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THE BANKERS' BATTLE IN THE POST WWI ERA TO KEEP THE WORLD ECONOMIC EDIFICE SOLID & AFLOAT

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

Economics plays a decisive role in shaping and guiding our lives. For most of us, it is not an easy subject to understand. I am the holder of an Economics degree (cum laude) from my college days. Even so, there are still many things about economics and finance that either elude my grasp or I partially understand, for both disciplines are fluid and dynamic, ever evolving, ever changing.

For that reason, I sought out this book, "Lords of Finance: The Bankers Who Broke the World", to help me to begin to understand the various historical and economic factors that led to and touched off the Great Depression and any parallels between events of yesteryear and today. Certainly, I've learned a lot about the 4 principal personalities in the world banking system during the 1920s who sought to promote and build a solid world economic system in the post-World War I era pegged to the gold standard. The foursome were "the neurotic and enigmatic Montagu Norman of the Bank of England; the xenophobic and suspicious Emile 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 facade of energy and drive masked a deeply wounded and overburdened man."

Reading this book taught me that the collapse in the world economic system in 1929 was not inevitable. The author identifies 3 culprits that he deems culpable of contributing to events that caused the Great Depression:

(1) "... the politicians who presided over the Paris Peace Conference [of 1919]. They burdened a world economy still trying to recover from the effects of war with a gigantic overhang of international debts. Germany began the 1920s owing some $12 billion in reparations to France and Britain; France owed the United States and Britain $7 billion in war debts, while Britain in turn owed $4 billion to the United States." Expressed in today's money, that would be the equivalent of Germany owing $2.4 trillion, France owing $1.4 trillion, and Britain $800 billion. Grappling with such heavy debt during the 1920s made it a onerous challenge for the financial statesmen of the day to take on. The debt issue also poisoned international relations and created a fissure in the world financial system that gave rise to pressures that would cause it to collapse in October 1929.

(2) "[t]he second group to blame were the leading central bankers of the era" --- i.e. Montagu Norman, Emile Moreau, Hjalmar Schacht, and Benjamin Strong. "Even though they, especially Schacht and Norman, spent much of the decade struggling to mitigate some of the worst political blunders behind reparations and war debts, more than anyone else they were responsible for the second fundamental error of economic policy in the 1920s: the decision to take the world back onto the gold standard."

(3) "... the Great Depression was caused by a failure of intellectual will, a lack of understanding about how the economy operated. No one struggled harder in the lead-up to the Great Depression and during it to make sense of the forces at work than Maynard Keynes [the distinguished British economist]." He believed that if what he regarded as "muddled thinking" could be eliminated in economic matters, "then society could allow the management of its material welfare to take a backseat to what he thought were the central questions of existence, to the 'problems of life and of human relations, of creation, behavior and religion.' "


This is a magisterial work that, I believe, anyone should read with care and patience (given the weightiness of the subject) to gain a better understanding on a fundamental level of how economies work and function. You'll be glad that you did.