Lords of Finance | Liaquat Ahamed

Summary of: Lords of Finance: The Bankers Who Broke the World
By: Liaquat Ahamed

Introduction

Embark on a journey through the 1920s and 1930s, an era of significant economic turmoil, featuring boom, bust, and the onset of the Great Depression. In ‘Lords of Finance: The Bankers Who Broke the World’, Liaquat Ahamed dives deep into the financial decisions and mistakes of central bankers from the US, Britain, Germany, and France, laying the blame on these influential figures and their stubborn allegiance to the gold standard. Discover how their misguided policies and actions created the perfect storm, leading to the most extensive financial catastrophe seen in modern history.

The Gold Standard and the Great Depression

The Great Depression of the 1920s and 1930s was not an inevitable result of uncontrollable events but a direct consequence of the poor decisions made by central bankers. The gold standard, which linked a currency’s value to gold, was a widely accepted practice in the early 20th century, backed by the banks of the four major economies of the US, Britain, France, and Germany. However, the bankers’ misguided policies of cutting rates when they should have raised them and sticking with the gold standard long past its usefulness resulted in the Great Depression. This book summary tells the story of how central banking was a new concept for the world’s largest economy and how the European powers’ foolish wartime monetary policies led to towering debt and devalued currency.

The Rise and Fall of Germany’s Currency

The German mark was at the center of the most destructive monetary event in human history. The onerous reparations that followed World War I helped spark a dizzying inflation and currency devaluation in Germany. The collapse of the mark led to a boon for foreigners and widespread starvation among Germans. Despite the grave situation, the belief in gold as the foundation for money was ingrained in the minds of policymakers, limiting their ability to recognize the inherent problems of adhering to the gold standard. With the US in a dominant position, it insisted on full payment of war debts from Britain and France, causing a downward spiral in Europe. Against this backdrop, Schacht became currency commissioner and oversaw the creation of a new currency, the Rentenmark, replacing the Reichsmark. Germany’s economy soon rebounded, earning him the nickname “Miracle Man.”

The Gold Standard and the Fate of Two Economies

London was growing, but its economy was struggling due to high unemployment and deflation caused by disciplined fiscal policies aimed at reversing wartime inflation. Winston Churchill considered breaking away from the gold standard but ultimately sided with the gold bugs in the Treasury and the Bank of England. Meanwhile, France’s culture of scandal and deep political divides weakened confidence in the franc, leading to a currency crisis. Émile Moreau took over as governor of the Banque de France and stabilized the franc by keeping it low, allowing French exporters to undercut their rivals. Although Moreau’s strategy worked in the short-term, it ultimately helped destabilize the world economy and led to quarrels with Norman, who claimed France was undermining the pound.

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