Among the executive directors, meanwhile, were Harry Siepmann (1947–54), whose ‘interests narrowed’ and ‘attitudes hardened’, according to Fforde, after the 1947 convertibility trauma; Kenneth Peppiatt (1949–57), who had had a long run as chief cashier and was an expert on the gilt-edged and money markets, but (again in Fforde’s words) ‘would never have regarded himself as capable of arguing out a particular monetary policy in analytic terms with the university-educated mandarins in the Treasury’; Cyril Hawker (1954–62), who had made his name during wartime exchange control and was renowned (amid stiff Bank competition) for his love of cricket; and Maurice Parsons (1957–66), who was knowledgeable, a lay preacher (‘the parson’) and an imposing presence, but who in Fforde’s judgement found the post ‘probably a strain on his underlying capacity’, as confirmed by ‘his reluctance to work with more than a very few chosen lieutenants at any one time’. The weightiest – and most controversial – of the executive directors was undoubtedly George Bolton (1948–57, knighted in 1950). ‘He stood well over six feet tall, had reddish hair, bright blue eyes, a round and cheerful countenance, a deep seductive voice, and all the agility of an exchange dealer,’ notes Fforde. ‘It must,’ he adds, ‘have taken skill, courage, and a stern heart to stand up to him,’ especially relevant given that ‘Bolton’s judgement was at times erratic and over-influenced by his personal opinions.’ Norman had come to much the same view – ‘not balanced, but often a strange insight’ – while Hall at the Treasury reckoned him ‘essentially an operator’ who ‘takes snap decisions by instinct and finds any reasons that come into his head to justify them’. Hall would also note in 1952 that, after devaluation three years earlier, Bolton had ‘told several of my friends that the Bank had been in favour of it a long time and had wanted a floating rate’, whereas ‘both statements are exactly the opposite of the truth’.10 All in all, it would have been an interesting ride if this undeniable visionary, appreciably more aware than anyone else at the Bank of what was needed in order to restore London’s position as an international financial centre, had become governor in 1949.
At least half a dozen others were significant figures. Two were advisers to the governor: Lucius Thompson-McCausland (1949–65), an Anglo-Irish classical scholar who, remarks Fforde with evident scepticism, ‘had great confidence in his own intellectual powers, moved easily among senior Whitehall officials and economists, and regarded the exposition and indeed the further creation of monetary economics as within his capabilities’; and Maurice Allen (1954–64), a more trained economist whose ‘highly expectational, psychological, and non-quantitative approach to monetary economics’, including a conspicuous lack of interest in monetary aggregates, did not, asserts Fforde, ‘encourage the enlargement of the Bank’s statistical and economic services’. Two others were, in turn, chief cashier: Percy Beale (1949–55), of ‘outstanding technical ability’ according to Fforde, but arrogant, unpopular and in due course shunted out; and Leslie O’Brien (1955–62), who since the 1920s had worked his way up in the Bank but may have thought he had reached his ceiling, being informed by Cobbold on his appointment that it was the Court’s expectation that ‘he should have a long tenure of office, perhaps for the rest of his Bank career, while others may move elsewhere and possibly higher’.
The last two were Roy Bridge and Hilton Clarke, both in some sense representing the very soul of the Bank and for much of the decade in charge of the Dealing and Accounts Office and the Discount Office respectively. Bridge, who had entered the Bank in 1929, was the master of the foreign exchange scene, ironically enough a mastery that coincided with sterling’s long, unstoppable decline. An appreciative observer was the Fed’s Charles Coombs, writing on Bridge’s retirement in 1969:
He was a familiar figure at Basle, of course, the suave, imperturbable negotiator with the air of an experienced old cat quietly appraising an unwary mouse. Yet he rarely had an easy negotiating brief. But the style he chose, a devastating candour in analysing market developments and the issues at hand, saved precious time and avoided dangerous misunderstandings. More generally, his operational relationships with foreign central bankers were marked by an unswerving sense of integrity and fair play. We trusted him.
To some of his foreign central banking associates, Bridge probably appeared at his best on his home ground, when we happened to be in his office at moments of crisis in the foreign exchange markets. Then, we could watch the true professional, alert to all of the technical and psychological forces of the market, as he took decisions whether to hold a certain rate level, at possibly heavy cost, or to retreat and risk even heavier losses. Those were not easy judgements, but they were made decisively and courageously as he paced the floor between crackling telephone calls and snarling commentaries on whatever had brought things to such a pretty pass.
‘He was fluent in several foreign languages,’ added Coombs. ‘Yet there was no trace in him of the romantic internationalist. No one ever mistook Bridge for anything but a hard-shelled patriot, who thought of international co-operation strictly in terms of a visible overlapping of national interests.’ As for Hilton Clarke, who had joined the Bank just after his eighteenth birthday in 1927, an eventual obituary captured some of the salient qualities of a Bank man through and through:
As principal [of the Discount Office], Clarke was in effect the eyes and ears of the Governor of the day. In his disciplinary role, which he executed with wisdom and good humour, he was the personification of ‘the Governor’s eyebrows’. Clarke’s breadth of acquaintance and his ability to gather City intelligence were legendary. A master of the calculated indiscretion, he would appear to let slip confidential snippets while extracting information from his unwitting interlocutors.
Tall, dapper and resplendent in his silk hat, Clarke controlled the discount market by the force of his presence. His firmness was never resented. When a young bill broker asked for the customary seven-day loan to cover a cash shortage, Clarke replied that the Bank would make the loan for nine days at a punitive rate. When the supplicant protested, Clarke cut him short: ‘And it’ll be eleven days in a moment.’
Strong-minded, humorous, decidedly non-cerebral, and based in what was sometimes called ‘the window in the windowless wall’, Clarke was on just the right wavelength to use the most informal but assiduous of methods to uncover and assess the creditworthiness of the City’s most sensitive markets and houses.11
Taking Cobbold and his top team as a whole, there persisted through much of the 1950s a disinclination to open up to the outside world, epitomised by the blandly uninformative annual report and the infrequency of governor’s speeches. The high-profile economist Lionel Robbins, reviewing on the Third Programme in May 1957 Henry Clay’s biography of Norman, made a powerful point. After noting that Norman’s ‘almost aggressive parade of reticence and disguise’ had led to ‘ignorant people’ suspecting ‘all sorts of sinister implications which did not exist at all’, he called on the present-day Bank to ‘remember that, in a democratic age, the preservation of values and the creation of an informed public opinion demand not only intuition and devotion in action but also systematic reason and the frank explanation of policy as it evolves’. Another aspect of this introverted streak was the tendency to keep the Treasury at arm’s length (and indeed beyond) as much as possible. Cobbold paid regular visits to the permanent secretary, but the exasperation on Hall’s part was understandable when he declared in 1956 that ‘it is really almost unbelievable how little co-operation in economic policy we have had from the Bank of England over recent years’.
As for inside the Bank itself, and its capacity or otherwise to contribute to broader policy-making, it is impossible not to quote John Fforde’s overview of the institution he got to know soon afterwards:
Norman, it is reported, once opined that the Bank was a bank and not a study group. This adage was often repeated and much admired by many among the generation of officials at the top of the Bank in the forties and fifties. Correctly inter
preted, it meant that the Bank should never let its eyes wander from the market-place, whether that be foreign exchange, money, gilt-edged, or banking practice. Wrongly interpreted, it was taken to mean that systematic thought and exhaustive debate were somehow not required and that a wisdom acquired from market experience was an adequate substitute for rigorous analysis. Put these ingredients into a very hierarchical system of management, into a staff mostly lacking in university training, and into an informality of discussion on matters of policy that was confined to a very few at the top and there had to result a tendency to make things up as one went along; admirable in the management of markets or talking to accepting houses, inadvisable when preparing legislation.
Or in the words of Charles Goodhart (who himself got to know the Bank in the 1960s), on the basis of Fforde’s study of the Cobbold era, ‘a not entirely flattering picture emerges of a tiny group of intelligent officials without a clear strategic grasp of emerging wider politico-economic world trends, eschewing quantitative professional economic advice, and reacting to overwhelming pressures in an unfavourable context by reliance on technical, market virtuosity’. It was a culture with – for good as well as ill – very deep roots. In October 1948, after a year in Exchange Control, the young Stanley Payton entered the Overseas Office, where the work was a mixture of financial diplomacy and international economic intelligence. Having been assigned to the Commonwealth Group, where his superintendent was W. J. Jackson (immaculate suit, stiff white collar, showing Payton early on how to hold a cigarette in a way that would not be thought ‘vulgar’), his first job was to write a memorandum on the world production of rice:
I spent days of research in the files and the reference library and produced what I thought was a masterpiece. Jackson circulated it to a number of big names in the Bank and I thought my reputation was made. After some days it came back with only one comment: ‘Monkeys are a menace,’ written on the first page by R. N. Kershaw, the Economic Adviser. In the margin of the second page he had added ‘monkeys are a menace in India and Burma where they cause great depredation to crops’.12
The coming of Churchill’s government in October 1951 opened a new phase in Cobbold’s governorship. A quarter of a century on from the ill-fated return to gold, Churchill himself still did not feel any great warmth towards the Bank, but it helped that Cobbold’s mother-in-law was, in his words, ‘a life-long intimate friend of Sir Winston’s’ and ‘I was, therefore, regarded as a near-family friend.’ Indeed, Cobbold came to reckon of the prime minister’s Indian Summer that ‘without his support we should have got nowhere on the reintroduction of flexible monetary policy’. At the time, at the start of November, the governor spoke ‘secretly’ to the chairmen of the clearing banks on the understanding that what he said stayed in the room. ‘The pos-ition of sterling was very difficult,’ began his summary of the briefing he gave. ‘The whole question of monetary policy was under review with H.M.G. [His Majesty’s Government] …’ and ‘I was particularly anxious to get away from rigidities. If it proved possible to make any move on these lines it would be experimental and the machinery would be rusty. We should need a lot of help from the Clearing Banks …’ A week later, Bank rate rose from 2 to 2½ per cent – the first change since nationalisation, and with the new chancellor, Rab Butler, happy to accept Cobbold’s advice. By February 1952, with the balance of payments as well as the sterling position seemingly deteriorating quite quickly, Cobbold was pushing hard for a more substantial rise, to 4 per cent. Again, on 11 March, Butler obliged. Next day, though, the governor was reporting to him ‘a lot of sore heads’ in the City, with the sorest belonging to the discount market. There, back in November, the Bank’s broker (or special buyer), Lawrence Seccombe, had persuaded it to play its part in the so-called ‘forced funding’ operation. This had involved the take-up, under considerable moral pressure, of a mass of newly issued serial funding bonds; unfortunately, the sharp rise four months later led directly to substantial capital losses for all holders, including Seccombe’s own firm.13 So long absent from the scene, monetary policy – the Bank’s special domain – was poised to become increasingly controversial, outside as well as inside the City, as the decade went on.
On the external side, a significant moment was the reopening of the foreign exchange market in December 1951, symbolising a greater freedom for the City under the new government but prompting a sceptical take by ‘Sagittarius’ in the New Statesman:
The Old Lady has eased some restrictions
And opened the Foreign Exchange
And brokers base joyful predictions
On this timely, if overdue, change.
Spot cash for the forward transaction
The Bank will to bankers advance –
But the citizen sees no reaction
In the region of private finance.
The Old Lady is showing her mettle,
Resourceful, adroit and resolved,
And they say that the Market will settle,
Though the process is highly involved.
Return to our banking tradition
Our balance of payments will save –
But the balance of payments position
Remains, for the citizen, grave.
Unbeknown to poets and almost everyone else, a potentially far more dramatic development was brewing that winter on the external side, against a background of what may well have been exaggerated fears about the downwards trend in the sterling reserves. This was ‘Operation Robot’, taking its name from the three officials most closely associated with its formulation: Sir Leslie Rowan (Treasury), Bolton of the Bank, and ‘Otto’ Clarke (Treasury). In essence, it involved simultaneously making sterling convertible and floating the pound. Bolton, in his key memo of 16 February, made his pitch in typically bold terms, arguing that a fundamental choice existed ‘between allowing sterling to become a domestic currency involving the collapse of the international sterling system and the sterling area, or accepting convertibility of non-resident sterling, thus retaining sterling as an international currency’. Given which, he proposed that ‘the present policy of partial convertibility and partial inconvertibility should be replaced forthwith by a policy of comprehensive convertibility of all sterling in international use through the machinery of the exchange markets’. What Bolton did not do, however, was discuss the domestic implications – inevitably deflationary – of such a policy.
Very briefly, Robot appeared to have political legs. ‘C of E sold, PM interested and great hopes favourable decision,’ Bolton buoyantly noted on 20 February, after hearing Cobbold’s report on his dinner the previous evening with Churchill and Butler. Soon afterwards, on the 22nd, Churchill received a Bank deputation, headed by Cobbold, formally advocating the plan. According to Donald MacDougall, economic adviser to Lord Cherwell, the paymaster general, Churchill subsequently ‘reported that they were a fine, patriotic body of men, anxious to do what was right for the country’. But Cherwell himself – who was in reality Churchill’s personal economic adviser and had a distinctly low regard for the Bank – now took the lead in opposing Robot. ‘The view of the Bank,’ he wrote disparagingly to Butler on the 25th, ‘is that there is now such a drain on the reserves that they cannot be held on present policies, and that measures of the kind now proposed are inevitable. I have seen no evidence for this.’ The 28th and 29th saw the crucial Cabinet discussions. Churchill deep down was attracted to liberating the pound, but decisive opposition came from his heir apparent, Sir Anthony Eden. ‘The country are not ready,’ Eden told a colleague, ‘to cast away the whole effort of years and return to “Montagu Normanism” without a struggle.’ Despite brief and misleading flickers of life thereafter, Cherwell in mid-March put what was in effect the final nail in Robot’s coffin. In a brilliantly crafted memo to Churchill that anticipated appalling consequences – ‘an 8 per cent Bank Rate, 2 million unemployed and a 3/- loaf’ – if Robot was adopted, he took aim squarely:
Our fundamental problem is that the
Sterling Area is spending more than it is earning. We have to put that right by exporting more and importing less. No monetary tricks can overcome this hard fact …
It is at first sight an attractive idea to go back to the good old days before 1914 when the pound was convertible and strong and we never had dollar crises. No doubt the bankers honestly believe that, if only the pound could be left to market forces, with the Bank of England free to intervene when necessary by varying the Bank Rate at their discretion, all would be well. The country’s economy, they think, would be taken out of the hands of politicians and planners and handed over to financiers and bankers who alone understand these things …
Sterling, I repeat, cannot be made strong by financial manipulation. It is the real things that count – more steel mills in Britain, more ship loads of British manufactures crossing the Atlantic, more Australian farmers growing wheat and meat for England, more cotton plantations in the Colonies. That is the way to make sterling strong. It is a hard way and it will take time, but it is the only way.
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