This book took me almost two months to read. I’m normally a fast reader, but for some reason I couldn’t read more than a few pages at a time. That is not to say that the book isn’t fascinating – I enjoyed every minute. It was always with me so I could get in a few pages on the metro, in a waiting room, or while making tea.
Lords of Finance: The Bankers Who Broke the World, by Liaquat Ahamed, takes on the Great Depression and the events that led to it through a unique perspective – four perspectives in fact: Benjamin Strong (and later George Harrison) of the Federal Reserve Bank of New York; Montague Norman of the Bank of England; Halmar Schacht of the Bank of Germany, and Emile Moreau of the Banque de France.
The book carries with it a long timeline; the first chapter begins in August of 1914. You don’t even reach Black Tuesday until p. 348. By then you feel as though you know the bankers. They morph into the characters of a great tragedy; you can almost see the creases of worry on their faces as the things begin to spiral out of control. When Benjamin Strong dies (spoiler?), you feel genuine sadness. Montague Norman, with all his eccentricities, elicits intrigue and vague concern. You think that Halmar Schacht ought to spend just a little less time being so serious- and really should not be playing games with Hitler. And Emile Moreau, well, you’re pleased that he finally got the prestigious role that he alway wanted, even though it came with more stress than he bargained for.
Like in a tragedy, a complex series of unfortunate decisions they made, together or individually, and the timing of those decisions clanging against each other led to disaster. Political tensions were high throughout the book. Rather than telling of the tensions from a distance, Ahamed did an excellent job of bringing the bankers and other key figures to life. At times, the stories read like catty fights in a school yard: Norman and Strong were best of friends, and Moreau felt left out; Schacht was in a huff because reparations were unfair; France wouldn’t agree to something on principle because Britain was for it.
Throughout the book it was clear that the central bankers were swimming in unknown waters. Their roles were not yet defined and accepted in a suddenly global and interconnected world. Governments and citizens alike did not quite trust that the central bankers had the answers – and in some cases they didn’t. An appalling number of bank presidents, economic advisors, and finance ministers didn’t know the first thing about economics.
The gold standard was an almost mythical force; everyone was convinced that leaving the gold standard would involve an immediate collapse of the economy. And when the big moment came, it bordered on the absurd. FDR boldly – no, blithely – left the gold standard in 1932 and slowly raised the dollar value of gold by simply assigning a random dollar amount each morning while eating his eggs. Eventually he tired of the game and kept it steady at $35/ounce.
One of the most enjoyable parts of the book is the scattered footnotes throughout; juicy often scandalous details that didn’t quite fit with the text. Ahamed just couldn’t pass them up and wrote the small asides with relish; there were some laugh-out-loud moments in just the footnotes alone.
Lords of Finance provides a thoughtful review of the fundamental shift in the role of central banking following World War I, and highlights the importance of confidence (and lack there of)- in the central bankers, in the government and in the markets. And yes, throughout the book I found lessons that could be reviewed in light of the 2008-2009 financial crisis. John Maynard Keynes and his wit and intellect made several appearances, and I am looking forward to reading Grand Pursuit by Sylvia Nasar on the development of modern economic thought and the economists behind the ideas, including Keynes. Stay tuned for the review.