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Summary
Summary
Winner of the 2010 Pulitzer Prize
"A magisterial work...You can't help thinking about the economic crisis we're living through now."-- The New York Times Book Review
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 made by a small number of central bankers that were the primary cause of that economic meltdown, the effects of which set the stage for World War II and reverberated for decades. As yet another period of economic turmoil makes headlines today, 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.
Author Notes
Liaquat 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 adviser 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.
Reviews (7)
Publisher's Weekly Review
If you think today's economy is scary, check out the Jazz Age horrors chronicled in this financial history of the interwar years and the central bankers who blighted them. Ahamed, an investment manager, surveys the economic upheavals of the 1920s and 1930s, when crushing war debts and reparations from WWI sparked hyperinflation in Germany and a host of lesser eruptions, all of it climaxing in the American stock market crash and the Great Depression. He tells the story through the central bank chiefs of Britain, France, Germany and the United States as they confront unprecedented crises while "shackled" by the "dead hand" of the gold standard, the era's reigning financial orthodoxy (economist John Maynard Keynes, foe of gold and apostle of economic activism, is the book's hero). The author injects unnecessary commentary about the bankers' neuroses and marital difficulties into his coverage of interest rate and currency fluctuations (New York Federal Reserve head Benjamin Strong, he notes, possessed a "large nose that spoke of ruthlessness"). Fortunately, his protagonists' high-wire efforts to stave off national bankruptcies furnish Ahamed with plenty of drama to highlight his engrossing analysis of the complexities of monetary policy. Photos. (Jan.) (c) Copyright PWxyz, LLC. All rights reserved
Booklist Review
Investment manager Ahamed tells the fascinating story of the Great Depression and the central bankers whose decisions were the primary cause of the economic meltdown from 1929 to 1933. They were Montagu Norman of the Bank of England, Emile Moreau of the Banque de France, Hjalmar Schacht of the Reichsbank, and Benjamin Strong of the New York Federal Reserve Bank. Interrelated crises not unlike modern events included Germany's recession prompted by the halt of American capital to Europe in 1928 (similar to the Mexican peso crisis of 1994); the collapse of the stock market in 1929 (parallel to the market fall in 2000); the sequence of banking panics from 1930-33 (much like the credit crunch in 2007-08); and the European financial crisis of 1931 (not unlike the emerging markets crisis in 1997-98). Although not exact comparisons, they offer excellent lessons, and Ahamed concludes that the Great Depression was not an act of God, but resulted directly from a series of collective blunders in economic policy. Excellent book.--Whaley, Mary Copyright 2009 Booklist
New York Review of Books Review
NOT many authors are equally successful at writing books for adults and children, but Carl Hiaasen seems to have made an effortless transition. His first and second books for young readers, "Hoot" (2002) and "Flush" (2005), won awards and legions of fans. His latest, "Scat," won't disappoint Hiaasenphiles of any age. What's truly amazing is how much mileage Hiaasen gets here from mining the same narrow niche. Every novel is an eco-mystery set in Florida. Every plot features a greedy businessman (with a dumb-as-bricks henchman) bent on getting rich at the expense of Florida wildlife. Each plot is energized by improbable and hilarious action sequences. In "Hoot," "Flush" and "Scat," the hero is a middle-school boy with a feisty female sidekick. Secondary characters include a delinquent bully and a mysterious, benevolent stranger. (In "Scat," the stranger has wandered in from another Hiaasen novel: he was the protagonist in "Sick Puppy.") Yet despite the similarities, the novels don't feel repetitive - especially not "Scat," which stirs some new, more ambitious elements into the formula. This time, the mystery involves Mrs. Starch, an unpopular biology teacher who disappears during a disastrous field trip to an Everglades swamp. At first, it's hard for Nick, our hero, and his friend Marta to care. After all, Mrs. Starch is a nearly six-foot-tall tyrant who wears "her dyed blond hair piled to one side of her head, like a beach dune." But before long, Nick is up to his neck in secondary mysteries. What was the tancolored, fast-moving blur on the video he took in the swamp? Who or what caused the swamp wildfire that day? Why has Smoke, the class arsonist/slacker, suddenly cleaned up his act? Why is Mrs. Starch's home filled with stuffed animals (of the taxidermy sort)? And if Mrs. Starch is missing, then who's driving around town in her blue Prius? "Scat" is by far the plottiest of Hiaasen's young-people books. The story lines involving Nick, Marta, Smoke, their parents, Mrs. Starch, local fire and police investigators, the mysterious stranger and the two hilarious bumblers who run the Red Diamond Energy Corporation's illegal drilling operation - are intertwined in ways that must have required a spreadsheet to track. Not surprisingly, all of these strands are neatly and satisfyingly resolved at the end of the story. This is also the most contemporary Hiaasen book, dropping names like Facebook, "Harry Potter," the TV show "COPS," CNN's Anderson Cooper - and the war in Iraq. And here's the most startling deviation from the Hiaasen formula. Just when the fun is hitting its stride, we learn that Nick's father has been wounded in Iraq; his right arm is blown off by a roadside explosive. The story returns periodically to monitor the stages of his recovery: his bandages, his infections, his attempts to work with his remaining hand, and so on. This is all handled unsentimentally and with a positive spirit; Nick conceals his grief, calls his dad Lefty and tapes down his own right arm in solidarity. But this subplot introduces some new, grimmer notes to the series, and not every young fan will know what to make of it. Still, the ingenious plotting makes "Scat" more engrossing than either of its predecessors. The characters are richer - two of them turn out to be not at all the caricatures they seemed at first. And even the title is a clever pun, referring both to the good guys' message to the bad guys, and to the panther droppings that hold a key to the mystery. In short, Hiaasen's novels for younger readers seem to be maturing right along with them. David Pogue writes about technology for The Times. His first children's novel will be published next year.
Choice Review
Ahamed, an investment banker, has written an engrossing biographical history of four central bankers who played key roles in reconstructing the gold standard after WW I: Mortagu Norman of the Bank of England, Emile Moreau of the Banque de France, Hjalmar Schacht of the Reichsbank, and Benjamin Strong of the Federal Bank of New York. In many ways his book is a biographical companion to Barry Eichengreen's Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (CH, Dec'92, 30-2190), which argued that the gold standard increased the severity of the Great Depression. Ahamed also blames the gold standard for the severity of the Great Depression and presents the economics of the argument in an accessible way. But he intertwines this core argument with fascinating biographies of the key players. His writing style makes the 500 pages seem short. Summing Up: Highly recommended. General readers and all levels of undergraduate students. B. B. Andrew Juniata College
Guardian Review
Gordon Brown was not alone in claiming that economic booms and busts had become a thing of the past. In recent years, a growing number of senior economists agreed with the view expressed in 2003 by Robert Lucas, winner of the Nobel prize, who argued that the "central problem of depression-prevention has been solved, for all practical purposes". Today, we are not so sure. As the global economy moves down its most dangerous spiral in more than 60 years, the causes and consequences of the great depression have become a subject of burning interest. Are there parallels with what's happening today, and what are the lessons to be learned? In a brilliant and timely book, Liaquat Ahamed provides some of the important answers. His conclusion is that the depression was not the result of mysterious forces that governments were powerless to resist. Rather, it was caused and compounded by a failure of intellectual will - a lack of understanding about how the economy operated. And he illustrates this with a mixture of compelling narrative, accessible economics and vivid insights. The first and biggest set of errors flowed from the Paris peace conference at the end of the first world war. That saddled economies still devastated by war with an unimaginable burden of international debt - vast claims that festered through the next decade and beyond, poisoning international relations. Germany owed enormous sums in reparations to France and Britain, France was in hock to Britain and the US, and Britain in its turn also had huge debts to America. These capital imbalances were a fault line in the world's financial system, and when the pressure became too intense, they cracked. The world's four most important central bankers, the principal characters of Ahamed's book, recognised the political blunders of the peace process and did what they could to deal with the consequences. But more than anyone else, they were also responsible for the second fundamental error of economic policy - the decision to return to the gold standard, at the wrong time and the wrong rate. The Bank of England's Montagu Norman was the first among equals. In the words of his French counterpart, he appeared "to have stepped out of a Van Dyck painting, elongated figure, pointed beard, a big hat . . . Very mysterious, extremely complicated, one never knows the depths of his thoughts". Norman saw a return to the gold standard at the prewar rate as a matter of national pride, a moral commitment to those who had placed their assets and their trust in sterling. He could not accept the idea that the City of London should play second fiddle to anyone in the global capital markets. Short-term economic pain would be worth the financial long-term gain. Supporting him was his close friend Benjamin Strong of the US Federal Reserve. Committed to the idea of European reconstruction, he believed that a global return to the gold standard was a precondition of monetary stability, and that this would be possible only if Britain took the lead. Like Norman, he had a fragile constitution and took long periods of convalescence at key moments in the drama. His death in 1928 left a political vacuum within the US central bank that was to have serious consequences. Making up the quartet of central bankers were Hjalmar Schacht of Germany - a man with an extraordinary capacity for making enemies, whose prominent support for the Nazi party was to take him all the way to the Nuremberg trials - and the wily Emile Moreau of France. Unlike Schacht, he was not close to Norman and the distrust was mutual. A Bank of England note-taker at their first meeting observed that he was "stupid, obstinate, devoid of imagination and generally of understanding, but a magnificent fighter for narrow and greedy ends". Then there was John Maynard Keynes - incisive, hostile to those who attacked "the problems of the postwar world with unmodified prewar views and ideas", and almost always ignored. One of the great set pieces of the book is a dinner at 11 Downing Street in March 1925. Chancellor Winston Churchill is trying to make up his mind about the gold standard: Norman, whom Churchill could not stand, is not invited, so senior treasury officials argue his corner. Keynes makes the case against gold, but tragically is not on best form. As the night wears on and the alcohol flows, Churchill is swayed by the idea that failure to act would be seen as a public admission of Britain's diminished role in the world. The final word of the night goes to Reginald McKenna, a banker and former Liberal chancellor. "There is no escape. You will have to go back; but it will be hell." The price of that dinner was economic catastrophe - first in Britain and then more generally. The world's gold reserves were inadequate to take the strain. Because sterling had gone in at the wrong rate, the Bank of England was under constant pressure and Britain's manufacturers were priced out of their export markets. Ahamed argues that the four central bankers were able to keep the show on the road only by holding US interest rates down and keeping Germany afloat on borrowed money. The Fed was torn between two conflicting objectives: to keep propping up Europe by cutting interest rates, or to control speculation on Wall Street by raising them. It was a system that was bound to come to a crashing end. What are the lessons for today from what followed? There are at least five. The first is to act decisively when the trouble starts, and to co-operate internationally. After Strong's death, the Fed appeared paralysed in the key months of 1929, and France and Britain were constantly feuding with each other. Another is to do whatever it takes to stem the flood tides. The Fed cut interest rates sharply after Wall Street crashed, but stopped easing much too soon in the summer of 1930. Like central banks across Europe, it also failed to build a firewall to stop bank runs. A third priority is to keep capital flowing across borders to wherever it is most needed. Ahamed believes the failure to do this was even more damaging than the effect of trade protectionism. Currency competition was another major contributor to the disaster. Moreau's strategy of pegging the franc at a low rate brought gold flooding into France. While there were 4.5 million people on the dole in Germany and another 2 million in Britain, France had only 190,000 on unemployment benefit. The final lesson is that it's vital to fix the capital imbalances. Britain abandoned the gold standard in 1931, and its recovery started that year. The US followed in 1933, which marked the low point in its depression. Only Germany clung on to gold, and was dragged down with it into political turmoil. Today's policymakers have learned from these dreadful mistakes, but they still have more to do to restore economic stability and bring down unemployment. They need to read this book. Richard Lambert is director general of the CBI. Caption: article-lambert.1 The world's four most important central bankers, the principal characters of Ahamed's book, recognised the political blunders of the peace process and did what they could to deal with the consequences. But more than anyone else, they were also responsible for the second fundamental error of economic policy - the decision to return to the gold standard, at the wrong time and the wrong rate. The Bank of England's Montagu Norman was the first among equals. In the words of his French counterpart, he appeared "to have stepped out of a Van Dyck painting, elongated figure, pointed beard, a big hat . . . Very mysterious, extremely complicated, one never knows the depths of his thoughts". Norman saw a return to the gold standard at the prewar rate as a matter of national pride, a moral commitment to those who had placed their assets and their trust in sterling. He could not accept the idea that the City of London should play second fiddle to anyone in the global capital markets. Short-term economic pain would be worth the financial long-term gain. Then there was John Maynard Keynes - incisive, hostile to those who attacked "the problems of the postwar world with unmodified prewar views and ideas", and almost always ignored. One of the great set pieces of the book is a dinner at 11 Downing Street in March 1925. Chancellor Winston Churchill is trying to make up his mind about the gold standard: Norman, whom Churchill could not stand, is not invited, so senior treasury officials argue his corner. Keynes makes the case against gold, but tragically is not on best form. As the night wears on and the alcohol flows, Churchill is swayed by the idea that failure to act would be seen as a public admission of Britain's diminished role in the world. The final word of the night goes to Reginald McKenna, a banker and former Liberal chancellor. "There is no escape. You will have to go back; but it will be hell." - Richard Lambert.
Kirkus Review
Erudite, entertaining macroeconomic history of the lead-up to the Great Depression as seen through the careers of the West's principal bankers. Investment manager Ahamed sets the stage for his story with Toynbeean sweep. The gold standard, to which the major currencies of the world were tied, was thrown into tumult by World War I. France, Britain and Germany found themselves depleted of gold reserves. The United States, a new economic power holding the bulk of the world's gold bullion, demanded repayment of loans made to its allies; this forced large, untenable reparation payments on Germany. The main characters of this unfolding drama were a quartet of bankers who saw themselves as "elite tribunes, standing above the fray of politics, national resentments, and amateur nostrums," and who wielded astonishing, autonomous authority over monetary policy. Eccentric, aristocratic Montagu Norman of the Bank of England dealt with the problem of inadequate gold reserves to support the overvalued pound sterling by convincing Benjamin Strong, head of the Federal Reserve Bank of New York, to lower interest rates in America to encourage the flow of gold back to Europe. This directly fueled the U.S. stock-market bubble, Ahamed argues. The crash of 1929 and the worldwide depression that followed were the inevitable results. Other catalysts included the Reichsbank's irascible, unpredictable Hjalmar Schacht, whose obsession with eliminating reparations led Germany to the brink of default, and vindictive mile Moreau, whose policy at the Banque de France aimed to destabilize the British pound. Ahamed compares these bankers to the Greek mythological character Sisyphus, condemned to eternal, endless effort. "Their goal is a strong economy and stable prices," he writes. "This is, however, the very environment that breeds the sort of overoptimism and speculation that eventually ends up destabilizing the economy." Ahamed soberingly suggests that, "bubbles and crises seem to be deep-rooted in human nature and inherent to the capitalist system." Spellbinding, insightful and, perhaps most important, timely. Copyright Kirkus Reviews, used with permission.
Library Journal Review
In this historical study, Ahamed, a professional money manager, sums up the causes of the Great Depression as a series of economic policy blunders that could have been avoided. He cites as causal factors the inflationary financing of World War I by printing money, the insurmountable war debts of Germany and the Allies, Germany's plunge into hyperinflation, and the return of most currencies to the gold standard at excessive and deflationary prewar rates. For example, he explains that when the U.S. stock market bubble burst in 1929 and economic activity collapsed, the central banks were restrained in stimulating the economy for fear of losing their gold reserves. In an epilog, Ahamed draws parallels between the crises of the Great Depression and those in recent times. He keeps his history interesting by highlighting the personalities of the heads of the major central banks, and he employs the economist John Maynard Keynes as a one-man Greek chorus critiquing the bankers' actions. This erudite and exceedingly well-written tale of financial chaos in the 1920s and 1930s is both timely and instructive for today's economic climate. Highly recommended for all academic and most public libraries.-Lawrence Maxted, Gannon Univ. Lib., Erie, PA (c) Copyright 2010. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.
Table of Contents
| Introduction | p. 1 |
| Part 1 The Unexpected Storm: August 1914 | |
| 1 Prologue | p. 19 |
| 2 A Strange and Lonely Man | p. 23 |
| 3 The Young Wizard | p. 35 |
| 4 A Safe Pair of Hands | p. 45 |
| 5 L'Inspecteur des Finances | p. 61 |
| 6 Money Generals | p. 73 |
| Part 2 After the Deluge: 1919-23 | |
| 7 Demented Inspirations | p. 99 |
| 8 Uncle Shylock | p. 130 |
| 9 A Barbarous Relic | p. 155 |
| Part 3 Sowing a New Wind: 1923-28 | |
| 10 A Bridge Between Chaos and Hope | p. 179 |
| 11 The Dawes Opening | p. 193 |
| 12 The Golden Chancellor | p. 217 |
| 13 La Bataille | p. 241 |
| 14 The First Squalls | p. 270 |
| 15 Un Petit Coup de Whisky | p. 291 |
| Part 4 Reaping Another Whirlwind: 1928-33 | |
| 16 Into the Vortex | p. 307 |
| 17 Purging the Rottenness | p. 347 |
| 18 Magneto Trouble | p. 374 |
| 19 A Loose Cannon on the Deck of the World | p. 393 |
| 20 Gold Fetters | p. 422 |
| Part 5 Aftermath: 1933-44 | |
| 21 Gold Standard on the Booze | p. 451 |
| 22 The Caravans Move on | p. 477 |
| 23 Epilogue | p. 497 |
| Acknowledgments | p. 506 |
| Notes | p. 509 |
| Bibliography | p. 533 |
| Index | p. 545 |
