Lords of Finance: 1929, the Great Depression, and the Bankers Who Broke the World by Liaquat Ahamed Read Free Book Online

Consequences.
That had been an angry, passionate work, written in the heat of debate and controversy. This one had a lighter touch, a “tentative almost 239 diffident tone,” as if the author himself were searching for the answer to the quest for monetary stability.
    Before the war, however much he had enjoyed challenging conventional nostrums about morality, conduct, and society, in economics Keynes had fully embraced the liberal orthodoxy that dominated his still nascent profession. He believed in free trade, in the unfettered mobility of capital, and in the virtues of the gold standard.
    There were times when, like so many other economists, he might speculate whether gold was the right foundation for money. But those had been largely theoretical ruminations; and ultimately, when it came down to it, there seemed no other practical basis so tried and tested upon which to organize the world’s currencies. Asked at the height of the 1914 crisis to brief the chancellor of the exchequer as to whether the pound should remain tied to gold, he had come down very strongly in favor of maintaining the link: “London’s position 240 as a monetary center depends
very directly
oncomplete confidence in London’s unwavering readiness” to meet its obligations in gold and would be severely damaged if “at the
first
sign of emergency” that commitment was suspended.
    Even during the first years after the war, he was still advocating a return to gold. But the shift in the world’s economic landscape was beginning to give him doubts. He still believed that the prime goal of central bank policy should be to keep prices broadly stable. But whereas before the war he had thought that the best way to achieve this was to ensure that currencies such as the pound be fully convertible to gold at a fixed value, he had now come to believe that there was no reason why linking money supply and credit to gold should necessarily result in stable prices.
    The gold standard had only worked in the late nineteenth century because new mining discoveries had fortuitously kept pace with economic growth. There was no guarantee that this accident of history would continue. Moreover, while the original rationale for a gold standard—the commitment that paper money could be converted into something unequivocally tangible—might have been necessary to instill confidence at some point in history, this was no longer the case. Attitudes toward paper money had evolved and it was not necessary to allow the supply of precious metals to regulate the creation of credit in a sophisticated modern economy. Central banks were perfectly capable of managing their countries’ monetary affairs rationally and responsibly, he argued, without any need to shackle themselves to this “barbarous relic.”
    Though the
Tract
was a technical monograph, the Cambridge undergraduate in Keynes could not resist lacing the book with the playful sarcasms that had made
The Economic Consequences
such a success. He flippantly dedicated the book, “humbly and without permission 241 , to the Governors and the Court of the Bank of England,” knowing very well that the members of that august body would disagree with almost everything he had to say. He poked fun at the self-importance of those “conservative bankers 242 ” who “regard it as more consonant with their cloth, and also as economizing on thought, to shift public discussion of financial topics off the logical on to an alleged moral plane, which means a realm of thoughtwhere vested interest can be triumphant over the common good without further debate.” And he peppered it with the sort of bons mots—the most famous being “in the long run we are all dead”—that made him so scintillating a conversationalist.
    But more than anything else it was Keynes’s ability to strip away the surface of monetary phenomena and reveal some of its deeper realities and its connections to the society at large that has made the
Tract
such an