We are today in the middle of the greatest catastrophe—the greatest catastrophe due almost entirely to economic causes—of the modern world. Sound familiar? It could be a quote from President Barack Obama, Federal Reserve Chairman Ben Bernanke or Department of the Treasury Secretary Timothy Geithner in the wake of our generation’s Great Recession. In reality, those words were spoken eight decades ago by economist John Maynard Keynes as the world faced long unemployment lines, banks bolted their doors, factories shut down and farm prices plummeted. Then, as now, there was talk of apocalypse.
At the heart of the turmoil sat the work of the world’s principal bankers. These lords of finance had tried to reconstruct the world’s financial system after WWI but ended up leaving the world on the brink of economic disaster. Author Liaquat Ahamed got the idea for following these men in his book, The Lords of Finance, after reading the 1999 article The Committee to Save the World, in Time magazine about Alan Greenspan (then Federal Reserve chair man), Robert Rubin (Bill Clinton’s Treasury Secretary), and Lawrence Sum mers (Treasury’s second in command). To Ahamed, the bankers of the ‘20s commanded the same mystique as the financial men of our time. Was their fate a mirror of our generation’s economic demise? Only a ‘look over their shoulders’ will determine what we can learn from our past.
The Lords of Finance takes us behind the scenes of the world’s economic demise and into the boardrooms of the men making the decisions. Ahamed examines their powerful personalities and the character they needed to affect, right or wrong, the world’s economic system. They were domineering, arrogant and proud. They were also determined to change things for the better. At first, the efforts looked like they would pay off. Currencies stabilized and signs of economic growth started to show through. But what they thought would be their salvation, the gold standard, proved to be their downfall.
When it comes to causing the Great Depression, the author is clear. We can’t lay all the blame for the collapse at the feet of these men. The four were controlled by the accepted economic views of their time. They also had no control over the amount of war reparations Germany was forced to pay. Only Sir Montagu Norman predicted correctly that the Allies’ price tag would bring Germany’s economy down. It did, and the country’s resentment helped Hitler rise to power.
I’d like to think we know more today than the lords of finance did. But I’m not sure. We hear daily rumblings about a double-dip recession. Americans continue to spend less, so even news that the Federal Reserve will make credit cheaper may not encourage borrowing in a population worried about keeping their jobs. Just this spring Americans saved 6.2 percent of their disposable income, up from 1.2 percent before the recession.
Ahamed’s book gives us a glimpse into a history we are repeating today. Now, as in the 1920s and 1930s, the world’s financial heads are trying to restore consumer confidence while at the same time dealing with daily shifts in the market. There was no instant cure to the collapse of 1929, just as there is no magic pill to stop the pains of our recession today. I can only hope that seeing how leaders in the past handled their rough waters will help us steer out of this perfect financial storm.
Dr. Benjamin Ola. Akande is Dean of the George Herbert Walker School of Business and Technology at Webster University. Follow him on Twitter: @Benjamin_Akande