually a good thing. The bubble has burst, now we can get the US economy on a less speculative footing. Problem is, with all that lost wealth we stopped lending abroad, particularly to risky countries like Germany.
No churning of German loans means they have to pay Britain and France back with hard cash. They don't have it. Germany defaults, there is a run on German banks. Then people start realizing, wait -- our banks have a bunch of German loans. Run on US banks, banking system collapses in the US in kind of a swine flu contagion way. One state after another has to declare a "bank holiday." In some states, banks had been closed for months when FDR declared a national bank holiday.
That evolution of the Great Depression makes me think that another shoe could still drop in our present circumstance. However, the good news is, we really have at least successfully fought the last war. We understood some of what happened in the 30s and why. It seems to me, we have at least forestalled that particular set of disasters. Whether another unanticipated one will occur, we shall see.
Anyway, if you like the interwar years, and are at least vaguely interested in the present financial crisis, I think you will find Ahamed's work very enlightening. It was definitely a worthy addition to my reading list this year.
This is obviously a timely book with many frightening parallels that you will recognize from the headlines in your morning paper. However, as someone who continues to be drawn to the inter-war period, it also filled in some gaps.
Most folks interested in history can at least give you a knee-jerk sketch of Hitler's rise to power. They will mention the "crushing" terms of Versailles that gave rise to German resentment. They will talk about the weakness of Weimar Germany's democratic institutions. They will likely also point to the Great Depression, and if they REALLY know something, they will point to the war debts.
Reading this book adds another deeply troubling layer to the challenges facing the West when trying to confront Hitler. Basically, the "roarin' 20s" were based on something of an economic ponzi scheme, not dissimilar to the circle of debt and purchase that we have created between the United States and the People's Republic of China.
Essentially, after the war, everyone was broke. As students of WWI will appreciate, US participation in that war was a bit reluctant. For a while, we called ourselves an "associate" power, rather than an ally. Our attitude towards war debt reflected this. Why should we subsidize the British and French empires? We lent them money, they should pay. Well, where did Britain and France -- especially France -- want to get the cash to pay us? Why Germany of course.
That brought us to a circle of reparations. The US government (though not the American people) appreciated that no one really had the capacity to pay any of these debts. So what did we do with our new found economic strength? Well, we made loans to Germany. The amounts were basically just enough for England and France to collect from Germany what they owed to us.
The difficult part was whenever a kink developed in this system -- weakness in the German economy, absence of Gold in Britain -- the whole damn edifice would threaten to collapse, and then everyone would get together and try to renegotiate the whole deal. So, things I vaguely remembered from AP History in high school like "the Dawes" plan, took on real meaning. For the entire period of the interwar years, diplomacy between the US, Britain, France and Germany was totally poisoned by these debts. Everyone was mad at everyone else, and extremely anxious because the stakes were in fact, life and death.
So enter Liaquat Ahamed to paint a picture of the heads of the Central Banks of these four great powers. Montagu Norman of the Bank of England obviously takes center stage, but not far behind him is his friend with the real money, Benjamin Strong of the Federal Reserve of New York. No story would be complete without the petulant French, so Emile Morceau of the Banque de France takes that role. And excepting the type-cast, arrogant, insufferable but brilliant German is Hjalmer Schacht of the Reichsbank of Germany.
The petty rivalries and dealings between these four men are the foundation of the book. I think Ahamed gives us a very definite sense of the individuals and their peculiarities. They get it all wrong, but you get a sense of why they made the choices they did.
Ahamed certainly leaves an enormous burden of blame on Norman's fixation on the return to the Gold Standard. It certainly wrecked Britain's economy, and resultingly -- as Norman's friend Ben Strong of the NY Fed. tried to prop up the UK with low US interest rates, he created a giant stock bubble. I think we all know what happens to giant stock bubbles don't we?
Heroes? Well, two. First Ahamed certainly thinks that Keynes got most of it right. He saw the disaster coming. He tried to warn everyone. Some even listened, but in the end, the 4 central bankers had their way.
Another person singled out for some glory was FDR. He refused to be held captive to old banking orthodoxy. He utterly rejected the Gold standard -- though the US had ample gold reserves -- because he felt it would hold back price inflation, as the US was in a deep deflationary spiral. He was right, and within a year, Roosevelt had stopped the hemmoraging of the US economy and even turned a corner.
Finally, the French. Believe it or not, France made the best of the interwar years in terms of their economy. Regrettably, they attempted to use this economic strength for petty political aims, both vis a vis the English and the Germans. Ahh, the Gauls, when will they learn?
Single biggest light bulb from this read -- the Great Depression was basically a two step disaster. I always kinda thought we had Black Tuesday and then the banks started going under. Not so. Its almost 2 years between Black Tuesday and the banks going under.
Basically the stock market crash occurs -- but many in the Government think its actually a good thing. The bubble has burst, now we can get the US economy on a less speculative footing. Problem is, with all that lost wealth we stopped lending abroad, particularly to risky countries like Germany.
No churning of German loans means they have to pay Britain and France back with hard cash. They don't have it. Germany defaults, there is a run on German banks. Then people start realizing, wait -- our banks have a bunch of German loans. Run on US banks, banking system collapses in the US in kind of a swine flu contagion way. One state after another has to declare a "bank holiday." In some states, banks had been closed for months when FDR declared a national bank holiday.
That evolution of the Great Depression makes me think that another shoe could still drop in our present circumstance. However, the good news is, we really have at least successfully fought the last war. We understood some of what happened in the 30s and why. It seems to me, we have at least forestalled that particular set of disasters. Whether another unanticipated one will occur, we shall see.
Anyway, if you like the interwar years, and are at least vaguely interested in the present financial crisis, I think you will find Ahamed's work very enlightening. It was definitely a worthy addition to my reading list this year.
October 27, 2021
Most of us Americans are taught in school that the stock market crash on Wall Street caused the Great Depression. Beginning on Black Tuesday, October 29, 1929, we’re told, the Depression didn’t properly end in the United States until the mobilization for World War II began in 1941 or ’42. But the event was a global catastrophe. How, then, could a single event on Wall Street be the cause of a decade of suffering throughout much of the world? In truth, the stock market crash was just one of several factors, as investment banker Liaquat Ahamed so eloquently explains in Lords of Finance. And the central culprit in the collapse of the world’s financial markets wasn’t speculation in stocks but the gold standard.
THE GOLD STANDARD CHOKED OFF CREDIT
The ins and outs of finance come across as so much mumbo-jumbo to most of us. But Ahamed details the history with such great clarity that a general reader can emerge from the book with a far more solid understanding of the dynamics at play. The essence of his argument is that, by adhering stubbornly to the gold standard even as the markets unraveled, the world’s four leading central banks choked off the credit necessary to stimulate their economies. In the US, Great Britain, Germany, and France, the conservative policies pursued both by the central bankers and their governments steadily made matters worse. Only when, one by one, they woke up and ditched the gold standard did their economies begin the long, slow climb out of the Great Depression.
HOW THE GOLD STANDARD WORKED
As Ahamed explains, the gold standard operated to place a limit on the total volume of money a central bank could support in circulation. For example, if you held a £100 bill, you could then go to a bank in England and demand $486 worth of gold in exchange. The British pound was fixed then at $4.86 in gold, and the Bank of England could issue only as much currency as it could reasonably be expected to redeem in gold in a down economy. With a fixed amount of gold in its coffers, and very little new gold being mined during that era, credit became scarcer and scarcer.
Too little gold meant too little money. Which meant that the world was inevitably heading for a fall as the European economies recovered from the devastation of World War I and the US stock market sucked up so much available credit for speculation in stocks. When the crash came and the banks failed in one country after another, people hoarded all the cash they could lay their hands on. Which, of course, made matters even worse. Little remained for the surviving banks to loan to businesses—and few bankers were willing to take chances in such depressed times. It was the perfect storm, in other words.
FOUR CENTRAL BANKERS, AND ONE ECONOMIST, AT THE CENTER OF THIS STORY
Ahamed’s account is far from a dry, academic discourse on finance. He spins out his tale through the lives of the men who led the central banks of the US, Great Britain, Germany, and France during the most crucial years of the 1920s and, in some cases, through the opening years of the ’30s. He singles out five men for special attention:
Montagu Norman (1871-1950), Governor of the Bank of England from 1920 to 1944. The bank dates to 1694 and is one of the world’s oldest. It has served as a model for most of the world’s central banks.
Benjamin Strong (1872-1928), Governor of the Federal Reserve Bank of New York from 1914 to 1928. The New York Fed was (and is) the first among equals of the twelve regional banks of the Federal Reserve system. During the system’s first decade, the New York Fed called the shots, not the Board of Governors in Washington, DC, as has been the case for decades now. Strong and Norman early became close friends, went on joint vacations together, and often coordinated policies.
Hjalmar Schacht (1877-1970), President of the Reichsbank from 1923-1930. In the early 1930s, Schacht threw in his lot with the Nazis and served in senior posts in Adolf Hitler’s government. But he later turned against the regime and participated in efforts to overthrow the Führer.
Émile Moreau (1868-1950), Governor of the Banque de France. Moreau and Norman were at loggerheads for years, and their failure to collaborate as the economy went sour contributed to the decline.
The fifth person at the heart of Ahamed’s story is John Maynard Keynes (1883-1946), who is often cited as the most important economist of the twentieth century. Keynes was the outsider who savagely attacked their policies more often than not.
Today, the four bankers’ names are little remembered. But in their day these four men were celebrated both at home and (in some cases) abroad for their leadership. Only Keynes remains widely remembered.
ABOUT THE AUTHOR
Wikipedia tells us that Liaquat Ahamed “was born [in 1952] in Kenya, where his grandfather had emigrated to from Gujarat by way of Zanzibar in the late 19th century. He was educated at Rugby School in England, at Trinity College, Cambridge, and at Harvard University.” An American citizen, he is an investment banker with an extensive resumé that includes long-term stints at the World Bank as well as a number of private banks, insurance companies, and investment funds. He is a non-practicing Muslim. Ahamed and his wife have one daughter, who is married. Lords of Finance is his first book.
THE GOLD STANDARD CHOKED OFF CREDIT
The ins and outs of finance come across as so much mumbo-jumbo to most of us. But Ahamed details the history with such great clarity that a general reader can emerge from the book with a far more solid understanding of the dynamics at play. The essence of his argument is that, by adhering stubbornly to the gold standard even as the markets unraveled, the world’s four leading central banks choked off the credit necessary to stimulate their economies. In the US, Great Britain, Germany, and France, the conservative policies pursued both by the central bankers and their governments steadily made matters worse. Only when, one by one, they woke up and ditched the gold standard did their economies begin the long, slow climb out of the Great Depression.
HOW THE GOLD STANDARD WORKED
As Ahamed explains, the gold standard operated to place a limit on the total volume of money a central bank could support in circulation. For example, if you held a £100 bill, you could then go to a bank in England and demand $486 worth of gold in exchange. The British pound was fixed then at $4.86 in gold, and the Bank of England could issue only as much currency as it could reasonably be expected to redeem in gold in a down economy. With a fixed amount of gold in its coffers, and very little new gold being mined during that era, credit became scarcer and scarcer.
Too little gold meant too little money. Which meant that the world was inevitably heading for a fall as the European economies recovered from the devastation of World War I and the US stock market sucked up so much available credit for speculation in stocks. When the crash came and the banks failed in one country after another, people hoarded all the cash they could lay their hands on. Which, of course, made matters even worse. Little remained for the surviving banks to loan to businesses—and few bankers were willing to take chances in such depressed times. It was the perfect storm, in other words.
FOUR CENTRAL BANKERS, AND ONE ECONOMIST, AT THE CENTER OF THIS STORY
Ahamed’s account is far from a dry, academic discourse on finance. He spins out his tale through the lives of the men who led the central banks of the US, Great Britain, Germany, and France during the most crucial years of the 1920s and, in some cases, through the opening years of the ’30s. He singles out five men for special attention:
Montagu Norman (1871-1950), Governor of the Bank of England from 1920 to 1944. The bank dates to 1694 and is one of the world’s oldest. It has served as a model for most of the world’s central banks.
Benjamin Strong (1872-1928), Governor of the Federal Reserve Bank of New York from 1914 to 1928. The New York Fed was (and is) the first among equals of the twelve regional banks of the Federal Reserve system. During the system’s first decade, the New York Fed called the shots, not the Board of Governors in Washington, DC, as has been the case for decades now. Strong and Norman early became close friends, went on joint vacations together, and often coordinated policies.
Hjalmar Schacht (1877-1970), President of the Reichsbank from 1923-1930. In the early 1930s, Schacht threw in his lot with the Nazis and served in senior posts in Adolf Hitler’s government. But he later turned against the regime and participated in efforts to overthrow the Führer.
Émile Moreau (1868-1950), Governor of the Banque de France. Moreau and Norman were at loggerheads for years, and their failure to collaborate as the economy went sour contributed to the decline.
The fifth person at the heart of Ahamed’s story is John Maynard Keynes (1883-1946), who is often cited as the most important economist of the twentieth century. Keynes was the outsider who savagely attacked their policies more often than not.
Today, the four bankers’ names are little remembered. But in their day these four men were celebrated both at home and (in some cases) abroad for their leadership. Only Keynes remains widely remembered.
ABOUT THE AUTHOR
Wikipedia tells us that Liaquat Ahamed “was born [in 1952] in Kenya, where his grandfather had emigrated to from Gujarat by way of Zanzibar in the late 19th century. He was educated at Rugby School in England, at Trinity College, Cambridge, and at Harvard University.” An American citizen, he is an investment banker with an extensive resumé that includes long-term stints at the World Bank as well as a number of private banks, insurance companies, and investment funds. He is a non-practicing Muslim. Ahamed and his wife have one daughter, who is married. Lords of Finance is his first book.
July 7, 2018
I listened to the audiobook of this, and I think I need to stop listening to non-fiction books on audio because I never remember the certain facts that I love to commit to memory when I read historical non-fiction books. That said this book had a lot of information about the time and people involved. It was interesting to learn a lot more about economics.
March 14, 2018
I never thought that a book on economics would be so interesting. A quartet of biographies mixed into the economics and history of the time period. This gave me a much deeper insight into the Great Depression and the decades that surround it.
October 16, 2022
I have always been fascinated by the topic of the Great Depression, with the widely varying explanations of its origins and the evaluations of the national and international efforts in fighting it. It is such a complex historical period, that so many authors often succumb to ideologically-driven reasonings and simple explanations.
But this book is quite different, in that Liaquat Ahamed looks at it through the actions of four central banks, represented to a large degree by four men (well, in reality, 6-7) whose archaic perceptions about the international monetary policy, personal limitations (mostly French-British antipathy and German interwar sense of being oppressed by the Allies from the First World War) set the scene for a catastrophe. It is a story of the physical and metaphorical flows of gold bullion, decisions about interest rates driven by friendships and animosities and the constant effort of the French, British and German politicians to get better off the others.
The book is essentially a financial/monetary history of the Western economies (largely the US, UK, France and Germany) between 1914 and 1944 - exploring the various ways the countries were funding the First World War, the endless discussions and renegotiations of the war debts and reparations and later responses to the downturns of 1929-1933. It is probably the best popular economic history of the volatile 1920s, highlighting especially the irrationality of thinking about the monetary theory of so many people at that time.
John Maynard Keynes is featured often (as the voice of reason), as are various other important policymakers of that era - Winston Churchill (as Chancellor of the Exchequer), Adolph Miller (member of the Fed Board of Governors) or the succession of French Prime Ministers and German Chancellors, one less memorable than the other.
The story is unique because it shows that the grand macroeconomic forces, so often presented through impersonal equations and aggregates, are in the end so driven by the simple human natures of the key decision-makers. That what we see as larger-than-life forces of international finances are developed step by step, through individual decisions, which while being constrained by path dependence, still have moments where the decision in one way or another has a chance to change the final outcome. By focusing on the personalities of the four central bankers, Ahamed manages to make the macroeconomic theory a story of personalities, rather than mere facts.
The book is rather enjoyably written, full of anecdotes (my favourite is a story of a certain Czech (representation!) trader at Lazard's office in Brussels, whose actions almost bankrupted the famous bank but still managed to be covered up for almost 7 years) and little biographies. It was published at a very good moment (2008), but it is even more useful today, when we are, I believe, on the precipice of an international recession. It shows that even more than the cold aggregates and models, we should pay attention to the psychology and the personalities of the decision-makers.
But this book is quite different, in that Liaquat Ahamed looks at it through the actions of four central banks, represented to a large degree by four men (well, in reality, 6-7) whose archaic perceptions about the international monetary policy, personal limitations (mostly French-British antipathy and German interwar sense of being oppressed by the Allies from the First World War) set the scene for a catastrophe. It is a story of the physical and metaphorical flows of gold bullion, decisions about interest rates driven by friendships and animosities and the constant effort of the French, British and German politicians to get better off the others.
The book is essentially a financial/monetary history of the Western economies (largely the US, UK, France and Germany) between 1914 and 1944 - exploring the various ways the countries were funding the First World War, the endless discussions and renegotiations of the war debts and reparations and later responses to the downturns of 1929-1933. It is probably the best popular economic history of the volatile 1920s, highlighting especially the irrationality of thinking about the monetary theory of so many people at that time.
John Maynard Keynes is featured often (as the voice of reason), as are various other important policymakers of that era - Winston Churchill (as Chancellor of the Exchequer), Adolph Miller (member of the Fed Board of Governors) or the succession of French Prime Ministers and German Chancellors, one less memorable than the other.
The story is unique because it shows that the grand macroeconomic forces, so often presented through impersonal equations and aggregates, are in the end so driven by the simple human natures of the key decision-makers. That what we see as larger-than-life forces of international finances are developed step by step, through individual decisions, which while being constrained by path dependence, still have moments where the decision in one way or another has a chance to change the final outcome. By focusing on the personalities of the four central bankers, Ahamed manages to make the macroeconomic theory a story of personalities, rather than mere facts.
The book is rather enjoyably written, full of anecdotes (my favourite is a story of a certain Czech (representation!) trader at Lazard's office in Brussels, whose actions almost bankrupted the famous bank but still managed to be covered up for almost 7 years) and little biographies. It was published at a very good moment (2008), but it is even more useful today, when we are, I believe, on the precipice of an international recession. It shows that even more than the cold aggregates and models, we should pay attention to the psychology and the personalities of the decision-makers.
June 11, 2009
Ahamed's one of those lucky authors who spends a decade working on a book and then pop! it lands at Borders the second its subject supposedly becomes essential to global salvation. Suddenly every anchor with 5 spare minutes wants an interview.
Ahamed wrote a book on central banking and the Great Depression and it came out just as the economic world fell to crap. Lucky him. It also received ridiculously positive reviews from everybody.
To my mind it was tedious, plodding, repetitious, and the storyline veered and swerved like a drunken Irishman making for his car. Norman Montagu, the British central banker with paranoia problems and a fondness for spats, is a great character, but he's been drawn better with fewer words elsewhere. Its was interesting to trace the era's morbid obsession with gold reserves and the unbelievable ramifications of that on the world, but again it could have been done quicker. If anything this book does remind one of the powers of individual persons in obscure places to change the course of history. I just wish it was done in 200 pages.
January 29, 2020
A really good biography of a few of the bankers during the time of ww1 and the great depression. It went through the economic events caused by the war and what contributed to the great depression.
It is interesting that Harry White was so influential in post WW2 economic and monetary planning, helping to found the IMF and was the president of it for a while. He and Keynes agreed on a lot of economic theories, and then he turns out to be a communist spy. It should make us reconsider the economic theories prevalent in our culture now seeing as they're based on the theories of these men.
It is interesting that Harry White was so influential in post WW2 economic and monetary planning, helping to found the IMF and was the president of it for a while. He and Keynes agreed on a lot of economic theories, and then he turns out to be a communist spy. It should make us reconsider the economic theories prevalent in our culture now seeing as they're based on the theories of these men.
September 11, 2020
২০ এর দশকের গ্রেট ডিপ্রেশনের ব্যাপারে জানতে বইটা ধরেছিলাম, তখন যদি জানতাম যে কী এক বিশাল কাজ!
প্রথম বিশ্বযুদ্ধ আর ২য় বিশ্বযুদ্��ের মাঝের সময়ে আন্তর্জাতিক অর্থনীতির উত্থান-পতনের গল্প বর্ণনা করা হয়েছে ৪ পরাশক্তির(আমেরিকা, ব্রিটেন, ফ্রান্স, জার্মানি) সেন্ট্রাল ব্যাংকের গভর্নরদের কেন্দ্র করে।
লেখক অর্থনীতিবিদ, কিন্তু অর্থনীতির ইতিহাস বলতে গেছেন গল্পের মত। ব্যাপারটা জগাখিচুড়ি পাকিয়ে অর্থনীতি, ইতিহাস অথবা গল্প কোনটাই ঠিক হয়ে উঠলো না।
প্রামাণ্য দলিল হিসেবে পাঠ্য বলা চলে। কারও এই বিষয়ে প্রচুর আগ্রহ থাকলে ধৈর্য ধরে ঘেঁটে দেখতে পারেন।
প্রথম বিশ্বযুদ্ধ আর ২য় বিশ্বযুদ্��ের মাঝের সময়ে আন্তর্জাতিক অর্থনীতির উত্থান-পতনের গল্প বর্ণনা করা হয়েছে ৪ পরাশক্তির(আমেরিকা, ব্রিটেন, ফ্রান্স, জার্মানি) সেন্ট্রাল ব্যাংকের গভর্নরদের কেন্দ্র করে।
লেখক অর্থনীতিবিদ, কিন্তু অর্থনীতির ইতিহাস বলতে গেছেন গল্পের মত। ব্যাপারটা জগাখিচুড়ি পাকিয়ে অর্থনীতি, ইতিহাস অথবা গল্প কোনটাই ঠিক হয়ে উঠলো না।
প্রামাণ্য দলিল হিসেবে পাঠ্য বলা চলে। কারও এই বিষয়ে প্রচুর আগ্রহ থাকলে ধৈর্য ধরে ঘেঁটে দেখতে পারেন।
August 25, 2020
Entertaining and informative, a history of the 1920s and 1930s from the standpoint of the important figures shaping economic policy. Whereas most histories of the era tend to focus on the political figures and events, this book shows how the bankers shaping monetary policy had an enormous impact. Ahamed's Pulitzer was well-deserved.
July 4, 2023
LORDS OF FINANCE
The Bankers Who Broke the World
Synopsis
'It is commonly believed that the Great Depression that began in 1929 resulted from a confluence of events beyond any one person's or government's control. In fact, as Liaquat Ahamed reveals, it was the decisions taken by a small number of central bankers that were the primary cause of the economic meltdown, the effects of which set the stage for World War II and reverberated for decades.
In Lords of Finance, we meet the neurotic and enigmatic Montagu Norman of the Bank of England; the xenophobic and suspicious Émile Moreau of the Banque de France; the arrogant yet brilliant Hjalmar Schacht of the Reichsbank; and Benjamin Strong of the Federal Reserve Bank of New York, whose facade of energy and drive masked a deeply wounded and overburdened man. After the First World War, these central bankers attempted to reconstruct the world of international finance. Despite all their differences, they were united by a common fear - that the greatest threat to capitalism was inflation - and a common vision - that the solution was to turn back the clock and return the world to the gold standard.
For a brief period in the mid-1920s they appeared to have succeeded. The world's currencies were stabilized and capital began flowing freely across the globe. But beneath the veneer of boomtown prosperity, cracks began to appear in the financial system. The gold standard that all had believed would provide an umbrella of stability proved to be a straitjacket, and the world economy began that terrible downward spiral into what is known as the Great Depression.
As yet another period of economic turmoil makes headlines today, the Great Depression and the year 1929 remain the benchmarks for true financial mayhem. Offering a new understanding of the global nature of financial crises, Lords of Finance is a potent reminder of the enormous impact that the decisions of central bankers can have, their fallibility, and the terrible human consequences that can result when they are wrong.'
It will be interesting to compare this account of that history with the brilliant John Kenneth Galbraith's The Great Crash 1929: The Classic Study of That Disaster.
I just read that Winston Churchill had lost most of his savings in the 1929 Wall Street crash.
Prologue: "In February 1912, the committee (of Imperial Defense) conducted hearings on issues related to trade in time of war. Much of the German merchant marine was then insured through Lloyds of London, and the committee was dumbfounded to hear the chairman of Lloyds testify that in the event of war, were German ships to be sunk by the Royal Navy, Lloyds would be both honourbound and, according to its lawyers, legally obliged to cover the losses. The possibility that while Britain and Germany were at war, British insurance companies would be required to compensate the Kaiser for his sunken tonnage made it hard even to conceive of a European conflict."
6. Money Generals
Central Banks: 1914 -19
'Turning to the Bank of England for money was not as unprecedented a policy as City bankers reared on nineteenth-century principles of finance liked to think. For the Bank had been originally created, in fact, not to regulate the currency but to help pay for a war.'
'Like so many British institutions of those days, the Bank was run like a club. Control was vested in twenty-six directors of what was quaintly known as the Court of the Bank of England. Its membership was largely drawn from a closed inner circle of City bankers and merchants. They had all gone to the same small selection of schools, preferably Eton or Harrow. Some of them had even attended Oxford or Cambridge.'
'Directors were generally invited to join in their late thirties and were appointed for life, or at least until the onset of senility; many were in their seventies or eighties, and some had been on the Court for over half a century.'
'These arrangements, according to Walter Bagehot, (the great nineteenth-century editor of the Economist) put the financial stability of London, and as a consequence, the world in the hands of "a shifting executive; a board of directors chosen too young for it to be known whether they are able; a committee in which seniority is the necessary qualification, and old age the common result." It was a strange, even eccentric way of doing things - for the most important financial institution in Britain, in fact the world, to be in the hands of a group of amateurs, men who generally would have preferred to be doing something else but who viewed the years they devoted to steering the Bank as a form of civic duty.' *
*That same ethos seems to have extended to the senior employees. Kenneth Grahame, the children's author, joined the Bank of England in 1879 and rose through the ranks, eventually becoming secretary. In 1895, he published The Golden Age, a book not about bullion but children. In 1907 he retired, after having been shot during an unsuccessful robbery attempt at the Bank, and the following year published The Wind in the Willows.'
The Bankers Who Broke the World
Synopsis
'It is commonly believed that the Great Depression that began in 1929 resulted from a confluence of events beyond any one person's or government's control. In fact, as Liaquat Ahamed reveals, it was the decisions taken by a small number of central bankers that were the primary cause of the economic meltdown, the effects of which set the stage for World War II and reverberated for decades.
In Lords of Finance, we meet the neurotic and enigmatic Montagu Norman of the Bank of England; the xenophobic and suspicious Émile Moreau of the Banque de France; the arrogant yet brilliant Hjalmar Schacht of the Reichsbank; and Benjamin Strong of the Federal Reserve Bank of New York, whose facade of energy and drive masked a deeply wounded and overburdened man. After the First World War, these central bankers attempted to reconstruct the world of international finance. Despite all their differences, they were united by a common fear - that the greatest threat to capitalism was inflation - and a common vision - that the solution was to turn back the clock and return the world to the gold standard.
For a brief period in the mid-1920s they appeared to have succeeded. The world's currencies were stabilized and capital began flowing freely across the globe. But beneath the veneer of boomtown prosperity, cracks began to appear in the financial system. The gold standard that all had believed would provide an umbrella of stability proved to be a straitjacket, and the world economy began that terrible downward spiral into what is known as the Great Depression.
As yet another period of economic turmoil makes headlines today, the Great Depression and the year 1929 remain the benchmarks for true financial mayhem. Offering a new understanding of the global nature of financial crises, Lords of Finance is a potent reminder of the enormous impact that the decisions of central bankers can have, their fallibility, and the terrible human consequences that can result when they are wrong.'
It will be interesting to compare this account of that history with the brilliant John Kenneth Galbraith's The Great Crash 1929: The Classic Study of That Disaster.
I just read that Winston Churchill had lost most of his savings in the 1929 Wall Street crash.
Prologue: "In February 1912, the committee (of Imperial Defense) conducted hearings on issues related to trade in time of war. Much of the German merchant marine was then insured through Lloyds of London, and the committee was dumbfounded to hear the chairman of Lloyds testify that in the event of war, were German ships to be sunk by the Royal Navy, Lloyds would be both honourbound and, according to its lawyers, legally obliged to cover the losses. The possibility that while Britain and Germany were at war, British insurance companies would be required to compensate the Kaiser for his sunken tonnage made it hard even to conceive of a European conflict."
6. Money Generals
Central Banks: 1914 -19
'Turning to the Bank of England for money was not as unprecedented a policy as City bankers reared on nineteenth-century principles of finance liked to think. For the Bank had been originally created, in fact, not to regulate the currency but to help pay for a war.'
'Like so many British institutions of those days, the Bank was run like a club. Control was vested in twenty-six directors of what was quaintly known as the Court of the Bank of England. Its membership was largely drawn from a closed inner circle of City bankers and merchants. They had all gone to the same small selection of schools, preferably Eton or Harrow. Some of them had even attended Oxford or Cambridge.'
'Directors were generally invited to join in their late thirties and were appointed for life, or at least until the onset of senility; many were in their seventies or eighties, and some had been on the Court for over half a century.'
'These arrangements, according to Walter Bagehot, (the great nineteenth-century editor of the Economist) put the financial stability of London, and as a consequence, the world in the hands of "a shifting executive; a board of directors chosen too young for it to be known whether they are able; a committee in which seniority is the necessary qualification, and old age the common result." It was a strange, even eccentric way of doing things - for the most important financial institution in Britain, in fact the world, to be in the hands of a group of amateurs, men who generally would have preferred to be doing something else but who viewed the years they devoted to steering the Bank as a form of civic duty.' *
*That same ethos seems to have extended to the senior employees. Kenneth Grahame, the children's author, joined the Bank of England in 1879 and rose through the ranks, eventually becoming secretary. In 1895, he published The Golden Age, a book not about bullion but children. In 1907 he retired, after having been shot during an unsuccessful robbery attempt at the Bank, and the following year published The Wind in the Willows.'
March 20, 2018
Economic history can be a somewhat dry subject to read about. Not so with Liaquat Ahamed's Pulitzer Prize-winning book examining the financial machinations of Great Britain, France, Germany, and the United States in the first half of the 20th century. Ahamed tries to avoid excessively using technical economic jargon and convoluted theories that would go right over the non-financially literate, which includes myself. While of course the book does focus on economics, Ahamed equally focuses on the politics and personalities that affected and determined Treasury policies. The result is an eminently readable story about greed, war, and mutual suspicion.
Ahamed alternates chapters between the four countries, taking a central banker from each one and focusing on him. Mini-biographies are provided of the four men: Hjalmar Schacht (Germany), Emile Moreau (France), Benjamin Strong (United States) and Montagu Norman (Britain). Their respective rises to financial power as bankers, their flaws and idiosyncrasies, and their interactions with each other are all chronicled. While the book does not completely revolve around these men (British economist John Maynard Keynes is also a key figure), their stories more or less bring the narrative along.
WWI serves as the beginning of the period that Ahamed writes about, although some background setting is amply provided. Following the armistice, none of the four major powers trusted the other. Germany, forced into a humiliating defeat, hated its European rivals in particular. France, after being overrun by Germany twice within the previous fifty years, feared its powerful neighbor and was obsessed with weakening it. Great Britain, always at odds with France, resenting the intrusion of the United States into what it considered mainly European affairs, and worried about its own wobbly economy. And the United States: late to enter the War, big on rhetoric, turning isolationist throughout the 1920s, and wondering if it would ever get back the money it loaned out to the Allies. No wonder the world economic order ultimately collapsed.
It is disheartening to read about the pettiness and greediness of the central bankers. They allowed their own greed and their own pampered, luxurious lifestyles to influence their decisions – decisions that resulted in financial ruin for millions of people and ushered in a decade of economic horror across the globe. The bankers certainly weren't the only cause of this financial meltdown, as greedy brokers, speculators, and tone-deaf politicians all contributed to the mix as well. Secretary of the Treasury Andrew Mellon is singled out by Liaquat for especial ridicule. Mellon was extremely wealthy and even more disconnected from everyday Americans. His laisez-faire economic philosophy and seeming indifference to the onset of the Depression is more than disappointing to read about.
The final part of the book deals with the first few years of Franklin Roosevelt's Administration and how the Depression stubbornly hung on, especially where unemployment was concerned. Ahamed closes the book with brief summaries of the later lives of the main characters, a few of which were sad. He also has a cogent epilogue comparing the factors that contributed to the Great Depression with the characteristics of the Great Recession of 2008, and how many things were similar, most notably the greediness of speculators. Anyone interested in economic history or in learning about some of the underlying causes of the Great Depression will find this of value. The writing style is engaging and helps to keep the reader from getting mired in economic theories and financial dealings.
Grade: A-
Ahamed alternates chapters between the four countries, taking a central banker from each one and focusing on him. Mini-biographies are provided of the four men: Hjalmar Schacht (Germany), Emile Moreau (France), Benjamin Strong (United States) and Montagu Norman (Britain). Their respective rises to financial power as bankers, their flaws and idiosyncrasies, and their interactions with each other are all chronicled. While the book does not completely revolve around these men (British economist John Maynard Keynes is also a key figure), their stories more or less bring the narrative along.
WWI serves as the beginning of the period that Ahamed writes about, although some background setting is amply provided. Following the armistice, none of the four major powers trusted the other. Germany, forced into a humiliating defeat, hated its European rivals in particular. France, after being overrun by Germany twice within the previous fifty years, feared its powerful neighbor and was obsessed with weakening it. Great Britain, always at odds with France, resenting the intrusion of the United States into what it considered mainly European affairs, and worried about its own wobbly economy. And the United States: late to enter the War, big on rhetoric, turning isolationist throughout the 1920s, and wondering if it would ever get back the money it loaned out to the Allies. No wonder the world economic order ultimately collapsed.
It is disheartening to read about the pettiness and greediness of the central bankers. They allowed their own greed and their own pampered, luxurious lifestyles to influence their decisions – decisions that resulted in financial ruin for millions of people and ushered in a decade of economic horror across the globe. The bankers certainly weren't the only cause of this financial meltdown, as greedy brokers, speculators, and tone-deaf politicians all contributed to the mix as well. Secretary of the Treasury Andrew Mellon is singled out by Liaquat for especial ridicule. Mellon was extremely wealthy and even more disconnected from everyday Americans. His laisez-faire economic philosophy and seeming indifference to the onset of the Depression is more than disappointing to read about.
The final part of the book deals with the first few years of Franklin Roosevelt's Administration and how the Depression stubbornly hung on, especially where unemployment was concerned. Ahamed closes the book with brief summaries of the later lives of the main characters, a few of which were sad. He also has a cogent epilogue comparing the factors that contributed to the Great Depression with the characteristics of the Great Recession of 2008, and how many things were similar, most notably the greediness of speculators. Anyone interested in economic history or in learning about some of the underlying causes of the Great Depression will find this of value. The writing style is engaging and helps to keep the reader from getting mired in economic theories and financial dealings.
Grade: A-
December 28, 2011
This explanation of the perfect storm that lead to the Great Depression was oddly reassuring in light of the current economic climate. Ahamed describes the sorry state of economic and monetary theory, the straightjacket that was the gold standard, and the mediocrities who were in charge of the world's money during the period between the wars. Today, he says, we have Keynes, we are not tethered to gold, and the crises that we have experienced have had the decency to occur one at a time with a decent interval between shocks. Ahamed's final chapters sum up the factors that lead to the complete breakdown of the wold economic system in the 1930's. First, the Treaty of Versailles institutionalized debts connected with WWI. Each of the major countries of the world owed money to the United States, and Germany owed reparations to all the Allies. Figuring out how to collect or to avoid paying these debts consumed the energy of most of the world for a decade to the detriment of progress. The leading central bankers of the decade of the '20's, Montagu Norman of England , Benjamin Strong of the US Fed, Hjalmar Schacht of Germanyb and Emile Moreau in France, were responsible for the "second fundamental error of economic policy in the 1920's: the decision to take the world back onto the gold standard." Britain overvalued its currency due to pride and could not sell its goods to other countries as a result. The supply of money in each economy was tied to the supply of gold. More money could be printed under the mysterious and totally voluntary rules governing gentlemen's agreement that was the gold standard only when more gold was discovered. Gold supplies could not keep up with the need for money. The difficulties that England brought down on the pound by an early and incorrect pegging of the pound to the pre-war gold standard affected the economic health of the entire world. Gold flowed, unwanted, to the US and France, and undermined international cooperation.
The central bankers kept the world afloat for a while by keeping interest rates down in the US and lending money to Germany. These stopgap measures lead to a huge bubble in the US stock market, so the Fed was forced to choose between continuing to keep Germany afloat or tamping down the bubble in the stock market. In the end, they destroyed Germany while being ineffective at halting speculation in stocks. The bubble, on the way up, caused recession in Germany and causing deflation in the rest of the world, and on the way down, plunged the US into depression. Economies are greatly affected by confidence. A little firm leadership can go a long way. The group of men who ran the world's major economies did not understand leadership, who had outmoded or incorrect theories about economics, or who felt that nothing could or should be done except to wait out the effect of deflationary
The central bankers kept the world afloat for a while by keeping interest rates down in the US and lending money to Germany. These stopgap measures lead to a huge bubble in the US stock market, so the Fed was forced to choose between continuing to keep Germany afloat or tamping down the bubble in the stock market. In the end, they destroyed Germany while being ineffective at halting speculation in stocks. The bubble, on the way up, caused recession in Germany and causing deflation in the rest of the world, and on the way down, plunged the US into depression. Economies are greatly affected by confidence. A little firm leadership can go a long way. The group of men who ran the world's major economies did not understand leadership, who had outmoded or incorrect theories about economics, or who felt that nothing could or should be done except to wait out the effect of deflationary
May 13, 2015
An excellent book, deserving of the many rewards and positive reviews that it has received. I listened to this on a three-part Audible download, and I noticed the following small errors.
-- Part two, chapter four, time 13:40: Mixed metaphor alert: “Moreau's star was about to turn.” I guess a star can actually rotate, but, in my mental dictionary, when you wish to metaphorically indicate an improvement in someone's fortune, their star rises. Fortunes themselves, less metaphorically, can turn.
A Google search indicates that rising stars generally outnumber turning stars by 10 to 1. I could find no other indication that anyone else ever used the words “star” and “turn”, in any grammatical variation, to indicate an improvement in fortunes.
[Digression: While researching the previous paragraph, I found that a UK e-commerce site for women's shoes had inexplicably pasted a page-long portion of this book, including the above quotation, into the comments section of its site. I found this vaguely disturbing.]
Update 12 May 2015: Someone on Goodreads very politely emailed me to point out that the point I tried to make in the next paragraph was incorrect. Upon re-reading, I am embarrassed by my rudimentary mistake. Apologies.
-- Part two, chapter four, time 46:30: The author's biography says he has been a “professional investment manager for 25 years”, worked at the World Bank, is a trustee of the Brookings Institution, and a graduate of Cambridge and Harvard. So it's surprising that, here and in at least one other location, he makes a rudimentary error in statistics. In this case, he says that an appreciation of the French Franc from 50 Francs on the US Dollar to 36 as a 40 percent increase. It isn't. It's a 28 percent increase. A change from 36 to 50 is a 40 percent change, but a change from 50 to 36 is a 28 percent change. If a simple English teacher like self can understand this, then....,
-- Part two, chapter five, time 45:44: Instead of “de jure”, the narrator says “de jute”. As far as I can tell, this is not a word or phrase in either English or French. Was it too much trouble to go back and say the word correctly?
-- Part three, chapter one, time 13:40: A historical character is characterized as “bespeckled”, which, unless he was covered in spots, is a mistake. I think that the intention was “bespectacled”, meaning that he wore eyeglasses. However, this mistake made me laugh, so I don't mind it so much.
-- Part two, chapter four, time 13:40: Mixed metaphor alert: “Moreau's star was about to turn.” I guess a star can actually rotate, but, in my mental dictionary, when you wish to metaphorically indicate an improvement in someone's fortune, their star rises. Fortunes themselves, less metaphorically, can turn.
A Google search indicates that rising stars generally outnumber turning stars by 10 to 1. I could find no other indication that anyone else ever used the words “star” and “turn”, in any grammatical variation, to indicate an improvement in fortunes.
[Digression: While researching the previous paragraph, I found that a UK e-commerce site for women's shoes had inexplicably pasted a page-long portion of this book, including the above quotation, into the comments section of its site. I found this vaguely disturbing.]
Update 12 May 2015: Someone on Goodreads very politely emailed me to point out that the point I tried to make in the next paragraph was incorrect. Upon re-reading, I am embarrassed by my rudimentary mistake. Apologies.
-- Part two, chapter five, time 45:44: Instead of “de jure”, the narrator says “de jute”. As far as I can tell, this is not a word or phrase in either English or French. Was it too much trouble to go back and say the word correctly?
-- Part three, chapter one, time 13:40: A historical character is characterized as “bespeckled”, which, unless he was covered in spots, is a mistake. I think that the intention was “bespectacled”, meaning that he wore eyeglasses. However, this mistake made me laugh, so I don't mind it so much.
August 31, 2022
Not surprised that a group of men with no idea what they were doing destroyed the world. Sounds familiar. Was surprised by the number of times one of them “collapsed” and had to go on months-long vacations in the midst of financial crises? What was that?
April 18, 2019
https://pricelesseconomics.wordpress....
An insightful account of the social, economic and political trends of the 1920’s, 30’s and 40’s, centred on the monetary economics leading to the great depression. As someone with a passion for monetary economics, there were times when I was looking for a little more opinion, defence of good ideas and criticism of weak. But Ahmed does well to note the various opinions in a reasonably objective way, allowing the reader to assess them and delve a little deeper themselves. I enjoyed the thread through the lives of the major central bankers – interesting characters. The digressions got tedious but it’s a difficult balancing act between potentially boring historical facts, entertaining but unnecessary anecdotes and insightful but opinionated interpretation of the facts.
My 5 take away’s:
1. Historical experience has a strong impact on principles in the subsequent period. The bigger the crisis, the stronger the impact and the longer it lasts.
French inflation north of 20% post-WW1 stoked a particularly conservative characteristic in French bankers leading into the Great Depression, making them a dominant force of the time. France had the world’s second highest gold reserves, low levels of inflation, a strong currency and a reasonably strong economy in the late 1920’s, which is in stark contrast to the more profligate approach of current French politicians. The scars from the 1920’s experience have worn off by now.
Germany also experienced high levels of inflation directly after WW1. With the assistance of reparations fears, the country went into hyperinflation in the late 1920’s. The scars from this catastrophe remain engrained in German monetary policy. The Bundesbank is far and away the most conservative central bank in Europe. I’m inclined to think the historical experience is more important than inherently German characteristics, as others might argue.
This relationship between historical experience and subsequent principles, biases and actions in the following period could be applied to more recent historical events. Some might argue that the 2008 financial crisis, for example, made investors ultra-scared of potential crises and perhaps now they aren’t taking enough risk? The flip-side is that subsequent unprecedented central bank support may have lulled investors into thinking that monetary support will consistently stand as a back-stop against future crisis, breeding complacency?
2. Dogmatic implementation of principles, even if they are good ideas, creates negative outcomes and can turn people against the good principles.
The pre-WW1 gold standard imposed a degree of budgetary prudence, monetary conservatism and it avoided competitive cross-border FX devaluations. These are good principles that probably aided pre-war prosperity. However, dogmatic implementation of the gold standard post the war was damaging.
The UK, in particular, tried to assert the gold standard at pre-war levels because to maintain the prestige of being the world’s banker and convince investors that that debts wouldn’t be inflated away. Inflation during the war years made the GBP/troy oz. relation unrealistic though. Pre-war, 15% of UK money supply was backed by gold, which fell to 7% post war. Substantial monetary deflation was required to make a credible commitment to the pre-war peg. Without sharp economic liberalisation required to adjust prices quickly, this deflation caused economic depression and unemployment.
In hindsight it’s clear that the monetary inflation during the war was the original sin. If the UK wanted to return to the gold standard it had to own up to this monetisation of it’s debts and devalue the GBP vs. gold. Dogmatic implementation of the gold standard at pre-war levels and the subsequent relief when the UK finally broke the peg public in 1931, made the gold standard the scape goat for the economic difficulties. In reality it was the monetary inflation of the war and the dogmatic implementation of the standard post the war that were at fault, not the underlying principles.
3. Keynes wasn’t a Keynesian.
John Maynard Keynes was a vehement critic of GBP/gold convertibility at pre-war levels but he was actually an advocate of the gold standard on many occasions. He was vindicated in his opposition to pre-war convertibility levels but this doesn’t imply that he was opposed to sound money. When WW2 broke out Keynes became an unpaid economic advisor to the Chancellor and the principal wartime economic strategist. He was determined not to repeat the mistakes of WW1, which he identified as Britain’s decision to finance the war through the printing press and inflation. He designed a framework of paying for WW2 with far lower rates of inflation. I’m not enough of a Keynes expert to understand all the nuances of his theories but this sounds a far cry from the Paul Krugman, who is the archetypal modern day Keynesian. I bet Keynes wouldn’t support the rampant monetary and fiscal inflation implemented by western governments during each economic crisis for the last 20 years.
4. Norms, use of terminology and trends change drastically over time.
UK Prime Minister Ramsay McDonald was a fervent and committed socialist but was also committed to balance the budget, even though the UK was in a depression. Very few socialist leaders would entertain the idea of a balanced budget today. While the economic norm may have changed to greater acceptance of deficits, the economic principles haven’t changed. Society is paying for massive government debts through weaker economic growth, less economic mobility and higher tax rates. I wonder when the trend away from fiscal conservatism will reverse again. Probably only when the negative consequences deepen and become even clearer. For now, we’re dealing with increasingly profligate leaders on the left and right.
5. Wars changed the landscape of history, often allowing greater state centralisation
Wars were used throughout history to centralise control of the monetary mechanism. Historically, banks were independent entities that naturally formed as society developed. States used to ask for funding during wars in order to pursue their economic and political interests and would have to repay the debt with the spoils. Over time governments realised that they were dependent on banks, leading to increased control and centralisation where possible.
In 1694 after bankrupting itself during war, the British govt granted monopoly rights to a group of merchants to become the exclusive bank of the state. The BoE operated like a private bank in between financing state wars. During WW1 the BoE tried to reassert its independence but was put firmly in its place and told to finance the war through inflation and war bonds. In France, Napoleon Bonaparte created the Banque de France. It was founded independently in order to encourage merchant investors to allocate their capital but centralised during war as Napoleon demanded finance and inflation for his European expansion. The US Fed was created independent of war but centralised and became an organ for state financing during WW1. Its public profile also grew as government pushed society to purchase war bonds.
An insightful account of the social, economic and political trends of the 1920’s, 30’s and 40’s, centred on the monetary economics leading to the great depression. As someone with a passion for monetary economics, there were times when I was looking for a little more opinion, defence of good ideas and criticism of weak. But Ahmed does well to note the various opinions in a reasonably objective way, allowing the reader to assess them and delve a little deeper themselves. I enjoyed the thread through the lives of the major central bankers – interesting characters. The digressions got tedious but it’s a difficult balancing act between potentially boring historical facts, entertaining but unnecessary anecdotes and insightful but opinionated interpretation of the facts.
My 5 take away’s:
1. Historical experience has a strong impact on principles in the subsequent period. The bigger the crisis, the stronger the impact and the longer it lasts.
French inflation north of 20% post-WW1 stoked a particularly conservative characteristic in French bankers leading into the Great Depression, making them a dominant force of the time. France had the world’s second highest gold reserves, low levels of inflation, a strong currency and a reasonably strong economy in the late 1920’s, which is in stark contrast to the more profligate approach of current French politicians. The scars from the 1920’s experience have worn off by now.
Germany also experienced high levels of inflation directly after WW1. With the assistance of reparations fears, the country went into hyperinflation in the late 1920’s. The scars from this catastrophe remain engrained in German monetary policy. The Bundesbank is far and away the most conservative central bank in Europe. I’m inclined to think the historical experience is more important than inherently German characteristics, as others might argue.
This relationship between historical experience and subsequent principles, biases and actions in the following period could be applied to more recent historical events. Some might argue that the 2008 financial crisis, for example, made investors ultra-scared of potential crises and perhaps now they aren’t taking enough risk? The flip-side is that subsequent unprecedented central bank support may have lulled investors into thinking that monetary support will consistently stand as a back-stop against future crisis, breeding complacency?
2. Dogmatic implementation of principles, even if they are good ideas, creates negative outcomes and can turn people against the good principles.
The pre-WW1 gold standard imposed a degree of budgetary prudence, monetary conservatism and it avoided competitive cross-border FX devaluations. These are good principles that probably aided pre-war prosperity. However, dogmatic implementation of the gold standard post the war was damaging.
The UK, in particular, tried to assert the gold standard at pre-war levels because to maintain the prestige of being the world’s banker and convince investors that that debts wouldn’t be inflated away. Inflation during the war years made the GBP/troy oz. relation unrealistic though. Pre-war, 15% of UK money supply was backed by gold, which fell to 7% post war. Substantial monetary deflation was required to make a credible commitment to the pre-war peg. Without sharp economic liberalisation required to adjust prices quickly, this deflation caused economic depression and unemployment.
In hindsight it’s clear that the monetary inflation during the war was the original sin. If the UK wanted to return to the gold standard it had to own up to this monetisation of it’s debts and devalue the GBP vs. gold. Dogmatic implementation of the gold standard at pre-war levels and the subsequent relief when the UK finally broke the peg public in 1931, made the gold standard the scape goat for the economic difficulties. In reality it was the monetary inflation of the war and the dogmatic implementation of the standard post the war that were at fault, not the underlying principles.
3. Keynes wasn’t a Keynesian.
John Maynard Keynes was a vehement critic of GBP/gold convertibility at pre-war levels but he was actually an advocate of the gold standard on many occasions. He was vindicated in his opposition to pre-war convertibility levels but this doesn’t imply that he was opposed to sound money. When WW2 broke out Keynes became an unpaid economic advisor to the Chancellor and the principal wartime economic strategist. He was determined not to repeat the mistakes of WW1, which he identified as Britain’s decision to finance the war through the printing press and inflation. He designed a framework of paying for WW2 with far lower rates of inflation. I’m not enough of a Keynes expert to understand all the nuances of his theories but this sounds a far cry from the Paul Krugman, who is the archetypal modern day Keynesian. I bet Keynes wouldn’t support the rampant monetary and fiscal inflation implemented by western governments during each economic crisis for the last 20 years.
4. Norms, use of terminology and trends change drastically over time.
UK Prime Minister Ramsay McDonald was a fervent and committed socialist but was also committed to balance the budget, even though the UK was in a depression. Very few socialist leaders would entertain the idea of a balanced budget today. While the economic norm may have changed to greater acceptance of deficits, the economic principles haven’t changed. Society is paying for massive government debts through weaker economic growth, less economic mobility and higher tax rates. I wonder when the trend away from fiscal conservatism will reverse again. Probably only when the negative consequences deepen and become even clearer. For now, we’re dealing with increasingly profligate leaders on the left and right.
5. Wars changed the landscape of history, often allowing greater state centralisation
Wars were used throughout history to centralise control of the monetary mechanism. Historically, banks were independent entities that naturally formed as society developed. States used to ask for funding during wars in order to pursue their economic and political interests and would have to repay the debt with the spoils. Over time governments realised that they were dependent on banks, leading to increased control and centralisation where possible.
In 1694 after bankrupting itself during war, the British govt granted monopoly rights to a group of merchants to become the exclusive bank of the state. The BoE operated like a private bank in between financing state wars. During WW1 the BoE tried to reassert its independence but was put firmly in its place and told to finance the war through inflation and war bonds. In France, Napoleon Bonaparte created the Banque de France. It was founded independently in order to encourage merchant investors to allocate their capital but centralised during war as Napoleon demanded finance and inflation for his European expansion. The US Fed was created independent of war but centralised and became an organ for state financing during WW1. Its public profile also grew as government pushed society to purchase war bonds.
January 15, 2012
The Lords of Finance provides one of the most comprehensive looks at how the Great Depression was caused and the early efforts that put economies back in order. Focusing on the four lead central bankers in the United States, Great Britain, France and Germany the author, Liaquat Ahamed tracks the course of how their decisions "broke the world" economies. Ahamed focuses on three things that went wrong with the world economy following World War 1 into its lead up for World War II. First he looks at the harsh reparations imposed upon Germany at the Treaty of Versailles and their disastrous effects on the German economy as well as the interest on Allied War Loans to Britain and France that necessitated (in their eyes) the need for such steep reparations. The second is the actions of the four central bankers who allowed speculation to run rampant, easy money to run almost free and took no actions to slow down clearly overheated economies growing at fantasy level rates (much like the Asian Tigers of the late 1990's). Finally the leaving of the gold standard that sent currencies plunging which was caused by the huge imbalance of Gold in the United States vis a vis the rest of the world leading to an inability to get European currencies back on track.
Overall the detail provided here is superb and the analysis is top notch. If you want an easy to read and comprehensive book that looks at a wide range of causes for the depression and world wide financial crises of the 1920's this is by far the best I have read.
Overall the detail provided here is superb and the analysis is top notch. If you want an easy to read and comprehensive book that looks at a wide range of causes for the depression and world wide financial crises of the 1920's this is by far the best I have read.
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