Lords of Finance: The Bankers who Broke the World

-Liaquat Ahamed

Liaquat Ahamed’s Lords of Finance: The Bankers who Broke the World is billed as a historical retrospective with “penetrating insights for today,” a book meant to teach its audience about the 2008 financial crisis through an examination of how the global economy collapsed in the late 1920s. This is true, but only to an extent: Ahamed engages primarily with history and tacks on ‘lessons for us’ at the end. This is certainly not an afterthought, but it would not be unfair to the author to recognize that his passion lies in the narrative of the past and the seemingly-Victorian lives of the Depression’s main characters.


Montagu Norman, Benjamin Strong, Emile Moreau and Hjalmer Schact make up the titular ‘Lords of finance.’ Norman was an eccentric Etonian, the son of board members of the Bank of England and related to a former Governor. He wore a top hat and carried a cane in an era where both were losing their popularity: the press described him as a “chief conspirator in an Italian opera.” 


Norman’s closest friend in this gang of four was Benjamin Strong of the New York Federal Reserve. Strong’s façade was, as his surname suggests, a powerful one: he came of age just before the outbreak of the Great War and was incredibly optimistic about the future of the United States. He wanted and pressed for greater American involvement on the world stage and became the Governor of the New York Fed at the age of 41. In that sense, he was his country personified. His personal life was nothing short of a disaster, however. He first married in 1895 and, along with his wife and two newly born children, moved to New Jersey. In 1905, Margaret (his wife) shot herself while her husband was away. The next year, Strong’s eldest daughter died of scarlet fever. He remarried two years later, only for that marriage to end in divorce. Worse still, shortly after his second wife left him, Benjamin caught Tuberculosis and was medically required to spend a lot of his time in Colorado (mountain air was supposed to be good for sufferers of TB). 


Emile Moreau, of le Banque de France, was practically an American caricature of the Frenchman. He believed that international finance was a giant Anglo-Saxon conspiracy meant to keep France in its place: after the fall of Napoleon, the British had rigged the system to always favor London over Paris. He was, then, the odd man out. 


Hjalmar Schact was a brilliant and opportunistic young banker. In 1923, he almost single=-andedly saved a broken Germany from hyperinflation. He was fiercely proud of Germany and, like Moreau, believed that the “…villain of the piece was a fading Britain conspiring to deny Germany its rightful place among the Great Powers…German’s steady advance in the world’s markets had aroused the atagonism of those older industrial countries, who felt their chances in the markets were threatened…England in particular.” Schact’s ambition eventually found him to be head of the Reichsbank by 1923.


Aside from historical narrative, Ahamed’s Lords of Finance is a polemic against the gold standard, named as the key error which created the Great Depression. In July of 1927, the four ‘Lords’ attended a secret meeting on Long Island (of all places) and decided to put the world back onto the gold standard and ease interest rates/credit in order to prop up the Pound Sterling. The Pound was the lynchpin of the international economy but was always teetering on collapse: bankers everywhere, the Lords included, did everything they could to maintain Sterling’s position. Moreau and Schact were simultaneously vindicated and forced to abandon their principles: the Pound must not collapse. This meeting in July is, Ahamed reasons, the exact date when the bubble which broke the world was created. 


Lords of Finance is Sherlock Holmes for bankers, filled with Viscounts and Rothschilds (Rothschildren?); Prussians and people named Reginald. The language of Empire is on display: Ahamed twice uses the phrase ‘Meanwhile, on the Continent…’ and it is commonplace for Lord Kitchener and ‘Russian mobilization’ to appear in the same paragraph. It almost feels like Ahamed is cheating, turning the perennially dry and vague story of an economic collapse into a jaunt across interbellum Europe. Graphs displaying US stock prices and corporate profits are much easier to swallow when covered in Ahamed’s prose. This is more of an open relationship agreed to by both parties than cheating: Lords of Finance is faithful to the numbers in every way that matters but allows itself the welcome luxury of reading like a political thriller. 

Bankers and Bullies

How the international political economy and its governors handle rogue, totalitarian, aggressive and nuclear states is an incredibly pressing question. I may have put myself in a straitjacket from the start in attempting to explore this issue through an economic lens, but the gravity of the problem warrants at least some contortion on my part.

Economic sanctions rate highly among politicians in Washington and New York, and London and Brussels are not entirely averse. Sanctions are said to force regimes to cooperate: economic suffering, the argument goes, will make Iran relinquish its atomic ambition, contain Korean communism, loosen Saddam’s grip on Iraq and pacify Syria. Even more popular is the suggestion that sanctions will “bring [your bad-boy nation of choice] to the table,” as if ‘talking’ were all that was required to stop any madman. They are simultaneously the carrot and the stick: submit and prosper, resist and starve. The target regime is, the West reasons (as it is inevitably the West which does the sanctioning), caught in a Catch-22 which ultimately gives the sanctioner what she wants.

Critics of economic sanctions are right to recognize the harm an economic lockout inflicts upon the people of the sanctions’ target. When sanctions were imposed upon Iraq following the liberation of Kuwait, Iraqi civilians suffered immensely. Hussein’s regime, in contrast, thrived: Baghdad used the spoils of war gathered from the short-lived annexation of Kuwait and what little resources Iraq generated on its own to solidify its position. Iraq’s limited supplies were deliberately directed away from Iraqi Kurdistan and what remained of the Marsh Arabs: Saddam used scarcity to stifle and (very literally) starve his detractors.

Of course, a lack of sanctions strengthens “the regime,” as well: if sanctions are imposed and then lifted, all profits go to the regime. Were the Iraqi sanctions lifted before the Americans’ return to Baghdad, Saddam would have been permitted to recover and reload. Economic sanctions, rather than presenting the sanctioned with an unanswerable question instead present the same prisoner’s bargain to the United Nations, the United States et al. Sanctions that are temporary can only have a negative impact on the innocent civilians of the targeted nation. Temporary sanctions also make the mistake of assuming that dictators and totalitarian structures can be made to change or brought to heel - or even that they should be given the opportunity for redemption. Crimes that warrant the imposition of sanctions (a breach of the genocide convention, any violation or intent to violate the non-proliferation treaty, belligerence toward neighbors, safeguarding/supporting terrorists or other civilian-targeting criminals) are of a high enough nature that there can be no appeal except within The Hague.

The only reasonable conclusion to a ‘round’ of sanctions is the capitulation and expurgation from the halls of power of the regime in question. If that is not what the sanctioner desires, no sanctions should be imposed. Full stop. Sanctions are nothing short of murderous when applied for any purpose other than regime change.

The ‘Kofi Annan’ method, which consists largely of spending time in the hope that diplomacy and negotiation will win the day, is equally negligent when it comes to culpable regimes. The United Nations famously waited too long to prevent the horrors in Rwanda, and more recently gave the genocidal government of Sudan all the time in the world to reform. A promise to negotiate is the one thing Sudan could use to control the United Nations: when Sudan pretended to negotiate with the UN, the government-supported/controlled Janjaweed militias carried on killing. Even if the UN had been able to come to consensus, New York would have been too late by 2005. At that point, there were no more black Sudanese to kill: hundreds of thousands were already dead and millions were driven from the country. Sanctions against Sudan, such as they were (there was, at a time, a possibility for more extensive sanctions), at their mildest gave the international community an illusion of action and at their worst wasted time in which genocide was given free reign.

I am running to the end of my hour, unfortunately. I must say something on the nuclear question, given its potential endgame (the end of Earth): can the international political economy play a role in global disarmament and nonproliferation? Sanctions against both Iran and North Korea have been enacted but I doubt their ability. This issue deserves its own time, so I will leave it for later. Nonetheless, the international political economy’s current and potential influence on states in violation of international law has been made incredibly important and deserves examination.

Boxes of Chocolates

Here's what I was talking about earlier this morning, and I apologize in advance for spoiling any heart-shaped boxes you just opened.

Halftime in America

111 Million people watched the Superbowl yesterday, according to NBC's Brilliams. Of course, the United States contains upwards of 300 million people: who wasn't watching the Superbowl? A rerun of CSI Miami can't be that important.

Anyway, I'm sure all of you watching saw this, Chrysler's 'Halftime in America' commercial featuring Clint Eastwood. Poignant, no? It combines patriotism, competition and fast cars. What's not to like?

Maybe it's because I'm of a younger generation, but my 'memories,' such as they are, of Clint Eastwood are...Well, they're all of Gran Torino.

So to see Mr. I Killed Tons of Gooks In Korea talking about America 'winning' the second half and knowing full well that our 'opponents' are (or at least are perceived to be) largely Asian and specifically Chinese is just a tiny bit uncomfortable. Seriously, Clint called an asian man 'Ching-Chong' in that second video.

The Protestant Work Ethic

Religion's role in Europe's industrialization was given passing reference in class on Monday when we discussed Wolf's comment on culture:

"At the present stage in human history, all the successful economies are rooted in European or Sino-Japanese culture" (47).

Now, I forget who brought this up first (or I have the courtesy not to name names) but someone mentioned the possibility of Protestant Christianity being at least part of the cultural path toward development.

I don't mean to be rude or to offend anyone who happens to ascribe to a Protestant faith, but this idea (Max Weber's idea) of the Protestant work ethic is nonsense. Although Weber was a Prussian (and later a German), the Protestantism of which he spoke was originally English and Dutch and this 'work ethic' was especially lauded by the Anglican British Empire: Rudyard Kipling, paragon of British imperialism, was quite the fan. His 'White Man's Burden' goes hand in hand with the Protestant Work Ethic. Weber's theory was part of the snobbish, upturned-nose attitude the English held regarding the Continent, foreigners and Catholics. The Protestant Work Ethic was, in Britain, code for insulting the 'lazy' people of France and Southern Europe (no more siestas and bunga-bunga parties, please). This pseudoscience (not dissimilar to Sir Francis Galton's class-based eugenics which suggested that genius and talent were inherited) served the sinister purpose of providing an excuse or reason for Empire.

Aside from the implications involved in citing the Protestant work ethic, we should know that this theory is not only morally reprehensible (though I am sure it was not intended as such by my classmate(s)), it is also incorrect. What does Protestantism really have to do with economic activity? The aforementioned Max Weber's thesis on the subject, The Protestant Ethic and the Spirit of Capitalism (1905) compares Catholicism with puritanical Protestantism: where devotional Catholics reject worldly affairs, especially those of the monetary sort, Protestants were compelled by God to pursue Earthly goals. Similarly, the Protestants were forbidden to waste their earnings on luxuries and subsequently invested their unused piles of cash.

This mistakes a mixture of empty rhetoric and secular proto-capitalism for true religious devotion: if anything, Protestant fervor held Western Europe back. If we take the Protestants at their word and rely solely on scripture for guidance, we find that the Bible expressly forbids wealth of any kind. One recalls the incident in which Jesus was supposed to have cast the money-lenders out of the Temple, and anyone with a basic background in English Literature or scriptural studies will be familiar with Matthew 19:24: "It is easier for a camel to pass through the eye of a needle than it is for a rich man to enter the Kingdom of God." Christ is well-known to have been impoverished by choice and eschewed worldly possessions: indeed, priests of nearly all modern and past Christian sects take a vow of poverty upon ordination (an apparently hypocritical vow, given the lavish marble and gold palaces of St. Peter's in Rome and St. Paul's in London). Remember that it will be the meek (read: poor) who will inherit the Earth.

St. Paul's Cathedral and the London Stock Exchange, Paternoster Square

Christianity, especially Christianity which stems directly from scripture, is anti-wealth and prosperity. All churches want their sheep to be poor and unlearned - God forbid someone teach them evolution or that condoms do not, as Mr. Ratzinger maliciously claims, increase the incidence of AIDS. To express this idea any more eloquently, I turn to the regrettably late Christopher Hitchens:


“...The central doctrine of Jesus of Nazareth: “Take no thought for the morrow. No investment. No thrift. No care for your children. That you should abandon your family. Not worry about construction, about investment, about anything. Just follow me.”


So then it is neither Protestantism nor Christianity generally which spurred Europe's development. The analogy of Promethean Fire is an apt one: Prometheus, despite his divine stature, is frequently cited as the arch-humanist. He (according to Greek legend and superstition) gave humans 'divine fire' and made us as good as the gods. We learn from Greek Mythology that the gods themselves are capricious, anxious, jealous, angry, shy, overconfident, lustful and flawed - just like us. Mankind is inherently capable of knowing morality without divine instruction and, more pertinently, capable of creating its own prosperous future.

The conclusion that must be drawn is one which stems directly from the enlightenment, the earliest stages of which coincided with the shattering of the mysticism of the Roman Church and the rise of Protestantism. Suggesting that Protestantism caused development is to miss the point: the 'virtues' of Calvinism and other sects had no bearing on economics, but the splintering of Catholicism which marked the beginning of the (long drawn-out) end for Western religion allowed for the enlightenment and for the spread of secularism.

Protestantism did have an important role to play in that respect: the Reformation, famously jump-started by Martin Luther, loosened the grip that the clerics held on the people of Europe. Though Protestant churches could be and often were quite brutal to those who questioned dogma, they were no where near as horrible as the Church in Rome. Indeed, Protestantism, for all its fiery rhetoric, was at least marginally more tolerant than Catholicism - what Protestant leader claims, as the Pope does, to be infallible? Similarly, Protestantism's own incoherence prevented the rise of a super-Church that could act as its Catholic counterpart did. Churches, in that sense, are economies of scale: the bigger you are, the better you are able to hold back the indefatigable tide of reason.

Were Protestantism allowed the same scope and strength as the Catholic Church, development would have been severely hamstrung. Of that we can be certain. We see the alternative in Islam, a still-young religion which has not gone through either a demystification or reformation. Protestantism did, at least, allow for the drawing back of the veil (I choose that word with purpose) which surrounded priesthood. Whereas the Bible (after much dissent from Rome (and by 'dissent' I mean 'violent reactionism')) has been translated into the vernacular, the Qur'an remains (at least officially) only in Arabic. Indeed, any translated version of the Qur'an found in the West must be printed side-by-side with an Arabic version - no exceptions. For a religion that purports to be universal (think how the Kyrgyz, Turks, Berbers, Persians, Indonesians, Pakistanis and Africans must feel when they learn their language is not quite good enough for the Prophet), Islam does anything but disseminate Allah's wishes. One is reminded of Jonathan Swift (author of Gulliver's Travels) via (once again) Mr. Hitchens: "We are the pure and chosen few / And all the rest are damned / There's room enough in hell for you / We don't want heaven crammed!" ("She wears short skirts / I wear t-shirts / She's cheer captain and I'm on the bleachers" is the other Swift, Taylor. Not to kill the tone or anything.)

Usury (or interest of any sort) is forbidden by Sharia and this restriction is enforced. Business equity stakes are allowed through a convenient loophole left by the Hadith, but banks in Islamic countries which ascribe to Sharia do not allow interest in the year two thousand and twelve (erstwhile of our Lord), ladies and gentlemen. If the Catholic Church had its way, as it did during the years of the Spanish Inquisition, interest would be forbidden in Europe as well: perhaps it is no wonder London, unchecked by the bleating, powerless sheep that is the Church of England, is and has been Europe's center of commerce since the decline of Amsterdam.

And that's the point: Protestantism's doctrines or virtues weren't the key to industrialization, even though the reformation did have a role to play in the breaking of the Catholic Church's monopoly. It was Protestantism's weakness and inability to stop the enlightenment (Lord knows the Churches tried). Yes, had Rome had its way, the enlightenment may very well have never happened: it certainly would have been delayed. To reiterate: the Protestant Reformation weakened Christianity as a whole and allowed for secularism to begin its rise. With secularism came moral, scientific and economic progress. The Church of England is frequently referred to and refers to itself as the 'middle way' between the puritan Protestants and the Catholic Church - the Via Media. Applied to Protestantism in general, that Latin phrase is especially pertinent: Europe has moved from Rome to Canterbury and finally toward civilization.