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.