“Read no history: nothing but biography for that is life without theory’ — so wrote Benjamin Disraeli. Liaquat Ahamed’s book The Lords of Finance: The Bankers Who Broke The World which has just hit the bestseller list in the US is not a typical biography. It is not the life story of one individual, but a fascinating read about four powerful, brilliant, idiosyncratic and willful central bankers who dominated the economies of the US, UK, France and Germany in the 1920s; the interrelations between these men and the “series of misjudgements” that pushed the world towards the Great Depression. It is a narrative that communicates the enormous power of political and economic decision makers and the enduring damage that they can wreak through incompetence, short termism and a lack of understanding of how the economy operates.

This article is not a review of Liaquat’s book — it has not yet come to Indian bookstores although I can say that when it does it should be read by not only those who enjoy economic history but also those who revel in the play of language — but a summary of a couple of themes that emerge from the book and which I believe have contemporary relevance and should be reflected upon by our decision makers today.

Liaquat makes the point that the ‘Great Depression’ of 1929-1931 was not foreordained. It was not the culmination of an inexorable economic process — “an act of God or the result of some deep-rooted contradictions in capitalism.” It was rather the direct result of a chain of decisions taken by the individuals in power. Some of these decisions were taken in the 1920s; others after the initial crisis began to unfold. But the cumulative impact of these decisions was the greatest economic meltdown of recent times. The severity of this meltdown can be gauged from a macroeconomic snapshot of that period.  Between 1929-31, the real GDP of all countries fell by an average of 25 per cent; more than a quarter of the labour force lost their jobs and those that did not saw their wages drop by around 35 per cent. The banking system collapsed and every developing country including those in central and eastern Europe (including Germany) defaulted on their sovereign debt. It was “by any measure the most dramatic sequence of collective blunders ever made by financial officials.”

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