Category: Book Quotes of the Day

However, when the Reichsbank was being formed in 1871, his [Count Otto von Bismarck] own private banker and confidant, Gershon Bleichröder, warned him that there would be occasions when political considerations would have to override purely economic judgements and at such times too independent a central bank would be a nuisance.

Determined never again to be held hostage by moneymen, Napoleon changed the Bankque’s statutes so that henceforth the governor and the two deputy governors would be appointed directly by the government, which at that time meant Napoléon himself. He declared at the time, “The Banque does not only belong to its shareholders, but also to the state…. I want the Banque to be sufficiently in government hands without being too much so.”

Though the directors of the Bank were charged with governing the supply of credit in Britain, and by extension around the globe, they did not pretend to know very much about economics, central banking, or monetary policy. An economist of the 1920s once described them as resembling ship captains who not only refused to learn the principles of navigation but believed that these were unnecessary.

Once they had exhausted every potential source of loans, they relied on a technique almost as old as war itself: inflation. Unlike medieval kings, however, who accomplished this either by shaving pieces of gold and silver off the outer edge of their coins–a practice known as clipping–or of issuing coinage made of cheaper alloys–currency debasement–governments in the Great War turned to their central banks, often relying on complex accounting ruses to disguise the process. Central banks in turn, abandoning their longstanding principle of only issuing currency backed by gold, simply printed the money.

Also gold coins began mysteriously to vanish from circulation. Having been burned by disastrous experiments with paper money twice before–once in the early eighteenth century during the ill-fated Mississippi Bubble, and then again by the assignats issued during the Revolution–the French had developed a healthy mistrust of banks and all but the hardest metallic currency.

The 1907 panic exposed how fragile and vulnerable was the country’s banking system. Though the panic had finally been contained by decisive action on Morgan’s part, it became clear that the United States could not afford to keep relying on one man to guarantee its stability, especially since that man was now seventy years old, semiretired, and focused primarily on amassing an unsurpassed art collection and yachting to more congenial climes with his bevy of middle-aged mistresses.

In the middle of the crisis, Germany was hit by a financial panic. The stock market plunged by 30 percent in a single day, there was a run on banks across the country as the public lost its nerve and started cashing in currency notes for gold, and the Reichsbank lost a fifth of its gold reserves in the space of a month. Some of this was rumored to have been caused by a withdrawal of funds by French and Russian banks, supposedly orchestrated by the French finance minister.

According to one police report, “The Paris banking house of Mendelssohn is trying to send a hundred million francs, in gold, across Germany to Russia.” The hunt for “gold cars” became a curious obsession in the countryside; vehicles driven by innocent Germans were accosted by armed peasants and gamekeepers. A German countess and a duchess were even shot by accident.

Now faced with the prospect of large parts of the City of London going under, the commercial bankers in a panic had begun withdrawing gold from their accounts at the Bank of England. Its bullion reserves fell from over $130 million on Wednesday, July 29, [1914] to less than $50 million on Saturday, August 1, [1914] when the Bank, to attract deposits and conserve its rapidly diminishing stock of gold, announced that it had raised its interest rates to an unprecedented 10 percent.

By money-mind I refer to the type of mental apparatus a few are endowed with that leads them as a matter of course to think of the money side in every conversation, in every endeavor or transaction engaged in. The average person, on the other hand, seldom thinks of money except, of course, when he or she is spending money or planning to spend it, or when a new job or contract is in view.