Lords of Finance - Ahamed

The Lords of Finance by Liaquat Ahamed - 5/5

The Lords of Finance tracks the history of the world’s four most influential bankers during the inter-war period from 1918 to 1939. The book gives a good introduction to each banker, explores their background, how they rose to their position and attempts to identify the motivations for their policies and decisions. Each central banker no doubt made serious misjudgments at the time and it was these misjudgments (which mostly revolved around the gold standard and the flow of gold between nations) that led to the great depression. Ahamed is careful to explain how the gold standard operated; the reasons and credit policies that influenced the flow of gold into and out of each country, why the possession of gold was so critical to each country and how this affected currency strength and the greater economy. The easily understood explanations of the complexities of global finance, macroeconomics and the insights into the mystical world of central banking are indeed the greatest strengths of this book. The other amazing revelations in The Lords of Finance are how the arrogance and egos of a small group of men precipitated one of the greatest financial catastrophes of all time that had severe and lasting consequences.

Ahamed starts by introducing each of the four main protagonists: Montagu Norman, Benjamin Strong, Hjalmar Schacht and Émile Moreau. Each chapter is a colorful introduction to the lives of each man: their ambition, their personality, their background, their emotional makeup, their frailties and the significant events in their lives that influenced their decision making processes throughout their careers. Throughout these chapters (and indeed throughout the book) Ahamed introduces many supporting characters (e.g. Maynard Keynes) and at each point is careful to provide color and purpose to each person’s life enabling the reader to connect with each character no matter how big or insignificant and makes the world of finance seem a little more human.

The book moves on to look at the catastrophe of the reparations demanded by the allies after the fall of Germany, the idiotic egos and the ignorance that demanded Germany pay exorbitant reparations after World War 1. The collapse of the German economy and the hyperinflation that nearly bankrupted the country and how this affected Europe and the people of Germany at the time and how countries such as England and the US were unable to assist Germany because the central banker at the time, while being a well intentioned man, was clearly not sufficiently educated. Ahamed also looks at the economic conditions in America during the roaring 20s and the stagnation of the UK economy at the same time. Ahamed is careful to outline how each country returned to the gold standard in their own time and how this decision led to France becoming the premier economy in Europe. He then traces how returning to the gold standard at pre-war rates continued to deflate and depress the UK economy. Ahamed also outlines how the flow of gold into the US led to easy credit and how the rapid bubble that grew in the US stock market and how the New York fed and the US Treasury were at odds with each other as to how to control the bubble. The book then documents the sudden collapse of the stock market in New York, the collapse of banks in Europe and the global implications of the depression in the 1930s and how the only way countries could come out of it was to come back off the gold standard. Of course, Ahamed is also careful to note how the collapsing economy in Germany led to the rise of Hitler in Germany and of course, the consequences of Hitler’s rise are known to all.

Ahamed spends much of the book detailing the reasons why the bankers all wanted to return to the gold standard. According to him this was almost a theological necessity for them. They didn’t have any other way of thinking about money. Money needed to have a base from which it could derive its own value and not be assigned value by fiat. For the bankers this was the only alternative. Of course Ahamed is quick to note Keynes’ criticism of the UKs return to gold and throughout the book lauds Keynes for his insights and in the way Keynes always seemed to get things right on issues like reparations and the gold standard.

Ahamed’s book is highly relevant in today’s world. Reading through some of the events that led up to the great depression is like reading a newspaper on the credit crunch that crushed the world in 2007 & 2008 and that led to the collapse of Lehman Brothers and Bear Sterns. Ahamed admits that the release of his book during the latest financial crisis was serendipitous. It’s a wonderful read, highly recommended and extremely relevant in today’s world. The best way to sum up the work of the four bankers described in the book and what they achieved would be to quote Montagu Normans diary from the book: “As I look back, it now seems that, with all the thought and work and good intentions, which we provided, we achieved absolutely nothing…nothing that I did, and very little that old Ben did internationally produced any good effect – or indeed any effect alt all except that we collected money from a lot of poor devils and gave it over to the four winds.”

Buy from Amazon @ Lords of Finance: 1929, The Great Depression, and the Bankers who Broke the World