Tuesday, November 26, 2013

Book Review (#21 of 2013): Lords of Finance by Liaquat Ahamed

This book has won several awards, including the 2010 Pulitzer for history; it is well-deserving. This is the third book on the Great Depression era that I have read this year and I would recommend reading this book and Amity Schlaes' The Forgotten Man (my review) back-to-back. You can't understand how we got to the Great Depression without this book.

In my Money & Banking courses, I would always play the "Anatomy of a Crisis" episode of Milton Friedman's Free to Choose series. In it, Friedman laments that Benjamin Strong died in 1928, believing that Strong would have pushed the Federal Reserve to take the steps necessary to inject liquidity into the American system. It was Friedman and Schwartz's work that showed the U.S. needlessly hoarded gold, keeping monetary policy tight and forcing a chokehold on the U.S. economy. This book tells that part of the story well, including the insights of why France did the same thing. I see nothing to contradict Friedman's assertion that the Great Depression was a monetary phenomenon.

But one cannot understand that period without understanding the role that German reparations had on the entire system. That becomes the snowball that starts the avalanche. Ahamed gives a biography of the central bankers who propped up the gold standard after World War I, their context, psychology, and their interpersonal relationships. He details the decisions in monetary policy made throughout the twenties and early thirties. The life and writings of J.M. Keynes during this period is also chronicled and other prominent economists, such as Irving Fisher, are mentioned as well. Presidents and Prime Ministers are viewed through the lens of monetary policy and international finance. The book is not boring at all, the narrative is quite riveting.

I give this book 5 of 5 stars, it is a must-read for anyone interested in economics of the 1920s and 1930s. I learned a great deal.

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