Last week I read Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed. It describes the leadup to the Great Depression through the directors of the U.S., British, German and French central banks. It begins with the debate over World War I reparations and follows all the interest rate hikes, speculation orgies and gold standardizing that led the world to the stock market crash in 1929.
The main thing I didn’t know about the 1920s was that pretty much everyone saw the stock market crash coming:
One is led to the inescapable but unsatisfying conclusion that the bull market of 1929 was so violent and intense and driven by passions so strong that the Fed could do nothing about it. Every official had tried to talk it down. The president was against it, Congress too; even the normally reticent secretary of the treasury had spoken out. But it was remarkable how difficult it was to kill it. All that the Fed could do, it seemed, was to step aside and let the frenzy burn itself out. By trying to stand up to the market and then failing, it simply made itself look as impotent as everybody else.
Another thing I didn’t know was that amateur stock market speculation was basically an American phenomenon:
Though the size of the British stock market was comparable as a percentage of GDP to that in the United States ,the average British person preferred to bet on sports and left the stock market to the City bigwigs, while in France and Germany the size ofthe stock markets was tiny. Thus the crash did not exert the same hold on the psychology of European consumers and investors, and the effect on their economies was correspondingly less traumatic.
Someone needs to write the history of sports betting in Britain. I literally cannot fathom a more useless way to spend one’s time.
In the 1920s, all the major economies were pegged to the gold standard, and the supply of gold was crucial for the health of their exchange rates. As usual, I was much less interested in the economics than the logistics:
Unknown to most people, much of the gold that had supposedly flown into France was actually sitting in London. 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 vault but simple 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 into the vaults of the Bank of England, loading some bars of bullion 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.
It’s a 564-page book, and I took away three factoids. Sounds about right.