Liaquat Ahmed’s Lords of Finance is somewhere between a history of the world economy between the First World War and the Great Depression and a group biography of the key central bankers of that era – Montagu Norman of the Bank of England, Emile Moreau of the Banque de France, Hjalmar Schacht of the Reichsbank, and Benjamin Strong of the New York Federal Reserve.

This group of wildly disparate men – Strong was a stereotypical American believer in common sense and the private sector, Moreau a career official deeply suspicious of English-speakers, Schacht a neurotic Wilhelmine imperialist, Norman an Edwardian half-mystic eccentric – succeeded in maintaining their own private special relationship, all believing that they enjoyed a distinctive personal partnership with the others in the common cause of restoring the world economy as it had been before the first world war.

However, a major theme of the book is the illusion of personal politics – in the event, the central bankers maintained their cordial partnership while their policies became progressively more inconsistent and set them more and more at variance with the governments and economies that stood behind them. The special relationships became an end in themselves; and as more and more effort went into maintaining them, they increasingly came to provide an illusion of unity and consensus.

Something else that provided an illusory consensus was the gold standard. Another main theme in Lords of Finance is the European tragedy; all four men were horrified by the collapse of the old world of open borders and concert diplomacy into the first world war, and perhaps as much by the abandonment of gold and the binge on inflationary finance that went with it as by the war itself. The struggle to return was the mental leitmotiv – the gold standard was the way to get there, not least because it was what was available.

Everywhere, in July 1914, the crisis had been greeted by an epic crash. Only the exact nature of the panic varied depending on national financial culture. In the United States, of course, it manifested itself as a massive Wall Street crash. In London, the interbank credit markets froze up. In France, there was a run on the franc and on the banks, with gold coins vanishing from circulation overnight and Les Halles struggling to find enough change. In Germany, the government took over as the mobilisation plan went into effect. All four men were involved one way or another in coping with this financial prelude to the war – Norman in preventing a banking collapse, Strong in finding ways for US travellers in Europe to cash their travellers’ cheques on the House of Morgan’s credit, Schacht in managing the Nationalbank’s response, Moreau in implementing France’s detailed mobilisation war book for bankers.

War book for bankers? Yes; in a financial counterpart to the Anglo-German arms race, the French and German central banks had been hoarding gold for years, which had given the Banque de France the biggest gold reserve in the world. It also had no fewer than 250 branches, whose managers all had in their safes an extract from the national mobilisation plan. As the plan went into action, their instructions were to immediately clamp down on any circulation of gold whatsoever, and to do everything possible to defend the Republic’s treasure, even if their branch came under enemy occupation. As it turned out, the Banque actually clung on to the gold throughout the war, on the grounds that it would be even more useful afterwards.

But the primary element in any central banker’s preparations for war was to know where the printing press was. Many, many people expected that financial constraints would stop the war; even John Maynard Keynes, who plays the role of a sort of shadow Lord of Finance in the book, popping up regularly in order to be right, thought that the combatants would run out of money by the end of 1914. Instead, they borrowed, taxed, and inflated.

Some of them kept going after the war; there is a fantastic and fantastical description of the Reichsbank in 1923, whose president had apparently sublimated his concerns about the great inflation into the sheer logistics of printing and distributing that much money. As he explained to a parliamentary committee that summer, he was now capable of doubling the money supply in a week, and the limiting factor was not monetary, but rather the capacity of the German printing industry and the problems of cash distribution. One can see how the idea of managed money might have struggled to gain acceptance.

Ahmed is good on how, although the international gold standard was actually relatively new, this tended only to reinforce its status as a secular religion. Bank of England officials looked to The Resumption – when the Bank went back on gold after the Napoleonic and Revolutionary wars – as their founding achievement, one that was not that far from current memory. It almost sounds like a church festival, the third Sunday after Resumption-tide. Rather than being an ancient tradition, it was felt to be a live achievement.

As a result, the Bank was always going to be desperate to Resume as soon as possible after the war, and it had the vigorous support of its fellow-central banks in doing so, specifically the New York Fed. If any two central bankers had a special relationship, Norman and Strong did, but as always in the Anglo-American special relationship, what was in the interests of the relationship was not necessarily in the interests of either Britain or America. Strong felt that the British should be forced to go back on gold; Norman felt much the same about the British government, and the British felt that they needed to go easy on the other big economic issue of the time in order to get the Americans’ support in doing what the Americans wanted them to do.

The other issue was the vast pile of multilateral debts left over from the war. This is well-known – France and the smaller Allies owed the UK, which in turn owed the US, and the French hoped to pay the UK with reparations extracted from Germany. In the interests of the special financial relationship, on Norman’s advice, the UK Treasury accepted the first US offer and agreed to pay the bulk of the bill. The French, on the advice of Emile Moreau, held out on them, and eventually got a significantly better deal. The Italians held out longer still and did even better.

But this didn’t solve any of the underlying problems, nor did the special relationship between the central bankers. A gold standard with most of the gold concentrated in the US and France – which went back on gold at a deeply devalued rate, and therefore hoarded the stuff even faster than it had done in the prewar gold race – was fundamentally dysfunctional. The special relationship between the US and Germany, Schacht, Strong, and Stresemann’s political fix, only solved things as long as hot money continued to flow into Germany, and remained deeply vulnerable to a “sudden stop”. The UK’s position on gold was always tenuous.

And the central banks themselves were idiosyncratic institutions; the Bank of England was probably the least odd, but lacked gold, the Federal Reserve was a curious lashup in which the individual Feds and the board of governors in Washington competed for power, marked by a lot of sub-standard political appointees, and the Banque de France was a private-sector entity owned by the first couple of hundred aristocratic shareholders to squeeze into the annual meeting but manned by career civil servants. Germany had had two central banks during part of the great inflation – having given the director of the Reichsbank tenure for life, on the suggestion of the British, the German government had to create a new agency, the currency commission, to manage Schacht’s monetary stabilisation while the official central bank continued to spew paper two miles across central Berlin.

Essentially, the departure from the gold standard, and the effort to restore it, created the first republic of the central bankers. The restored standard was so unstable, after all, that it demanded continuous policy inputs to keep going – quite the opposite of the aims of a gold standard. But the basis of personal understandings between the major central banks was simply insufficient to cope with the reality that the standard itself was flawed, that the various political/financial fixes adopted to work around its flaws were leading to the build-up of huge global imbalances, and that the national political objectives of the major economies were incompatible with each other and with those of the central bankers.