Lords of Finance

Quick read in the latest The Economist magazine outlining some of the pecular personalities of global central bankers in the 1930s, including one spiritualist who claimed he could walk through walls.  The serious point of the article is that this group was fixated on maintaining the gold standard through the crisis.

The quartet, united by a belief that they knew best, had persuaded the great powers to leave the fate of their economies to the antique workings of the gold standard—“a barbarous relic” in the view of John Maynard Keynes. They had the power, in a legendary phrase, to “crucify mankind upon a cross of gold”, and they did so. The problem was that there was not enough gold to finance world trade.

While we are no longer on this cross, perhaps there are some telling similarities in personality types then and now.

This absorbing study of the first collective of central bankers is provocative, not least because it is still relevant. Mr Ahamed, who was a World Bank economist and now manages investments in America, likens central bankers to Sisyphus. This was the man whom the gods condemned to roll a large stone up a steep hill only for it to roll down again when it reached the peak. These great central bankers were so wedded to a dogma that they were incapable of imagining its failure.

Perhaps this kind of single-mindedness is endemic to central bankers; since the early 1990s the idea of controlling inflation at all costs has been so compelling that central bankers have ignored such unintended consequences as bubbles in the housing and stock markets. But these were big enough, when they burst, to trigger a worldwide slump. Not lords of finance surely; more like high priests.


One response to “Lords of Finance

  1. Perhaps one of the wisest things ever said by a central banker was the verdict rendered by Sir Montagu Norman in 1948, reflecting on the actions of the Bank of England during the Depression of the 1930’s: ““We achieved absolutely nothing, except that we collected a lot of money from a lot of poor devils and gave it to the four winds.” Let’s hope history is not repeating itself, either in the UK or here in the US.

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