Review: Liaquat Ahamed, Lords of Finance

In the UK, the department of Business, Innovation and Skills (Proprietor: Vince Cable) issues a list of dates on which it advises employers to lock out their workers. These are what are commonly known as Bank Holidays and are designed nowadays to boost imports (people go abroad) and kill off any "green shoots" of growth in GDP.

It felt appropriate to read Liaquat Ahamed's splendid book over the long August Bank Holiday weekend. It's another of those books by someone who isn't an academic which makes one wonder why we bother with academics. It's true that he has degrees from Harvard and Cambridge; but he has written this beautifully crafted and researched 500 page book in his spare time away from being a "professional investment manager".

Though the cover blurb makes you think it is going to be about the Great Crash and the Great Depression, it is actually a much bigger study of central banking between 1914 and the mid-1930s focussing on the relations between four key players - Benjmain Strong at the New York Fed, Montagu Norman at the Bank of England, Hjalmar Scacht at the Reichsbank and Emile Moreau at La Banque de France. These institutions were still, for all or much of this period, privately owned and foolishly organised but responsibility devolved upon them to maintain financial stability at both domestic and international levels - the four main characters spend much of their time travelling, by train and boat, to meet each other.

They deal with bank reserves, international loans, interest rate setting, money supply, price inflation (or deflation), employment levels, war debts, war reparations and exchange rates. For much of the time, they are committed to mantaining the Gold Standard. Some of them do and some of them don't know what they are doing and the same is true of the politicians with whom they are uneasily involved. Britain's Labour Party comes out of the story as clueless and deferential to every orthodoxy around.

Some of the most interesting cameos in the book concern the moments when the politicians and the bankers collide: for example, Winston Churchill fatefully returning the UK to the Gold Standard in 1925 - a decision he later acknowledged as the worst in his life. Or, more importantly, Franklin Roosevelt tearing up the rule book, taking America off gold, encouraging price inflation, and thus in a very short period, turning around the US economy. This narative comes at the tail end of Ahamed's book and feels less than generous towards Roosevelt's huge achievement. In contrast, Keynes gets full credit for the perspicacity of the running critique he offers for the entire period and mostly from the sidelines.

Many other episodes have - and are designed to have - a contemporary resonance, right down to the rogue trader who busts an investment bank. And when in 1928 a British treasury official snootily remarks that "The French have always had a sure instinct for investing in bankrupt countries" it is impossible not to think of BNP Paribas' current exposure to Greek debt.

The really sobering thing about this very readable book is that though it gestures to the post-war achievements of the IMF, the World Bank and Keynesian economics in avoiding anything like the turmoils of the 1920s and 1930s it still leaves me with the thought that plus ca change, plus c'est la meme chose. It also leaves a clear message that big players never pay their debts.

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Originally published on my Blog, The Best I can Do