The Helmsmen

Lords of Finance: The Bankers who Broke the World, Liaquat Ahamed, 2009.

Rape of Europa, Max Beckman, 1933.

Some books are published at just the right time. I think of Nicholas Mulder’s The Economic Weapon, an international history of sanctions, which came on the shelves just before the Russian invasion of Ukraine. The same could also be said of Nassim Nicholas Taleb’s The Black Swan, released right before the 2008 global financial crisis (even if, as the always idiosyncratic Taleb insists, that crisis was apparently not the sort of event he was describing). I’m sure there are many others.

Liaquat Ahamed’s Lords of Finance: the Bankers who Broke the World is such a book. Released in January of 2009, only nine months after Bear Stearns failed, most of it must have been written before there was any sign of a financial crisis. As a result, Ahamed’s observations on recent events are limited to a few short sentences in his conclusion, and the book lacks the heavy allusions you might think hindsight would encourage. Unlike Taleb, Ahamed makes no pretension to be a soothsayer. He just got very lucky.

And he got lucky because Lords of Finance is essentially a history of the Great Depression and its causes, like Charles P Kindleberger’s World in Depression I reviewed last time. But, unlike World in Depression, Ahamed’s book is more of a biography than a piece of strictly economic history. He tells the story of the Depression through the four central bankers who, he believes, were to blame for it: the Reichsbank’s Hjalmar Schacht, the New York Fed’s Benjamin Strong, the Bank of France’s Emilie Moreau, and, above all else, the Bank of England’s Montagu Norman.

This makes Lords of Finance different to any other book I have read about the Great Depression. Ahamed is a talented writer with a gift for picking the best historical anecdotes — the Pulitzer prize is unsurprising. Would I have learnt in Kindleberger, for example, that Norman was misdiagnosed with syphilis by the Carl Jung in 1912, and told he had six months to live, triggering a personal crisis? Or what the delegates attending the 1930 Young Conference — which was convened to tackle reparations and ultimately formed the BIS — guzzled at their commencement lunch? (The answer: a 1921 Chablis, 1919 Pouilly, 1881 Château Rothschild, 1921 Clos de Vougeot, 1910 Château d’Yquem, 1910 Grand Fine Champagne, and an 1820 Cognac Napoléon). Definitely not.

This narrative flair is powerfully deployed when Ahamed comes to the Crash of 1929 itself. From a literary perspective, Ahamed’s description of the build-up, of the will-it-or-won’t-it tension in New York as the feverish boom gave way, is simply brilliant. He makes it seem as pregnant with uncertainty as it would have been at the time, moving between perspectives (journalists, the administration, bankers, economists, and investors) with clear deft, putting into perspective the fleeting climate within which the woefully unprepared (and under-qualified) members of the New York Fed made their limited and ineffective interventions. Ahamed’s own experience (for he is an investment banker, not an academic historian or economist) must have made him well-equipped to paint what “animal spirits” look like in the flesh.

This all makes Lords of Finance compelling to read, and what might otherwise be a rather dense five-hundred page book about interwar economic history is instead a veritable romp. But what about the argument? It is easy with a book like Ahamed’s to forget that, amongst all the anecdotes and narrative, there is still an argument being made — in this case, one about the causes of interwar economic instability and the Great Depression.

The clue is in the subtitle - “the bankers who broke the world”. For Ahamed, it is the personal failings and poor decisions of his cast of central bankers which condemned the world economy in the 20s. His is really a ‘great man theory of history’ in the truest sense of the word, as the narrative Ahamed tells reflects a belief that the personal and intellectual flaws of his characters caused them to make, with full agency, mistakes. Hence why Ahamed goes to such effort to centre biography, and such little effort to focus on anything else.

What are these personal failures? For Schacht, it is his sheer belligerence and tendency to gamble which obstructed settlement with France on reparations. At the Young Conference, for example, Schacht demanded from the blue that Germany needed its former colonies restored if it was to continue paying out reparations, “in one stroke trying to undermine the whole fragile basis of European peace”. Moreau is condemned by Ahamed for his small-mindedness — his constant pursuit of French geopolitical aims over international stability, encapsulated when he attempted to condition aid to crisis-stricken Austria in 1931 on leaving its customs union with Germany, and by his endless squabbles with Norman and the Bank of England over financial zones of influence.

Of the four, Strong is the most favourably portrayed in Lords of Finance — “It was Strong more than anyone else who invented the modern central banker”, Ahamed writes, a remark intended as a compliment. His major flaw was only that he listened to Norman too much, and thus shared responsibility for the disaster of the interwar gold standard. But, for Ahamed, the most important personal failure of Strong was his decision to die of tuberculosis in 1928. He was the only person capable of holding the New York Fed together. Without him, it was not an institution capable of organising an effective intervention before or after 1929.

Norman, however, is the real culprit of Lords of Finance. Ahamed’s portrait of the man presents a psychologically unstable aristocratic figure, as influential in his peak as he was intellectually moribund. Ahamed agrees with Norman’s critics, most notably Winston Churchill and John Maynard Keynes; the latter of whom, I imagine, was most likely thinking of Norman when he wrote that “practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist”. It is Norman whose efforts to rebuild the nineteenth-century gold standard and orchestrate the world economy from within a secretive cabal of bankers led to ruin, not to mention his tendency to fawn over Schacht, derail Strong, as well as snub Moreau at every opportunity.

Implicit in Ahamed’s narrative is the belief that if only different people were in control, it all would have turned out better. This is unsurprising. Lords of Finance, by Ahamed’s acknowledgment, was inspired by the Asian financial crises of 1997-8 — when the decisions of Alan Greenspan (then chairman of the Fed), he writes, “[averted] catastrophe and [saved] the world”. Montagu Norman could have decided not to push for Britain’s early return to gold — but he did. Strong could not have inconveniently died, and orchestrated an effective Fed response to 1929 — but he did. Ahamed’s argument is basically that the Great Depression was the consequence of mounting and avoidable errors (with a bit of bad luck).

But it is precisely this perspective that Charles Kindleberger argued against in World in Depression (alongside, that is, his bête noire in monetarism). Interwar instability and the Great Depression were not simply the product of mistakes, errors that could have been rectified if the brain of Greenspan was implanted in the body of Montagu Norman or Benjamin Strong. They were products not only of short-term causes carried over from the First World War, but also the longer-term transition which Kindleberger identifies (as in a way, Braudel and Arrighi do also) of financial hegemony from London to New York, and perhaps also the deeper Polanyian forces that Eichengreen chooses to emphasise. The economic history which I have been writing about here for months — trendy micro-Toozian crypto-Arrighioid stuff — is a tonic against exactly the sort of thinking which Ahamed so entertainingly expounds.¹

To illustrate this, it is instructive to imagine if Lords of Finance were written about the crisis sparked in 2008 instead. Last time I compared

Adam Tooze

’s Crashed to The World in Depression, to demonstrate how both use historical narrative to reveal the interplay between systemic forces and policy. So if we imagine a book that compares to Crashed as Lords of Finance does The World in Depression, what do we get? A history weaving the personal biographies of Greenspan, Ben Bernanke, Jean-Claude Trichet and Mervyn King amongst the unfolding crises that followed 2008, mentioning their personal eccentricities where appropriate. Everyone interested in history would find it entertaining to read. But we would be foolish if we let ourselves be convinced it explained how the world was broken again.

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1. If you are getting sick of this international monetary history, I understand — I am too! This is a bit of a last hurrah (for now), and I will be looking at different topics over the next few months, so expect things to freshen up.