Book Review - 'Lords of Finance' by Liaquat Ahamed

I've just finished reading 'Lords of Finance' by Liaquat Ahamed. I started it when i was on tour on September and only just finished it. So taking over 2 months, it'd be fair to say it was a leisure read for me. I think my slow pace made it all the more enjoyable.

The book is about the Great Depression seen through the eyes of the four most important central bankers of the time. Montagu Norman from the bank of England, Benjamin Strong of the New York Federal Reserve, Hjalmar Schacht of the Reichsbank and Emile Moreau of the Banque de France. The Great Depression was a time between the first and second world wars when many countries experienced huge economic difficulties. Central to the story are 'reparations' - payments which Germany was forced to make after the first world war - and the Gold Standard. Money was linked to the amount of Gold available. The period saw changes in the relationship between money and gold.

I've studied the Great Depression as an undergraduate at the London School of Economics. A lot of the academic literature is pretty dry. Liaquat does a brilliant job of bringing the story to life. By personalising the events, by seeing them through the character's eyes, you gain a new insight into the story. And a truly amazing story it is. At the same time it is both mundane and fantastic. For a moment, think about all those millions of lives effected by the economic catastrophe. Imagine the hunger, deprivation, and desperation. Now, read this.

'Bullion was so heavy - a seventeen inch cube weighs about a ton - that instead of shipping crates of it across hundreds of miles from one country to another and paying high insurance costs, central banks had taken to "earmarking" the metal, that is, keeping it in the same fault but simply re- registering its ownership. Thus the decline in Britain's gold reserves and their accumulation in France and the United States was accomplished by a group of men descending in to the Bank of England, loading some bars onto a low wooden truck with small rubber tires, trundling them thirty feet across the room to the other wall, and offloading them, though not before attaching some white name tags indicating that the gold now belonged to the Banque de France or the Federal Reserve Bank. That the world was now being subject to a progressively tightening squeeze on credit just because there happened to be too much gold on one side of the vault and not enough on the other provoked Lord d'Abernon, Britain's ambassador to Germany after the war and now elder statesman-economist, to exclaim, "This depression is the stupidest and most gratuitous in history".

pp 379

Liaquat provides a wonderful anecdote in the footnotes telling of when the Schacht - the German Central banker - visited the New York Fed. He wanted to see Germany's gold reserves (held by the Fed). But the Fed officials couldn't actually find Germany's pallet of Gold. You couldn't make it up !

Liaquat provides us with a rich history. He paints the characters beautifully. You gain a real sense of the dynamics of the relationship between the four key individuals. Relationships upon which depended our prosperity. And whilst there is inevitably some reference to the well-heeled life of the bankers, you also appreciate them as people. They display stunning arrogance and stupidity, but also a sense of selflessness and duty. Liaquat finishes the book by referencing Keynes (who also, alongside Churchill, is obviously featured heavily). And in doing so perhaps gives us a small insight into why he took on the huge task of writing this book (taking a break form his career as a successful investment banker).

[Keynes] believed that if only we could eliminate 'muddled' thinking... in economic matters, then society could allow the management of its material welfare to take a back seat to what he thought were the central questions of existence, to the "problems of life and of human relations, of creation, behaviour and religion."

pp 504

Keynes described economists as "trustees, not of civilisation, but of the possibility of civilisation".

And despite all my praise for Liaquat's book - it will sit on my bookshelf alongside AJP Taylor's English History 1914-1945, and Glyn Davies A History of Money - it is here I must offer some criticism. And doing so, agree with Keynes. Liaquat at points seems to write from the perspective that we have solved economic problems. That we know what money is now, whereas back then we didn't. Whilst this might be reassuring to the reader, it isn't true. He displays much greater faith in the 'science' of economics than it deserves. Indeed, Keynes would have described the four central bankers as exponents of the art of economics.

I wonder if Liaquat has read Black Swan by Nassim Nicholas Talib - a fellow investment professional ? Economics, as a means to an end, is hocus pocus. Montagu Norman (Governor of the Bank of England) said in 1948 two years before his death:

"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 [Benjamin Strong] did internationally produced any good effect - or indeed any effect at all except that we collected money from a lot of poor devils and gave it over to the four winds."

pp 489

It is to Liaquat's credit that he includes the above quote in his book.

For a moment whilst reading the book I did wonder about my own choices in life. I did wonder whether I should have done the sensible thing tried to pursue a career in economics rather than writing weird stuff about the nature of money, and burning some of the stuff once a year. But reading quotes like that one from Norman, reassures me that although I might not be on the right path, for me, economics (with its current dogmas) would be the wrong one.