A History Blog

Lords of Finance

Who, or what, was responsible for the devastating economic calamity that afflicted the industrial economies in the late 1920s and 1930s?  For Liaquat Ahamed, a former investment manager and economist for the World Bank and now a trustee with the Brookings Institution, the answer lies with four central bankers who in the 1920s had enormous power over the fate of the industrialized world.  In Lords of Finance: The Bankers Who Broke the World (New York: Penguin Press, 2009), he paints a vivid portrait of Benjamin Strong of the Federal Reserve Bank of New York, Montagu Norman of the Bank of England, Émile Moreau of the Banque de France, and Hjalmar Schacht of the Reichsbank, and how their rigid adherence to the Gold standard during the 1920s trapped their economies in a paradigm of debt and precluded the flexibility needed to address the cascading world financial crises of 1929 to 1932. 

 

Ahamed’s story is presented with stirringly prose and – despite the million here, billion there, the decimal points flying from page to page – in a manner that make macroeconomics simple, but not simplistic.  Although his quartet worked within the constraints of the international system that had just emerged from the First World War, and in particular the vindictive peace imposed by the Allies on Germany through the Treaty of Versailles, Ahamed’s argument is that these four officials were so wedded to the Gold standard that they were not capable of imagining its failure to provide stability for the world’s economy. 

 

Yet it seems unfair to say – as the work’s subtitle suggests – that these four bankers “broke the world.”  Certainly they had a role to play, especially as Ahemad points out in their rigid adherence to the Gold standard.  Yet other factors and officials set the stage for the failure of the world’s economies.  The political settlement at Versailles, which imposed such severe economic reparation on a defeated Germany, placed a burden on foreign exchange that dominated economic decision making for the next decade.  Moreover, after decades of the Gold standard, many – not just bankers, but businesses and political actors as well – found it difficult to break free of the presumptions about how the Gold standard ensured economic stability.  Finally, Ahamed seems to implicitly recognize (p. 439) that had a Federal Reserve acted quickly and pumped more liquidity into the market in 1931, rather than as it did in 1932, that the wave of bank failures that began in Austria may have been mitigated in the United States. 

 

Thus, although Ahamed recognizes that the issue of reparations dominated the 1920s and that crisis decision making might have limited the spread of economic damage, he seems to overstretch by elevating these four bankers to such pre-eminence.  Had Benjamin Strong lived past 1928 perhaps he might have provided greater imagination and leadership, and certainly a poorly organized and led Federal Reserve Board precluded vigorous action in the face of the calamity.  But those who remained were limited by other factors, authored by other actors, which also had a role to play in the economic failure of the late 1920s and early 1930s. 

 

Corporate Philanthropy

As my family and I were eating dinners over the weekend, our kids were asking why various products on the table had certain names.  Why was "Heinz" on the ketchup bottle?  Why was "Land-O-Lakes" on the butter?  Who was Pillsbury, and why did he or she have a "Dough Boy?"  This became a great opportunity to talk to them about some of the success stories of American business and how the great wealth accumulated by some families and corporations supported philanthropic endeavors that in turn supported literally millions of people. 

Part of my family is from Pittsburgh, where the story of Heinz ketchup and the generosity of the Heinz family is shown in various local and regional civil efforts, notably the Heinz History Center.  We talked about that as well as Andrew Carnegie, the Carnegie Museum, and the libraries he sponsored around the country.  I grew up in Minneapolis; down the road were the Pillsbury family homes and in our neighborhood were people who worked at the Pillsbury building downtown.  Although now no longer active in the business, members of the Pillsbury family continue to sponsor civic, religious, and artisitc programs throughout Minneapolis. 

All this talk of ketchup and dough-boys led to a discussion of how businesses build wealth and to what purpose they use it.  Of course, the profit incentive is all about the accumulation of personal wealth, but we noted that some had used their assets in the service of others (e.g., the Rockefellers and Colonial Williamsburg, or the Gates’ Foundation and aid to Africa) and that corporations often use assets to serve civic and cultural purposes.   

What was important about that discussion, and what I started thinking about, was how the uses of corporate philanthropy had changed over time.  For many wealthy families in the late nineteenth and early twentieth centuries, using their wealth for public purposes meant building libraries (e.g., Carnegie libraries), churches (e.g., Rockefeller’s Riverside Church), or schools (Colonial Williamsburg is essentially a school).  Corporate philantropy continues to have a rich tradition today (e.g., the Gilder-Lehrman Institute of American History), though it often is self-serving (to generate good will) and its aims are more likely to be directed away from the United States and toward health concerns in Africa or Asia. 

I have no specific insight into the changing dynamics of corporate philanthropy, but my discussion with our kids made me wonder if any historian had explore these, or other similar issues.  This seems like an important topic, one that raises questions of cultural significance and that is at the convergence of cultural, religious, and economic trends.   Of course, the use of great wealth for the benefits of others is often criticized at the time as self-serving, but the effects of the generosity, regardless of its purpose, often has lasting effects on culture, religious, and economic life.