Till Time's Last Sand

by David Kynaston

Cunliffe’s days as governor, however, were numbered. ‘No longer sane – if ever he was,’ was the blunt verdict in September of one director, Cecil Lubbock, as his behaviour became increasingly erratic and his bullying increasingly rebarbative. Finally, on 8 November, the Court elected Cokayne and Norman as governor and deputy governor respectively from the following spring. It was a decision that Cunliffe found impossible to accept, mounting a vain campaign over the rest of 1917 to persuade bankers, press and senior figures at the Treasury to try to get Bonar Law to apply pressure on the Court to reverse its vote – a campaign that involved systematic vilification of Norman and others at the Bank. Norman himself recorded Cunliffe’s graceless endgame during the early months of 1918. In February a ‘clear case of megalomania’, following a ‘violent display’ at the Committee of Treasury, ‘behaving like a spoilt child’; and next month, at a meeting of the General Court, reading ‘a longish speech – of wh D Gov & Directors knew nothing – i. eulogising the Bankers. ii. bum-sucking the Press,’ thereby creating a ‘very hot’ feeling, with ‘even’ Cokayne ‘much disgusted with such an unfriendly finale’. Norman’s damning account chimed entirely with the verdict of his fellow-director Teddy Grenfell, who was also at the meeting and confessed to being ‘reluctantly compelled to agree that able & strong as Lord C is, yet he is selfish, disloyal to colleagues & the Bank’. Or in short: ‘He has a bad yellow streak & is in no sense a white man.’10

  Naturally, the gorier details of the latter stages of Cunliffe’s governorship were kept wholly out of public view. Even so, as Norman’s diary entry of October 1916 had already eloquently suggested with its talk of people wanting instead ‘a State Bank’, a notion almost inconceivable before the war, the Bank by this time was an institution feeling itself somewhat under siege. ‘The Bank of England should take stock of its own position,’ forcibly argued the Economist in September 1917, ‘widening as far as it can the sweep of the net with which it gathers new members into its Court, and modifying the system which puts autocratic power into the hands of the Governor for the time being.’ The following month an internal committee, under Lord Revelstoke’s chairmanship, was set up to consider ‘the Direction and general working of the Bank’.

  Top of its agenda was the thorny question of whether joint-stock bankers should at last be allowed on the Court, with the submissions that autumn from existing directors showing opinion divided. ‘It would create jealousies,’ declared Campbell, while deputy governor Cokayne was adamant that ‘so long as none of the banks are directly represented on our Court, our advice (e.g. to the Treasury) on matters concerning their interests will carry greater weight’. On the other side of the argument, Frank Tiarks of the merchant bank Schröders, a director only since 1912, claimed not implausibly that ‘the Directors of the Bank have great responsibility and yet the majority know little or nothing of many important matters’, so that accordingly ‘I have no objection to the Directors of other Banks being elected.’ The Committee itself was split, with the decisive intervention probably coming from another merchant banker, Sir Robert Kindersley of Lazards – tall and determined-looking with bushy black eyebrows, and eventually recalled in his Times obituary as ‘a man with whom it would be safe to go tiger shooting’. The joint-stock banks, he insisted, ‘had too much power already’; and ‘it was his opinion that a man with such responsibility would naturally consider first the needs of his own Bank and that it would be impossible for him to give a fair and unbiassed opinion on the situation as a whole’. Revelstoke’s Committee duly decided against recommending a break with the Bank’s traditional principle of debarring clearing bankers, let alone recommending industrialists; but it did successfully suggest that the Committee of Treasury become more youthful in composition and be elected annually by free and secret ballot. The problem was that the right candidates were not always elected. ‘The inclusion of WMC [Campbell] than whom no one has been less useful, or more prejudiced or is more out of touch, shows how little value can be put on our plan for free ballot,’ noted Norman in March 1918, as the Cunliffe era of almost unopposed autocracy seemingly passed into history. And in April: ‘Election to T. Com of LHH [Colonel Lionel Henry Hanbury] … is an admission of seniority as agst brains! LHH admits as much & did not desire election. It shows that Democracy, ie a free ballot by Court, is not bold enough to supply best men …’ Democracy and the Bank would continue to be a work in progress.

  The other significant aspect to the Revelstoke Report was the recommendation of creating a post at the Bank somewhat comparable to that of the general manager at the big joint-stock banks, in effect as the main institutional link between the staff and the governors; and in May 1918, shortly after Cokayne succeeded Cunliffe, this was implemented, as the highly capable Nairne (chief cashier since 1902) took up the new position of comptroller, in order ‘to manage the internal affairs of the Bank and to co-ordinate the two sides [Cash and Stock] and generally to assist the Governors’. Cokayne himself had his first major moment as governor that September, as the chancellor tried to persuade him to lower the Bank rate – again, something virtually unimaginable before 1914. Cokayne refused, informing Bonar Law that he felt ‘strongly’ that ‘it will be impossible to preserve our international credit unless we have comparatively dear money after the War and that the more we artificially cheapen it now, the more difficult it will be to revert to normal conditions’.11

  Also looking ahead was the government-appointed Committee on the Currency and Foreign Exchanges after the War, meeting regularly from February 1918 under the chairmanship of Cunliffe (who as was customary would remain a Bank director after stepping down as governor) and mainly comprising bankers. Although the Federation of British Industries (forerunner of the CBI) argued in its submission that the key post-war priority should be the achievement of a favourable trade balance, its views were ignored. Instead, insisted the Cunliffe Report, appearing just a fortnight or so before the end of the war in November 1918, what was really ‘imperative’ was that ‘after the war the conditions necessary to have maintenance of an effective gold standard should be restored without delay’; for, it went on, ‘unless the machinery which long experience has shown to be the only effective remedy for an adverse balance of trade and an undue growth of credit is once more brought into play, there will be grave danger of a progressive credit expansion which will result in a foreign drain of gold menacing the convertibility of our note issue and so jeopardising the international trade position of the country’. The ultimate crux, in other words, was as speedy a return as possible to a fully operational gold standard – a reassuring prospect broadly welcomed by financial opinion at large. ‘Back to Sanity’ was the Economist’s headline, while The Times had no doubts that the City would ‘firmly approve’ the central objective of ‘getting back, after the war, to an unimpeachable gold basis for our currency’.12 Cunliffe himself may have become a semi-pariah at the Bank, but almost certainly no one there would have disputed the thrust of his Committee’s conclusions.

  Strong was back in London in July 1919, staying at Norman’s house on Campden Hill and receiving in Threadneedle Street ‘a very warm welcome’ from Cokayne and Nairne. ‘They have even been good enough to put a telephone at the desk and a card with my name on the door, something which I have no doubt is without precedent in the history of the Bank.’ Even so, the American found the directors, whom he joined for lunch, notably lacking in the joys of peace:

  There is undoubtedly a very blue feeling here in regard to the future. It seems based in part upon the huge governmental expenditures, which still continue largely in excess of revenues; the early maturities of short government obligations, which aggregate between nine and ten billion dollars within eighteen months; the existence of the huge foreign debt, principally to the United States, which they would be glad and relieved to see reduced to more definite terms; the government policy of continuing unemployment wages; and, more particularly and fundamentally than anything else, the general unrest and dissatisfacti
on of labor throughout the country …

  ‘You know,’ Cole told him a few days later, ‘England may have a revolution on her hands any day.’ But for the governor, whose Roehampton house Strong visited for a night, there was at least a safety valve. ‘I discovered that business and the Bank of England was taboo in the family. He apparently makes it a practice never to mention the Bank when he gets home nor his business, and Lady Cokayne, he says, is densely ignorant on that subject, and it is one thing which gives him relief from the anxiety of his work.’

  Cokayne stepped down the following spring, to be succeeded by his deputy, Montagu Norman. The new governor continued to cultivate a close relationship with Strong. ‘Whenever you do come to London,’ he assured him later in 1920, ‘let me remind you of your hotel, of which the address is “Thorpe Lodge, Campden Hill, W8.” The Booking Clerk tells me that an hour’s notice will be enough to get your room ready, or, if you are in a hurry, this can be done after you have arrived.’ It is unclear who exactly coined the term ‘central banking’, but by early 1922 the two men were consciously formulating its principles. ‘If ever you should feel downhearted,’ wrote Norman, ‘just you remember that, economically speaking, there is only hope through a community of interest & cooperation between all the Central Banks.’ At the core of their shared conception was not just co-operation between central banks, recognising ‘the importance of international as well as national interests in the re-establishment of the world’s economic and trade stability’, but the notion that for those banks ‘autonomy and freedom from political control are desirable’.

  Norman’s ambitions continued to grow. ‘I think that Central Bankers are destined to play their own great part,’ he told Strong in September 1921 after visiting him in America, while five months later he predicted to his Dutch counterpart that the time was ‘not far distant when Central Bankers presenting an united front will at last have an opportunity to play a part in the affairs of the world’, in other words after the politicians had done their worst. Soon afterwards, in March 1922, he wrote to Strong in revealing terms about how ‘two years’ had been ‘wasted in building castles in the air and pulling them down again’: ‘Such is the way of democracies it seems, though a few “aristocrats” in all countries realised from the start what must be the inevitable result of hastily conceived remedies for such serious ills.’ Strong later that year resisted Norman’s idea of a grand conference of central bankers, but undeniably the idea of central banking was by the mid-1920s very firmly established. ‘Policy must be considered before profit,’ Norman explained in January 1925 to the seemingly backsliding president of the National Bank of Austria, ‘and the interests of Publics before those of Shareholders.’13 In a specifically British context, the Bank of England was now unambiguously, and without reservation, a public-oriented rather than a private-oriented institution, with an increasingly broad view of its responsibilities in an almost wholly changed world. Of course, in that challenging public realm, the exact nature of its relationship with the public’s elected representatives had yet to be definitively established; though, however that played out, Norman was unlikely to lose his belief in the freemasonry of disinterested central bankers as a necessary counterweight to grubby, vote-catching politicians.

  From the very start – and subsequently sometimes overlooked because of the natural emphasis on the Norman/Strong relationship at a time when American financial power was largely displacing British – there was a crucial imperial dimension to the propagation of the gospel of central banking. Here the key figure was Henry Strakosch: Austrian by origin; London-based managing director of the prominent South African mining house Union Corporation; responsible in 1921 for the creation of the South African Reserve Bank; and described by Norman in February that year as ‘the best authority’ on ‘the principles which should govern the policy of central banks in any country’. The same month, a Bank memo declared that ‘a chain of central banks in our various dominions and their co-operation with each other and our own Central institution and those of other countries is of the greatest importance to the smooth work of the world’s financial machinery’; soon afterwards, Norman put Strong in the picture about the imminent election to the Court of a pragmatic, self-made Canadian, Edward Peacock, who had gained a high reputation in the financial world at large, including the City:

  We are taking him with the view of pushing the Central Bank idea for all the Dominions. You will remember that Australia has a State Bank which in no sense acts as a Central Bank and which is doing more harm than good. You will also remember that a Central Bank is being set up in South Africa to which we have contributed a Governor, and it is of vital importance that its beginnings should be upon sound lines. You’ll know better than I do that Canada is without a Central Bank at all.

  I am sure you will approve of our desire to see Central Banks in these various places on right lines; and I think you will agree that it is by the fact of our taking in the best Canadian we can get that we are most likely to influence Canadian opinion without offending their susceptibilities.

  The establishment of Canada’s central bank would have to wait a decade, but the Bank was indeed applying pressure on the Commonwealth Bank of Australia to become a proper central bank, which duly happened in 1924. As for South Africa in 1921, the pioneer governor whom Norman referred to was William Clegg:

  He had been Chief Accountant of the Bank of England at the time of his appointment [recalled half a century later a former director of the Reserve Bank] and lived out that association in every way, setting an example in dignity and dress and tolerating no familiarity. His official residence in Brynterion was called Threadneedle House and in initial discussion with local bankers on local banking practices and desirable policies for the new central bank, I was told these always ended with: ‘In the Bank of England we do things so and so’ and that would be the end of it.

  Unsurprisingly, the two central banks kept in the closest possible touch; and when in 1923 they worked together to resolve a liquidity crisis in the South African commercial banking sector, the Morning Post obligingly reflected on how the episode had shown ‘some idea of the immense reserve power which is imparted to our banking system throughout the Empire by co-operation between Central reserve banking institutions’.14

  All this was well and good from Norman’s point of view, but his higher priority was the financial reconstruction of Europe, a continent left in a wretched state after the war. There were two major related issues – reparations (where Cunliffe in almost the last significant action before his death had managed through his bull-headed presence at the Versailles peace conference to pitch them injuriously high) and war debts (where Norman was closely involved in early 1923 in Washington negotiations that led to an Anglo-American settlement) – but for the governor the crux was reconstruction itself. He did not underestimate the gravity of the task. ‘I have never thought’, he wrote to Strong in August 1922, ‘the immediate future of Central Europe looked blacker than it now appears to look. I cannot conceive how some sort of a break-up of Austria is to be avoided long before the end of the year; nor do I see how a condition very near to civil war can be avoided in Germany.’

  Norman’s specific – and not unheroic – contribution to mending that dire state of affairs was to do everything he could to facilitate a series of large-scale reconstruction loans, often in the process having to overcome a degree of resistance from the City as a whole. One by this time had already taken place (to Czechoslovakia in April 1922); then came Austria in 1923 (the Bank itself issuing the £14 million loan); and the following year, with Norman having to strong-arm Rothschilds and Schröders into undertaking it, Hungary. Ultimately, as everyone knew, no country mattered more than Germany. ‘The black spot of Europe & the world continues to be on the Rhine,’ Norman declared to Strong after the Allied occupation of the Ruhr following the German failure to keep up reparations payments. ‘There you have all the conditions of war except that one side is unarmed. How
long can Germany continue thus?’ Then, however, came the great breakthrough of 1924. It began with the new president of the Reichsbank, Hjalmar Schacht, visiting London at the start of the year and being privately acclaimed by Norman as, he informed Clegg, ‘a Banker pure and simple with no public position, but financially a man of sound and up-to-date views in the sense you would understand them’; in due course there emerged the Dawes Plan for Germany’s reparations payments, crucial to which was the huge ‘Dawes Loan’ in October, of which some £10 million was taken by the London market, as cajoled by Norman. None of this, of course, was pure altruism on his part. After all, it was obvious enough that the Bank being a leading player in Europe’s financial reconstruction would in turn help to re-establish the City’s and sterling’s international position. But to suggest that that was Norman’s main motive would not only be cynical but also, almost certainly, mistaken.15

  Closer to home, these were the years when the Bank, above all through the person of Norman himself, began to exercise a far closer – and more continuous – control over the City than it had ever done before. From 1919 the chairmen of the main clearing banks not only met regularly with the governor but now stayed for luncheon, while the governor would also often summon them or their general managers to discuss those banks’ latest balance sheets; a close peacetime eye also started to be kept on the merchant banks, with the Bank from 1922 feeling compelled to carry Huths, one of the inner-City houses; even before Norman became governor, and well aware of the key role of the gilt-edged market (that is, in government stocks) following wartime’s tenfold increase in the national debt, Cokayne in early 1920 had instructed the firm that acted as government broker, Mullens, to strengthen its partnership and thus capital; soon afterwards, in relation to the money market, one of Norman’s first acts as governor was to implement his diary jotting, ‘See about weekly meeting with Ch’man of Discount Mkt’; and as for the capital market, at this stage a particularly important dimension in terms of the bigger economic picture, there was for most of the seven years after the war an informal embargo, largely exercised by Norman, on the issuing in London of foreign loans (excluding colonial and reconstruction loans) – an embargo reluctantly necessitated, in the governor’s mind, by the overriding need to bolster sterling and thus quicken the return to the gold standard.