Indeed, the governor in wartime seems to have been on his own turf even more bullying in manner than in peacetime, to judge by the letter that a leading banker, Robert Martin Holland of Martins, sent to him as early as 19 August. Martin Holland that morning had gone to the Bank to consult Nairne about the terms of a forthcoming issue of Treasury bills. ‘He referred it to you,’ wrote the banker, ‘and you requested me to come and see you, and then proceeded in the presence of Sir Gordon Nairne to address me in a way that would have been unjustifiable if between a master and his servant.’ Subsequent correspondence revealed that Cunliffe had believed that Martin Holland was seeking to induce him ‘to enter into some ring of the Bankers to force the price of Treasury Bills against the Government’. But for the government itself, and the chancellor in particular, Cunliffe during these early stages of the war was their indispensable go-to man in the City, especially valued for his ability to bang together the heads of the squabbling bankers. ‘His sense of humour, which he concealed under a dour almost surly countenance, was an encouragement in those trying days,’ affectionately recalled Lloyd George:
He was fond of little practical jokes to lighten the dismal anxieties of our common burden. He affected a deep resentment at our issuing the £1 notes as Treasury and not Bank of England Notes. He scoffed at the inferiority of our issue in the quality of its paper and its artistry as compared with the crisp £5 note of the Great Bank over which he presided. I can see his impressive figure with its rolling gait, coming one morning through the door of the Treasury Board Room. He had a scornful look on his face. He came up to my desk with a mumbled greeting, solemnly opened the portfolio he always carried, and pulled out a bedraggled £1 Treasury Note, dirty and barely legible. He said: ‘Look at that. It came into the Bank yesterday in that condition. I told you the paper was no good – far better to have left it to us.’ He had scrubbed the note in order to reduce it to this condition of defacement for the pleasure of ragging me. I told him so and he laughed. His manner was not propitiatory to strangers, but when you got to know him he was a genial, kindly man, and I liked him. I relied on his shrewdness, his common sense and instinct.
‘The best way to avoid a panic is to meet the situation like lions,’ Cunliffe himself had assured the Treasury’s Bradbury on the first day of hostilities, and some three months later he received an honour that few of his predecessors had known, let alone while still in office. ‘I like the Governor – a regular John Bull of the farmer type, but wonderfully shrewd & level-headed,’ Asquith at No 10 confided to an intimate in early November following a meeting about the imminent issue of the War Loan. ‘When the others had gone, I told him (he is called Cunliffe) that the King had agreed to give him a peerage, and that I proposed to announce it at the Guildhall on Monday. He was not the least émotionné & simply said – “Well, I obey orders”.’4
The war was not on the whole a happy or comfortable time at the Bank. A nagging worry throughout was the retention of adequate numbers of qualified men. In October 1914 permission was given to staff to join the National Volunteer Reserve, but only ‘on condition that they are not required to sign any enrolment form which will render them liable to be called up for service by the Military Authorities without the Bank’s consent having first been obtained’; and the following May a governor’s order stated that ‘so many Members of the Staff have gallantly volunteered that, with the increased National duties which the Bank have had to undertake, it is quite impossible to spare any more’. Volunteering gave way of course to conscription, and as the war dragged on more and more pensioners returned, more and more temporary appointments were made – and more and more women were recruited, with their numbers rising to well over a thousand as the men went to the Front. Before the war there had been complete physical segregation of the sexes, but now just a wood-and-glass screen kept them apart; and Cunliffe was so disconcerted by some of the colourful dresses he encountered that a new rule confined permissible colours to navy, black and very dark grey. More generally, the wartime spirit seems by 1918 to have been flagging quite badly. In April a notice inveighed against the ‘disgraceful practice’ of ‘thefts of Toilet paper and Soap in certain of the lavatories’; in October another notice urged economy in the use of electric lights (‘At irregular intervals all lights will be switched off-and-on twice, in rapid succession, as a reminder that any lights burning unnecessarily must be extinguished’); and between times, that summer, a ‘Committee of Delegates’ not only laid before the governor its specific complaints about pay failing to keep up with wartime inflation, but warned that the larger mood in the Bank was one of ‘a great unrest’. It is clear enough that the failure was one of an inadequate human touch. ‘All through these dark years there was a grim silence on the part of the authorities,’ recalled Wilfred Bryant, a senior clerk, soon after the end of hostilities. ‘I shall always regret the fact that on the anniversaries of the opening of the War, when we met and sang together en masse the National Anthem in the Lothbury Courtyard, no words from official lips were ever uttered of sympathy, appreciation, and encouragement … But, alas! the authorities seem to have looked upon us as mere machines.’ And he went on: ‘We always lived from hand to mouth. Our domestic interests at home were never thought of. Sunday duty was often not officially announced till the last thing on Saturday night … Such pin-pricks pierced into our very marrows.’5
At a more haute finance level, there were for the Bank perhaps two overarching wartime facts. The first, amid the comprehensive breakdown of the international gold standard, was that although sterling continued in principle to be convertible, in practice the gold standard was more or less suspended, not least because of intensely difficult shipping conditions. The other cardinal fact was the shifting balance of power between Bank and Treasury. ‘I remember Lord Cunliffe saying to me during the first few days of the war that while the war lasted the Bank would have to regard itself as a department of the Treasury,’ was Bradbury’s recollection; and in all sorts of ways – including approval of new issues, the power to requisition securities, and Treasury bills effectively replacing Bank rate as the arbiter of short-term interest rates – it proved an accurate prediction of the westerly drift. So too with war loans, where the Bank had some success (notably with the huge £2,000 million 5 per cent loan of January 1917) in skilfully preparing the market but was generally overshadowed by the Treasury; to a significant degree that was even the case in the almost continuously problematic area of the dollar exchange – absolutely vital to the war effort, given that (in Victor Morgan’s subsequent words) ‘upon the maintenance of an adequate supply of dollars at a reasonable price depended the whole vast purchasing programme of food, materials and munitions for ourselves and our Allies’. All that said, the Bank did have one unique if highly secret contribution to make. So secret indeed that Cunliffe’s successor, Brien Cokayne, did not even know of its existence until shortly after becoming governor, despite three years as deputy governor. His informant was Admiral Sir Robert Hall, in charge of Naval Intelligence, who told him (recorded Cokayne) that ‘for a long time past’ the Bank’s Printing Department had been undertaking ‘very secret & important work for the Admiralty’. Hall declined to disclose the exact nature of the work, but the new governor agreed that it should continue, ‘from the stand point of the Nation & the Bank’. Some four decades later, Herbert de Fraine, who had become principal of the Department three years before the war, spilled the beans: in essence, the work was the printing of forgeries of German documents, done under high-security conditions and delivered by taxi each Sunday morning to Hall himself. ‘In due course,’ noted de Fraine, ‘he told us gratifying news of the success of our product – which, however, had needed a little attention at other hands to make it less “fresh from the printer.”’6
For Cunliffe personally, wartime was good so long as his close ally stayed at 11 Downing Street. In February 1915 they enjoyed a harmonious week together in Paris, at a major conference on Allied finance. ‘When
a question arose as to a transhipment of gold the Governor of the Bank of France expressed himself with great fluency,’ recalled Lloyd George. ‘I then said: “The Governor of the Bank of England will state the British view on the subject”. [Cunliffe] rose slowly, and after a few preliminary puffs he said: “We do not mean to part with our gold”, and then subsided into his seat.’ The chancellor would also remember the governor’s reluctance to accompany him on a visit to Béthune, under occasional bombardment: ‘He said: “A predecessor of mine was killed visiting the trenches at Namur. But he was there on business with the King, and the City said, ‘Poor fellow!’ but if I were hit in the stomach at Béthune they would all say, ‘D—d fool – what business has he to go there?’”’ The great blow to Cunliffe was the government reshuffle in May 1915, causing Lloyd George one morning to be interrupted in his shaving by his maid, who told him that the governor was downstairs wanting to see him. ‘I went down. The old boy blundered out, “I hear they want you to leave the Treasury. We cannot let you go!” and then he quite broke down, and the tears trickled down his cheeks.’ To Asquith soon afterwards, Cunliffe was equally – and unavailingly – beseeching. ‘I couldn’t,’ related the prime minister, ‘get anything out of him, except “We don’t want to lose our man! Don’t take our man away from us!”’
The new chancellor was Reginald McKenna, very sure of his own abilities, unwilling to accept advice and soon at loggerheads with the governor. Against a background of Cunliffe threatening to resign, Asquith tried during the summer to mediate, telling McKenna that Cunliffe had ‘rendered us invaluable service during the past year’ and that, for all his ‘limitations of outlook and faults of temper’, his ‘deliberate judgement’ was ‘always well worth taking into account’ and that he was ‘perfectly straight’. The governor stayed in post, but the relationship was permanently damaged. McKenna, according to the retrospective account of Lord Beaverbrook, would ‘frequently urge upon Cunliffe the necessity of providing more bank balances for the government in the United States’; to which Cunliffe ‘would reply invariably, “Mr Chancellor, this is a matter of exchange, and the responsibility here lies with me.”’ Indeed, that autumn, the governor secured a significant victory when he successfully insisted that the newly formed London Exchange Committee – a consortium of bankers charged with securing as favourable an exchange as possible and empowered to take under its control all available gold as well as foreign currency – not only have himself as chairman but be run out of the Bank. The governor by this time had a new deputy, Cokayne, unexciting but appreciably more efficient than his port-wine predecessor; while Cokayne in turn employed from January 1916 one of the Bank’s directors for day-to-day ‘devilling’, a director who had just made a clean break from his own firm. ‘There goes that queer-looking fish with the ginger beard again,’ Cunliffe was soon heard to say, loudly, on passing Montagu Norman in a corridor. ‘Do you know who he is? I keep seeing him creeping about this place like a lost soul with nothing better to do.’
It was Norman who, that spring, made a particular friend of Benjamin Strong, governor of the recently established Federal Reserve Bank of New York, visiting London with a view to establishing closer Anglo-American financial relations. Strong’s diary of his trip recorded his first meeting with Norman’s chief: ‘Lord Cunliffe impressed me most favourably, relishes a joke, and likes to make one. He joshed me when I came in and … wanted to know why I had not let him know in advance of my coming over.’ The American then explained his scheme for more intimate co-operation in exchange matters; and he was careful to show – even though the war was seeing New York increasingly supplant London as the world’s leading international financial centre – that he was well aware of the appropriate pecking order:
We [at the Fed] realize, however, the extent to which present conditions imposed responsibilities on the Bank of England, and that they were, so to speak, headquarters, and that our plans should naturally be shaped with due regard to the local conditions here, in which the Bank of England control, not only as a matter of comity but in order that our transactions might be more effective in the future through being conducted harmoniously with headquarters.
Cunliffe in response made reasonably positive noises, leaving Strong to reflect that ‘on the whole, I am most favourably impressed with his attitude, which was most friendly’. So the governor was also when Strong called again shortly before heading home, with the Englishman himself just back from a trip to Paris. ‘He admitted that the Bank of England was a museum, but that after all they could change when necessity required whereas the Banque de France was much more a museum than the Bank of England and apparently did not have the capacity or courage to change.’ In practical terms, the eventual upshot was an agreement between the Bank and the Fed that embraced the opening of reciprocal accounts, the reciprocal buying of commercial bills, and the earmarking and shipment of gold – altogether a signal moment, owing much to Strong’s personal initiative, in the still barely nascent story of central banking co-operation.7
The rest of 1916 saw general relations between Bank and Treasury increasingly tense – ‘tho’ knowing jeopardy threatens us in N.Y. one might as well talk to an airball as to them,’ reflected in June a disenchanted Norman – just as the Cunliffe/McKenna relationship plumbed new depths, with the governor writing to Asquith in August to accuse the chancellor of having attempted to carry out policies which would ‘have seriously endangered the credit of the Country’. Cunliffe claimed to have the Committee of Treasury’s backing over this charge, but in truth several of his senior colleagues by this time were finding his governorship (so far renewed each year because of the war) increasingly trying. That autumn a coup was talked about, but failed to come off. ‘I feel we owe him a debt of gratitude for sticking to the job, and for the ability he has shown, in his arduous duties,’ the former governor Middleton Campbell wrote on 20 October to Cokayne, even though ‘he is not the man he was’, being ‘irritable, & does not like any one differing with him’; while ‘of course’, added Campbell, ‘we all regret the departure of the old Custom, of telling every thing to the Treasury Committee, but this has arisen through extra-ordinary Circumstances’. The immediate outcome was related by Norman four days later in a diary entry pregnant with meaning:
Most of Treas Com having agreed to G. [governor Cunliffe] for another year: he shd make a point of regular full disclosure of Bk affairs & of his advice qua Gov. This is due to them as Treas Com (by long custom) & essential now to begin preparation of united front, as Enquiry after war is certain – & it will be engineered with main object of substituting State Bank. Such a Bank seems to be in minds of C [chancellor McKenna] & whole Treasury as well as grumblers in City & busy bodies in Parl’ment.
Cunliffe for his part continued to insist over the next few weeks that he would continue only on an unconditional basis, and a state of almost open warfare existed between him and his predecessor Cole, but eventually Norman managed to thrash out with the governor some sort of concordat. Reluctantly, Cunliffe agreed that henceforth a female shorthand writer would attend Committee of Treasury meetings and provide a full précis; that those meetings would be more frequent; that all current business would be considered; that there would be a ‘gradual bringing in of younger directors’ into the Committee; and that in due course there would ‘perhaps’ be, on the Court as a whole, ‘new directors drawn from Bankers &c’. Norman also recorded how the peacemaker’s reward came on 22 November: ‘T. Com … Hatchet formally buried by G [Cunliffe] & ACC [Cole]’.
Soon afterwards, as Lloyd George succeeded Asquith at the head of the wartime coalition, the Conservative leader Andrew Bonar Law replaced McKenna at No 11. ‘Friction between Bank & Treasury has wonderfully lessened since Bonar Law became C,’ noted Norman in January 1917.8 Yet some six months later there unfolded an extraordinary episode of high-level rancour – unique in Bank/Treasury annals.9
Beginning as a fierce campaign by Cunliffe against what he saw as unwarranted in
terference in questions of exchange, especially by the Treasury’s Sir Robert Chalmers and John Maynard Keynes, it took the form by early July – at a critical stage of the war – of a near-mad attempt to block the government’s access to the Bank’s gold that was being stored for safekeeping in Canada. The governor acted entirely off his own bat; Bonar Law was incandescent, telling Lloyd George that Cunliffe’s telegram to the Canadian government had been ‘an act of extraordinary disrespect towards the British Government and a direct insult to me’. At which point the governor’s erstwhile ally summoned him to No 10, severely reprimanded him and threatened (according to Cunliffe’s report next day to the Committee of Treasury) to ‘take over the Bank’. The issue then became – in a correspondence-generating impasse that lasted virtually a month – the nature of Cunliffe’s written apology to the chancellor, with Cokayne gamely seeking to mediate between two stubborn men. The governor spent most of that time on a fishing holiday in Scotland; but Cokayne frankly warned him that unless he pocketed his pride and offered to resign, then ‘the position will become absolutely intolerable and there is bound to be a sort of public scandal’. Yet for the governor such an offer was tantamount to conceding that ‘I simply become a Government Official under [the chancellor’s] orders’; and in the eventual letter (drafted for him by Cokayne and grudgingly accepted by Bonar Law) that did at last get sent in mid-August, making an ‘unreserved apology for anything I have done to offend you’, the offer of resignation was conspicuous by its absence. Soon afterwards, he was back in London – ‘looking very blooming’, according to Gaspard Farrer of Barings, and promising ‘to be good’.
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