With penetrating insights for today, this vital history of the world economic collapse of the late 1920s offers unforgettable portraits of the four men whose personal and professional actions as heads of their respective central banks changed the course of the twentieth century

It is commonly believed that the Great Depression that began in 1929 resulted from a confluence of events beyond any one personas or governmentas control. In fact, as Liaquat Ahamed reveals, it was the decisions taken by a small number of central bankers that were the primary cause of the economic meltdown, the effects of which set the stage for World War II and reverberated for decades.

In Lords of Finance, we meet the neurotic and enigmatic Montagu Norman of the Bank of England, the xenophobic and suspicious Amile Moreau of the Banque de France, the arrogant yet brilliant Hjalmar Schacht of the Reichsbank, and Benjamin Strong of the Federal Reserve Bank of New York, whose faAade of energy and drive masked a deeply wounded and overburdened man. After the First World War, these central bankers attempted to reconstruct the world of international finance. Despite their differences, they were united by a common fearathat the greatest threat to capitalism was inflationa and by a common vision that the solution was to turn back the clock and return the world to the gold standard.

For a brief period in the mid-1920s they appeared to have succeeded. The worldas currencies were stabilized and capital began flowing freely across the globe. But beneath the veneer of boom-town prosperity, cracks started to appear in the financial system. The gold standard that all had believed would provide an umbrella of stability proved to be a straitjacket, and the world economy began that terrible downward spiral known as the Great Depression.

As yet another period of economic turmoil makes headlines today, the Great Depression and the year 1929 remain the benchmark for true financial mayhem. Offering a new understanding of the global nature of financial crises, Lords of Finance is a potent reminder of the enormous impact that the decisions of central bankers can have, of their fallibility, and of the terrible human consequences that can result when they are wrong.

"If you think today's economy is scary, check out the Jazz Age horrors chronicled in this financial history of the interwar years and the central bankers who blighted them. Ahamed, an investment manager, surveys the economic upheavals of the 1920s and 1930s, when crushing war debts and reparations from WWI sparked hyperinflation in Germany and a host of lesser eruptions, all of it climaxing in the American stock market crash and the Great Depression. He tells the story through the central bank chiefs of Britain, France, Germany and the United States as they confront unprecedented crises while 'shackled' by the 'dead hand' of the gold standard, the era's reigning financial orthodoxy (economist John Maynard Keynes, foe of gold and apostle of economic activism, is the book's hero). The author injects unnecessary commentary about the bankers' neuroses and marital difficulties into his coverage of interest rate and currency fluctuations (New York Federal Reserve head Benjamin Strong, he notes, possessed a 'large nose that spoke of ruthlessness'). Fortunately, his protagonists' high-wire efforts to stave off national bankruptcies furnish Ahamed with plenty of drama to highlight his engrossing analysis of the complexities of monetary policy. Photos." Publishers Weekly (Copyright Reed Business Information, Inc.)

From the 1870s to 1914, the world's developed nations basked in a shimmering age of commerce. The European powers were at peace. Goods flowed home from colonies. The newly reunited United States was growing into muscular adolescence. And all of the world's major economies rested on a seemingly solid base: the gold standard.

But it proved to be a system in a snow globe, easily shattered.... Washington Post Book Review (read the entire Washington Post review) World War I broke the idyll and unhooked country after country from dependence on gold. They resorted to printing money to fund the war, leading to massive inflation, unemployment, political instability and general suffering across the Continent.

It's no wonder, then, that after the signing of the armistice in 1918 the world's four most powerful bankers — a fraternity described in newspapers of the time as "the world's most exclusive club" — did everything they could to force nations back to the discipline of the gold standard.

It was a ruinous decision. as Liaquat Ahamed notes in "Lords of Finance," all the gold mined in history up to 1914 "was barely enough to fill a modest two-story town house." There simply was not enough of it to fund a global conflict or to allow economic recovery afterward.

Ahamed's illuminating and enjoyable book focuses on the four men whose arrogance and obstinacy, he contends, caused the worst depression in modern times: Benjamin Strong Jr., the morphine-using, consumptive governor of the New York Federal Reserve; Montagu Norman, the spiritual seeker at the helm of the Bank of England; Emile Moreau, the xenophobic governor of the Banc de France; and Hjalmer Schacht, the president of Germany's Reichsbank, a Prussian by temperament, if not by birth, whose sensibilities led to a flirtation with the Nazis.

They were the most important central bankers in their respective nations when those four countries controlled most of the world's wealth and one — England — was its unrivaled lender. It was a time, almost unrecognizable to us, when the central banks that printed each nation's currency were privately owned, and regulation was unheard of. As a consequence, this handful of men — who knew each other intimately enough that one was godfather to another's son — could wield a coordinated, long-lasting and terrible impact on the global economy.

The gold standard's role in the worldwide depression of the 1930s has been probed before, notably in Barry J. Eichengreen's scholarly "Golden Fetters" (1992). But Ahamed — a hedge fund adviser, a World Bank veteran and a supple writer — personalizes the story, exploring how insular relationships led to bad choices. Strong and Norman, for instance, became friends and gained each other's trust through lengthy correspondence. Strong used his influence to secure a loan for England, then prodded Norman to put England back on the gold standard. Norman, in turn, persuaded Strong to push down U.S. interest rates, helping to create the stock bubble that eventually burst in October 1929. When Strong died in 1928, his replacement became Norman's thrall and fell in lockstep with the emphasis on gold, extending the economic agony.

Meanwhile, the unchecked concentration of power in one banker's hands was also roiling Germany. In 1924, Schacht went bizarrely off the farm and attacked his government, releasing public statements accusing the state of losing control of its finances and saying that Germany was too broke to pay additional war reparations. While Schacht partly spoke the truth, his freelancing undermined already shaky public confidence. Later, he sabotaged a loan his nation tried to secure in New York, nearly bringing down the government.

Ahamed damns the dead, placing blame at the feet of men largely lost to history. The risk in writing about forgotten men, however, is that they might not have been interesting enough to be remembered. "Lords Of Finance" unearths some gossipy details: Norman, for example, was a salad-bar spiritualist who tried a little of this, a little of that (including Theosophy and autosuggestion) and once told colleagues he could walk through walls. But quirky does not equal memorable. These four bankers are about as compelling to us as, say, Treasury Secretary Henry Paulson may be to readers a century from now. My guess is that readers in 2109 will instead remember Warren Buffett and Bill Gates, just as we still know J.P. Morgan and John D. Rockefeller.

Rather than splendid personalities, this book's real advantage is timeliness. Parallels to today's global financial collapse come with regularity throughout, sometimes causing spit-take laughs, sometimes shudders. Heading into the Paris Peace Conference of 1919, one pugnacious English banker proposed forcing Germany to pay reparations of $100 billion, eight times its prewar gross domestic product. He said he came up with the figure "between a Saturday and a Monday" — which sounds a lot like the three-page request for $700 billion Paulson whipped up one weekend in September and sprang on Congress.

Until last year, few believed anything would stop U.S. homes from going up in value 10 percent every year. That is, until the subprime mortgage crisis exploded. Likewise, in the prosperous and interdependent Europe of 100 years ago, war was considered unthinkable because it would destroy all. By 1917, an entire generation of young male university graduates was dead. And, frankly, the brainpower needed for forward-thinking was lacking. European bankers of the time carried a cavalier ignorance of economics, and that goes double for America's first Federal Reserve directors. The science of monetary policy was still in its infancy, and no one could have expected four dreary bankers to turn suddenly into brilliant, ahead-of-their-time economists.

That role should have fallen to John Maynard Keynes, one of the few heroes of Ahamed's book. Keynes called the gold standard a "barbarous relic" and clearly explained its limits; in 1925, he accused the British banking elite of "attacking the problems of the postwar world with unmodified prewar views and ideas." But despite being a well-known Cambridge don, Keynes was an outsider, not a member of the world's most exclusive club, and those in power largely ignored his warnings.

Looking at the events of the 1920s and 1930s, one wonders: Could a modern confluence of catastrophes cause another global depression? No major power is likely to return to the gold standard, so that risk is off the table. But is there a comparable systemic problem today, something we refuse to see? Ahamed thinks we're plain lucky that recent financial crises — in Mexico in 1994, Asia and Russia in 1997-98, the United States beginning in 2007 — "have conveniently struck one by one, with decent intervals in between." After reading his bracing book, one can only hope that our economy is in the hands of decision makers who are more numerous, less powerful or much wiser than in the past.

Frank Ahrens is reporter in The Washington Post's Business section. His blog is called The Ticker.

Reviewed by Frank Ahrens, Washington Post Book World (Copyright 2006 Washington Post Book World Service/Washington Post Writers Group)
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Ahamed, a professional investment manager who advises several hedge fund groups and who has worked at the World Bank, tells the stories of the men in charge of the four principal central banks of the world after World War I, Montagu Norman of the Bank of England, Émile Moreau of the Banque de France, Hjalmar Schacht of the Reichsbank in Germany, and Benjamin Strong of the Federal Reserve Bank of New York, who attempted to reconstruct international finance after World War I and return to the gold standard. He describes how, in the mid-1920s, they appeared to succeed in stabilizing the world's currencies, aiding the flow of capital, and creating economic growth, and the subsequent problems that lead to the Great Depression. He includes discussion of economist John Maynard Keynes' dissenting views. Annotation ©2009 Book News, Inc., Portland, OR (booknews.com)