Review of “Lords of Finance” by Liaquat Ahamed

Ahamed won the Pulitzer Prize for history in 2010 for this book.

It’s an interesting book. Ahamed seems like a good historian in that he’s very faithful to primary sources and events. He puts them all out for the reader to take in. On the other hand, Ahamed really wants to tell a story. The story he wants to tell is the mainstream story . . . and the story doesn’t quite fit the facts and events.

The book follows Benjamin Strong (at the New York Fed), Montagu Norman (Bank of England), Emile Moreau (Bank of France) and Hjalmar Schacht (Reichsbank) as they navigate the post-WWI economy. (Schacht is, by far, the most interesting – he creates a currency backed by land to create some stability in Germany during hyperinflation and he ends up sort of supporting Hitler and being tried (and acquitted) at Nuremberg).

WWI was fought mostly between England and France on one side and Germany on the other side. However, while Germany seems to have financed its own war effort, the US seems to have financed England and France’s war effort. Thus, when the war ended, England and France imposed reparations on Germany. England and France really needed the money because they needed to pay back the US.

An entire book (one that could have been more interesting than Ahamed’s) could be written explaining how and why the US (nominally "neutral") financed one side of the war effort. But never mind.

Most of the book explains how the problems associated with being on the gold standard made repaying loans and reparations impossible.

The obvious conclusion seems to be that massive, world-encompassing wars are not compatible with the gold standard. I would think that would be an argument in favor of the gold standard, but this is not the official story.

The official story is the story of Keynes, who implicitly seems to believe that the US should have forgiven the loans and Germany should not have been forced to pay.

The book ends very oddly. We’re basically told that going off the gold standard led to recovery, but there seems to be no evidence of actual recovery. Germany was the only placed that seemed to recover and they were the one country that stuck most closely to orthodox economics of the time. In other words . . . they went off the gold standard . . . time passed . . . more time passed . . . and they sort of recovered (and, oh yeah, WWII was going on). It’s like referring to this chart and saying that going off the gold standard is a free lunch without mentioning that fact that some other stuff was going on during that time period.

My favorite historical figure of the time, Tom Lamont, pops up all over the book. He does a wonderful job essentially running US foreign policy for a while, since US foreign policy revolved around these loans and the banks had made many of the loans. There are a couple nice excerpts of him basically directing Hoover to take certain actions.


7 Responses to Review of “Lords of Finance” by Liaquat Ahamed

  1. Greg says:

    Nothing mysterious about why the US financed England and France but not Germany. England was blockading Germany. If they hadn’t been, the US would have been happy to make money from both sides.

  2. icr says:


    By 1914, the Morgan empire was in increasingly shaky financial shape. The Morgans had long been committed to railroads, and after the turn of the century the highly subsidized and regulated railroads entered their permanent decline. The Morgans had also not been active enough in the new capital market for industrial securities, which had begun in the 1890s, allowing Kuhn-Loeb to beat them in the race for industrial finance. To make matters worse, the $400 million Morgan-run New Haven Railroad went bankrupt in 1914.

    At the moment of great financial danger for the Morgans, the advent of World War I came as a godsend. Long connected to British, including Rothschild, financial interests, the Morgans leaped into the fray, quickly securing the appointment, for J.P. Morgan & Co., of fiscal agent for the warring British and French governments, and monopoly underwriter for their war bonds in the United States. J.P. Morgan also became the fiscal agent for the Bank of England, the powerful English central bank. Not only that: the Morgans were heavily involved in financing American munitions and other firms exporting war material to Britain and France. J.P. Morgan & Co., moreover, became the central authority organizing and channeling war purchases for the two Allied nations.

    The United States had been in a sharp recession during 1913 and 1914; unemployment was high, and many factories were operating at only 60% of capacity. In November 1914, Andrew Carnegie, closely allied with the Morgans ever since his Carnegie Steel Corporation had merged into the formation of United States Steel, wrote to President Wilson lamenting business conditions but happily expecting a great change for the better from Allied purchases of U.S. exports.

  3. icr says:


    Deep in Allied bonds and export of munitions, the Morgans were doing extraordinarily well; and their great rivals, Kuhn-Loeb, being pro-German, were necessarily left out of the Allied wartime bonanza. But there was one hitch: it became imperative that the Allies win the war. It is not surprising, therefore, that from the beginning of the great conflict, J.P. Morgan and his associates did everything they possibly could to push the supposedly neutral United States into the war on the side of England and France. As Morgan himself put it: “We agreed that we should do all that was lawfully in our power to help the Allies win the war as soon as possible.”

    Accordingly, Henry P. Davison, Morgan partner, set up the Aerial Coast Patrol in 1915, to get the public in the mood to search the skies for German planes. Bernard M. Baruch, long-time associate of the extremely wealthy copper magnates, the Guggenheim family, financed the Businessmen’s Training Camp, at Plattsburgh, New York, designed to push for universal military training and preparations for war. Also participating in financing the camp were Morgan partner Willard Straight, and former Morgan partner Robert Bacon. In addition to J.P. Morgan himself, a raft of Morgan-affiliated political leaders whooped it up for immediate entry of the U.S. into the war on the side of the Allies: including Henry Cabot Lodge, Elihu Root, and Theodore Roosevelt.

    In addition, the National Security League was founded in December, 1914, to call for American entry into the war against Germany. The NSL issued warnings against a German invasion of the U.S., once England was defeated, and it called all advocates of peace and non-intervention, “pro-German,” “dangerous aliens,” “traitors,” and “spies.”

    The NSL also advocated universal military training, conscription, and the U.S. buildup of the largest navy in the world. Prominent in the organization of the National Security League were Frederic R. Coudert, Wall Street attorney for the British, French, and Russian governments; Simon and Daniel Guggenheim; T. Coleman DuPont, of the munitions, family; and a host of prominent Morgan-oriented financiers; including former Morgan partner Robert Bacon; Henry Clay Prick of Carnegie Steel; Judge Gary of U.S. Steel; George W. Perkins, Morgan partner, who has been termed “the secretary of state” for the Morgan interests; former President Theodore Roosevelt; and J.P. Morgan himself.

    A particularly interesting founding associate of NSL was a man who has dominated American foreign policy during the 20th century: Henry L. Stimson, Secretary of War under William H. Taft and Franklin D. Roosevelt, and Secretary of State under Herbert Hoover. Stimson, a Wall Street lawyer in the Morgan ambit, was a protégé of Morgan’s personal attorney Elihu Root, and two of his cousins were partners in the Morgan-dominated Wall Street utility stock market and banking firm of Bonbright & Co.

  4. james wilson says:

    Garet Garret wrote that without the creation of the Fed in 1913, England and France would have run out of provisions after six months of war and sued for settlement. Which would have negated the Second World War, unless the French and English wished to start it.

    Even Americans were shocked that farms and factories could pour out so many things. Once started, nobody wanted it to end. So credit was supplied to buy in these new quantities through the twenties. We gave them the money to buy our things, yesterdays version of the stimulus. The credit bubble finally ended in 1929. Temporarily.

    In all of history there were never enough of things to go around, and now a depression was caused by there being too much of everything.

    The gold standard has its own problems, but they are problems we probably ought to have.

  5. josh says:

    New England Society in the City of New York, 1890
    Chaiman J.P. Morgan, VP Elihu Root. pg. 75:

    Coming with “A Message from the Grangers,” A. B. Cummins delivered it to his hearers in these eloquent words:
    You must allow me to dispel, with my first sentence, an illusion that the subject suggested by your worthy president may have created. I am not a delegate from the Farmers’ Alliance, so recently organized under the Florida palms. I know too well the limits of my own capacity to undertake to deliver a message from a body which proposes reforms so vast and comprehensive in the social, economic, moral, and political sciences, and whose resolutions are a palpable infringement upon Mr. Bellamy’s copyright. (Laughter.)

  6. josh says:

    there is also a speech by rev. henry stimson

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