Book review: Old masters of the universe, by Liaquat Ahamed

Last Updated: 25 Oct 2010

Lords of Finance: 1929, the Great Depression and the bankers who broke
the world
Liaquat Ahamed
William Heinemann

Ahamed's riveting book views the 1929 Crash through the lives of its top four bankers - and the parallels with today are striking, says Howard Davies.

In the midst of the US banking crisis in March 1933, newly elected President Roosevelt gave his first fireside chat to the American people on the radio. He told them why all their banks had been closed by the government and what would happen next. 'When you deposit money in a bank, the bank does not put the money in a safe deposit vault. It invests the money, puts it to work,' he explained. In the New York Times the next day, comedian Will Rogers wrote: 'Our President took such a dry subject as banking ... and he made everyone understand it, even bankers.'

Here, by contrast, in mid-crisis, Gordon Brown is to be found writing letters to the wives of Opposition politicians, apologising for the e-mail fantasies of a Downing Street spin-paramedic.

The comparison is unfair. But Lords of Finance is so temptingly full of material that demands to be used to illuminate the events of the past 18 months that it is hard to resist. One thinks, for example, of the World Economic Conference in London in 1933, where the king and queen hosted a glittering reception at Windsor, delegates argued about the agenda and the French tried to take the chair. Plus ca change, as we say in English.

Ahamed, an investment manager-turned-historian, did not set out explicitly to write a piece of comparative analysis. He started when the 21st century's crisis was no more than a gleam in Fred Goodwin's eye. Most of it was written before disaster struck, and the links he draws with current events come rather as an afterthought. But the book is none the worse for that.

The device he has chosen to illuminate the events of the Great Depression is to view the period through the prism of the careers of four central bankers. The first is, of course, Montagu Norman, now most celebrated as Sir Peregrine Worsthorne's stepfather, but in his spare time governor of the Bank of England from 1919 to 1944. Norman famously played the lead role in taking Britain back to the gold standard, which exacerbated the slump. He died a disappointed and unhappy man.

His American counterpart was Benjamin Strong. Norman and Strong were close friends - they often summered together in the south of France. Regularly unwell, living an isolated life in a small Manhattan apartment, Strong was the person who did most to make the Federal Reserve System what it is today.

The third of these four musketeers was Emile Moreau, governor of the central bank of Algeria before graduating to the Paris job. The Banque de France was populated by gold bugs and its vaults were clogged with the stuff. It clung to the standard longer than anyone else and, as a result, delayed France's recovery, with serious consequences for the balance of economic power in Europe in the late 1930s. Later, Moreau, clearly a collector of lost causes, became secretary to the Comte de Paris, pretender to the French throne.

The Fourth Man was Hjalmar Horace Greeley Schacht, the president of the Reichsbank. The 'Greeley', oddly, was a tribute to the founder of the New York Times. (Schacht pere emigrated to the US, but failed to make a go of it and returned home.) Hjalmar is credited with defeating German hyperinflation through the introduction of the Rentenmark, backed by land, but he later became the economic brains behind National Socialism. Hitler paid him a rare compliment: 'It was his consummate skill in swindling other people which made him indispensable.' No higher praise could be imagined from the Fuhrer. Norman was a staunch ally, attending Schacht's grandson's baptism in 1939, against Foreign Office advice. Central banking is thicker than water.

For the most part, Lords of Finance is an entertaining, conventionally structured economic history: 1933 comes after 1932, in other words, not always true these days. It is also studded with remarkable quotations and irresistible anecdotes: Charlie Chaplin criticising Churchill over dinner at Chartwell for returning to the gold standard; Churchill himself visiting the New York Stock Exchange a week after the Wall Street Crash (which cost him $50,000), describing it as 'a passing episode'; HG Wells visiting Hoover in the White House and finding a 'sickly, overworked and overwhelmed man'.

The thesis, summarised in the publisher's subtitle, is something of an afterthought, and does not infect the narrative. 'More than anything, the Great Depression was caused by a failure of intellectual will, a lack of understanding about how the economy operated ... '. To me, those are two rather distinct points. Norman did not normally lack will. Keynes, his nemesis, is a little kinder than Ahamed: 'Montagu Norman,' he wrote, 'always absolutely charming, always absolutely wrong.'

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