My motivation in reading this book was not curiosity about the economic crash and depression of the late 1920s and early 1930s. It’s an interesting subject, sure, and I go for anything that piques my interest if I have time to read it. Mainly, though, I wanted to relate what happened then to what is happening now. Though he doesn’t draw direct correlations until a few short sentences at the end, it is clearly the author’s intent as well.
Considering this is the author’s first book and that he is not primarily a writer but an investment manager, it is an extraordinary achievement. It tells its story mainly through the viewpoint of four characters, the heads of the central banks of their respective countries: Benjamin Strong of the United States Federal Reserve, Montague Norman of the Bank of England, Emile Moreau of the Banque de France, and Hjalmar Schacht of the Reichsbank. Each of these men wielded enormous power during a crucial period of economic history, and the decisions they made in response to cataclysmic world events propelled the world into a catastrophic plunge into economic depression and despair. Though they tried their best to keep their respective countries afloat, they were clinging to outmoded economic models which needed to be revised to fit contemporary situations. The theories and attitudes of these men are juxtaposed with that of one other economist, Maynard Keynes, who wrote a number of significant texts during this era but was not much heeded until after the Great Depression.
The book begins with World War I, then moves into the postwar years which spawned endless conferences during which the delegates would argue about the amount of reparations due from Germany and how the allies would repay the enormous war debt to the United States. The European nations were devastated, of course, after the war, and resented the superior position of the US, which entered the war late and ended up ahead in the financial ledger. Each country went through various crises in the 1920s, all to come to a head at the end of the decade with the crash. Ahemed fixes much of the blame for the chaotic and ultimately tragic state of affairs to the stubbornness of the central bankers in clinging to the gold standard when it ceased to be of use in the postwar world.
I find economic textbooks rather boring, and prefer to get my understanding of economics in this way, through example. With extraordinary skill the writer draws us into the conflict, and though financial concepts are at the heart of the drama, makes us care profoundly about the various characters and their attempts to put things right. I won’t pretend to understand all the details, but at least I was afforded an overview that helped me grasp the most important concepts.
I don’t know enough about economics to compare the details described in the book with our present situation, but I will make one observation. In the same way it is obvious in retrospect that the gold standard no longer worked in the postwar era and propelled the economies of the West downward, it seems clear the European Union’s stubborn clinging to the Euro is causing the downfall of one European country after another. I have just come from Greece, which is being suffocated by the austerity strictures imposed on it by the EU. By the way, I would have laughed a bitter laugh when I heard that the EU was the recipient of the Nobel Peace Prize, but it was no laughing matter. Just go to Greece and see how its people are being strangled to death by the EU. I couldn’t help but think, while reading this book, that it would be far better for Greece to cut itself loose from the EU and start again. There might be confusion at first, but it would give the Greek people a chance to start afresh. As it is now, what do they have to look forward to? More dearth, more closing businesses, more chaos and unrest. After the Great Depression it was only when the various countries, one by one, took themselves off the gold standard that they recovered. There is no shame in Greece admitting that it can’t keep up. There is no shame in being a small country with a small economy. Going back to the drachma would probably drop prices and cause an exponential increase in exports and tourism, thus jumpstarting the economy. I have a stake in this; I have loved ones still there. Something has to be done. The situation cannot continue as it is. The European Union has become some sort of idol, some sort of golden calf, but it is not working as it was envisioned to work. It might have been started with the best of intentions, but for the weaker countries in the union it is a false god that is leading them astray. An entity such as the EU is only as strong as its weakest member, which means at this moment in history it is weak indeed. I hope that it can mature into that which it should be, but I fear that it is falling victim to the difference between ideals and reality.
In closing, let me emphasize that I heartily recommend this book. It’s a great read, both for entertainment and for education. More than that, it’s an important read. Rarely does a book come along that can illuminate so clearly facets of reality that normally only “experts” understand, but in this day and age it’s important that we all grasp what is happening in the realm of finance.