Krishna
Starts very well with Collet Normal DSO, who was the chief of the Bank of England and his nervous breakdown in 1931.
This follows the life of four central bankers (Britain, France, Germany and US) through the Great Depression and the consequent Second World War. Well told story. The personalities of each is explained before we learn what they do.
The Gold Standard and why it came to be are explained well as well.
Fun facts emerge. For instance, Lloyds of London had insured German tanks and ships so that, in 1912, a British committee was stunned to find out that in the event of a war with Germany, Lloyds would have to compensate Kaiser for the loss of ships or military gear caused by British action! The collective wisdom of that time was that nations were so interlinked in trade that a war was impossible !
The British central banker Montagu Norman’s personal characteristics are very interesting. Unmarried, rich, and very influential but living a spartan life. He is weird, and has personal illnesses including several nervous breakdowns. Goes off in the middle of his work to recover, often for several weeks.
Horace Schacht was the German central banker who is one of the four described. He grew up doing various jobs and was brilliant and ambitious, fired by a determination to be as different as possible from a father, who was a failure.
The third man was Benjamin Strong in US. An employee of Pierpoint Morgan, who was of such legendary influence in financial circles. His wealth was unknown and when he died, proved to be $80 Million (We are talking 1910 dollars!). John D Rockefeller, who was worth about $1 billion in the same money shook his head and said, “And to know that he was not even rich!”
Benjamin himself was not rich but married into a rich family and had a lavish lifestyle on his salary. If he became President of New York Feds he stood to make a fraction of the money. Emile Moreau is his French counterpart.
The fourth is the French Emile Moreau.
The description of the hyperinflation in Germany are shocking. You thought Zimbabwe’s a few years ago was really bad? You thought the Italian Lira which charged something like a thousand Lira for a coffee (before they chucked it all to join the Euro) was bad? This was far worse! Money was printed in truckloads and people were carrying it in trolleys and baby carts to buy necessities. While you were drinking coffee, the price of it doubled! Butter cost 250 billion Marks, one US dollar fetched 630 billion Marks. Try that for size. No wonder people were extremely frustrated no wonder this, compounded with the pressure of reparations (insisted upon by two fanatical Britishers, not the French who suffered the most in World War I, as the author describes it. ) caused so much angst, no wonder society was chaotic with attacks by ruffians, no wonder even the newfangled fanatic idea called Nazism did not seem to be such a bad thing.
Keynes, that genius of economics also is intimately involved, though you learn many surprising things about him – he was not impressive to look at and had a very big chip about his looks – he also lost and made money in currency trading, then a new thing. He loved and married a trampy woman who was much married and was given to terrible gaffes with the English language.
The formation of the Federal Reserve with oversight by political persons with no training in finance and thus Strong’s total domination of the Fed are told well. He saw that bond buying and selling by the government is a more effective way to control prices and exchange rate than interest rate hikes and dips, especially in the post gold standard world. But his arrogance, his taking decisions without explaining to anyone caused heartburn and even worse, confusion among other members of the Central Bank.
History told from the Central Banker view means that Hitler’s putsch is almost told as a hearsay.
The insistence of US that Britain return the gold standard and the resistance to both the plan and Norman, who supports these plans are well told. What is interesting is Churchill’s description. He becomes the Chancellor of Exchequer (Finance Minister in any other country!). He was not popular. He switched parties twice (Tory to Liberal and back) based on whom political winds favoured. He was seen as crass, had expensive tastes and was perpetually in debt and by his own admission, ‘knew nothing of finance or economics’. In addition, he surrounded himself with very shady characters and after a brilliant start in important party positions at just the age of 35, he faded away and languished in the sidelines, ignored until he reached fifty, when he became the Chancellor. And he was brought in by the Prime Minister because the latter wanted to keep him close and keep an eye on him and did not trust him to be part of the party but not the cabinet, where he can brew mischief.
Go figure.
The description of William Crapo Durant, the school dropout who founded General Motors, is also very interesting. He was a hustler and GM became great only when he sold it off to a wealthy dynasty in US. He reinvented himself as a kind of currency expert (old time hedge fund manager before that term was invented!)
The depression was in full swing and Edgar Hoover, the President of US was in full denial. Russia sold some of its paintings, in secret, to its capitalist enemy, the US.
Parallels of current depression are striking. Also, due to gold standard funny positions emerged. All gold was in a vault but “earmarked” as French or US and the recession is due to some parts of the same room having more gold than other parts!
The French apathy and its self-centred attempts to retain its politico economic supremacy over the ruins of other European nations is well told. The conditions where banks had to close for three weeks with complete chaos in industry in Germany help provide one more reason as to why Nazis rose to power.
Britain’s struggle and the decision to go off the gold standard, onto which it should not have gone anyway, is well told. The panic and the disaster spreading across the world is described in vivid detail.
We learn about Roosevelt taking over in the deepest crisis and with Hoover’s men, solving the issue in ten days when Hoover could not in three months. We also learn about Roosevelt not cooperating with Hoover until he really took charge and could properly take credit for resolving the issue.
Further, Roosevelt shocks his own advisers by going off the gold standard when US had the largest reserves of gold. He seems to have had an intuitive feel for the right thing. Roosevelt did arbitrary increases in spending to shock the US economy out of its downward spiral against expert opinion and it worked!
Schacht collaborated with the Nazis, even writing a grovelling eulogy to Hitler and then later denied any involvement. To be fair, he was not part of the Nazi military circle but allowed himself to be used to provide a veneer of respectability to the regime and was jailed at the end by Hitler since he seems to have plotted to overthrow the Nazis. But when freed and arrested by the Allies, he was “surprised” and soon after, died.
Norman seems to have carried on, losing almost all of his credibility and finally dies as well.
Keynes wrote his seminal work and saw his fame spread high before his death. He made, unmade and remade his fortunes and died a rich man, after seeing the fixed currency system of Bretton Woods in place in collaboration with White, the Treasury Secretary. White himself was the highest ranking finance official and created the system of international payments but he was a Soviet spy from 1935! He even delayed aid to Kai Shang Shek of Korea, allowing China to occupy half of Korea in aid to communism. When unmasked (soon after the death of Keynes) he also suffered a heart attack and died.
Ironic that a Soviet spy was given the control to negotiate IMF and Bretton Woods system and decide how much each country (including the Soviets) can borrow etc.
The epilog is excellent, comparing the cataclysm to the recent crises (the post 2000 dotcom bust, the Mexican crisis, the Latin American and Asian crisis of the nineties, and the latest recession starting in 2008.
Nice story. Many eye opening moments. Well written. Sound economic principles. Let us say 7/10
– – Krishna