book REviEWS area or make clear that their opinions despair to stratospheric optimism at the Banque de France was a are their own. As Finkin and Post and vice versa in the space of a veteran Treasury whiteshirt who make clear, universities that adopt day, extraordinary interventions by saw financial policy as yet another such policies are implicitly approving governments and central banks, instrument for extending la gloire de what academics say in their area of international conferences useless France. The only person with both expertise; probably not what the for anything but grandstanding and feet on the ground was Ben Strong policy intended. photo-ops. We’re seeing it all. at the US Federal Reserve—Ahamed This excellent book leaves the And we’re not the first. Those sees him as the model of a modern reader with the strong feeling living in the 1920s and ’30s were central banker—but he died just as that academic freedom is worth witness to the same events, although the world began tipping into the protecting. Occasionally, academics their experiences were more vivid abyss. will say things that annoy some and horrible than ours. The story of Worse, the international situation people, but this is the price we pay this period, and of the people who weighed against them. The French, for advancing knowledge. shaped it, is told in Liaquat Ahamed’s having been bled white in conflict wonderful Lords of Finance. Five and terrified of a resurgent Reich, Reviewed by Steven years in the making, and with its had pushed the Allied powers Schwartz release timed almost to perfection, to impose punitive reparations Vice-Chancellor Ahamed’s book details how the payments on Germany. The Macquarie University great and the good of Germans, never having Europe and the United accepted responsibility Endnotes States imposed pre-World for the war, and with 1 Anthony Lewis, Freedom for the War I institutions on a their own economy in a Thought That We Hate: A Biography world that, distorted by shambles, tried every trick of the First Amendment (Basic Books, inflation, war debts, and in the book—including 2008). US preponderance in hyperinflation—to avoid 2 ‘Allegations of Academic Bias in trade and finance, could p a y i n g re p a r a t i o n s . Universities and Schools,’ Senate no longer bear them, and Without reparations from Standing Committee on Education, then watched helplessly Germany, the French Employment and Workplace as their policies drove the could not repay their Relations (Commonwealth of world into deflation and loans from the British, Australia, 4 December 2008). despair. and the British and the French could 3 As above, 14. One of the most striking aspects not repay the Americans—who in of the story is the lack of creativity turn dug in their heels against debt among the lords of finance as they restructuring. Lords of Finance: made policy in the 1920s and early Meanwhile much of the world’s The Bankers Who Broke ’30s. Well-educated, worldly and gold had gravitated either to the the World sophisticated, and placed in social now-dominant United States or—by by Liaquat Ahamed circles brimming with experience virtue of an undervalued franc—to William Heinemann, 2009 and debate, they showed few signs France, leaving the Bank of England US$27.75, 576pp of being able to adapt their thinking with little backing for its efforts to ISBN 9780434015412 to the new circumstances after the re-peg sterling at $4.86. Strong’s war. efforts to support with low interest or those interested in political Their personalities didn’t help. rates Norman’s dream of recreating economy and international Montagu Norman at the Bank of London as a financial centre led Ffinance, the events of recent England was a flaky and arrogant to a bubble on Wall Street and years have been astounding. Jumbo- control freak, dismissive of the new extravagant lending to a shaky sized banks being brought low by science of economics and relying Germany. The withdrawal of cheap poor investments and rogue traders, only on his untutored instincts. money in the late ’20s caused both whole countries sinking under the Hjalmar Schacht at the Reichsbank processes to reverse, crushing the weight of financial sectors that their was a self-aggrandising careerist US and German economies. But economies cannot support, investors with appalling judgment and a the bankers’ attachment to ‘sound switching from market-melting character bypass. Emile Moreau money’ and the gold peg meant that 58 POLICY • Vol. 25 No. 4 • Summer 2009–10 book REviEWS interventions aimed at arresting the forces. But this hardly seems right. All in all, a great read, and one that consequent deflation were limited The current crisis was caused by poor explains well why the great and the and came to naught. financial regulation, inappropriate good of our own age are throwing By 1931, Norman had realised currency and interest rate policies, everything they have into the fight that the game was up. The central and exorbitant government largesse. against deflation. banks simply couldn’t square A return, once the crisis has passed, to the circle of reinvigorating their sound money, government restraint, Reviewed by Jeremy Bray economies while maintaining the international cooperation, and peg to gold. The pegs were broken encouraging appropriate regulation successively: Britain in 1931; and shareholder activism would be Capitalism, Institutions, and Germany (in practice, if not in a good program for reinvigorating Economic Development law) and the United States in 1933; economies and restoring by Michael G. Heller and France in 1935. Breakage was employment, productive investment, Routledge, London, 2009 followed by devaluation against and prosperity to society. US$125, 312pp gold, and with devaluation came Lords of Finance is an engaging ISBN 9780415482592 recovery. But breakage also ushered read and displays the fruits of deep in new ideas that were validated research. The author chose his n attempt to see how by economic reinvigoration. The subject well. Although long at just capitalism may take root in central banks, having imposed a over 500 pages, the text never bogs less-developed economies nightmare on their populations, down. The wealth of fascinating A would be soon subordinated in detail and material for reflection inspires this gloss on Max Weber and economic policy formulation to allows Ahamed to weave a narrative other top-flight scholars. Of itself it activist Treasurers—a situation that that dances across the page. The is not an inspiring prospect. Those would last until the 1970s, when text could have been more closely of us who have read widely in the the government profligacy once edited: the repetition of a few vivid literature on economic development again made sound money a policy facts and anecdotes, especially in the will approach further work on the imperative. second half of the book, was mildly subject with our senses dulled, Might the Great Wheel be turning annoying. And the descriptions of anticipating more of the social again? The policy frameworks of pivotal events—such as Britain’s science mumble in which the debate western governments over the last return to gold in 1925—could have is conducted. A rehash of the sacred 30 years or so—inflation targeting, benefited from a more dramatic texts sounds especially unpromising. floating exchange rates, international touch. But overall, Ahamed writes Furthermore, in this part of the openness, support for financial with a lovely style. world, we have been lulled by East innovation, commitments (at least Although the lords of finance Asian success stories into thinking in some countries) to balanced themselves don’t come off well, there the development problem is more budgets, and debt reduction—have are some heroes in the book. We see readily soluble than it is. Why do supported remarkable growth in Keynes at his most brilliant, author other areas not just get on with it? living standards both domestically of The Economic Consequences of the But world poverty is likely to take and in emerging countries. But with Peace and A Treatise on Money, before a turn for the worse before it gets success comes complacency. The his magnificent overreach with the better; hence, we ought to give any hard lessons of the ’70s and ’80s— General Theory. We see Churchill, his serious new approach a fair go. And and also of the ’20s and ’30s—were deep perception into events, insight Michael Heller, a political scientist forgotten in some countries during into others (he saw right through at the University of Technology, the prosperity of the noughties. The Norman), and willingness to take Sydney, is nothing if not serious. legacy is one of imploding financial counsel from his experts—all the First, he sees nothing wrong with centres, rising unemployment, mind- qualities that would soon make him promoting capitalism, which at once boggling budget deficits and national a great leader. And we see George puts him offside in development debts, and the spectre of deflation. Harrison, working tirelessly at the studies. Second, he is a universalist, Already there is talk of the end Federal Reserve Bank of New York seeking to distil an all-round of the ‘neo-liberal experiment,’ of to avert disaster but without Strong’s formula from the classical work of a new role for government in the stature to make the big changes Weber and others, notably Joseph economy, and restraint of market needed to save the day. Schumpeter. He wants no truck POLICY • Vol. 25 No. 4 • Summer 2009–10 59.