311 of 336 people found the following review helpful
The Four Bankers of Apocalypse,
This review is from: Lords of Finance: The Bankers Who Broke the World (Hardcover)
Liaquat Ahamed, a former World Bank economist and investment fund manager, began research on this book long before the current financial crisis, having no idea of the relevance it would have upon its publication. It is a history of the financial and economic turmoil that began in 1914 and didn't really end until after World War II. He traces the development of this crisis through the lives and actions of four central bankers: Benjamin Strong of the Federal Reserve of New York, Montagu Norman of the Bank of England, Emile Morceau of the Banque de France, and Hjalmer Schacht of the Reichsbank of Germany. The liquidity crisis of 1914 has suddenly become a subject of interest as it bears relevance to today's problems.
Ahamed's central thesis is that the critical decisions made by these four bankers not only caused the Great Depression but also created the conditions for World War II. The most fateful event of all was the decision to adhere to the gold standard. In retrospect, tying the amount of currency a country has in circulation to the amount of gold it has in its vaults appears arbitrary and nonsensical. However, it seemed like a good idea at the time, it provided a universal standard against which countries could stablize their currencies. Unfortunately it became a straight jacket which gave them little room to maneuver.
When the big four bankers came into power in the mid-1920s, the use of the gold standard actually seemed to be working, currencies were stabalized and capital was once again flowing. The problem however was that there was not enough gold in existence to proide enough capital to finance world trade. According to Ahamed, this was the central flaw in the financial system that led to the Crash of 1929 and the subsequent Great Depression. Of course, the chain of events was more complicated than that and Ahamed recognizes the complexity. Each of the four bankers and their respective countries were pursuing their own agendas as opposed to trying to save the system as a whole, the gold standard was the proverbial straw that broke the camel's back.
Ahamed has written an interesting history of what otherwise would be a fairly dull story. It makes one think about flaws in the system - like sub-prime mortgages, derivatives and the excessive use of credit - and how things could have been different if they had been recognized earlier.
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Showing 1-10 of 17 posts in this discussion
Initial post: Feb 14, 2009 9:06:02 AM PST
Tom More says:
How could there not be enough gold in existence? If more people want the gold, then the value of the gold dollar or gold certificate goes up (obviously, dollars are no longer backed by gold). Each dollar is worth more. This fact would actually work to create some deflation rather than inflation. The supply of gold isn't important, it is the perception of how much the piece of paper is worth that used to represent that gold. The beauty of the gold standard is that it checks governments and other monetary institutions from randomly printing more money which is the true cause of inflation. Who benefits from the inflation? I would suggest looking at the book "What has the Government Done to our Money."
Posted on Mar 27, 2009 2:58:29 AM PDT
Richard S. Sackler says:
I find the analysis shallow. The amazing thing for me was the level of sophistication of the four men in question and the extent to which they effectively acted during the crash which unraveled world finances nevertheless. I came away with the feeling that we knew more then than I realized, and know less today than I had idly believed.
In reply to an earlier post on Apr 17, 2009 6:47:07 AM PDT
Chimerican Chimera says:
Great comment, I like that Murray N Rothbard's books, especially those on the monetary econ, because they are very easily understandable, so I suggest "What has the Government Done to our Money" to every econ beginners.
In reply to an earlier post on Jan 17, 2010 6:44:15 PM PST
The problem is the supply of new gold is volatile and it takes years to develop a market response to a shortage or glut of gold. There have been times in history where gold supplies have grown much faster than the economy and vice versa and these instances have led to rapid inflation or deflation. In the first case, the example would be the discovery of gold in the Americas during colonization, in the second case during World War I and it's aftermath. As far as market responses go, in the present age it takes many years to bring a new mine on-line -- and often times these mines are in countries that are not politically stable.
Gold certainly has the advantage that a government cannot expand money for it's own purposes. But, this relies on the trustworthiness of the government to establish a gold standard system or let a private monetary gold system exist and not issue currency of its own. Ultimately, if you have a government that does not work for the people it will find away to extract economic rents from the people -- whether on a fiat based money system or worse where people work directly for the government for ration cards.
Whether you are on a gold standard or a managed money system, it's possible to have low inflation. In the case of managed money, it must be managed fairly to all constituents by the government and this is in essence the same as making the decision to adhere to a gold standard.
Posted on Apr 8, 2011 10:11:51 AM PDT
J. Lee says:
To blame the restrictions of gold for the great depression is truly a ludicrous excuse made only by the bankers.
The cause of the depression was the bubble of the 20's. On a gold standard, the Federal Reserve printed WAY WAY WAY more money than could be backed by its gold reserves.
To blame gold for the fiscal idiocy of the Federal Reserve and the greed of bankers is to truly ignore history's lessons.
The crisis was caused the the FALSE BOOM. We had a false boom in the roaring 20's due to money-printing, and we had a false boom in the 2000's due to money-printing.
The Austrian economists will ultimately be proven right, when, instead of a deflationary depression that occurred in the 1930's, we have a hyperinflationary one in the coming years.
Posted on May 18, 2011 10:52:13 AM PDT
Aurum Rabosa says:
Thanks for the review. It's clear the author is full of fecal matter and I would never read his book. "The most fateful event of all was the decision to adhere to the gold standard. In retrospect, tying the amount of currency a country has in circulation to the amount of gold it has in its vaults appears arbitrary and nonsensical. However, it seemed like a good idea at the time, it provided a universal standard against which countries could stablize their currencies." The period of the most stable dollar coincided with adherence to the gold standard.
In reply to an earlier post on Sep 2, 2011 8:19:10 PM PDT
Zachary A. Sloan says:
It's pretty apt that you would recommend it to beginners - why would anyone else take an Austrian economist seriously?
The problems with minimizing government and leaving as much as possible to the free market are so huge that it's no surprise Austrian economists try and hand-wave away empirical study in favor of a mostly theoretical approach (never mind some of their key assumptions being unequivocally wrong).
I used to be a libertarian for a couple years in college. It makes sense when you first take a little economics, because most colleges in the US start with a macroeconomics course that more or less says "anything the government does decreases efficiency!" The funny thing, however, is that most of the glaring problems with a laissez-faire approach to the economy are pretty easy to understand. Unless you're in a business with low start-up costs and high demand elasticity, there are many natural barriers to competition.
Fortunately, you don't even need to get very theoretical, because history tells us pretty clearly that minimizing government regulation/intervention results in the gilded age. It also tells us that very high tax rates on the rich do not hurt the economy. The median income has been stagnant ever since Reagan lowered tax rates to such an extent that they're still lower now than they were before him (of course the income of the wealthiest Americans hasn't been so stagnant!).
Also, I find it absolutely hilarious that most libertarians are so incompetent that they don't even realize that corporations (any limited liability business, really) wouldn't even exist without government laws/regulations.
In reply to an earlier post on Sep 2, 2011 8:21:09 PM PDT
Zachary A. Sloan says:
What? The Great Depression was made "Great" due to the gold standard. There's a reason countries left it.
Posted on Sep 6, 2011 9:12:23 AM PDT
Could someone offer suggestions for "follow-up" books, e.g. covering US-Euro econ. policy after WWII? (ideally, somewhere near the level expository elegance as LOF)
In reply to an earlier post on Nov 15, 2011 8:32:35 PM PST
S. Vorhauer says:
libertarians are not opposed to laws and regulations that prevent fraud and negligence.