Anyone still pondering the 2008 financial crisis must read Pulitzer prize-winner Liaquat Ahamed’s ‘Lords of Finance’. Not for a view of the Great Recession, but of the Great Depression, which was far harsher than the most recent crash. Ahamed walks through the 20s and 30s in the shoes of the world’s most influential bankers – Hjalmar Schacht, Emile Moreau, Benjamin Strong and Norman Montagu. They were the central bankers for Germany, France, the US and Great Britain – the superpowers of the time.
What is perhaps most striking about the book is its insight into the impact of the WWI debts on the German psyche. Post-1918, Germany was plunged into the chaos of hyperinflation, where its currency was all but useless. Germans were literally piling money into plastic sacks. The more money the central bank printed, the more devalued it became. It had no hope of paying its billions in reparations to Britain and France. The acclaimed economist Maynard Keynes advised his own country to go easy on Germany, but to no avail. The harder the economy tried to print its way out of recession, the more it spiralled out of control.
It didn’t help that while the average German was left penniless, his British and French counterparts recovered rather well. Another slap in the face was the patronising tone the Allies used in their dealings with Germany. It was used to being on a level playing field with the other superpowers, and suddenly it was at their mercy. Whatever view you take of the causes and actions of the First World War, there can be no denying that the way Germany was treated in the aftermath helped fuel resentment that saw the rise of Hitler in the 30s. Times of desperation provide extremists with their best chances of getting into power.
Never say never
Central bankers learnt plenty from the Great Depression and the decision to come off the gold standard. But there is a lesson that we must not forget today. No matter how intertwined our economies are, and no matter how often we say we cannot afford to go to war, the threat remains. Pre-July 1914, most were in denial that tensions across Europe would result in the biggest war the world had ever seen. There was too much interdependence between the European, and US, economies. Egos are bigger than economies, however, and war can be a great way to stoke national pride.
Debate is rife within the EU about who holds the most power, who should hold the most power, and if smaller nations such as Ireland should get an equal say. Then there is the EU’s relationship with the US. Should the Transatlantic Trade and Investment Partnership be more transparent? Who has the most to gain from this deal? Looking east, what should be done about Russia? Basic economics would say a trade war achieves nothing but loss for all sides. Russia and the West are starved of vital exports and imports, and consumers end up footing the bill for all this political wrangling. Still, physical war would be worse.
Tensions with Russia, and in Syria, Iraq, Gaza, and now between China and the US, are all stark reminders that peace is never guaranteed. Westerners under the age of 70 have little experience of the atrocities of war. As that memory continues to fade, the risk of real conflict becomes greater. What Ahamed makes clear, at least to this reader, is that we should never become complacent about peace.
We are never too intertwined to come undone.