Niall Ferguson reviews “Lords of Finance”

Via The great liquidity crisis – 94 years ago, Niall Ferguson provides an instructive review of Lords of Finance: 1929, The Great Depression, and the Bankers who Broke the World:

By the summer of 1931, however, it was dawning even on Norman that the world economy was falling off a cliff. With massive bank failures on both sides of the Atlantic, it became clear that the Lords of Finance had bungled things. “Unless drastic measures are taken to save it,” he wrote to Moreau’s successor at the Banque de France, “the capitalist system throughout the civilised world will be wrecked within a year.” (With a characteristic flourish, he went on: “I should like this prediction to be filed for future reference.”)

Such apocalyptic fears were not new. As early as November 1918 Strong had warned Norman of a coming “period of economic barbarism which will menace our prosperity”. The irony was that their favoured prophylactics had, in combination, made the apocalypse more likely. By 1931 the capitalist system was on its knees, and democracy with it. Schacht was soon flirting with the rising star of the German right, Adolf Hitler; he later served as his economics minister.

I would be delighted to be wrong, but it seems to me that the Lords of Finance have bungled things spectacularly once again. When it comes to the management of the currency, I am ever more inclined to agree with Richard Cobden:

I hold all idea of regulating the currency to be an absurdity; the very terms of regulating the currency and managing the currency I look upon to be an absurdity; the currency should regulate itself; it must be regulated by the trade and commerce of the world; I would neither allow the Bank of England nor any private banks to have what is called the management of the currency…

I should never contemplate any remedial measure, which left to the discretion of individuals to regulate the amount of currency by any principle or standard whatever… I should be sorry to trust the Bank of England again, having violated their principle [the Palmer rule]; for I never trust the same parties twice on an affair of such magnitude

I too should be sorry to trust the Bank of England again, particularly as they seem to have catastrophically misled entrepreneurs into making investment decisions which were justified only by artificially low interest rates. Central bankers’ actions have had calamitous results. The sooner money escapes their grasp, the better.