As austerity policies roll out across the Western world, markets await the next shock and central bankers’ moves command the headlines, thoughts naturally turn to comparisons with the last great global meltdown. Liaquat Ahamed’s blockbuster, Lords of Finance, is undoubtedly the most engaging narrative of the run-up to the 1929 Crash to have appeared in recent years. The elements that Ahamed synthesizes here are not especially novel. Like Peter Temin, in Lessons from the Great Depression (1989), and Barry Eichengreen, in Golden Fetters (1992), Ahamed traces the disequilibria of the 1920s and 30s back to the First World War. As per Milton Friedman’s and Anna Schwartz’s account of the period in their Monetary History of the United States (1963), monetary policy is the crucial determinant: problems of international capitalist production remain distant from the action. And as in Eichengreen, again, the dysfunctional inter-war gold standard plays a central role.
But Lords of Finance is different in two respects. First, this is not a work of economic scholarship but a historical narrative, in the manner of Barbara Tuchman. As a storyteller, Ahamed marries an assured grasp of pace and structure with a cinematic eye for costumes and settings. His focus is on the commanding heights of the international financial system and his principal dramatis personae are the heads of the American, British, French and German central banks. Chapter by chapter, the action shuttles between the major financial capitals—London, Paris, Berlin, Manhattan, with occasional trips to Washington, dc—while characters, back-stories and personal relationships are deftly interwoven. It is little surprise that Lords of Finance has topped the holiday reading lists of investment bankers, winning Goldman Sachs and Financial Times ‘book of the year’ awards, as well as a Pulitzer. Ben Bernanke commended it to the Congressional inquiry into the financial crisis, Lawrence Summers to Obama’s Council of Economic Advisers.
For the second difference is that, unlike the standard economic histories, Ahamed’s work carries an unambiguous message of solace and support for today’s financial lords. Indeed, the circles the author moves in are not far removed from theirs. Born in Kenya in 1953, Ahamed relocated to England, read economics at Trinity College, Cambridge, then crossed to the us for a masters at Harvard and a stint at the World Bank. Since the mid-1980s he has been a professional investment manager, with close personal ties to Clinton Administration officials—Strobe Talbott and his wife are thanked as ‘mentors, promoters, counselors and editors’ of the book. As Ahamed explains, the inspiration for Lords of Finance came from a Time magazine cover in the aftermath of the 1997 Asian crisis, showing Alan Greenspan, Robert Rubin and Summers over the heading, ‘The Committee to Save the World’. The function of the book is that of apologia: damning the 1920s quartet of central bankers, the better to highlight the wisdom of the 1990s trio, and now of their successors: Bernanke, Mervyn King and other saviours since 2008.
That said, the story may contain other parallels, and Ahamed tells it with élan. His muse throughout is John Maynard Keynes, who pops up in nearly every chapter to furnish an analysis or pave the narrative path. On the two major problems facing central bankers and politicians at the time—the crushing burden of war debts and reparations, and the re-establishment of that ‘barbarous relic’, the gold standard—Keynes’s positions cannot but strike today’s lords of finance as enlightened and far-sighted. The core of the book investigates the relations between the Central Bank chiefs—members, according to the 1920s press, of the ‘World’s Most Exclusive Club’—and Ahamed provides a lively sketch of each. Montagu Norman, born in 1871, joined the Bank of England’s staff in 1915 and was appointed Governor five years later. His forebears had been City bankers for generations, though Norman, something of a misfit, had dabbled in speculative philosophy and sought psychoanalytical help from Jung. The anglophile Ahamed is clearly charmed by Norman’s life and personality: with his broad hat and pointed beard, he ‘neither looked nor dressed like a banker’, but ‘more like a grandee out of Velázquez or a courtier from the time of Charles II.’
Norman’s counterpart at the Banque de France in the late 1920s was Émile Moreau. Born in 1868 in Poitiers, to a minor landowning family, he was an outsider to the financial aristocracy; an outstanding graduate of Sciences-Po, fast-tracked through the Ministry of Finance, his career was subject to the revolving door of Third Republic ministries. Proudly provincial, Moreau was a man of few words, ‘blunt and almost rude’, who made no attempt to enter Parisian salon society, preferring to spend his time hunting with fellow notables in Poitou. At the Reichsbank, Hjalmar Schacht was also a social outsider: born in North Schleswig in 1877, a country doctor’s son, he combined ‘a strong work ethic and brazen ambition’. Alone among the top central bankers he gained a doctorate in political economy, then a job at Dresdner Bank’s headquarters in Berlin. For Ahamed, Schacht was ‘a typical product of the Kaiserreich: conformist, unquestioningly nationalistic and fiercely proud of his country and its material and intellectual achievements.’
By contrast Benjamin Strong, the first chairman of the Federal Reserve Bank of New York, though not personally ultra-rich, was very much an insider. Born in the Hudson Valley in 1872, he came from a Puritan family that had landed in Massachusetts in 1630 and ‘exuded the confidence of the Ivy League athletic star’, although in fact he was consumptive and would retire for long spells to a Colorado sanatorium. Strong took up stock-jobbing on Wall Street after a chance worsening in family fortunes denied him his place at Princeton. Henry Davison, a key figure at J. P. Morgan, soon took him under his wing, and the pair played a central role in Pierpont Morgan’s bail-out of the us banking system after the 1907 Panic. When the Federal Reserve banks were established in 1913, the New York financial elite considered Strong to be the obvious ‘safe pair of hands’.
Ahamed also provides profiles of each of the central banks, which were in turn utterly distinct as national institutions. The Bank of England was the oldest and, like its European counterparts, a product of war. It was founded in 1694 during the War of the League of Augsburg with France, when a group of City bankers offered the Exchequer funding for the military effort in exchange for the authority to issue paper currency—therefore, to regulate the price of credit, through its interest rates—and for a monopoly on government business. It soon became a bankers’ bank, looking after the others’ deposits; accountable to its directors, paying dividends to its shareholders, yet with a vast say over the British—and world—economy. In 1914 two-thirds of global trade credit and over half the world’s long-term investments flowed through the City of London. Its powers huge yet never formalized, the Bank of England at the height of the Empire was run like a gentlemen’s club.