Liaquat Ahamed won a Pulitzer Prize for his timely book on the 1929 crash. Kanika Datta meets him
The transition from bond trader to author may be tough for most, but Liaquat Ahamed isn’t showing signs of suffering a great depression. After all, he has earned a raft of prizes, including the 2010 Pulitzer Prize for History, for his first book on the crash of 1929. Published in 2009 but completed in 2008, the year the US banking system collapsed, the deeply researched and readable Lords of Finance: The Bankers who Broke the World proved uncannily prescient.
Currently on an annual family visit to the capital — his wife is Indian — the Kenyan-born Indian seems to have comfortably settled into life as a full-time writer. He has begun work on Bank Wars, a book set a century earlier than his first. To be published by Penguin, the subject is the 1830s battle between Wall Street and Washington. As with Lords of Finance, the new book centres on the people involved, in this case Nicholas Biddle, president of Second Bank of the United States, the de facto central bank, and US President Andrew Jackson. Ahamed, 58, sees some parallels between that face-off and the banking crisis of 2008 in that “Jackson knew nothing about finance and Biddle had a tin ear for politics”.
He is, however, reluctant to put a date to its publication. “I have only just started work on the next book… so don’t hold your breath. I do a lot of research and write slowly,” he says.
Meanwhile, he has just completed the final draft of a longish piece for the February issue of Foreign Affairs that draws on the experience of the 1930s currency controversies to explore solutions to today’s global tensions over exchange rates and monetary policy.
The pre-war years have many parallels with the present day, not least the US’ mostly jobless economic recovery. That recovery saw industrial production double in four years from 1933, and five of the next eight years saw growth of over 8 per cent.
The 1930s was also the decade of the fastest productivity growth in US history. “There were two explanations for that . One is the carryover in the innovations of the 1920s, which saw incredible improvements in the way factories were organised.”
Second. the New Deal was designed to protect workers — minimum wages, social security (today it’s health insurance) — which raised labour costs. So companies thought it profitable to economise on labour.
Both things are happening now, he points out, but the novel element is globalisation. “I hope the solution is not protectionism — that’s in effect what happened in the 1930s,” he says.
The 1930s recovery, he says, was the result of the US coming off the gold standard and devaluing the dollar. Indeed, the role of the gold standard in escalating the Great Depression is the burden of his argument in Lords of Finance.
So he considers World Bank President Robert Zoellick’s suggestion that leading economies re-adopt a modified version of the gold standard untenable (and probably prompted by the fact that he is “an obvious candidate for Treasury Secretary if the Republicans come to power”). His contention is that “there simply isn’t enough gold in the world ”. The total value of global gold stocks is $5 trillion. The size of the global banking system is about $60 trillion. “If you have $1 trillion as central bank gold reserves, you’ll have to raise the price of gold to something like $10,000 an oz. which, in effect, defeats the purpose.”Secondly, gold supplies increase by about 2 per cent a year and the global economy is growing at about 4 per cent. “If growth is 4 per cent, financial assets have to grow at least 6 per cent a year, and if gold stocks are increasing at 2 per cent a year, there’s just not enough fuel to keep the economy going,” he points out.
Rugby School, Trinity (Cambridge) and Harvard-educated Ahamed’s India links include a Gujarati ancestry — one set came from Veraval near Porbandar and he reckons “one of them must have been, God knows, a fugitive from justice”. His family was in business in Kenya, but he has distant relatives in India and Pakistan, since he comes from the Ismaili sect, Shias who follow the Aga Khan. Ahamed himself is a non-practising Muslim. He once owned a film company called Red Wine Production which made one film that lost millions. Now, he says he chooses to live the film world “only vicariously” through his daughter who works in Hollywood.