Lords of Finance: The Bankers Who Broke the World

by Liaquat Ahamed

The most famous spokesman for looser money and easier credit was Williams Jennings Bryan, the populist congressman from the farm state of Nebraska. He campaigned tirelessly to break the privileged status of gold and to expand the base upon which credit was created by including silver as a reserve metal. At the Democratic convention of 1896 he made one of the great speeches of American history—a wonderfully overripe flight of rhetoric delivered in that deep commanding voice of his—in which, addressing Eastern bankers, he declared, “You came to tell us that the great cities are in favor of the gold standard; we reply that the great cities rest upon our broad and fertile plains. Burn down your cities and leave our farms, and your cities will spring up again as if by magic. But destroy our farms and the grass will grow in the city. . . . You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”

Wrote one observer: “In the whole course of history, no dog has run after its own tail with the speed of the Reichsbank. The discredit the Germans throw on their own notes increases even faster than the volumes of notes in circulation. The effect is greater than the cause. The tail goes faster than the dog.” The task of keeping Germany adequately supplied with currency notes became a major logistical operation involving “133 printing works with 1783 machines . . . and more than 30 paper mills.” By 1923, the inflation had acquired a momentum of its own, creating an ever-accelerating appetite for currency that the Reichsbank, even after conscripting private printers, could not meet. In a country already flooded with paper, there were even complaints of a shortage of money in municipalities, so towns and private companies began to print their own notes. Over the next few months, Germany experienced the single greatest destruction of monetary value in human history. By August 1923, a dollar was worth 620,000 marks and by early November 1923, 630 billion.17

That day as a hundred thousand people stood on the Mall to witness Roosevelt being sworn in on the steps of the Capitol, they were watched over by army machine guns. It was like “a beleaguered capital in wartime,” wrote Arthur Krock of the New York Times. Meanwhile, the credit and currency machinery of the country had come to grinding halt. The banking systems in twenty-eight states of the union were completely closed and in the remaining twenty partially closed. In three years, commercial bank credit had shrunk from $50 billion to $30 billion and a quarter of the country’s banks had collapsed. House prices had gone down by 30 percent, leaving almost half of all mortgages in default. With the contraction in credit, mines and factories across the country had to shut down. Steel mills operated at less than 12 percent of their full capacity. Automobile plants, which had once churned out twenty thousand cars a day, were now producing less than two thousand. Industrial output had fallen in half, prices had tumbled 30 percent, and national income had contracted from over $100 billion to $55 billion. A quarter of the workforce—13 million men in all—were without jobs. In the richest nation in the world, 34 million men, women, and children out of a total population of 120 million had no apparent source of income. More than half a century before, Karl Marx had predicted that as the boom and bust cycles of capitalism became progressively worse, it would eventually destroy itself. Tha...