What’s on Fed chairman Ben Bernanke’s reading list these days? He was asked that question earlier this month during testimony to the Financial Crisis Inquiry Commission, the government’s investigative posse charged with finding the smoking guns that triggered the financial crisis of 2008 and its evil twin, the Great Recession. One recommendation from the nation’s central banker in chief: Lords of Finance: The Bankers Who Broke the World, which details a fascinating but widely misunderstand bit of history of how the world’s central bankers at the time failed so spectacularly on the eve of the Great Depression.
If you haven’t read this book, you should. It’s ancient history, but it’s also highly relevant (still) in the battles over monetary policy in the here and now. History doesn’t repeat, but sometimes it rhymes. As Liaquat Ahamed, the book’s author, writes in the epilogue…
For many years people believed—even today many continue to do so—that an economic cataclysm of the magnitude of the Great Depression could only have been the result of mysterious and inexorable tectonic forces that governments were somehow powerless to resist. Contemporaries frequently described the Depression as an economic earthquake, blizzard, maelstrom, deluge. All these metaphors suggested a world confronting a natural disaster for which no single individual or group could be blamed. To the contrary, in this book I maintain that the Great Depression was not some act of God or the result of some deep-rooted-contradictions of capitalism but the direct result of a series of misjudgments by economic policy makers, some made back in the 1920s, others after the first crises set in—by any measure the most dramatic sequence of collective blunders ever made by financial officials.
“Those who cannot remember the past are condemned to repeat it,” Santayana warned. Are we repeating the past on the macroeconomic front? Or have we learned anything? If you package certain facts, you can argue persuasively on either side at the moment. The final verdict of history, however, is still unfolding. The grand dénouement is yet to be determined. The distant past, at least, is crystal clear…and it makes for a riveting story. The realization that some of the details are still relevant only sweetens the deal.