Monday, November 23, 2009

Book Review - 'Lords of Finance' by Liaquat Ahamed

I've just finished reading 'Lords of Finance' by Liaquat Ahamed. I started it when i was on tour on September and only just finished it. So taking over 2 months, it'd be fair to say it was a leisure read for me. I think my slow pace made it all the more enjoyable.

The book is about the Great Depression seen through the eyes of the four most important central bankers of the time. Montagu Norman from the bank of England, Benjamin Strong of the New York Federal Reserve, Hjalmar Schacht of the Reichsbank and Emile Moreau of the Banque de France. The Great Depression was a time between the first and second world wars when many countries experienced huge economic difficulties. Central to the story are 'reparations' - payments which Germany was forced to make after the first world war - and the Gold Standard. Money was linked to the amount of Gold available. The period saw changes in the relationship between money and gold.

I've studied the Great Depression as an undergraduate at the London School of Economics. A lot of the academic literature is pretty dry. Liaquat does a brilliant job of bringing the story to life. By personalising the events, by seeing them through the character's eyes, you gain a new insight into the story. And a truly amazing story it is. At the same time it is both mundane and fantastic. For a moment, think about all those millions of lives effected by the economic catastrophe. Imagine the hunger, deprivation, and desperation. Now, read this.

'Bullion was so heavy - a seventeen inch cube weighs about a ton - that instead of shipping crates of it across hundreds of miles from one country to another and paying high insurance costs, central banks had taken to "earmarking" the metal, that is, keeping it in the same fault but simply re- registering its ownership. Thus the decline in Britain's gold reserves and their accumulation in France and the United States was accomplished by a group of men descending in to the Bank of England, loading some bars onto a low wooden truck with small rubber tires, trundling them thirty feet across the room to the other wall, and offloading them, though not before attaching some white name tags indicating that the gold now belonged to the Banque de France or the Federal Reserve Bank. That the world was now being subject to a progressively tightening squeeze on credit just because there happened to be too much gold on one side of the vault and not enough on the other provoked Lord d'Abernon, Britain's ambassador to Germany after the war and now elder statesman-economist, to exclaim, "This depression is the stupidest and most gratuitous in history".
pp 379

Liaquat provides a wonderful anecdote in the footnotes telling of when the Schacht - the German Central banker - visited the New York Fed. He wanted to see Germany's gold reserves (held by the Fed). But the Fed officials couldn't actually find Germany's pallet of Gold. You couldn't make it up !

Liaquat provides us with a rich history. He paints the characters beautifully. You gain a real sense of the dynamics of the relationship between the four key individuals. Relationships upon which depended our prosperity. And whilst there is inevitably some reference to the well-heeled life of the bankers, you also appreciate them as people. They display stunning arrogance and stupidity, but also a sense of selflessness and duty. Liaquat finishes the book by referencing Keynes (who also, alongside Churchill, is obviously featured heavily). And in doing so perhaps gives us a small insight into why he took on the huge task of writing this book (taking a break form his career as a successful investment banker).

[Keynes] believed that if only we could eliminate 'muddled' thinking... in economic matters, then society could allow the management of its material welfare to take a back seat to what he thought were the central questions of existence, to the "problems of life and of human relations, of creation, behaviour and religion."
pp 504
Keynes described economists as "trustees, not of civilisation, but of the possibility of civilisation".

And despite all my praise for Liaquat's book - it will sit on my bookshelf alongside AJP Taylor's English History 1914-1945, and Glyn Davies A History of Money - it is here I must offer some criticism. And doing so, agree with Keynes. Liaquat at points seems to write from the perspective that we have solved economic problems. That we know what money is now, whereas back then we didn't. Whilst this might be reassuring to the reader, it isn't true. He displays much greater faith in the 'science' of economics than it deserves. Indeed, Keynes would have described the four central bankers as exponents of the art of economics.

I wonder if Liaquat has read Black Swan by Nassim Nicholas Talib - a fellow investment professional ? Economics, as a means to an end, is hocus pocus. Montagu Norman (Governor of the Bank of England) said in 1948 two years before his death:

"As I look back, it now seems that, with all the thought and work and good intentions, which we provided, we achieved absolutely nothing... nothing that I did, and very little that old Ben [Benjamin Strong] did internationally produced any good effect - or indeed any effect at all except that we collected money from a lot of poor devils and gave it over to the four winds."
pp 489
It is to Liaquat's credit that he includes the above quote in his book.

For a moment whilst reading the book I did wonder about my own choices in life. I did wonder whether I should have done the sensible thing tried to pursue a career in economics rather than writing weird stuff about the nature of money, and burning some of the stuff once a year. But reading quotes like that one from Norman, reassures me that although I might not be on the right path, for me, economics (with its current dogmas) would be the wrong one.

Tuesday, November 3, 2009

Money Burning 23-10-09 £50

I did my third money burning ritual on Friday 23rd October. This time I burnt £50, last time it was £20, before that £10.

I recorded the serial number of the £50 - M10 362939. I probably should have done this for the £20 and £10. Perhaps it was added significance of burning the highest value note (in common usage in the UK) that encouraged me to record the note's number. Being a child of the 70's I associate the £50 note with oil sheiks and second-hand car salesmen. I don't think I actually saw one until I was in my twenties.

It certainly felt like a lot of money to burn.

I could have spent £50 in so many different ways. My family didn't fail to remind me of that. Their protestations didn't fall on deaf ears, but I  felt committed to the burning. I don't think my ego would have allowed me to 'fail' for the sake £50. However, the size of the burning definitely meant my resolve was put under greater strain than in previous years. I guess whether my resolve holds into the £100, £200 and £500 years will depend, at least in part, on my financial situation.

I should point out to those who don't know me, I'm not rich. Yet, anyway ;o)

To put things in perspective, in the last three years, my money burning activities have released me from the custodianship of £80 (not cost, remember?). I don't feel guilty, or silly. The burnings have given me pleasure (I guess some might call the pleasure perverse, although I wouldn't) and inspiration. For me its also been a profound way to explore my relationship with money. It does feel like a sacred ritual.

I wouldn't like anyone to think that burning the money was an act of arrogance or some vulgar display of wealth. I don't light a cigar with the note ! In fact, even though the act is the same, they couldn't be more different. That sounds bizarre I know. The best analogy I can draw for you is with sex. It can be a wonderful transformative event, or the greatest violation; physically its the same act.

I was disappointed that the youtube recording of the burning failed. The video didn't process properly, and because I recorded it live via a webcam, its gone forever. I was however very pleased that half a dozen or so, bore witness to the burning via a live webcast. To the best of my knowledge, they were all fellow microbloggers. All were really positive about what I was doing and offered encouragement. I'm very grateful to them for sharing the moment with me.

My son recorded a little video of me changing up the 2 x £20, and 1 x £10 in the village bank. I wasn't trying to offer proof that the £50 was genuine. It is. But attempting to prove that to anyone who doubted it would be extremely difficult. What I wanted to do was give a sense of the events around the ritual (which really form part of the ritual itself). The 23rd of October is starting to feel like a special day to me.

Since the burning, my friend and colleague Mark Sampson (@IronManRecords) has burnt £10.

I'm really really happy that someone else has taken to burning money. If you've read this far, then you should too. Money is so much part of all our lives that you should 'invest' just a little of it to find out how you really feel about it.