Book review: Lords of Finance

After reading one Pulitzer Prize winner, Gilead, I thought I looked into other recent prize winners, and this one caught my eye. What caused the Great Depression? Trying to dredge some of my knowledge from AP US History, I couldn’t come up with a good answer. I doubt I could have answered it if it had showed up on the AP exam either. I could have named all the agencies created by FDR in response to the Great Depression, but that requires more recall than actual thinking.



This book takes the Great Depression and puts it on a world scale. I assumed the Great Depression was largely caused by internal factors in the US, and didn’t think about the effects of the economies of Europe or the consequences of World War I. The one principle I remember taking away from US History was wars are good for the economy, and it was World War II that sparked the economy again. Perhaps that’s a little simplistic.

This book brings up a lot of economic ideas that still seem a little mystical even after engaging with them for 500 pages. How does the gold standard play a role in the economy? What is the gold standard exactly? What do banks do with all that gold? What happens when governments print money? What is inflation? Deflation? Is one good and the other bad? They both seem bad. Why does money change value? How do interest rates affect the economy? All of these are the principles that come in to play throughout this book.

The author begins the book with quip from British PM Benjamin Disraeli: “Read no history– nothing but biography, for that is life without theory.” Ahamed does end up giving theory within the biography, but by cleverly telling the story of the Great Depression from the perspective of the four central bankers of the western world, it becomes much more real. Perhaps you thought that the Great Depression was inevitable, that it was an act of God. This shows how decisions of four independent players: Benjamin Strong of the US, Norman Montagu of Great Britain, Emile Moreau of France, and Hjalmar Schacht of Germany, ended up driving the Great Depression towards its conclusion.

The two biggest factors to which Ahamed blames the Great Depression are the draconian reparations imposed by the Allies on Germany, and the insistence on maintaining the gold standard. I was surprised to learn at how cruel the US was on not waiving debts to the Allies during WWI. We were considered a sort of Shylock character, insisting on our pound of flesh, when we had made no sacrifices during the war. Americans tend to view themselves as the saviors of humanity I suppose, never in the wrong.

One of the most fascinating elements for me was learning some of the events leading up to Hitler’s ascension in Germany. Economics played a huge role. When the democratic government failed to stabilize the economy, extremist political parties, the Communists and Nazis, became increasingly appealing. In many ways, I do believe that the Allies were responsible for the rise of the Nazis. Mr. Schacht thinks so. He said during the Nuremberg trials following the war: “Don’t forget what desperate straits the Allies drove us into. They hemmed us in on all sides– they fairly strangled us! Just try to imagine what a cultured people like the Germans has to go through to fall for a demagogue like Hitler… All we wanted was some possibility for export, for trade, to live somehow…” Read for yourself and decide how much of a role yo think WWI reparations played a role.

This book is excellent writing. You would think that a tome on economics would be heavy reading, but the story surrounding the four characters drives it all forward. You begin to realize the impact that individuals have in world history. The Great Depression wasn’t all Herbert Hoover’s fault, even if Americans liked to blame it all on the poor guy. And FDR didn’t single-handedly stop the Great Depression either. That attitude is probably due to the fact that in history class, we can’t memorize all the names, so at the very least we can memorize the presidents. We still tend to chalk up everything to the president!

You can check out my highlights here!

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