12

The Dogs Bark

Despite the national humiliation of going off the gold standard in September 1931, only six years after the return to gold, Montagu Norman would remain as governor for the rest of the decade and indeed beyond. Later that autumn he successfully resisted a final threatened coup – ‘some of us,’ reflected Addis, ‘would like to see him retire, but I fancy he will get his own way in the end’ – by dint of verbally promising to depart in 1933, a promise carrying so little weight in subsequent practice that as early as July 1932 the Court formally told him that henceforth there would be ‘no restriction’ on his ‘length of service’. It is likely that Norman was being less disingenuous when in July 1936 he informed the Committee of Treasury of his wish to step down by 1938, prompting over the next twelve to fifteen months a serious search for a successor. Four possibilities were considered: one, W. H. Clegg, back at the Bank since 1932 after his stint in South Africa, decided in 1937 on health grounds to leave the Bank altogether; another, the merchant banker Charles Hambro, who had become a director in 1928, regretfully decided that he could not permanently detach himself from the family firm; a third, Sir Otto Niemeyer, was ruled out by Peacock on the basis that ‘the name would not be easily swallowed in several quarters’; and the last one, Lord Catto (formerly Thomas Catto), a highly regarded partner at Morgan Grenfell, was for the moment inadmissible because that merchant bank already had a presence on the Court in the person of Lord St Just (the former Teddy Grenfell). Hambro came nearest to replacing the seemingly irreplaceable, with the approach to him representing an attempt (in the words of Norman’s first proper biographer, Henry Clay) ‘to find a candidate who satisfied both the Governor, who wanted a “professional”, and the old gang on the Treasury Committee, who wanted a traditional-type merchant-banker’. Yet whether Hambro anyway had the stomach for it, quite apart from his other commitments, is another matter. ‘I am not fit to be Governor,’ he frankly admitted to Peacock even before the approach in September 1937, ‘because I loathe a row and have not the guts to see it through.’¹

Norman himself remained one of public life’s most distinctive figures. Geoffrey Madan – reluctant City man, but celebrated connoisseur of aperçus – described him travelling on the Central Line in 1932. The governor boarded at Bond Street ‘in a state of high tension’ and ‘lay back looking half strangled, as if fallen from a great height’; during the journey to Bank he ‘glared round with the queer look of a man swelling with laughter and longing to share it with someone else, or groaned aloud in pain’; and on arrival, after pausing ‘for a leisurely and mournful study of an advertisement on a wall’, he ‘strode on and mounted the escalator, alone, like the bridge of a ship, striking a glorious pose – portrait of an admiral in China seas’, reminding Madan of ‘the Treasury saying, that the Bank of England acts like a commander in the days before strategy was thought of’. For Norman the man, the major event of the decade was his marriage in January 1933, at the age of sixty-one, to the thirty-three-year-old Priscilla Worsthorne. ‘He wore a check scarf flung carelessly around his neck,’ reported a London evening paper about the ceremony at Chelsea Registry Office, ‘and the black trilby hat that has become familiar with him.’ It seems to have been a happy marriage, and before long featured a touching moment engineered by his colleagues:

On the appointed day [his widow would recall after his death] I was driven to the Bank by our chauffeur, Tom, in the white-topped Ford Lincoln and ushered into the Governor’s room. This had two doors, one leading into the passage and the other into the Court Room. I was alone for what seemed a long time. Suddenly I panicked and I had a feeling that this episode might ruin my marriage. I was making for the exit door when the other one opened and Mont came in alone. He stopped and said, ‘What the devil are you doing here?’ My heart missed a beat! The Deputy [Sir Ernest Harvey] was close behind him and said ‘Mr Governor, I am responsible for this. Your colleagues want to be introduced to Mrs Governor.’ He took me kindly by the arm and led me into the room to meet the Directors, who were all standing in a circle. Mont then took me by the hand and introduced me to each one, giving an amusing thumb sketch of each. I remember one rather aged director bursting into tears. Of course this set me off, and Mont too had tears pouring down his cheeks! Looking back, it was an extraordinary emotional scene and one that only Mont’s personality could have evoked. Like me, the directors were all a little apprehensive, wondering if they had been wise to take this secret step. However, the ice was broken and I had got into the Old Lady’s parlour. I was offered a glass of sherry and then courteously despatched home. I returned to a lonely lunch but felt very happy, although overwhelmed by the ordeal …

Marriage only partially softened Norman. ‘I find it’s difficult to take my mind off work,’ Harvey in the mid-1930s confessed to a Treasury acquaintance as he recuperated from a nervous breakdown. ‘Even in my dreams I can’t seem to escape from the Governor’s eternal harangues.’ And in Norman’s desk diary, crisply summarising his interviews with the daily stream of visitors, the tone was still laconic, sometimes sardonic. ‘P. A. Carmine: as he asked in Letter of 24^th,’ he jotted down one fairly typical day in May 1934. ‘Swiss natural^d 1912. Disc^t and, post-war Exch Broker. Business gone: misery come: starvation coming.’²

Significant institutional change – and load-sharing – was meanwhile happening around Norman. If the mid- to late 1920s had seen the emergence of the specialist adviser, the early to mid-1930s saw the arrival of the full-time executive director. The immediate catalyst was the Peacock Committee of 1931–2, a forum for the old guard on the Court to have their full and uninhibited say for perhaps the last time:

If whole-time Directors were appointed the management of the Bank would largely fall into their hands and the power of the Court and of the Committee of Treasury would to a great extent disappear. (Arthur Whitworth)

The Public, or at least the City Public, much prefer to have City Merchants or Business men of experience rather than expert Financiers or Theoretical Economists. They have much more confidence in the former and I have already heard several complaints of appointments lately. (Colonel Lionel Hanbury)

The whole question of the Direction [that is, the composition of the Court] of the Bank is, in my view, bound up with the maintenance of its historical link with the City. I think it imperative that this link should be maintained, and that if it is weakened or broken the Bank will lose the confidence of business men, and will more or less rapidly become a Government institution, apt to run in a rut and deprived of the prestige and confidence which it now enjoys. This aspect of the matter appears to me so important that I should be prepared to sacrifice a certain amount of abstract technical efficiency rather than weaken the position referred to. (The Hon Alexander Shaw)

It does not follow because an Expert is well versed in the details of finance that he is therefore equipped with the width of outlook and the diversified experience required in determining a sound financial policy. In reality, it is the contrary which is more commonly met with … There is often to be found in business men a native shrewdness of judgment, a natural instinct for affairs, almost a sensory touch of market conditions, qualities in fact which are none the less valuable because they are partly inarticulate and should not, therefore, on that account be outweighed by mere expertise. (Sir Charles Addis)

Inevitably Frank Tiarks disagreed – ‘the Bank should be re-organised on lines similar to those of many important undertakings at home and abroad with a certain number of ordinary Directors selected as at present and, say, six or seven permanent whole-time working Directors, who would each have his special Department, for which he would be directly responsible to the Governors’ – but so too, crucially, did Norman. His oral evidence advocated the introduction of ‘executive Directors’ who would ‘devote their whole time to highly-paid work for the Bank’; they would be ‘experts’, with ‘the majority’ having had ‘outside experience’, including ‘at least one to deal with the Industrial questions’; and ‘these executive Directors would undertake much of the work now performed by the Governors who would then be free to devote their time to constructive thought’.

Peacock’s eventual report came down cautiously on Norman’s side, successfully recommending the appointment of initially only two executive directors, on the grounds that ‘a considerable number of Executive Directors giving their whole time to the affairs of the Bank would tend to reduce the influence of the other Members of the Court and to diminish living contact with the commerce and trade of the Country’. Even so, with the appointment of Clegg and Hambro as the first two, the key principle was now established, and over the rest of the decade several more executive directors were appointed. The Evening Standard in May 1939 profiled three of them:

Sir Otto Niemeyer is 56 years old, with a rugged demeanour, an untidy boyish appearance and a breeziness of manner which conceals an icy clearness of vision and the effortless superiority of a Balliol scholar. Foreign statesmen have been seen to quail beneath the bluffness of his questioning, and it is said that a distinguished Rumanian was once found weeping after an interview with him.

Mr Edward Holland-Martin is 39 years old and is known to his friends as Ruby, a name which he inherited, together with his red hair, from Mr G. E. Martin, whose initials spelled Gem, and who first acquired the nickname. Apart from banking his greatest interest is horses. He is a fearless rider and has several times ridden round the National course at Aintree in the Foxhunters’ Steeplechase.

Mr Cameron Cobbold is known as Kim, has a fresh complexion, a boyish demeanour, and a beautiful wife, Lady Hermione Cobbold, who is a daughter of Lord Lytton.

The last, still in his thirties, was very much a Norman protégé and had come up on the international side, particularly in relation to Italy. ‘Cobbold was a staunch traditionalist and faced the future as a complete and unrepentant pragmatist, determined to salvage as much of the past as he could.’ The retrospective verdict belonged to George Bolton, another rising star and blessed with a particularly powerful mind, but born on the wrong side of the tracks. It was probably not too difficult in the late 1930s to guess which of the two would rise the higher.

In general, looked at from the top, the Bank was becoming in the 1930s a significantly more sophisticated institution – an institution in which the importance of the Court, and probably also the Committee of Treasury, was diminishing, as key decisions and business were undertaken by what has been called ‘an entourage or Cabinet’ of some fifteen or twenty generally youngish, well-qualified people, operating mainly on the international side and reporting directly to Norman. One should not exaggerate the modernity of it all. Norman’s own belief in the primacy of instinct, his dislike of theory and an at times almost mystical belief in the wisdom of the City’s markets all remained strong, influencing not only the circle immediately around him but even subsequent generations at the Bank. ‘The Economics Section’, the executive director Basil Catterns told a former colleague in 1935, ‘tell me that they are very happy; much used by Henry Clay and myself, not to mention Siepmann and Skinner; but I am told that the Governor has not yet heard of it!’ Or, as Norman himself had, two years earlier, famously informed his eventual biographer: ‘Mr Clay, we have appointed you as our economic adviser; let me tell you that you are not here to tell us what to do, but to explain to us why we have done it.’³

Going off gold was one of those watershed moments. In Norman’s eyes, the City (and perhaps even the Bank) could never be quite the same again, while he also became ever more aware that the moment marked a decisive shift in the already increasingly unfavourable (from the Bank’s point of view) Bank/Treasury relationship. Back in 1926 he had told a royal commission that, though he looked upon the Bank as ‘having the unique right to offer advice and to press such advice even to the point of “nagging”’, that advice was ‘always of course subject to the supreme authority of Government’; but in 1937, even as he continued to insist on as high a degree as possible of operational autonomy for the Bank, he would unambiguously state to the governors of the Empire’s central banks that ‘I am an instrument of the Treasury.’ What about post-1931 policy? In November 1931, at a board meeting in Basle of the Bank for International Settlements, the BIS’s Per Jacobsson asked him if, two months after going off gold, he had a ‘plan’ for sterling’s rehabilitation:

Norman: No, I have no plan.

Jacobsson: But isn’t that terrible, considering that not only Great Britain but the whole world economy is affected by the movements of sterling? And now you tell me you don’t know what to do!

Norman: I didn’t say that I don’t know what to do. In fact, I have made a list of some twelve points, and there is a great deal that I want to have done with regard to each of them; I can only hope that if there is some improvement under each of these heads there will also be some considerable improvement in the position as a whole.

Yet incrementalism only went so far, and often for Norman at this difficult time it was a case of looking through a glass darkly. ‘The difficulties are so vast, the forces so unlimited, so novel, and precedents are so lacking, that I approach this whole subject not only in ignorance, but in humility,’ he would admit in frankly confessional mode in October 1932 at the lord mayor’s annual Mansion House banquet for bankers and merchants. And he went on: ‘It is too great for me – I will admit for the moment the way, to me, is not clear.’⁴

In fact, and far from entirely to Norman’s liking, there had taken place by that autumn a major reshaping of British economic and monetary policy. What one might call the 1932 settlement had four main pillars. The first was protection, with the new chancellor, Neville Chamberlain, announcing in February a 10 per cent general tariff, while six months later the Imperial Conference held at Ottawa saw a system of imperial preference formally agreed. The City was broadly happy, but Norman himself remained an unabashed free trader. Pillar two was the creation in April 1932 of the Exchange Equalisation Account: essentially, the Treasury’s mechanism for the management of sterling and avoidance of undue fluctuations in the value of the currency – a mechanism that in effect not only made the Bank the Treasury’s agent in the foreign exchange market (acquiring foreign currency from British banks in return for Treasury bills), but more or less killed off Norman’s fond hopes of a return to the gold standard. The third pillar was less clear-cut, being the emergence in the course of the year of a de facto sterling area – conducting its external transactions in sterling as well as holding its external reserves in sterling – that comprised most of the British Empire as well as the Baltic States, Egypt, Iraq and Argentina. Initially reluctant to accept the concept, presumably viewing it as a rival to the gold standard, Norman eventually came to see its potential for helping to restore the City’s international position. Finally, there was cheap money, now possible after those years of adherence to the gold standard necessitating high interest rates. Bank rate started 1932 at 6 per cent, but by the end of June – with the Treasury driving the policy – was down to 2 per cent. What degree of reluctance Norman felt as he implemented this policy, regarded by the Treasury as vital to the revival of trade, is frustratingly hard to gauge from the sources.⁵

Probably more to his taste, directly involving him from an early stage of the negotiations and enabling one of the great Bank set-pieces, was the massive and challenging exercise that followed in July, by which the bonds of the giant War Loan of 1917 (comprising some 40 per cent of all quoted government securities) were successfully converted from a 5 per cent basis to 3½ per cent, thereby producing lower long-term interest rates to complement the lower Bank rate.⁶ Richard Sayers would memorably write of how the episode revealed the Bank’s ‘determined exercise of all the power derived from its position in financial markets, the extent and the limits of its persuasion in informal contacts in the City, its quick adaptability in the face of unforeseen technical problems and – perhaps for the last time in its history – the fewness of the men who participated in the discussions and took the crucial decisions’. Not everyone, despite the press’s loud beating of the patriotic drum, played the game; and although Norman managed to lean on the discount market to convert its share, he was compelled by Reginald McKenna’s obstinacy at Midland Bank to buy £25 million out of Midland’s £30 million holding of the stock. For the Bank’s footsoldiers, these were days, nights and weeks of intense and continuous strain, as they coped with a veritable mountain of clerical tasks. ‘L stands for Late-work, horrid and chill’ ran part of ‘The Conversion Alphabet’ published in the next (understandably delayed) issue of the Old Lady, and Norman was doubtless pleased to circulate the grateful message he received from Chamberlain: ‘Long hours of work and much personal inconvenience also were demanded from the staff in all ranks, and I learn with satisfaction that all concerned bore these discomforts cheerfully and threw themselves heart and soul into their work, in a manner worthy of the highest traditions of the Bank.’⁷

In general, the City’s Pope still largely – if for the most part informally – ruled the roost in the square mile.⁸ In relation to the Stock Exchange, Norman’s central concern was naturally the gilt-edged market, an informal patronage vindicated as well as demonstrated by his adroit handling of the leading gilt jobbers and brokers during the conversion operation. ‘Long talk,’ he noted in 1932 after he had in effect cross-examined a possible future partner, Ted Cripps, at the government brokers Mullens. ‘Satisfactory in all ways, e.g. manner, ideas, Natl Service capacity – but? health.’ He also kept a close eye on the institution as a whole, for instance in 1934 giving it a steer to open on Saturdays (‘their monopoly sh^d be exercised in interests of the Public – or their historic freedom may come to be lost’), as well as continuing to be particularly watchful about the flotation of foreign loans, largely discouraged by the Treasury. ‘As regards your Turkish proposal, I think from your angle it is little less than silly,’ he curtly informed none other than Charles Hambro that same year. ‘There is nothing to be said in favour of the Turks; they have nothing to do with you; and if they need financing for orders they place here it is up to the Government and not to the City.’ There were other areas of the Bank’s sway during the 1930s. Norman resisted as far as possible, though not always successfully, the spread of speculative forward dealings in the foreign exchange and gold markets, while Bolton in particular did much to clean up the former market and make it better regulated; on the discount market, the governor still kept the closest possible tabs through his Thursday-afternoon tea-parties for the market’s representatives, as well as brokering a trio of gentlemen’s agreements between the clearing banks and the discount houses to ensure that the market was running at at least a modest profit; the clearing bankers themselves (even McKenna as the decade went on) were now markedly more susceptible to Norman’s mix of charm and forcefulness, perhaps reflecting their own sense of having permanently ‘arrived’ on the London financial scene; and as for the merchant banks, traditionally so resentful of the provincial upstart clearers, they were in no position, as much of the City’s foreign business almost dried up, to argue the toss, with Norman insisting – as the quid pro quo for the members of the Accepting Houses Committee (formed in 1914) receiving from the Bank the finest rediscounting terms – on regular sight of their balance sheets. The governor even poked his nose into the commodity markets. The pepper scandal of 1935 was a complicated and colourful story, involving a corner that failed (because the fact that black pepper was capable of being processed into white was carelessly overlooked), an embarrassing exposure for Midland, and the prospect of many of Mincing Lane’s brokers and traders being ruined. At which point Norman stepped in decisively, twisting the bankers’ arms to make the necessary advances to key firms and enabling the formation of a pepper pool, which over the next six years disposed of over 20,000 tons of pepper. The main villain of the whole piece was one John Howeson, a middle-aged financier. In 1936, not long after he had been sent to prison for publishing a false prospectus, the question arose of what he should do when he came out. ‘Go far East, or far West,’ responded Norman. ‘Never show his nose in London: he can & sh^dhave no moral standing & is not welcome here, ever.’⁹

The Bank’s ability to make the weather – or at the least get out the umbrellas – was altogether more limited in its continuing industrial role. ‘The more I look at this L.C.C. [Lancashire Cotton Corporation],’ observed Norman in 1932, ‘the more do I believe in the rightness of its origin and purpose and in the difficulty of its future!’ It was a fair call. Even though the Bank that year, in tandem with Barings, successfully shook up the LCC’s management, and in due course its financial performance picked up, the necessary scrapping of some ten million surplus spindles did not get very far, with on the one hand the banks professing to lack the means to drive through amalgamations in the cotton industry’s spinning section, on the other Norman baulking at statutory compulsion, in his eyes a wholly unacceptable solution striking at the very roots of private enterprise. The other main industry of Bank involvement was steel, where several times in the course of the decade it dipped into its own pockets, including major infusions of capital into new works at Corby, Jarrow, Ebbw Vale and Shotton, but was generally unwilling to assume the responsibility for rigorous, co-ordinated restructuring. There were some other industrial initiatives during these years – notably the creation in 1936 of the Special Areas Reconstruction Association (SARA) that made some, albeit not huge, progress in granting medium-term credits to industries in the most depressed areas of Britain – but by 1939 there was on the part of the Committee of Treasury an almost valedictory tone in discussions about this distinctive phase of the Bank’s history:

Walter Whigham: Position of control which the Bank has had to assume is dangerous: renders them still more vulnerable to attacks from the ‘Left’. City would assist sound concerns; if unsound, better that they should crash and reorganise. Each industry should work out its own salvation. Present tendency is to bolster up bad management.

Peacock: Consider B.I.D. [Bankers Industrial Development Company] as carried on for some time useful, but disturbed at its becoming more and more a Nursing Home … Any company in good order able to obtain its finance from City.

Norman: Speaking broadly, the Bank’s policy over the past years has proved to be a right one. Companies necessary in the public interest have been saved from extinction and Government intervention has been avoided.¹⁰

So it had, but it was arguably an achievement of only limited relevance in the larger economic context.

That context was of course mixed. ‘We seem to see in this country,’ Norman wrote in December 1933 to a correspondent in Siam, ‘the beginnings of a recovery which, though it may be precarious, is real.’ In truth, the recovery would be profoundly patchy in this decade of the Jarrow March: real enough in some parts of the country, invisible in others, as mass unemployment came down only with painful slowness. Undoubtedly cheap money – with Bank rate held at 2 per cent from June 1932 to August 1939 – made a positive difference, especially in stimulating the housing sector; but this remained very much the Treasury’s policy, with Norman periodically warning in vain about the inflationary and speculative consequences of excessively easy money. Either way, however, monetary policy was no longer at the centre of economic debate or policy-making. Instead, the focus, whether hostile or favourable, was now much more on Keynesian doctrines. Addressing in 1933 (three years before his path-breaking General Theory) what he termed ‘the control of the business cycle’, Keynes insisted that ‘circumstances can arise, and have recently arisen, when neither control of the short-rate of interest nor control of the long-rate will be effective, with the result that direct stimulation of investment by government is a necessary means’. For its part, the National government, and Chamberlain in particular, continued to follow – cheap money notwithstanding – its essentially orthodox and deflationary approach to macro-economic policy, with balanced budgets at its heart. Norman naturally applauded – and came down hard on deviants within his orbit of influence. ‘Our troubles & embarrass^t from time to time by his writings & speeches in opposition to Chancellor’s policy,’ he noted in January 1934 after giving a dressing-down to Sir Basil Blackett, a Treasury man who had become a Bank director and was the author of a recent treatise called Planned Money. ‘Bk & all members of Court,’ added Norman, ‘sh^d support in public tho’ they may urge & nag in private.’ The most emblematic issue was public works, which saw the governor non-committal (at least in public) even as some of his advisers, including Clay, were supportive; towards the New Deal and its architect, he was distinctly hostile, observing that Roosevelt reminded him of no one so much as Lloyd George (not a compliment in Norman’s book) – while the American politician came up with ‘Old Pink Whiskers’ as his unflattering epithet for the governor.¹¹

Against a largely discouraging and increasingly autarchic backdrop, Norman remained in the 1930s a convinced if pessimistic internationalist. ‘No stability’, ‘no international trade’, ‘econ. Nationalism’: such were some of his jotted-down headings in 1933; as for the future, his stark heading was ‘Hang together or hang separately’. Almost certainly his favourite part of the job became the regular gatherings of central bankers at the Bank for International Settlements in Basle; but as BIS’s historian, Gianni Toniolo, points out, in practice it acted during these difficult years of fast-diminishing central bank independence and power as a locus less for ‘actual co-operation’ than for ‘the exchange of information and opinions’. That the world had fundamentally changed for central bankers was graphically demonstrated in the summer of 1933 by the failure of the World Economic Conference in London. The assembled bankers may have hoped to reach a temporary agreement to stabilise the main currencies; but those hopes were brutally nullified when a message arrived from Roosevelt (who a few months earlier had taken the dollar off the gold standard in an attempt to end deflation) declaring that ‘the old fetishes of so-called international bankers are being replaced by efforts to plan national currencies with the objective of giving those currencies a continuing purchasing power’. It would, in effect, be each currency for itself – with conclusively no going back to the pre-1914 international gold standard. Over the next few years, foreign exchange and gold markets became increasingly turbulent, until the reaching in September 1936 of the Tripartite Agreement, a stabilisation accord between London, Paris and Washington. Bolton would recall it as ‘the first sign of monetary sanity’, as something that, ‘like a candle in a window, threw a flickering light on the gloomy scene of international monetary and political convulsions’; yet not only would those convulsions far from go away, but, specifically from the Bank’s perspective and notwithstanding Cobbold’s significant contribution to the negotiations, the sobering fact was that the agreement as a whole was largely the work of the treasury representatives of the respective countries.

A major consolation – if occasional headache – was the Commonwealth and, associated with it, the sterling area. Contact was regular and continuous: during 1936 some 2,230 cables of a routine nature passed between the Bank and the five ‘Empire central banks’; the following year, coinciding with George VI’s Coronation, Norman assembled the leading central bankers of the Dominions at an Imperial Conference. A prime example of the governor spreading the gospel was India: there, the Reserve Bank of India opened in 1935 very much under the Bank’s auspices, with relations close thereafter. China, of course, was not in the Commonwealth, but Norman put considerable effort, prior to the Japanese invasion of 1937, into ensuring a series of sterling loans to it, in the belief that this would strengthen China’s position within the sterling area and thereby reduce the spread of American financial influence. It was a particular disappointment to the governor in these years that Canada preferred to stay out of the sterling area. ‘Are we to have a Norman Conquest of Canada?’ asked one prairie politician, and overall Canada remained in the American financial orbit.

More generally, in terms of the world at large, the newly established Overseas and Foreign Department began to put fingers in more pies than the Bank had ever done before. Take the experiences of one of its young men, Gordon Richdale. In 1934 he was sent on a mission to El Salvador to sort out that country’s banking problems, a mission that featured a hurricane so devastating that he and his colleague were cut off from the outside world for six weeks; two years later, just prior to the Spanish Civil War, he spent a long time in Madrid helping the Bank of Spain implement a recent trade and payments agreement concerning British exporters; then came Bucharest, negotiating a similar agreement with the Romanian government, followed in 1937 by a mission to Rome seeking to reopen normal trade channels in the wake of the Abyssinian war; and in 1938 he and Humphrey Mynors were in Salisbury, drafting the constitution of the Rhodesian Currency Board, subsequently converted into the Bank of Rhodesia and Nyasaland. On his return to London, he would recall many years later of the Rome mission, ‘I was awarded a special bonus by the Bank in recognition of my services – as far as I know the only time it had ever done such a thing.’¹²

One country dominated the international scene: Germany. ‘I believe the interests of the B.I.S., the Reichsbank and the Bank of England to be identical,’ Norman informed a fellow central banker in September 1933, adding that ‘I do not think any of them should act without the others …’ Germany, the country whose fortunes he had done so much to try to rebuild during his early years as governor, remained in his eyes the symbol, and to a significant degree the substance, of economic internationalism, if that creed was to have any meaning. It is undeniable that for much of the decade this blinded Norman to the reality of Nazism. ‘A Hitlerite,’ he claimed in early 1934, was someone who ‘accepts private initiative subject to public advantage’; and later that year, on a visit to New York, he spoke frankly to a Morgans partner, who summarised his thoughts: ‘Monty says that Hitler and Schacht are the bulwarks of civilisation in Germany and the only friends we have. They are fighting the war of our system of society against communism. If they fail, communism will follow in Germany, and anything may follow in Europe.’ As ever, all hopes were pinned on Schacht, minister of economics from 1934 as well as president of the Reichsbank; and underlying everything was an understandable hope-cum-conviction that the world could not be so foolish – so economically irrational – as to plunge into another catastrophic conflict so soon after the last one. A revealing moment occurred in April 1935, as a BIS meeting in Basle coincided with Anglo-French (and indeed Italian) condemnation of Germany’s repudiation of her Treaty of Versailles obligations. ‘There was,’ Norman confided in Addis on his return, ‘only one subject of conversation from Boulogne back to Calais … which seemed in everyone’s thoughts – war, war, when, where, how. And practically today all due to Nerves: at least I believe it to be as remote as the Millennium. And so does Schacht …’

By 1936, the year of Hitler’s occupation of the Rhineland in defiance of Versailles, Norman’s pro-German approach was operating under certain external constraints – political opposition preventing him from either pushing hard for Germany to become a member of the sterling bloc or backing credits and advances to German borrowers beyond existing agreements – but the stance itself remained essentially unchanged. In March 1937 the Old Lady published without comment a six-page article by Dr Hermann Willke, editor of the Staatsbank, the Reichsbank’s equivalent house magazine. ‘The feature of the leisure of the German official is his work for his people and for his State,’ began his peroration on the final page:

If he would be worthy to receive his bread from this State he may not merely passively allow things to happen of themselves; he must actively collaborate in building up the nation. Not only employers and employed but also the whole body of German officials accept the view of this necessity, and every section competes with every other in the model fulfilment of its duty. For it is not compulsion that determines the conduct of the individual but his own free will from which alone the great deeds, which are necessary for the material and spiritual liberation of the German, can be born. So long as we still have to endure bitter anxiety for our daily existence we cannot think of the light-hearted leisure hours spent by the official of the Bank of England. It is our firm conviction that our people, working indefatigably to this end, and with them the officials of the Reichsbank, will also reach the happy position of our professional colleagues on the other side of the Channel. The plans announced by our Leader at the Reich Party meeting for the development of German resources and for the improvement of the living conditions of the German people are colossal tasks, especially for the officials of the German Reichsbank.

‘This man has, however, led Germany from hope to faith,’ concluded Willke, ‘and this faith will also cause foreign countries to recognise that Germany desires nothing more than to do her work in tranquillity as an equal among the nations of Europe and thereby to serve the peace of the world.’

Importantly, there was a limit to Norman’s wishful thinking about Anglo-German financial and economic co-operation, mainly through the good offices of Schacht, and an eventual return to something like the pre-1914 world they had grown up in. A significant, very hush-hush development was under way from autumn 1936, with the authoritative inside account coming from Bolton:

The Governor, for reasons never revealed, let it be known to Siepmann, Catterns, Cobbold and Edward (Ruby) Holland-Martin that a war book might be prepared but that he was not to be officially informed or consulted. There was a very precise understanding that this was to be an entirely normal Bank precaution against an emergency never likely to happen: moreover, the circle in the know was to be the smallest possible, no secretaries were to be used and we must make doubly sure that nothing leaked to the Press, to Whitehall and especially not to Ministers. Siepmann and I had a series of discussions on strategy and tactics but conclusions were hampered by his conviction that no one could cater for chaos …

In consequence, Cyril Hawker and I talked about the possibilities and, despite his personal revulsion against any idea that his hockey-playing friends in Bonn University would support or even welcome a Second World War, we began to hammer out a series of ideas to deal with the problems of financing our imports of basic necessities in time of war …

After weeks of laboured consideration, Hawker and I decided to recommend a total mobilisation of resources, without any consideration of the rights of the individual, and comprehensive exchange control with the aim of conserving for as long as possible our exiguous foreign exchange purchasing power. The consequential interference with private business and financial life raised problems of great magnitude; although our self-imposed terms of reference appeared superficially to concern, say, the foreign exchange market, overseas finance, commodity markets, gold, portfolio investment etc., the execution of our projected measures would require official interference with practically every aspect of personal and institutional activity. But we plunged ahead undeterred …

By June 1937 a lengthy memorandum on ‘War Measures’ had been prepared, followed towards the end of the year by a rough draft of an Exchange Control Act.¹³ Norman himself, for all his day-to-day distance from this secretive process, remembered all too well the financial chaos of August 1914, and he was determined to avoid a repeat if the worst happened.

The worst nearly did during the Czech crisis of September 1938. Norman missed it, convalescing after a bad attack of shingles during the summer (a summer that featured the first practice air-raid alarm sirens sounding at the Bank); but shortly before the crisis broke he assured the South African statesman General Jan Smuts of his support for the appeasement policy of Neville Chamberlain, describing the prime minister as ‘not being deluded like an ostrich but rather in his wisdom has been facing facts and, in spite of what may be thought of the autarchic rulers, trying bravely to reach a solution with them on all outstanding questions’. For those at the sharp end in the Bank, it was a crisis to remember. ‘Mr Bolton called [by phone] at 9.30 [US time] this morning,’ noted Bolton’s counterpart at the Fed in New York on 24 September, after news that Chamberlain’s talks with Hitler at Bad Godesberg had failed. ‘It had taken them nearly half an hour to get the market under control and altogether they had had to sell $35,000,000 … There had been such a tremendous demand for dollars at times that all sorts of rates had been quoted. Selling had been of a panick stricken nature and had originated everywhere but particularly in Switzerland.’ Eventually, of course, Munich and peace for our time saved the day; and by early November Norman was informing the British ambassador in Berlin of his intention to go there in a godfather capacity for the christening of Schacht’s grandson, arguing that ‘the more the intercourse between London and Berlin the better’. At the start of 1939 he duly paid his visit, against the wishes of the Foreign Office and failing, despite catching the Dover train from Cannon Street rather than Victoria, to escape the attentions of the press. On his return, unrepentant, he reported to the Foreign Office. ‘He was not optimistic,’ recorded the official there, ‘about the possibility of finding a solution to the European question; but he does not believe in the likelihood of war this year.’ As usual, he emphasised the importance of Schacht as a moderating influence; but later in January Norman’s friend received the order of the boot from his Nazi masters. Not long afterwards, the governor penned a private tribute to Schacht – ‘a good German but a true internationalist, who wishes to increase world trade, to pay debts, to get rid of exchange restrictions, to be decent to the Jews’. That last point of praise was especially noteworthy, given Norman’s undeniable streak of anti-Semitism. And Norman added that he looked upon Schacht as ‘the sane man among a party of dangerous totalitarians’.

Norman himself obdurately continued to hope for the best – ‘War not inevitable at all,’ he told Joseph Kennedy at the American Embassy in February – but Hitler’s annexation the following month of what remained of Czechoslovakia was a bad blow, stiffening even Chamberlain. Norman too, perhaps still more so, now shed his illusions. In early June the passionately pro-Hitler Duke of Buccleuch asked the governor to call on him at Grosvenor Gardens. ‘I reserve my opinion, contrary to his, that Hitler and Co are liars,’ was Norman’s summary of the conversation. And in terms of war preparations, the Bank by this summer was at full stretch, including shipping to Canada a huge amount of both its gold and that belonging to customer central banks. ‘We took enormous risks,’ remembered Bolton, ‘and when the war actually began we had about £500,000,000 of gold afloat in ships of 5,000 tons upwards.’ Other aspects of preparation involved, with the Bank working closely with the clearing banks, the detailed establishment of the appropriate machinery for exchange control; ensuring that the clearing system (to be transferred to Trentham Park in Staffordshire) would work smoothly; and a thousand and one other matters.

On 26 August, Norman wrote to the Home Secretary, enclosing a letter from H. Lipschutz and requesting his naturalisation: ‘There is no doubt in my mind that Mr Lipschutz is an uncommon good oculist: he was put on to me by another non-Aryan – a Doctor – and probably saved the sight of an eye.’ It was too late. On 2 September, the day after Germany’s invasion of Poland, Norman had no alternative but to break the news to Lipschutz himself. ‘I have to admit,’ ended his regretful, dot-filled letter, ‘that there is nothing I can now do towards giving effect to your suggestions. And, while I have been searching, the sands of peace have been running out … so that there is no more for me to say … except to wish you well.’ Next morning, Britain’s ultimatum to Germany expired and Chamberlain gravely spoke on the wireless. ‘From now on,’ a mordant Norman announced to his secretary during that lovely sunlit Sunday, ‘we shall be simply rubber stamps.’¹⁴

The severe economic depression generally of the early 1930s, and specifically the profound political fall-out from the 1931 financial crisis, had impacted in a major, long-lasting way – transcending matters of war and peace – on external perceptions of the Bank. The tone of the debates in the Commons in February 1933 – in the context of the Austrian Loan Guarantee Bill that in effect involved the British government making it financially possible for Austria to repay to the Bank what it had urgently and unilaterally lent following Credit Anstalt’s failure – would have been hardly thinkable a decade earlier. Strong criticism came from MPs sitting on both sides of the House. Rhys Davies condemned ‘a sordid international financial transaction’; George Lambert did not see why ‘my [Sheffield] constituents, many of them struggling men, should be called upon to pay Income Tax in order to buttress the dividends of the stockholders of the Bank of England’; Sir Stafford Cripps reckoned of the £4½ million now going to Austria that ‘the country will never get it back again until they nationalise the Bank of England and get it in that way’, adding darkly that ‘whether this item will then be traceable in the accounts, it is impossible to say’; Brendan Bracken, friend of Churchill and dominant figure at the Financial News, called it ‘practically a Bank of England Relief Bill’, observing that ‘we are always being told by the Government that they cannot afford a penny to get rid of our suppurating slums, or for any sort of social service, but they are quite willing to march forth with £4,500,000 to help the Bank of England’; and Sir William Davison wanted ‘a change in some of the governors of the Bank’, declaring it ‘high time’ that the Bank ‘stopped putting up its hands to shield itself from the camera of criticism, saying, “We are sacrosanct – you must not ask us any questions”’. Some of the most memorable invective came from the future creator of the National Health Service:

Austria was in danger of defaulting [in the early summer of 1931]. The Bank of England, closely associated with the City of London, closely associated with the people who had lent money to Austria, saw the difficulty, and they did what they always have done – they rushed to their friends in the City and said: ‘We cannot allow Austria to default, otherwise all the people who have been lending money to Austria will lose their money.’ Therefore, the Bank of England stepped in to support the credit of Austria for the purpose of supporting their friends in London. That is perfectly proper for the government of the Bank of England to do. They have always done it. They have only been international buccaneers.

As for the present proposed arrangement, Aneurin Bevan vainly asked the financial secretary, Leslie Hore-Belisha, ‘to take the House into his confidence and to tell us why we are asked to raise this money to reimburse the Bank of England’. ‘Is it’, wondered the eloquent Welshman, ‘as a wedding present to the Governor?’¹⁵

Such parliamentary criticisms coincided with the publication of J. R. Jarvie’s The Old Lady Unveiled, a serious if hostile prosopographical examination of the Court. ‘The Bank of England is dominated by men whose interests are not primarily British but international,’ contended Jarvie. ‘Their main occupations are the financing of foreign states and distant enterprises and the earning of profits from monetary transactions which may easily be, and indeed often are, inimical to the economic health of our country.’ He also attacked the Bank’s lack of accountability:

The essential facts concerning the Bank are impenetrably veiled. It is preposterous, for example, that the files cannot be inspected as with a public limited liability company … The directors neglect, even, to let the public hear occasionally an explanation of the more important moves made in the name of British banking and finance. Fugitive antics by Mr Montagu Norman and peep-bo frolics with the Press photographers are apparently thought to be adequate gestures.

Over the next few years, the attacks mounted. From the left, G. D. H. Cole, the Labour Party’s prime academic economist, accused the Bank on the wireless in 1934 of paying ‘far too much attention to what they regard as sound finance, and far too little to industry and to the need to getting the biggest possible output of goods and doing all that can be done to prevent unemployment’; the following year, Labour’s leading figure on financial matters, Hugh Dalton, argued in the Banker that ‘the only choice’ was ‘between private politics, played by an irresponsible Governor, and public politics, played by accredited Ministers directing the Governor’; and in 1937, Labour’s Immediate Programme explicitly committed a future Labour government to turning the Bank into ‘a Public Institution’, which ‘will be administered by practical and experienced men under the general direction of the Government’, thereby enabling ‘credit’ to be ‘controlled in the interests of trade and employment’. Another critic, from somewhere in the political centre-ground, was Cunliffe’s old mucker. The Bank, Lloyd George told an audience at Nottingham in 1935, had been guilty of ‘cumulative blunders’ that had ‘cost the nation during the past 12 years more than would have sufficed to put through a gigantic scheme of industrial, agricultural and social reconstruction’. Nor was the Bank entirely spared by Conservatives. That same year, Harold Macmillan’s The Middle Way, a key text published in 1938, wanted the Bank to be made a public institution in order to be able to ‘influence the direction of investment’ in addition to just its volume; and the following year, a treatise called Managed Money, by Major J. W. Hills (a well-respected MP and financial expert), not only accused the Bank of being unhealthily obsessed by the exchange rate as opposed to concentrating on being ‘the judge of the money which trade, industry, and commerce require’, but concluded that there was no chance of the Bank becoming an adequate ‘Currency Authority’ unless its ‘controllers’ were ‘drawn from a wider area’.¹⁶

The Bank was broadly unrepentant about its approach to the outside world. Its time-honoured custom, Harvey had explained to Keynes during the Macmillan Committee’s inquiry, was ‘to leave our actions to explain our policy’ – adding that ‘it is a dangerous thing to start to give reasons’. Notwithstanding the severe blow to the Bank’s prestige caused by going off gold, Norman saw no reason to change. ‘I console myself with this thought,’ he ended in October 1933 his annual Mansion House speech, ‘that the dogs bark but the caravan moves on.’ All his listeners understood this application of an old Arab proverb: the dogs were the Bank’s critics, the caravan was the Bank, and the governor’s words were a polite version of a two-finger sign. Even so, the continuing attacks from all sides – stimulated by that PR disaster – did eventually make a difference, with the executive director Ruby Holland-Martin given the job of speaking to the press. Unfortunately, ‘though a most affable character’ (recalled the future Labour politician Douglas Jay, then working in the Daily Herald’s City office), ‘he turned out to know more about horsemanship than public relations’; and accordingly Norman’s rising star, Kim Cobbold, was deputed instead ‘and made a very much better job of it’.

Norman himself, in the twentieth year of his governorship and seventeen years after the start of the BBC, took to the airwaves, giving in March 1939 a radio talk about the Bank. The first part was historical, the second an uncontroversial survey of its main activities, and the third a look at how it was run, including the assertion that ‘you will find now that more than half of the directors come from trade and industry, commerce and shipping, and barely a quarter are merchant bankers’. Then, towards the end, came the big picture:

In monetary as in other matters the Government of the day must have the final word, and this is fully recognised. The essence of this system of management is that the Bank is able to give independent advice to the Government, with whom the final decision must rest. On the other hand it is not controlled by bankers, nor does it compete any longer with them. This means that we get real co-operation from the banks and bankers in carrying out policy, a co-operation which is also fully shown by the imperial and foreign banks in London. For my part, I would sum up the vital characteristics of the Bank as: experience in affairs; co-operation, on all sides; independence of judgment. But these three things – experience, co-operation, independence – are no good unless people have confidence in you. I like to believe that the Bank with its long history and tradition, stands high in the public esteem; but only by service to the public can that esteem be maintained through times good and bad.

‘I should like you,’ concluded Norman, ‘to believe – and please to remember – that we value and are always trying to justify the confidence and the esteem, perhaps indeed the affection, which surely are summed up in the name “The Old Lady of Threadneedle Street”.’¹⁷

A resonant message, but by this time it did not help the Bank’s reputation that Norman in particular was often viewed as excessively pro-German. Two months before his broadcast, the governor’s unauthorised visit to Berlin provoked the leading trading unionist Ernest Bevin into publicly warning about the harm being done ‘to the cause of Democracy and Freedom’, while the Evening Standard ran a very hostile cartoon by Low; and then in the early summer of 1939 came the damaging affair of the ‘Czech gold’. This was largely down to the brilliant and relentless investigative work of the financial journalist Paul Einzig, who from mid-May exposed how the BIS had successfully instructed the Bank to hand over to the Reichsbank a gold deposit of some £6 million belonging to the Czechoslovak National Bank. A ‘breach of trust’ to ‘the Czech people’ was one accusation made in the Commons on 26 May; while specifically in relation to Norman and Niemeyer, the Bank’s two directors on the BIS board, Bracken declared that ‘they came, they saw and they capitulated’, before accusing them of ‘a very squalid form of financial appeasement’. The controversy reverberated. By 6 June the New York Times was reporting a widespread cross-party feeling in Britain that not only should the BIS be ‘liquidated’ before it ‘furnished any more sinews of war to Germany’, but that ‘the odd relationship between the British government and the Bank of England should be re-examined without delay’; and that same day, in the Commons, one MP frankly put the question, ‘May I ask the Prime Minister why he does not make the great Mr Montagu Norman Chancellor of the Exchequer?’ The Bank for its part – despite Norman privately informing the actual chancellor, Sir John Simon, that ‘the Bank of England are not aware whether gold held by them at any time in the name of the Bank for International Settlements is the property of the National Bank of Czecho-Slovakia’ – declined to engage in a public defence. What that public must instead ‘settle’, Sir Alan Anderson (still on the Court) observed in early June to Norman, ‘is whether they wish – in finance – to maintain the machinery of international discussion instead of force. If they do then the umpire must be left free to decide & sometimes he will decide against us …’ Yet the fact was that the rules of the game had changed; and as Einzig would reflect many years later, the Bank would have been far less bruised by the episode if it had brought itself to depart from its adamantine policy of ‘never explain, never apologise’.¹⁸

War in September 1939 meant evacuation: somewhere between a third and a half of the Bank’s regular London staff, including almost everyone on the Stock side, decamped to rural Hampshire.¹⁹ ‘There are wash-houses some 200 yards away, with limited hot water and unscreened baths,’ an appalled J. A. Mulvany wrote to his family on the 9th, the day he arrived at Hurstbourne Park near Whitchurch, the estate belonging to Lord Portal. ‘The girls,’ continued Mulvany, ‘are better off, being mostly put up in the mansion, as their billets were found to be lousy! Principals and the like also have rooms in the mansion.’ Further missives over the next six months continued to paint a distinctly critical picture:

Work started at 8.15 – the whole Stock-Side, including Chief Accountant’s, in a glass-covered sort of factory shed 90 yards square. I was at first drafted to Passing, but Berry soon came and grabbed me in exchange for another, so that I found myself back on my own joint with my machinist, Miss Graham. Spent a long day till 5 getting my account pages in order. We are not straight yet – as a whole – and the arrears of work is colossal. They say it will be weeks or months before we catch up, if we do. (10 September 1939)

Holland Martin has been round and it is rumoured that he has insisted on everyone having proper beds!… (14 September 1939)

I can’t get any certain news about the weekend: we can only hope for the best. The Bank Policy seems to be to make things as difficult and unpleasant for the staff as they possibly can. If we were really conscripts we would receive more considerate treatment … (20 September 1939)

The latest totalitarian pinprick is a system of categories by which the staff are compelled to feed at certain allotted times whether suitable or not. I needn’t add that no one is consulted as to times that might suit … (4 October 1939)

The sensation was a ‘riot’ and ‘strike’ at Overton (Div. Prep.) over their Gratuity. Most of them were offered about £3 or less – and refused to accept it! Next day they staged a genuine sit-down strike until Holland Martin arrived post haste, harangued them, and promised that if they’d sign for the paltry bonus their grievance would receive every consideration. (7 November 1939)

Late work looks like going on and on and on and on – the girls are getting very fed-up. (27 February 1940)

The Governor is here today on an ‘informal’ visit – he has been strolling round the factory with an entourage of satellites, and ‘chatting’ with a few carefully selected (beforehand) members of the staff. I only hope he has to eat the same lunch as was the fate of the masses. Not b----- likely! (19 March 1940)

Mulvany may have been more disgruntled than most about his enforced exile, but it is possible anyway that the women had a jollier time. Naree Craik, hitherto at St Luke’s, was among the several hundred female clerks despatched to Hampshire right at the start of hostilities, in her case soon living in one of the purpose-built chalets (each housing twenty-four women and a senior clerk) overlooking Overton Village, near to Whitchurch. ‘As the men were called up for war duties,’ she would recall, ‘the women took over the working of the machines’:

The Addressograph cut the names and addresses of stockholders on small metal plates. Those were fed into another big machine of that make, which printed the information on large sheets. Those were checked, then passed on to the Sensomatic Ledger Posting operators. I learned to operate all three. A Chambon machine printed the basic warrants. Each warrant had to be ‘protectographed’ through a small machine which wrote the net amount in words. Finally, the finished warrants were checked by other clerks, folded and placed in envelopes. Those were then inspected, counted or proved to be sure the address and totals were correct. We were expected to do 1,600 a day. Warrants going to foreign addresses bore asterisks and had to be removed from the bundle separately; presumably payments were suspended.

When there was a lull at work, any girls who wished were allowed to help the farmers who were short-handed. I learned to bind and stook the corn, to build a haystack, to thin beet, and to pull up charlock. It was hard work but interesting for a town girl like me. I felt I was doing my bit towards the war effort …

Films, table tennis and dances were arranged for our entertainment. Airmen and soldiers from local camps came over for dances (and we went over to the camps by courtesy of the CO’s). The girls would line the walls waiting to be asked to dance. The men stood in huddles eyeing us and plucking up courage to approach us. For some reason, many of us thought men wearing brown shoes were a superior type …

It doubtless also helped female morale that strict sartorial rules were relaxed – ‘Women staff in Hampshire,’ noted an order in September 1942, ‘may now wear slacks during office hours.’ Yet locally these women may not always have been flavour of the month. ‘Hundreds of girl clerks are being supplied with four meals a day at the canteen – and also drawing their rations,’ reported the Daily Mail in August 1942, by when women formed the majority of the 2,000 Bank employees based in Hampshire. ‘Housewives in neighbouring villages who see “the young ladies of Threadneedle-Street” queuing up at the weekend for sugar, tea and butter to take home on leave are complaining bitterly about their privileged position.’ And indeed, added the Mail’s man from ‘“Bank of England Camp,” Southern England’: ‘Sometimes the girls have had taunts and sarcastic remarks flung at them as they have waited at the grocers’ counters for their rations.’²⁰

Meanwhile, the financial core of the Bank’s activities stayed firmly put; and when during the early months of the war the Stock Exchange authorities sought to move their trading floor to Buckinghamshire, the gilt-edged jobbers successfully resisted that plan, such was the gilt market’s umbilical cord to the Bank and its transfer facilities. It was not, of course, an easy time in Threadneedle Street for anyone, but the underlying mood was neatly summed up by George Bolton. ‘We will get through,’ he assured the Fed’s man during a transatlantic phone conversation in July 1940. Two months later saw the start of the Blitz:

All clocks & nearly all windows facing on Bank crossing blown right out. Threadneedle Street and Cornhill barricaded off – I had to show my Bank Pass and put out my cigarette before I was allowed through. Then I saw the cause of the damage: a vast crater in Threadneedle Street between NW corner of Exchange & the Bank walls, extending the full width of the roadway, & perhaps 20ˊ deep, rimmed with huge blocks of concrete, chips of Bank walls and pillars, & some yards of balustrading blown away. The shops opposite quite wiped out.

Inside the Bank a terrible mess. Every one of the great windows round the central well blown in, curtains in ribbons, massive bronze window frames twisted & bent like so much soft lead. Only one lift working. On every floor the same ruin of windows. Arrived on the 6th I was confronted with the big surprise – a direct hit on the Bank phone exchange. It had penetrated the roof & burst on the 7th floor, blowing out a large hole. I went & stood in the Directors’ Kitchen on the 6th floor amid lumps of concrete and pools and leaking water, immediately under the hole in the ceiling above & the roof above that. So one can say that the Bank is bomb-proof from the 6th Floor downwards. The bomb exploded only some 30 yards from my desk on the 6th Floor & glass splinters were lying in my basket. The wooden & glass partitions in our office were blown down; and with all windows out it was necessary to move us all down to the sub-vault Lecture Hall, for the day at any rate. Even down there, 10 floors below, glass & frames were smashed. All clocks in the Bank stopped at 16 mins. to 4 this morning.

Only cold lunch available … (9 September 1940)

The writer was John Mulvany, who to his relief had been transferred back to Head Office in the spring; and over the next year or so, before he was called up, his diary provides a unique contemporary record of life at the Bank during the Blitz:

Detailed to spend night at Bank, took up attaché case and staked claim in sub-vault during day. Signed-on in Establishments at 4. Shopping in Holborn & cinema at Dominion …

Arrived Bank 8.30. Drew 3 blankets. Groped up to 3rd in inky blackness for towel (none provided – nor sheets – nor pillows). Washed & shaved and in bed by 10.30. Dozed fitfully. Narrow camp bed & noise of 40 other sleepers & of air-conditioning plant made good sleep impossible. (23 September 1940)

Endured the tedious ordeal of 3 days and 2 nights at the Bank, 50ˊ below ground level. Worked 9–9; no Overtime to be paid! … Carried my bed & blanket down to sub-vault, and slept in the same spot as I worked at by day. Was ages getting to sleep on Wed., thanks to girls in gay gowns tripping past the open door of the vault. My first taste of roof-spotting 4–5: at dusk in a chill N. wind, with only my raincoat & steel helmet as protection and no scope for exercise. I have never passed a longer or more painful hour. Was frozen stiff by 4.30 and lasted-out till 5 only by fierce endurance & power of will. Could barely stagger down from the Crow’s nest – only to find it was too late to get tea anywhere, in the Bank or outside! (27–29 November 1940)

Dull & cold. Had to make a long detour to approach the Bank. After viewing the scenes of destruction from the Oak Room spent the whole of my Roof Spotting Hour gazing in harrowing fascination into the world’s largest artificial crater, some 50 yards across and 15ˊ–20ˊ deep, created in an instant of time at 8.30 p.m. on Saturday [two days before this Monday diary entry] by 1 of Hitler’s Angels of Destruction – a truly appalling sight. The bomb fell plum in the centre of the Bank Crossing, penetrated the roadway & exploded in the Bank Station Booking Hall, blowing out the entire subway Roundabout, shops & all. The effect of the blast in that confined space was terrific, but above ground, apart from damage at exits, man-holes etc., there was no damage to buildings, Statue, or even windows …

Hayes told me how on Sunday, Norman was with him & others on the Balcony of the Oak Room, watching the scene. His comment was: ‘There’s no telling what That Man won’t do!’ When presently a body was brought out of the debris – it was enough for Norman – he retired from the balcony. (13 January 1941)

Fire-watching … Caught 4.14. Arrived Victoria 5.15 & Bank 5.45. Supper at 7. Practice at 8.15 … Bed 11. At 12.45 roused by sudden ‘Stand To!’ followed at once by ‘Take up positions!’ Never dressed so quickly in my life: in 5 minutes from sound sleep all 24 of us, including Deputy Governor Catterns, were at the assembly point, only to be told it was merely a ‘test’! The rottenest practical joke I have ever been victim of. It gave me a shock & I was ages getting to sleep again. (2 June 1941)

For most of the war, the majority of staff worked below ground during the day; while on any one night up to some 500 slept in the Bank, either in camp beds by their desks or in the now relatively empty vaults or in the nearby vault corridors. Fun or amusement was on the whole in short supply, and some thirty years later an Old Lady contributor would recall without any misplaced nostalgia ‘those airless vaults it was part of our fate to endure, on one of those nights which were a mixture of extended hours of work, interrupted by meals, with an occasional spice of danger but mostly made up of hours and hours of empty boredom’.²¹

A crucial new reality – and almost from the start a major source of employment – was exchange control. ‘Suddenly,’ remembered Leslie O’Brien, ‘everyone was on our doorstep with questions of bewildering complexity’:

We made up rules as we went along and we made them fast under the pressure of insistent enquiry and the threat of unjustified loss for the enquirer. To those in the Bank who liked the challenge, and that was most of us, the exchange control was highly stimulating. Many of us excelled ourselves, even over-reached ourselves, as never before. Long hours meant nothing in such a vibrant community which for some years worked and slept in Threadneedle Street. As the machine necessarily expanded with new offices being created, promotions and appointments came thick and fast and they caused some uneasiness, if not jealousy.

The contrast was stark – for elsewhere in the Bank, added O’Brien, ‘there was little of our excitement to be found’, with ‘numerous women’ having ‘taken over jobs formerly the male preserve as men were released for war service’. Inevitably, exchange control in its strict wartime form was incompatible with the continued operation of London’s foreign exchange market, and the Bank softened the blow by recruiting some seventy-five foreign exchange brokers to come and help on the exchange control side, as well as selecting four firms to be retained as sub-offices of the Bank in case its telephones were put out of action. The guiding spirit was one of flexibility, epitomised by the fact that the man in day-to-day charge of exchange control, Harry Siepmann, had on his wall what would become a celebrated notice: ‘Freedom is in danger, Defend it with all your might.’ Even so, building on Bolton’s important preparatory work before the war, there was a determination not to allow any loopholes. An impressed outsider was Keynes. In May 1940, having submitted a lengthy memorandum on the whole subject of exchange control, he visited the Bank to meet Clay, Siepmann and Bolton. The ensuing dialogue, he informed Clay next day, ‘was one of the most heartening I have enjoyed for a long time’, for ‘it was extraordinarily agreeable to discover for once people in executive positions who were in a drastic state of mind, seemed completely competent and equal to their job and were not enjoying living in a perpetual twilight, dim and incomplete’. A copy of Keynes’s letter went to Norman, who scribbled on it some words that for most of the previous twenty years would have been unimaginable: ‘He must come again: his support of Exch policy will be most important under new Cabinet [Churchill had just succeeded Chamberlain]. Treas^y have neither time nor knowledge to help – but feel bound to interfere!’²²

In fact, in the dominant context of war, the two men had already started to become reconciled. Keynes in February 1940 published his pamphlet How to Pay for the War, advocating a policy of compulsory savings (in the form of deferred pay) and explicitly seeking ‘an advance towards economic equality greater than any which we have made in recent times’. Such an approach was anathema to the City at large, but Norman invited his old antagonist to the Bank in early March. The conversation went well, and soon afterwards Keynes noted with pleasure that their ‘long estrangement’ was over. The economist (based in the Treasury for the duration of the war) and the central banker were also singing from the same hymn sheet over the related question of war loans. There, for all his qualms about the high-tax implications, Norman accepted that it needed to be a cheap-money war in which, unlike before, there were no politically unpopular high returns for bondholders; and accordingly the principle was established by March 1940 of a ‘3 per cent war’, with the governor doing much to persuade a doubtful City that there was no realistic alternative. All of this made possible the election in autumn 1941 of Keynes to the Court. It was a richly symbolic moment. ‘At last,’ he remarked, ‘orthodoxy has caught up with me.’ And: ‘I do not know if it is I or the Old Lady who has been made an honest woman of.’ Keynes also reflected that although ‘the old villain’ (that is, Norman) ‘loves his institution more than any doctrine’, nevertheless in terms of the Bank as a whole ‘the balance of sympathies and policies is widely reoriented’. Soon he was a regular attender at Court on Thursdays, usually staying on for lunch afterwards. ‘I do enjoy these lunches at the Bank,’ he declared after one visitation, as he slumped back in the car he was sharing with a fellow-director. ‘Montagu Norman, always absolutely charming, always absolutely wrong!’²³

Norman himself reluctantly but more or less uncomplainingly accepted that the war further tipped the scales of power away from the Bank and towards the Treasury. Nor was it only the Treasury to which Norman found himself having to be subservient. In February 1940, shortly before an issue of War Loan, he saw someone from the dreaded Ministry of Information. ‘He is settling details for next week,’ noted Norman, ‘& I promise to obey his orders!’ Yet during that same first winter of the war, he seems to have been reinvigorated by the new situation. Sayers portrays the sixty-eight-year-old governor as ‘tireless in his calls upon Ministers and the Treasury to get moving with an adequate economic policy’:

He went far beyond any normal bounds for a central bank. Though sometimes he would confine himself to urging adequate Ministerial guidance in the rationing of exchange resources, at others he would launch out into advice on labour supplies, unemployment benefit, control of commodity prices, and a great deal else. In the first months of war, the Governor and Cobbold were wanting a drive for more exports, though there was little satisfaction to be had from the President of the Board of Trade. Norman was impatient, too, at the laggardness of the development of the new Ministry of Supply, and poured into Ministerial ears suggested names for important posts in it. Above all, he chafed at the weakness of the Chancellor …

In the event, Simon stayed on at No 11 until the change of government in May 1940 – a change in the political landscape that could not but be a serious blow for Norman. ‘Now I know that I shall never cross the threshold of No 10 again,’ he accurately predicted on hearing the news, well aware that Churchill would never forgive him for his part in the ill-fated return to gold in 1925. That did not, however, dilute one jot his commitment to doing all he could in the wider war effort. ‘Ruin?’ he expostulated in early 1941 to Wendell Willkie, when that visiting American politician mentioned the economic cost to Britain of resisting Hitler. ‘Go to hell,’ went on Norman. ‘We must win.’ And in the Bank itself he remained an alert and vital – if sometimes irascible – presence, often sleeping there two or three times a week and readily distinguished by a dressing-gown emblazoned with a dragon.²⁴

Even more than in peacetime, Norman was now acting as ‘the bridge’ – as he called it himself – between Whitehall and the City. A significant constitutional moment occurred as early as the fourth week of the war, when the chancellor wrote to the governor asking him to ensure that the clearing banks confined their advances to such war-oriented purposes as the needs of armaments and the export trade. Norman in turn passed on Simon’s letter to the chairman of the Committee of London Clearing Bankers; and thus was established what would become the firm unwritten rule that all communications between the Treasury and the clearing banks were, in either direction, to be mediated by the Bank. Norman also increased, if anything, his number of fingers in City pies. In March 1940, for instance, he saw the Stock Exchange’s deputy chairman and tersely recorded, ‘No fortnightly settlements’; some three months later, he insisted to the merchant banker Helmut Schroder that for the rest of the war he be ‘neither seen nor heard in any way by anybody anywhere’; and the ailing discount market was the subject of his constant attentions, as was the struggling, often undercapitalised merchant banking sector, where he came tantalisingly close in 1942 to acting as midwife to a grand if improbable union between Rothschilds, Barings and Schroders. Norman that year even tried to stop a Jew becoming lord mayor, with his diary giving his reasons as ‘bait for Hitler’ and ‘black market’; but to no avail. This did not stop him being, at a big Mansion House lunch soon after Sir Samuel Joseph had assumed office, ‘somewhat embarrassingly audible, in view of a very Jewish-looking old boy sitting opposite, in voicing his preference for Christian over Jewish Lord Mayors’, according to the Tory politician Leo Amery sitting next to him.

Even amid a broadly unifying national struggle for survival, the political climate remained chilly – despite the Bank at last in March 1941 recruiting Bernard Rickatson-Hatt from Reuters to become its first press officer. ‘Yes, whether we like it or not, we’ve got to have Mr Montagu Collet Norman as the man in charge of Britain’s money-bags for another eighteen months,’ declared the Sunday Pictorial in September 1941. ‘For he has just calmly announced that he is going to be re-elected governor of the Bank of England next April. Which means that nobody can get rid of him until April 1943.’ And the Sunday version of the Daily Mirror went on: ‘ALTHOUGH HE IS OVER 70 YEARS OLD AND BY THE RULES OF THE BANK OUGHT TO RETIRE AND ALTHOUGH HIS FINANCIAL DICTATORSHIP FOR THE LAST TWENTY-TWO YEARS HAS BROUGHT NOTHING BUT MISERY TO THE PEOPLE’. Siegmund Warburg would not have been so demotic, but that gifted and driven Jewish merchant banker, who before the war had fled from Nazi Germany, was almost equally critical of the Bank. In October 1942 he sent a candid memo to his friend the Labour politician Manny Shinwell:

The Governor and the directors of the Bank of England … should be appointed by the Treasury and should not be chosen preferably from representatives of the City. The Board of the Bank of England should of course contain a number of experienced bankers, but the majority should consist of industrialists, trade unionists, accountants and economists. The result would be that the Bank of England would be a centre of British economic life which would stimulate commercial and social progress instead of being a bulwark of reaction as it is today to a considerable extent … As to the actual policy of the Bank of England, its chief aim should be to prevent inflation in times of prosperity and deflation in times of depression. Unfortunately during the twenty years before the war the Bank of England did usually just the opposite, mainly in times of prosperity they allowed over-investment, and in times of depression they accentuated the crisis by restricting the flow of credit.

Robert Boothby, a Tory radical with a flair for publicity, also weighed in, demanding in the New Statesman the following spring that ‘the grip of what is usually called finance capital upon the economic system must be broken’; and that accordingly the Bank ‘will have to be converted into a public corporation, owned by the State’, with ‘representatives of industry, of agriculture, of the trade unions and of the consumers’ to be appointed to its Court.²⁵

Inevitably, indeed, the great looming question for the Bank was nationalisation. ‘Like many of the institutions that form the mainstay of this country,’ observed a defensive internal memo drawn up not long after Rickatson-Hatt’s appointment, ‘the Bank has reached its position by a process of growth and whilst, in theory, it may seem to be open to criticism on this ground or that, in practice – like the Common Law of England – it works’; in spring 1942 the election to the Court of the leftish pottery manufacturer Josiah Wedgwood V, author of The Economics of Inheritance, was a deliberate attempt to defuse external criticism. What did Norman himself think? About the same time as Wedgwood’s election, he frankly told senior colleagues not only that ‘in his view it had seemed for a long time past increasingly likely that some form of nationalisation would be applied to the Bank, not long after or even during the war, whatever the political party in power’, but also that ‘the interests of the Country and Empire and the maintenance of the credit structure and of a valuable tradition would be best served by the conversion of the Bank into a public utility corporation … perhaps the sooner the better’. Yet a year and a half later, at the Economist’s centenary lunch, he gave a ‘very short’ speech that, noted one of those present, ‘traced the community of interest over the 100 years between the Economist and the Bank of England – both privately owned but both, he thought, rather the better able on that account to serve the public interest’.²⁶ In short, it was a case of head versus heart: not unusual for Norman, and perhaps hardly to his discredit.

That was in September 1943, with Norman of course still governor, but now more or less accepting that he really would retire in 1945. Early in 1944, however, his health decisively gave way, and only penicillin – a remedy then available to few – kept him alive. ‘One thing that would be intolerable would be to go back to work,’ he wrote in March to Peacock during his protracted convalescence, ‘& then to crack again.’ Soon afterwards, Peacock and Holland-Martin saw Norman’s two doctors, who informed them that the governor would not be fit to resume his duties even in three months’ time. It was a verdict that he yielded to with infinite reluctance. ‘It’s not going back that will kill me,’ he told Peacock, but on 6 April the Bank let it be known that Norman was finally retiring, with a successor to be in place the following week. ‘We could never build the new Britain with Mr Norman in Threadneedle Street, so there will be no tears among the people at this parting,’ declared the unforgiving Sunday Pictorial; but the Financial News was kinder, reckoning that he was leaving behind ‘a tradition of service, efficiency and sincerity which will long be an inspiration to those who follow’. What no one could deny was his place as the dominant figure in the Bank’s history; some time afterwards, Humphrey Mynors whiled away a few idle minutes by computing that the span of the Bank’s first quarter of a millennium was virtually covered by only six members of Court: Gilbert Heathcote (1694–1733), William Hunt (1728–63), Richard Neave (1763–1811), John Horsley Palmer (1811–57), James Pattison Currie (1855–1908) and of course Norman (1907–44).

All this was little consolation to either the man himself or his ninety-six-year-old mother. ‘They should have let him finish his twenty-five years,’ she grumbled; and it was with some lingering bitterness that in February 1945 the ennobled Norman, writing to a former colleague now at the BIS, referred to how he had been ‘turned out a year ago’. Ultimately, as he left the stage, he believed himself to have failed – unable to re-create the world economy’s (and the City’s) golden age, let down by nationalist demagogues, vote-grubbing politicians and ill-tutored democracies. Until his death in 1950, he remained unsparing on himself and indeed his generation of central bankers. ‘As I look back, it now seems that, with all the thought and work and good intentions which we provided, we achieved absolutely nothing,’ he reflected in 1948. ‘By and large nothing that I did, and very little that old Ben did, internationally produced any good effect – or indeed any effect at all except that we collected money from a lot of poor devils and gave it over to the four winds …’ Yet there is truth also in what his one-time private secretary, Ernest Skinner, wrote twenty years later:

When the dogs have ceased to bark (!), I think we shall be left with the lasting impression that Montagu Norman –

(1) was conspicuously a great public servant of unquestioned integrity;

(2) at a critical juncture (with his customary vision) evolved a new structure for the direction and higher management of the Bank;

(3) by his initiative galvanized central banking throughout the world and gave it the international outlook from which we are now in benefit.

‘The records,’ added Skinner with a not wholly ill-founded degree of optimism, ‘provide the proof.’²⁷

Back in 1941, the Economist had devoted a lengthy editorial to the question of what sort of person should succeed Norman. It offered three broad criteria: that, with rotation in effect dead, the appointment should be on a more permanent basis; that, in the context of the passing of the gold standard and accompanying need to ‘husband the gold reserve’, the next governor should be ‘an economic statesman’, preferably with a ‘dominating interest in the finance of British industry’, rather than an out-and-out ‘financial expert’ as such; and thirdly, that he should be ‘a young man’, not least because of the ‘revolution’ in the past ten years in monetary ‘thought and practice’, given that ‘for any banker or financier whose mind was set before 1931 it is almost impossible to change such beliefs as, for example, that exchange stability in a free market is the only natural state of the foreign exchanges, or that dear money has a higher ethical justification than cheap money’. With Niemeyer a no-go because of Churchill’s undying hostility (1925 again) and Cobbold too young (not yet forty), a serious executive search began in May 1943, as the chancellor, Sir Kingsley Wood, pushed hard (probably influenced by Keynes) for the Bank of Canada’s Graham Towers. That autumn saw, however, not only Wood’s death but the Committee of Treasury deciding that the Canadian was unsuitable on several grounds: as an outsider, not qualified to be ‘“Confidant and Confessor” to the City’; the fear that his appointment ‘would be regarded either as a political appointment, thus bringing the Bank right into the political arena, or as confession that both the Bank and the City of London were so bare as to provide no adequate candidate’; the accompanying worry that, Towers having presided over the Bank of Canada during its nationalisation, ‘his appointment might well be regarded as a pointer towards a similar change here’; and finally the disconcerting fact of his ‘essentially “dollar” background’, which made him ‘publicly committed to post-war plans which many of us feel would prejudice the international position of sterling’. Or as Norman characteristically put it in his diary that day, Towers was altogether ‘too much JMK & $’. Instead, the focus switched to Thomas Catto, from 1936 Lord Catto of Cairncatto, who in 1940 had at last succeeded his Morgan Grenfell colleague Lord St Just as a director of the Bank. During the war he was based in the Treasury, where, though forging a close alliance with Keynes (‘Catto and Doggo’ as they were known), he was trusted by Norman to protect the Bank’s interests. After Norman’s illness hastened events, the only realistic alternative to him was the deputy governor, Basil Catterns; but when Peacock in March 1944 consulted the chancellor, Sir John Anderson, the latter’s distinct preference was for Catto, on the basis of his greater ‘worldly knowledge as to affairs in general and especially as to Whitehall’.

So Catto it was: born 1879, seventh child of a shipwright, left school at fifteen, and eventually a successful merchant (first in the Near and Middle East, then in India) before being based in London from 1929 – a very different trajectory to almost all his predecessors. ‘One of the smallest men I have met,’ recorded a diarist in 1945. ‘Dapper, alert, sharp-eyed, Scots accent.’ Undoubtedly some of the Bank’s permanent officials would come to feel that Catto was over-respectful of the Treasury, but almost all valued the depth of his commercial experience, the soundness of his judgement and the fact – at this delicate moment in the Bank’s history – that he was neither a government stooge nor an entrenched, hereditary member of the City establishment. ‘I shall love the work,’ this self-assured, self-made man promised the Daily Express just before he assumed office. ‘I love figures, economics and finance. I never read books except those which deal with these matters, even when I read for pleasure and recreation.’²⁸

In July 1944 the Bank briefly gazed backwards, as it celebrated in a low-key way its 250th anniversary, but generally the mood during the closing stages of the war was one of looking forward. Quite apart from the issue of the Bank’s own status, two policy areas were now of particular importance, as indeed they had been towards the end of Norman’s governorship. The first concerned the provision of capital to medium-sized firms – the so-called Macmillan gap. Norman, writing to a sympathetic banker at the start of 1944, was frank about his motives for seeking to fill that politically high-profile gap: ‘My purpose is to satisfy Whitehall: to keep them out of the Banking Business and free of malevolence towards the Bankers – which at this moment are stakes worth playing for.’ The eventual upshot in 1945 would be the Industrial and Commercial Finance Corporation (ICFC, forerunner of the latter-day 3i), an outcome made possible only by Catto devoting much of his early time in the governor’s chair to persuading the bankers that the gap existed and that they had politically no alternative but to come together and give their financial backing to the proposed new organisation. ‘There is no suggestion,’ he assured them, ‘that this should not be run on a strictly commercial basis’; and with some reluctance the deal was done, as the ‘Big Five’ (Barclays, Lloyds, Midland, National Provincial and Westminster) became ICFC’s main shareholders.

The other key policy area, playing its part in the blackballing of Towers, was the reconstruction of the international financial order. There, whatever the improved personal relations, a huge gulf remained between Keynes and the Bank: whereas Keynes, in tandem with the Americans, developed plans for an international monetary fund that would be based in the US and apparently transcend existing structures of central banking co-operation, the Bank still tended to hold to a view of the world in which the importance of the sterling area was paramount. ‘The Bank is not facing any of the realities,’ Keynes complained in February 1944 to the chancellor, arguing that it was failing to allow either ‘for the fact that post-war domestic policies are impossible without American assistance’ or ‘for the fact that vast debts and exiguous reserves are not, by themselves, the best qualification for renewing old-time international banking’. Soon afterwards, he poured out to Beaverbrook frustrations that went back a long way:

Twice in my life I have seen the Bank blindly advocating policies which I expected to lead to the greatest misfortunes and a frightful smash. Twice I have predicted it; twice I have been disbelieved; twice it has happened … My conviction is that here is a third occasion. The Bank is engaged in a desperate gamble in the interests of old arrangements and old-fashioned ideas, which there is no possibility of sustaining. Their plan, or rather their lack of plan, would, in my firm belief, lead us into yet another smash.

Ultimately he need not have worried: not even Bank of England obstruction could stop the International Monetary Fund (designed to stabilise exchange rates – ‘with the countries experiencing difficulty,’ as the historian Forrest Capie puts it, ‘having access to adequate international reserves to smooth out short-term problems’) from being created; nor indeed its cousin the Bank for Reconstruction and Development (the future World Bank, designed to provide long-term loans). The pivotal international conference was in July 1944 at Bretton Woods, with the Bank (represented by Bolton) only a bit-player in the process but managing to secure what became known as ‘the Catto clause’ – in effect a reluctant acceptance by the US that, even in a world run by the almighty dollar, other nations had the right, as a last resort and in consultation with the IMF, to vary their exchange rates. Catto himself was nothing if not a realist. The following spring, in a note on post-war commercial policy, he reflected that it would be ‘sheer madness to think the Empire can create a cave where we take in one another’s washing and ignore the rest of the world’.²⁹ Put another way, there was a fundamental choice to be made, financial as well as commercial. Was the whole world to be Britain’s (and especially the City’s) oyster, as it had been before 1914 and even up to 1931? Or, with the dollar now conclusively dominant in global terms, was the safer – and sentimentally more appealing – course to rely almost solely on the sterling area? One way or another, it was a question that, despite Catto’s clear steer, would take the Bank and other policy-makers at least two decades to resolve.

‘One pleasant sign of returning normality was the mounting of the Bank of England Guard on September 6th by the Brigade of Guards for the first time since the outbreak of war,’ noted the Banker in October 1945. ‘In wartime, there has been no “March to the Bank”, the Guard having been converted into a day and night guard and the duties taken over first by the Honourable Artillery Company and subsequently by the Military Police. Now, once again the familiar spectacle may be seen towards dusk each evening of 24 Guardsmen with fixed bayonets, led by an Officer, marching towards the Bank of England to protect it during the night.’ By this time also, the evacuees were back from Hampshire, while among new members of staff was Pat Jarrett, who had been appointed as a ‘Woman Clerk’ shortly after V-E Day. ‘The lunch club was the thing which came into the lives of all of us,’ she would explain in 1949 to colleagues at Seattle First National Bank about a stay in Threadneedle Street that lasted only sixteen months but left vivid impressions:

For 20c a year you were a full member and, naturally, everyone belonged. You were provided with an excellent lunch every day, and ‘tea’ in the afternoon. If you worked late, after 6.30 p.m., there was also a very good dinner.

The club rooms were built on the flat roof of our office building, and were very pleasant. On leaving the elevator one walked right into the Lounge Bar, where one could pass a few minutes in social chatter and refreshment before proceeding to lunch. After the bar the Great Divide appeared – men to the left and girls to the right.

We had a very pleasant coffee room, too, and a reading and writing room in which to pass the remainder of our lunch hour, and I conclude that the men had the same facilities; however, no feminine foot ever crossed the threshold to find out!

Time-keeping was very strict and to-the-minute. Upon arrival we had to sign in a book on the principal’s desk, and at 9 a.m. precisely it was whisked away. Anyone who came in late had to go to a special book held by the head of the office and sign in as ‘late’, and give her reason. Twice was too much for that sort of thing!

Then in the evening one could not leave until a senior clerk stood up to go (which was always on the exact second), and then there was one mad rush for the elevators.

‘No one’, she almost needlessly added, ‘felt inclined to finish the job in hand or give a few extra minutes to anything, for the attitude was one of “come on the minute – leave on the minute.”’³⁰

Such concerns were not Catto’s during the early months of peace. The Bank’s future constitutional status was hardly a headline issue during the 1945 election campaign; but whereas Labour was explicitly committed to the Bank’s nationalisation, Churchill in his infamous ‘Gestapo’ radio broadcast sarcastically warned of the dangers of the Bank falling into the hands of ‘trustworthy Socialist politicians’. Labour under Clement Attlee won by a landslide, and within days, at the start of August, the governor was stressing to the new chancellor, Hugh Dalton, his hope that ‘the method giving the least possible disturbance to the existing set-up would be chosen’. At this critical juncture, Catto received significant help from the permanent officials at the Treasury, where Sir Wilfrid Eady argued soon afterwards that ‘there is everything to be said for viewing the Bank as a public corporation, subject to control on policy but not to interference in the running of the machine’, given that ‘the more the permitted independence on inessentials the easier will it be for the Bank to maintain its intimate relations with other parts of the financial system and with City interests’. From Catto’s perspective, there was certainly no point in trying to resist public ownership as such: not only did the government have an overwhelming mandate, but the new leader of the Opposition now changed his tune, with Churchill telling the Commons in mid-August that ‘the national ownership of the Bank of England does not in my opinion raise any matter of principle’ – a statement prompting an ‘Oh’ from some MPs.

Serious negotiations were by this time under way between the booming, seemingly self-confident Dalton and the canny, obstinate Scot whom the politician privately described as ‘a splendid little asset’. It was with justified pride that Catto would subsequently boast (to a diarist who met him) of ‘how he had succeeded in keeping things surprisingly unchanged in daily practice, how he had held to a refusal to disclose secret reserves to the government, how he had got compensation for stock-holders which left their income unaffected, how the “halo” of mystery and power was an asset which he had preserved’; he might also have added that, on the key question of the issuing of directives to the clearing banks, the Treasury would in effect be permitted to do so only via the Bank and not off its own bat. Why did Catto get the better of Dalton? Partly no doubt because the chancellor was underprepared for the technicalities involved, but at least as important may have been the human element. ‘Dalton was frightened of him,’ reckoned Kim Cobbold in considering the governor’s decisive advantage. ‘Dalton had a guilt-conscience about his upbringing as a canon of Windsor’s son, Eton etc, whilst Catto started work on an office stall in Scotland. Though he was apt to be offensive and overbearing to people of his own background and to “establishment” officials, Dalton seemed to feel that his attacks on privilege, etc, would not stand up to a public row with Catto.’

The Bill was published on 10 October. Apart from the actual transfer of stock and related mechanics, it had three key clauses. The first dealt with the Treasury’s power to direct the Bank: ‘The Treasury may from time to time give such directions to the Bank as, after consultation with the Governor of the Bank, they think necessary in the public interest.’ The second clause dealt with the Bank’s authority to direct bankers: ‘The Bank may, if they think it necessary in the public interest, request information from and make recommendations to bankers, and may, if so authorised by the Treasury, issue directions to any banker for the purpose of securing that effect is given to any such request or recommendation.’ The third clause stated that ‘the affairs of the Bank shall be managed by the Court of Directors’ – as opposed, implicitly, to being managed by government or any other external agency.

‘It is of course evident that with the change of ownership the Treasury must have power of direction (which as a matter of fact it has had in practice for many years past),’ Catto wrote that day to his counterpart at the Fed about the Treasury/Bank relationship. ‘I regard the requirement to consult the Governor of the Bank as of prime importance: and although no limit is set to the scope of any directions that may be given to the Bank, it may be accepted as the intention that they will cover only questions of financial policy and not internal organisation and administration.’ Moreover, he went on, ‘the new authority of the Bank with regard to “bankers” makes statutory a position which has hitherto relied on custom and tradition’. In short, the proposed legislation ‘preserves to the fullest possible extent the continued existence of the Bank and its independence in the general conduct of its affairs’.³¹

Press reaction to the Bill was reasonably mild. ‘It would take a very nervous heart to register a flutter,’ observed the Economist. ‘Nothing could well be more moderate.’ And indeed, the whole thing was on Labour’s part little more than ‘a symbolic sacrifice on the altar of party doctrine’. The Financial Times tended to agree, relieved that ‘so far as status – apart from ownership – is concerned, the Bank’s unique and responsible position is maintained’, and adding that ‘the City, which is jealous of the reputation of the Bank the world over, will hail that fact with satisfaction’. Perhaps predictably, a more querulous tone came from the Daily Telegraph. In an editorial headed ‘A Gilded Pill’, the paper argued that ‘the Bill owes everything to past Socialist chatter about private dictatorship over finance, and nothing to practical experience’; noted that ‘though the Bill may only legalise existing practices, it gives them the sanction of compulsion rather than co-operation’; and concluded that altogether it made the Bank ‘the Treasury’s agent instead of its ally’, given that ‘theoretically, the Bank will have no right even to discuss the financial measures decided by the Treasury, and its “recommendations” to the Joint Stock Banks will for all practical purposes be orders’.

Later in October, on the 29th, the Commons gave the Bill its decisive second reading. In the course of a fairly low-key debate, Dalton commended ‘a streamlined Socialist Statute’ containing ‘a minimum of legal rigmarole’ and offered the double justification for the Bill that it not only brought ‘the antiquated and out-moded constitution of the past into a form which fits the practical realities of the present’, but ensured ‘a smooth and efficient growth of our financial and banking system, in order to meet the new needs of the future’; the previous chancellor, Sir John Anderson (Conservative), called it a ‘wholly unnecessary Bill’; a future chancellor, Hugh Gaitskell (Labour), reminded the chamber of the Czech gold episode before contending that ‘the real issue’ was ‘whether this country is to take control of the head and fount of financial power in this country’; and the most memorable – and possibly most telling – passage came from the rogue Tory Robert Boothby:

Mention has been made of Lord Norman. I think that, in some respects, he is the real architect of this Bill. Nobody denies that he was one of the most selfless public servants who ever worked day and night in the interests of this country – or in what he conceived to be the interests of this country. He had only one fault; he was nearly always wrong. He held the Governorship for so many years that he came to be regarded, not only in the City but far beyond its confines, as the embodiment of power without responsibility. I remember an eminent Governor of the Bank of England telling me many years ago that it was essential, if that institution was to remain outwith the control of the Government, that the Governorship should be constantly changed. Prior to Lord Norman’s tenure that did happen. You always had a number of ex-Governors, men with great authority and experience, to keep an eye on the Governor; and that system worked rather well, especially during the last century. I remember this Governor [Cokayne?] telling me that if ever the Governorship came to be held for any great length of time by one man, it would be only a question of time before the Bank was nationalised. He has proved to be right.

Boothby ended by quoting Abraham Lincoln: ‘The privilege of creating and issuing money is not only the supreme prerogative of the Government, it is the Government’s greatest opportunity. Money will cease to be master and become the servant of humanity. Democracy will rise superior to money power.’³²

The Bank had another central preoccupation this first autumn of peace: Britain’s appallingly weak economic situation – and, specifically, the enormous loan from America that Keynes was negotiating in Washington.³³ As with Bretton Woods, the whole process saw the Bank largely sidelined. It had no one present at the key decision-making meeting in London in late August, prior to the delegation sailing; while when in mid-October the recently elected deputy governor, Cameron (‘Kim’) Cobbold, pushed hard for Keynes’s recall, Catto (historically close to Keynes) failed to support him. ‘Clearly he does not want any general settlement on the lines contemplated with the Americans,’ one of Keynes’s colleagues, James Meade, noted of Cobbold’s attitude. ‘He would like us to snap our fingers at the Americans … He is a clever ass.’ Keynes himself – under huge pressure – was also unimpressed. ‘Some fig leaves which may pass muster with old ladies in London wilt in a harsher climate,’ he dismissively cabled the Treasury in early November about Treasury/Bank concerns over the sterling area.

For his part, Cobbold of course viewed it all rather differently. The Bank’s position, he recalled, was that ‘although we should be prepared to move steadily towards “convertibility” and doing away with restrictive “sterling area” and “payments” agreements, it would be madness to accept any commitment which would limit our transitional freedom under Bretton Woods agreements or to give any specific undertakings about writing down or otherwise dealing with sterling area balances’ – the last a reference to the increasingly vexing legacy of the accumulation in London during the war of very substantial overseas sterling balances unmatched by external reserves. Cobbold would also come to reckon that Keynes that fateful autumn ‘basically agreed’ with the Bank’s position, but ‘gradually got immersed in the Washington atmosphere’; as for ministers, ultimately responsible, they were ‘mainly concerned to get the money without too much row with the Americans’. In any case, the eventual upshot was a $3¾ billion loan in return for multilateral trading arrangements, early convertibility of sterling and an interpretation of the Bretton Woods agreement that gave the whip hand to the Americans – a deal accepted in Britain, shortly before Christmas, with the utmost reluctance, encapsulated by the Financial Times’s opinion that ‘the consequences of present refusal of American aid would be more grievous than the possibility of subsequent failure to live up to its conditions’. As unreconciled as almost anyone was Norman. ‘He is entirely opposed to Bretton Woods and the whole of the Washington Loan ramp,’ recorded Leo Amery a few months later after a conversation with him. ‘In his curiously ingenuous way he said that he did not understand the economics of the matter but that he had a strong hunch that we were being done down and resented it.’³⁴

By then the Bank, in its 252nd year, was under public ownership. The vesting date was 1 March 1946, two days after a ‘Last Supper’ in Threadneedle Street for past and present directors of the Court: native oysters, clear turtle soup, lamb cutlets and fruit salad with ice cream were washed down by ‘Old Trinity House’ Madeira, Steinberg 1935 hock and Cognac 1884 brandy. ‘I am deeply appreciative,’ Catto told those present, ‘of the manner in which all members of the Court stood solidly behind me in this crisis in the Bank’s history’:

A break in our ranks would have enormously increased the difficulties! The policy we adopted has proved its worth and gradually everyone is coming to realise that although the essential principle of Public ownership had to be conceded, on all other matters, particularly those questions concerning the future of the Bank and its management and the protection of the Staff, we put up a fight behind the scenes and obtained every point we considered essential to the well being of this great and ancient institution.

Catto coupled the toast – ‘Long live the Bank of England’ – with the name of his predecessor who ‘has given all the best years of his life in living up to that toast’. Norman replied, apparently in a ‘slightly pessimistic’ tone; and when asked a few weeks later whether the Bank was still the same place, he replied mournfully, ‘They try to pretend it is the same place.’

Yet in truth they did not have to try so hard. Nationalisation involved no vision of how a central bank should function in the new era of a more planned economy; no convincing model of the ideal triangular relationship between government, central bank and commercial banks; and no insistence that the Bank shed its culture of secrecy and deliberate cultivation of mystique. Arguably, however, it was the Bank as well as the Labour government that missed a historic opportunity. ‘During the preceding twenty-five years, including the very difficult period of the late 1920s and early 1930s, the Bank had not attempted, under private ownership as it was, to develop a position of public accountability for discretionary monetary policy,’ reflects one of the Bank’s historians, John Fforde, in a suggestive passage. ‘On the contrary, it had cultivated considerable public reticence while in private zealously building up its position as confidential monetary and financial adviser to the Government, its most important customer. Besides suiting Norman’s personality, this part was natural enough for an institution whose experience and expertise in monetary policy, though deep, tended to be narrow and technical.’³⁵ In short, operational autonomy and the right to continue to offer advice from behind the throne – without ultimately being responsible for the consequences of policy – suited well enough during the 1945 negotiations an institution that psychologically had been badly scarred by all the scapegoating, fair or unfair, it had endured. Accordingly, there was little appetite to stake out in a bold, confident way what precisely the Bank was now going to be responsible for. At least two generations of politicians would have to do their best and worst before Norman’s and Catto’s successors even started down that challenging road.