Not a Study Group

‘I never use the word “nationalisation,”’ governor Catto informed an American audience in October 1946, seven months after that undeniable fact. ‘“Public ownership” sounds so much better.’ Others were less inclined to accentuate the cosmetic. ‘The prestige of the Bank is not what it was,’ Arthur Villiers of Barings informed an American correspondent in early 1947; next year the City Press poured forth an impassioned lament, describing the Bank as ‘the East End branch of the Treasury’, asserting that the absence of Norman-style ‘completely impartial advice’ meant that in the City ‘there is no confidence in the Bank’, and claiming that ‘the old hands’ in Threadneedle Street were ‘very unhappy’; while in 1949 Dalton’s successor at No. 11, Sir Stafford Cripps, even declared that the Bank was his ‘creature’.

Of course, it all depended. In a purely City sense, Villiers certainly had a point when he elaborated how the changing composition of the Court (now reduced from twenty-four members to sixteen) had impaired standing: ‘Various Directors have been appointed for their political views. Some of the Directors are excellent and others just average. To be a Director of the Bank in former times was a considerable honour; today that is not the case.’ Two new directors he undoubtedly had in mind were George Gibson, a prominent northern, plain-speaking trade unionist, and George Wansbrough, a left-wing expert in industrial finance; in the event, both were soon caught up in a black-market scandal and stepped down, with the Bank sending neither flowers nor a letter of condolence on Gibson’s death some years later. Significantly, the new directors in 1949 included not only another trade unionist, but the first-ever director to be a clearing banker, in the person of Michael Babington Smith of Glyn Mills. By contrast, one area that saw little change was that of public information. The Bank was now compelled to publish an annual report, supplementing its weekly statement of account; but so unrevealing was its first effort, all of fifteen pages, that as the Economist observed in May 1947, ‘the Bank has found tongue, but she has hardly yet spoken’. Ultimately, in terms of the new dispensation and how it played out, what mattered most was the calibre of the man in charge. Here, the key figure was Kim Cobbold. In 1946 he stayed on as deputy governor against Dalton’s wishes (the chancellor viewing him as too right-wing) but at Catto’s insistence; over the next two years or so, he assumed increasing authority within the Bank; and in October 1948 – after Cripps had briefly flirted with John Hanbury-Williams (chairman of Courtaulds and on the Court since 1936) – it was announced that he would succeed Catto the following March.1 Realistically, the only other full-time Bank person who might have had a claim was George Bolton, though he was even less in tune with leftish notions of how to run the economy than Cobbold was. The choice of governor (for an initial five-year term) was now wholly that of the government of the day; but in practice it was seldom likely to be that straightforward.

Not unnaturally, the Bank during these early years as a nationalised entity went to extra lengths to demonstrate that it was still a major constructive force in the City – a motive reinforced by the fragile state of the City itself, wholly out of sympathy with socialist ministers and operating in the very straitened circumstances of the international as well as British post-war economy. The Bank was especially active in relation to the reopening of London’s commodity markets, including coffee, rubber and progressively the various metals markets; in 1947 it in effect acted as midwife for the formation of the Foreign Banks’ Association; during the winter of 1949–50, as the City came under fierce pre-election attacks from Labour politicians, Cobbold calmed down the chairman of the Stock Exchange and successfully insisted to other City grandees that they also stay above the party political fray; and the following winter he was in full mediating mode as he more or less kept the peace between the ICFC’s Labour-supporting Lord Piercy (who had joined the Court in 1946 and had confidently expected to become governor) and the clearing banks, his main shareholders.

Traditionally, of course, the Bank’s very closest links were with the discount market and the merchant banks (aka accepting houses). For the former, it ensured a major injection of capital, over £10 million by 1947; for the latter, it averted a nasty collision of egos in April that year, in the context of the City’s leading houses coming together to make a huge £15 million offer for sale of Steel Company of Wales debenture stock, a move viewed as crucial on behalf of British exports. The problem was that Lazards’ seventy-six-year-old Lord Kindersley (thirty-two years on the Court before retiring in 1946) had gone too fast without consulting other members of the consortium. Early one morning, in a classic old-City gubernatorial set-piece, Catto telephoned Barings’ seventy-six-year-old Sir Edward Peacock (who had also left the Court in 1946):

I said, all right, let us have a meeting in my room at 11.30 this morning. He said he would attend and bring one of his partners with him. I then telephoned to Lord Bicester but he had not arrived, but Mr R. H. Vivian Smith said he was sure Lord Bicester would be glad to attend the meeting. He suggested that as some of the other Houses that were coming would be bringing a second partner with them, perhaps his father [Bicester] would bring him. I also telephoned to Mr Anthony de Rothschild and asked him if he would attend, and he stated he would be glad to do so. (Barings, Morgan Grenfell & Co and Rothschilds being, in particular, the three houses who felt objection to co-operating in the business in the form put forward by Lord Kindersley.) I then telephoned to Lord Kindersley and told him I was ready for a meeting and that Barings, Morgan Grenfell and Rothschilds were each sending representatives. I told him Sir E. Peacock was bringing a partner with him and so was Lord Bicester. Lord Kindersley asked if I would mind if he brought his partner, Mr Horsfall, and I replied that I would welcome that. Later, I telephoned to Lord Kindersley and suggested that perhaps he might feel it helpful to get a partner or two partners from Helbert Wagg. He thanked me and said that would be most helpful and he would arrange it.

The particular problem, following some conciliatory words from Kindersley, was resolved, though it was telling that three years later Cobbold felt the need to have ‘a word’ with Charles Hambro (still on the Court) and Hugh Kindersley (next generation down, on the Court since 1947) about the Bank’s relations with the accepting houses. ‘I have been feeling for some time,’ recorded the governor of this initiative, ‘that there was a danger of their slipping a little away, particularly having in mind that fewer Accepting Houses are nowadays represented on the Court and also the possibility that future Governors might not have the same personal contacts as hitherto.’ Accordingly, he suggested twice-yearly lunches at the Bank, comparable to the regular lunches for the clearing bank chairmen, to which the heads of the accepting houses agreed, no doubt gladly.2

What almost everyone in the square mile would have been unanimous about was that a strong pound meant a strong City. Inevitably – in the context of a parlous balance of payments situation and the continuing overhang of the sterling balances, despite the Bank’s best efforts to make bilateral settlements with sterling area countries – the early post-war years offered little cheer, with sterling’s first great trauma coming in 1947. ‘Convertibility and all that’ was the title of a Cobbold memo in late April, some two and a half months before sterling was due to become fully convertible into dollars under the US-imposed terms of the American Loan. ‘The more I think about this the less I like it, and I think we are in a jam. The fact that we foresaw this and warned the Treasury during the Washington negotiations is not much consolation … Things have moved against us even quicker than we anticipated and we are being forced into a corner.’ Was the answer to seek postponement? Cobbold believed not. ‘Having accepted the principle of convertibility,’ he insisted in late June, ‘we cannot in any circumstance cancel convertibility without destroying sterling as an international currency.’

Come 15 July, the due date, and there set in almost immediately an appalling drain of dollars (by far the world’s strongest and hardest-to-obtain currency), with little let-up for several weeks. Eventually on 20 August, with Britain virtually out of dollars, Dalton had no alternative but to announce suspension of convertibility. By then, Cobbold had abruptly broken off his holiday in the south of France, flying from Nice to Croydon and then shortly on to Washington, joining the Treasury’s beleaguered Sir Wilfrid Eady. According to Time, he arrived there ‘unshaven and with his old school tie (Eton’s black with narrow light blue stripes) holding up his pants’, with the American magazine reflecting on the obvious symbolism: ‘Not even the Old Etonian belt could disguise the fact that this flurried arrival departed from the tradition of the British Treasury and the Bank of England. Ties as belts were not normal Threadneedle wear, Britain’s financial pants for two and a half centuries had been held up by the stoutest braces.’ Cobbold himself would never waver from his belief that the convertibility crisis had followed the Loan Agreement ‘as night follows day’; and that is surely correct, though it is also pos-sible that for once in its life the Bank had been guilty of not issuing the government with enough dire warnings in advance. Catto for one, however, was disinclined to share in any blame. ‘Convertibility very nearly succeeded,’ he told Per Jacobsson soon after suspension. ‘Had it not been for the crisis in imports and exports, and the government measures [essentially an austerity package] announced by Attlee, it might have come off. We have, of course, hoped that the convertibility would have made people more inclined to hold sterling, but the lack of confidence which arose caused people to leave sterling.’3 The pound and ‘confidence’: it was becoming once again a familiar tune.

Not least just two years later. ‘I had the Chancellor [Cripps] to lunch alone,’ noted Cobbold on 1 June 1949, three months after succeeding Catto. ‘We had a general talk, particularly about the external situation. He is very strong and sound against any move in sterling but is fearful of the effects of a prolonged talking campaign.’ Against a background of Britain’s already threadbare reserves starting to suffer serious losses, the paramount question that summer was whether it would be possible to sustain the existing exchange rate (agreed at the outbreak of the war) of $4.03 to the pound – whether, in short, devaluation was becoming an inescapable reality. Stiffened by Niemeyer (‘Jiggling about with devaluation of Dollar exchange will not help us’), Cobbold over the coming weeks took the predictable line that what really mattered to the holders of sterling were indications that the government was taking a firm grip on public expenditure. ‘I reiterated the view,’ he recorded after a conversation with Cripps on 5 July (first anniversary of the creation of the National Health Service), ‘that the main thing necessary to restore confidence was evidence of action about Government expenditure, and that devaluation was not a positive policy but rather a recognition of disagreeable facts.’ Even so, it was on the governor’s part a careful balancing act, being well aware of the political ghosts of 1931; and in early August, when stressing to Attlee that ‘devaluation by itself cannot be a remedy for the present difficulties’, he was careful to add that ‘it is no part of our submission that the present rate should be maintained at all costs by what may be termed a classic deflationary policy’. That rider was not enough to banish the ghosts. ‘Montagu Norman walks again,’ Dalton had already privately reflected; and during the three-month sterling crisis as a whole, ministers made a determined, broadly successful attempt to marginalise the Bank.

The end-result was Cobbold reluctantly concurring in devaluation – to which the Treasury ultimately saw no alternative – while achieving little movement in terms of expenditure cuts. On the evening of Sunday, 18 September, just before Cripps broadcast to the nation that the pound would henceforth be worth only $2.80 (a fall of 30 per cent, substantial enough to make the pound appear a little under-valued and thereby create some subsequent headroom), Cobbold spoke to an informal meeting of the Court: ‘The one essential thing – and this I repeat and underline – is that devaluation can be done once but can and must not even be in question a second time unless there have been major events such as a world war in the intervening period.’ Solemn enough words, and a moment of national humiliation, but in the immediate future life staggered on. ‘We are getting back into our stride and trying to tackle the numerous problems in front of us,’ the Bank’s Jack Fisher (deputy chief cashier and in charge of exchange control) wrote at the end of the month to an opposite number at the Fed. ‘The weather is delightful, the children are back at boarding school and I am hoping for a little golf this weekend for a change.’4

Either side of devaluation saw the negotiations that eventually led to the creation in 1950 of the European Payments Union – forerunner of the whole European ‘project’ over the next half-century and beyond. It was a landmark that owed little to the Bank, whose attitude during the protracted discussions was almost uniformly suspicious and negative. ‘It no doubt required a considerable effort of mental adjustment in London, the centre of the sterling world, to accept that the tune should at this time be called by a minor power like Belgium,’ reflected John Fforde many years later; an even more damning retrospective judgement comes from Charles Goodhart, looking across the whole admittedly difficult phase from the US Loan to the early 1950s:

It is arguable that the correct way for the UK to have pursued its quest for greater US support was to have put itself in the vanguard of European multilateral solution(s) to the postwar liquidity/convertibility problems. Instead, the Bank (and Whitehall) exhibited devastating Euro-blindness. They could not see much likelihood of joint European initiatives succeeding; they continually feared that any such initiatives would weaken, or complicate, their closer connections with the sterling area. So, although too close to the Continent, and too important, to exclude themselves, or be excluded, from such European negotiations, they were at best half-hearted, often negative and sometimes downright destructive on European proposals.

Accordingly, the assumption in the Bank – as indeed in the City and in British politics at large – was that questions of Empire and the sterling area had a higher importance and priority than those of Europe, that it was sterling and the sterling area that represented Britain’s financial ticket to the world’s top table. One of the few questioning that assumption was Siegmund Warburg, who in 1946 started his own merchant bank but was still viewed by the Bank with distinct suspicion. ‘After the Second World War,’ he recalled some thirty years later, ‘I said to everyone – I even put it in writing – that we had become a debtor nation instead of a creditor nation, and a reserve currency status [a currency held by central banks and other key financial institutions] doesn’t make sense for a debtor country. It’s a very expensive luxury for us to have.’ Had the Old Lady, asked his interviewer, appreciated that iconoclastic perspective? ‘No, the Governor of the Bank of England at the time didn’t like this statement at all, it was against the general view.’5

As for domestic monetary policy, that remained largely quiescent during Labour’s six years in office, with Bank rate staying unchanged at 2 per cent. Enthusiastically espousing cheap money, Dalton received in October 1946 only lukewarm support from the Bank when he decided to convert 3 per cent Local Loans into a 2½ per cent irredeemable Treasury stock (soon nicknamed ‘Daltons’), which by the following spring found themselves at a discount – a fate that only deepened the Bank’s already well-entrenched suspicions about an academic-cum-politician like Dalton getting involved in the practical niceties of market matters. By the late 1940s, with Cripps at No. 11 and Douglas Jay as economic secretary, the focus was on reducing the money supply in order to check inflation, and during 1948 there took place a lengthy, ill-tempered struggle, as the Treasury leaned on the Bank to in turn lean on the banks to keep their advances and deposits under control. The Bank resisted, for the most part successfully. ‘If it is necessary from the angle of credit policy to try to keep advances down,’ Cobbold wrote near the end of the year to the ailing Catto, ‘I still believe that the only satisfactory way is the old-fashioned one of making borrowing more expensive’ – an approach, of course, fatally tarnished in Labour’s eyes by its association with Norman and inter-war monetary policy; while Catto soon afterwards from his sickbed sent Cripps the strongest possible memo that not only expressed his ‘utmost alarm’ about the impracticality of a proposed ceiling for deposits and advances, but declared that ‘it is an entire fallacy to suppose that pressure from the Bank of England on the banks could rectify inflationary pressure which comes from overgearing the country’s economy’. Why were he and Cobbold so hostile to the quantitative ‘ceiling’ strategy? Almost certainly their stated arguments were sincere (and indeed correct), but underlying them was a profound unstated anxiety: the existential threat that that strategy posed to the Bank’s steadily accrued powers of moral suasion over the banking system – powers that relied heavily on discretion and judgement rather than directives and figures.

The Bank’s most serious attempts to get monetary policy conducted the ‘old-fashioned’ way came during Labour’s final year in office, with the arch-Wykehamist Hugh Gaitskell now chancellor and disinclined to be unduly deferential. ‘I must say,’ he reflected quite early about Cobbold and his colleagues, ‘that I have a very poor opinion not only of him – he is simply not a very intelligent man – but of also most of the people in the Bank’; and he added that ‘they are singularly bad at putting their case’. In January 1951, and then in June, he faced considerable pressure from the Bank to strengthen sterling and check inflation (against a backdrop of the Korean War) by sanctioning an increase – albeit modest – in Bank rate. Both times he refused, instead pushing for the banks to restrict their advances and even in July telling Cobbold that he would like to talk directly for himself to the clearing bank chairmen. The governor was not unnaturally alarmed, probably not solely because this request threatened the Bank’s own authority in the City. ‘I believe in the voluntary system by which our banking arrangements are run,’ he recorded after reluctantly agreeing to arrange a meeting for late September, ‘and I believe that once we get into direct Government interference in the credit system we run into very deep waters.’ In the event, Gaitskell’s rendezvous with the bankers never happened, because instead that autumn he and his fellow-ministers were fighting a general election campaign. Cobbold’s public – and carefully bipartisan – contribution was his speech at the Mansion House dinner some three weeks before polling day. ‘We are all in the same boat, capital, management, office, industrial and agricultural worker,’ he declared. ‘If the forces of inflation and depreciation were to be allowed to take real hold of our currency, we should all lose not only what we hope for, but much of what we have. We have faced stormy weather before and the City is ready, along with the rest of the community, to face it and come through it.’

The general expectation – certainly in the City – was that the Conservatives under Churchill would return to power. That was probably also the expectation at the Bank, where on 22 October, three days before decision day, the chief cashier, Kenneth Peppiatt, wrote to ‘Gus’ Ellen, formerly of Union Discount, asking him to call on the 24th. ‘Perhaps I should add that I do not wish the fact you are coming to see me to be known to your old friends at the UD!’6 The subtext was clear enough: with a change of government likely to lead to a return to old-style, pre-1932 monetary policy, guidance from an old money market hand was required in order to oil the very rusty mechanism for Bank rate changes. It was time, in short, to return to the future.

‘After the Second World War,’ reflects Forrest Capie in recounting the muted impact of nationalisation, ‘the Bank continued to regard itself as in many ways independent, and frequent appeals to its independence were made. Throughout the 1950s and 1960s, it was left pretty much alone to manage the exchange rate, manage the government debt, administer exchange controls, take the initiative in monetary policy, look after the City, and so on.’ All that was undoubtedly the case. And Capie quotes Cobbold himself, publicly observing in 1962 that without a significant measure of independence from government – ‘both in operations and in policy’ – it would be impossible for central bankers (including of course at the Bank of England) to carry out their responsibilities. What were those responsibilities? Soon afterwards, in a chapter on the Bank in a BIS publication, the Bank’s John (Jack) Fisher identified eight key tasks or objectives: overseeing the note issue; acting as registrar for the public debt; defending the value of the pound; standing ready to be lender of last resort; supplying expert advice to government; maintaining ‘the credit and reputation of the banking and financial system’; promoting ‘orderly financial and exchange markets’; and promoting ‘the orderly flow of capital in the capital markets’. Fisher seems to have viewed these as perennial, time-honoured responsibilities, ‘implicit’ in the very existence of the Bank in the second half of the twentieth century; and certainly this noble eightfold path that he outlined was as applicable to the 1950s as to the 1960s.7

The 1950s were Cobbold’s decade, being governor throughout. He subsequently recalled his own key priorities:

1 The current weakness of the overseas balance and consequently of sterling, largely due to the legacy of debt left by the War.

2 The need for international monetary stability and the fight against inflation.

3 The movement from the controlled economy of wartime to a freer (and hopefully more prosperous) economy of peace.

These were the objectives of someone who was very much his own man, including being significantly more sceptical than some of his colleagues of Keynesian economics, not least theories about demand management and a managed economy. At a more micro level, the flavour of the man and his style comes through in three early snippets, all from 1949. ‘I spent a lot of the day talking to Bolton, Wilson Smith and others about the American efforts about European exchange rates, convertibility etc,’ he noted only a few weeks after becoming governor. ‘Everybody seems rather over-excited and inclined to rush about in aeroplanes and I encouraged them to go away for Easter.’ A little later, he summarised a talk he had had with Midland’s chairman about the quarterly meetings with the clearing bankers: ‘I have a feeling that they are sometimes a little bare and I had in mind, without trying to launch a Debating Society, to say a word or two occasionally about things of particular interest at the time.’ And in early July he recorded how the Treasury’s Eady had ‘mentioned that somebody in the Board of Trade had written to somebody in the Treasury asking if a junior official in the B.O.T. [Board of Trade] could spend a week or so in the Bank of England to get a closer idea of what we do’, and how in turn he had reacted: ‘I trod firmly on this suggestion.’

Cobbold was not everyone’s favourite. A notably harsh verdict (perhaps owing something to having been overlooked for the top job) comes from George Bolton:

Cobbold was a man of violent contrasts and many puzzling contradictions. He inspired loyalty rather than affection among the immediate circle of his friends in the City and among his colleagues in the Bank, but as a public figure he appeared remote and cold. He could be ruthless, too, and was never quite at ease with financial journalists. He enjoyed the respect of Civil Servants and the City and, to some extent, industry, but was never able or willing to develop an atmosphere of personal warmth and therefore failed to get the best out of his relations with his contemporaries.

More favourable is the judgement of John Fforde, who joined the Bank in 1957 as an economist and would subsequently write a detailed history of the Cobbold era:

He was a careful listener and a thoughtful reader. But he was not a lengthy debater. His meetings were inclined to be short and to the point. He was determined to maintain the authority of the Governor as the Chairman and Chief Executive of the Bank. He was certainly a commanding personality and was to exercise command in an almost military fashion for over twelve years. He was, however, sensitive to any questioning of the decisions that he was not slow to take but in which he may not always have had complete self-confidence. Once he had firmly declared a point of view he had as often as not announced his decision, or at least the general shape of it. Persuading him to change his mind was not impossible but was not a task to be taken lightly.

Ultimately, Cobbold was someone who was comfortable in his own skin and slept soundly at night – invaluable qualities in any central banker. Class helped. Married to Hermione Bulwer-Lytton (daughter of the second Earl of Lytton), and living from 1947 at her ancestral seat of Knebworth House, he was a distinctly Etonian Etonian. ‘During my time in the City, those who hadn’t been to Eton were striving for Eton standards and the Eton ethos dominated from Kim Cobbold downwards,’ recalled one leading merchant banker, Michael Verey of Schroders. ‘Good Etonian standards means a total trust – if you say you’ll do something, you’ll do it.’8 Crisp, authoritative, pragmatic, not always articulate: Cobbold had the stature and the steel for his office.

Who were his colleagues? Dallas Bernard (1949–54) and Humphrey Mynors (1954–64) were his two deputy governors: the former’s background was Jardine Matheson and the Far East, but he had become an executive director in 1939; while the latter was of course the Bank’s pioneer economist – though an economist with a marked horror of the words ‘economics’ and ‘research’, and who in 1948 confessed to Eady that ‘I do not move easily in the post-Keynesian terminology, although I believe it is largely only restating the old truths.’ Deeply unimpressed that same year was Robert Hall, head of the Treasury’s Economic Section. ‘It is hard not to get the impression that the Bank do not think at all about credit control as economists do,’ he noted after a meeting with Mynors, ‘and indeed that they don’t quite understand what it is all about.’ Fforde put it a little more gently. Mynors had, he insisted, ‘a first-class mind’ (as well as ‘great personal charm’), but ‘he often gave the impression either of keeping his cards very close to his chest or else of great reluctance to disturb the conventions and ambience of Norman’s Bank’.9

Among the executive directors, meanwhile, were Harry Siepmann (1947–54), whose ‘interests narrowed’ and ‘attitudes hardened’, according to Fforde, after the 1947 convertibility trauma; Kenneth Peppiatt (1949–57), who had had a long run as chief cashier and was an expert on the gilt-edged and money markets, but (again in Fforde’s words) ‘would never have regarded himself as capable of arguing out a particular monetary policy in analytic terms with the university-educated mandarins in the Treasury’; Cyril Hawker (1954–62), who had made his name during wartime exchange control and was renowned (amid stiff Bank competition) for his love of cricket; and Maurice Parsons (1957–66), who was knowledgeable, a lay preacher (‘the parson’) and an imposing presence, but who in Fforde’s judgement found the post ‘probably a strain on his underlying capacity’, as confirmed by ‘his reluctance to work with more than a very few chosen lieutenants at any one time’. The weightiest – and most controversial – of the executive directors was undoubtedly George Bolton (1948–57, knighted in 1950). ‘He stood well over six feet tall, had reddish hair, bright blue eyes, a round and cheerful countenance, a deep seductive voice, and all the agility of an exchange dealer,’ notes Fforde. ‘It must,’ he adds, ‘have taken skill, courage, and a stern heart to stand up to him,’ especially relevant given that ‘Bolton’s judgement was at times erratic and over-influenced by his personal opinions.’ Norman had come to much the same view – ‘not balanced, but often a strange insight’ – while Hall at the Treasury reckoned him ‘essentially an operator’ who ‘takes snap decisions by instinct and finds any reasons that come into his head to justify them’. Hall would also note in 1952 that, after devaluation three years earlier, Bolton had ‘told several of my friends that the Bank had been in favour of it a long time and had wanted a floating rate’, whereas ‘both statements are exactly the opposite of the truth’.10 All in all, it would have been an interesting ride if this undeniable visionary, appreciably more aware than anyone else at the Bank of what was needed in order to restore London’s position as an international financial centre, had become governor in 1949.

At least half a dozen others were significant figures. Two were advisers to the governor: Lucius Thompson-McCausland (1949–65), an Anglo-Irish classical scholar who, remarks Fforde with evident scepticism, ‘had great confidence in his own intellectual powers, moved easily among senior Whitehall officials and economists, and regarded the exposition and indeed the further creation of monetary economics as within his capabilities’; and Maurice Allen (1954–64), a more trained economist whose ‘highly expectational, psychological, and non-quantitative approach to monetary economics’, including a conspicuous lack of interest in monetary aggregates, did not, asserts Fforde, ‘encourage the enlargement of the Bank’s statistical and economic services’. Two others were, in turn, chief cashier: Percy Beale (1949–55), of ‘outstanding technical ability’ according to Fforde, but arrogant, unpopular and in due course shunted out; and Leslie O’Brien (1955–62), who since the 1920s had worked his way up in the Bank but may have thought he had reached his ceiling, being informed by Cobbold on his appointment that it was the Court’s expectation that ‘he should have a long tenure of office, perhaps for the rest of his Bank career, while others may move elsewhere and possibly higher’.

The last two were Roy Bridge and Hilton Clarke, both in some sense representing the very soul of the Bank and for much of the decade in charge of the Dealing and Accounts Office and the Discount Office respectively. Bridge, who had entered the Bank in 1929, was the master of the foreign exchange scene, ironically enough a mastery that coincided with sterling’s long, unstoppable decline. An appreciative observer was the Fed’s Charles Coombs, writing on Bridge’s retirement in 1969:

He was a familiar figure at Basle, of course, the suave, imperturbable negotiator with the air of an experienced old cat quietly appraising an unwary mouse. Yet he rarely had an easy negotiating brief. But the style he chose, a devastating candour in analysing market developments and the issues at hand, saved precious time and avoided dangerous misunderstandings. More generally, his operational relationships with foreign central bankers were marked by an unswerving sense of integrity and fair play. We trusted him.

To some of his foreign central banking associates, Bridge probably appeared at his best on his home ground, when we happened to be in his office at moments of crisis in the foreign exchange markets. Then, we could watch the true professional, alert to all of the technical and psychological forces of the market, as he took decisions whether to hold a certain rate level, at possibly heavy cost, or to retreat and risk even heavier losses. Those were not easy judgements, but they were made decisively and courageously as he paced the floor between crackling telephone calls and snarling commentaries on whatever had brought things to such a pretty pass.

‘He was fluent in several foreign languages,’ added Coombs. ‘Yet there was no trace in him of the romantic internationalist. No one ever mistook Bridge for anything but a hard-shelled patriot, who thought of international co-operation strictly in terms of a visible overlapping of national interests.’ As for Hilton Clarke, who had joined the Bank just after his eighteenth birthday in 1927, an eventual obituary captured some of the salient qualities of a Bank man through and through:

As principal [of the Discount Office], Clarke was in effect the eyes and ears of the Governor of the day. In his disciplinary role, which he executed with wisdom and good humour, he was the personification of ‘the Governor’s eyebrows’. Clarke’s breadth of acquaintance and his ability to gather City intelligence were legendary. A master of the calculated indiscretion, he would appear to let slip confidential snippets while extracting information from his unwitting interlocutors.

Tall, dapper and resplendent in his silk hat, Clarke controlled the discount market by the force of his presence. His firmness was never resented. When a young bill broker asked for the customary seven-day loan to cover a cash shortage, Clarke replied that the Bank would make the loan for nine days at a punitive rate. When the supplicant protested, Clarke cut him short: ‘And it’ll be eleven days in a moment.’

Strong-minded, humorous, decidedly non-cerebral, and based in what was sometimes called ‘the window in the windowless wall’, Clarke was on just the right wavelength to use the most informal but assiduous of methods to uncover and assess the creditworthiness of the City’s most sensitive markets and houses.11

Taking Cobbold and his top team as a whole, there persisted through much of the 1950s a disinclination to open up to the outside world, epitomised by the blandly uninformative annual report and the infrequency of governor’s speeches. The high-profile economist Lionel Robbins, reviewing on the Third Programme in May 1957 Henry Clay’s biography of Norman, made a powerful point. After noting that Norman’s ‘almost aggressive parade of reticence and disguise’ had led to ‘ignorant people’ suspecting ‘all sorts of sinister implications which did not exist at all’, he called on the present-day Bank to ‘remember that, in a democratic age, the preservation of values and the creation of an informed public opinion demand not only intuition and devotion in action but also systematic reason and the frank explanation of policy as it evolves’. Another aspect of this introverted streak was the tendency to keep the Treasury at arm’s length (and indeed beyond) as much as possible. Cobbold paid regular visits to the permanent secretary, but the exasperation on Hall’s part was understandable when he declared in 1956 that ‘it is really almost unbelievable how little co-operation in economic policy we have had from the Bank of England over recent years’.

As for inside the Bank itself, and its capacity or otherwise to contribute to broader policy-making, it is impossible not to quote John Fforde’s overview of the institution he got to know soon afterwards:

Norman, it is reported, once opined that the Bank was a bank and not a study group. This adage was often repeated and much admired by many among the generation of officials at the top of the Bank in the forties and fifties. Correctly interpreted, it meant that the Bank should never let its eyes wander from the market-place, whether that be foreign exchange, money, gilt-edged, or banking practice. Wrongly interpreted, it was taken to mean that systematic thought and exhaustive debate were somehow not required and that a wisdom acquired from market experience was an adequate substitute for rigorous analysis. Put these ingredients into a very hierarchical system of management, into a staff mostly lacking in university training, and into an informality of discussion on matters of policy that was confined to a very few at the top and there had to result a tendency to make things up as one went along; admirable in the management of markets or talking to accepting houses, inadvisable when preparing legislation.

Or in the words of Charles Goodhart (who himself got to know the Bank in the 1960s), on the basis of Fforde’s study of the Cobbold era, ‘a not entirely flattering picture emerges of a tiny group of intelligent officials without a clear strategic grasp of emerging wider politico-economic world trends, eschewing quantitative professional economic advice, and reacting to overwhelming pressures in an unfavourable context by reliance on technical, market virtuosity’. It was a culture with – for good as well as ill – very deep roots. In October 1948, after a year in Exchange Control, the young Stanley Payton entered the Overseas Office, where the work was a mixture of financial diplomacy and international economic intelligence. Having been assigned to the Commonwealth Group, where his superintendent was W. J. Jackson (immaculate suit, stiff white collar, showing Payton early on how to hold a cigarette in a way that would not be thought ‘vulgar’), his first job was to write a memorandum on the world production of rice:

I spent days of research in the files and the reference library and produced what I thought was a masterpiece. Jackson circulated it to a number of big names in the Bank and I thought my reputation was made. After some days it came back with only one comment: ‘Monkeys are a menace,’ written on the first page by R. N. Kershaw, the Economic Adviser. In the margin of the second page he had added ‘monkeys are a menace in India and Burma where they cause great depredation to crops’.12

The coming of Churchill’s government in October 1951 opened a new phase in Cobbold’s governorship. A quarter of a century on from the ill-fated return to gold, Churchill himself still did not feel any great warmth towards the Bank, but it helped that Cobbold’s mother-in-law was, in his words, ‘a life-long intimate friend of Sir Winston’s’ and ‘I was, therefore, regarded as a near-family friend.’ Indeed, Cobbold came to reckon of the prime minister’s Indian Summer that ‘without his support we should have got nowhere on the reintroduction of flexible monetary policy’. At the time, at the start of November, the governor spoke ‘secretly’ to the chairmen of the clearing banks on the understanding that what he said stayed in the room. ‘The pos-ition of sterling was very difficult,’ began his summary of the briefing he gave. ‘The whole question of monetary policy was under review with H.M.G. [His Majesty’s Government] …’ and ‘I was particularly anxious to get away from rigidities. If it proved possible to make any move on these lines it would be experimental and the machinery would be rusty. We should need a lot of help from the Clearing Banks …’ A week later, Bank rate rose from 2 to 2½ per cent – the first change since nationalisation, and with the new chancellor, Rab Butler, happy to accept Cobbold’s advice. By February 1952, with the balance of payments as well as the sterling position seemingly deteriorating quite quickly, Cobbold was pushing hard for a more substantial rise, to 4 per cent. Again, on 11 March, Butler obliged. Next day, though, the governor was reporting to him ‘a lot of sore heads’ in the City, with the sorest belonging to the discount market. There, back in November, the Bank’s broker (or special buyer), Lawrence Seccombe, had persuaded it to play its part in the so-called ‘forced funding’ operation. This had involved the take-up, under considerable moral pressure, of a mass of newly issued serial funding bonds; unfortunately, the sharp rise four months later led directly to substantial capital losses for all holders, including Seccombe’s own firm.13 So long absent from the scene, monetary policy – the Bank’s special domain – was poised to become increasingly controversial, outside as well as inside the City, as the decade went on.

On the external side, a significant moment was the reopening of the foreign exchange market in December 1951, symbolising a greater freedom for the City under the new government but prompting a sceptical take by ‘Sagittarius’ in the New Statesman:

The Old Lady has eased some restrictions

And opened the Foreign Exchange

And brokers base joyful predictions

On this timely, if overdue, change.

Spot cash for the forward transaction

The Bank will to bankers advance –

But the citizen sees no reaction

In the region of private finance.

The Old Lady is showing her mettle,

Resourceful, adroit and resolved,

And they say that the Market will settle,

Though the process is highly involved.

Return to our banking tradition

Our balance of payments will save –

But the balance of payments position

Remains, for the citizen, grave.

Unbeknown to poets and almost everyone else, a potentially far more dramatic development was brewing that winter on the external side, against a background of what may well have been exaggerated fears about the downwards trend in the sterling reserves. This was ‘Operation Robot’, taking its name from the three officials most closely associated with its formulation: Sir Leslie Rowan (Treasury), Bolton of the Bank, and ‘Otto’ Clarke (Treasury). In essence, it involved simultaneously making sterling convertible and floating the pound. Bolton, in his key memo of 16 February, made his pitch in typically bold terms, arguing that a fundamental choice existed ‘between allowing sterling to become a domestic currency involving the collapse of the international sterling system and the sterling area, or accepting convertibility of non-resident sterling, thus retaining sterling as an international currency’. Given which, he proposed that ‘the present policy of partial convertibility and partial inconvertibility should be replaced forthwith by a policy of comprehensive convertibility of all sterling in international use through the machinery of the exchange markets’. What Bolton did not do, however, was discuss the domestic implications – inevitably deflationary – of such a policy.

Very briefly, Robot appeared to have political legs. ‘C of E sold, PM interested and great hopes favourable decision,’ Bolton buoyantly noted on 20 February, after hearing Cobbold’s report on his dinner the previous evening with Churchill and Butler. Soon afterwards, on the 22nd, Churchill received a Bank deputation, headed by Cobbold, formally advocating the plan. According to Donald MacDougall, economic adviser to Lord Cherwell, the paymaster general, Churchill subsequently ‘reported that they were a fine, patriotic body of men, anxious to do what was right for the country’. But Cherwell himself – who was in reality Churchill’s personal economic adviser and had a distinctly low regard for the Bank – now took the lead in opposing Robot. ‘The view of the Bank,’ he wrote disparagingly to Butler on the 25th, ‘is that there is now such a drain on the reserves that they cannot be held on present policies, and that measures of the kind now proposed are inevitable. I have seen no evidence for this.’ The 28th and 29th saw the crucial Cabinet discussions. Churchill deep down was attracted to liberating the pound, but decisive opposition came from his heir apparent, Sir Anthony Eden. ‘The country are not ready,’ Eden told a colleague, ‘to cast away the whole effort of years and return to “Montagu Normanism” without a struggle.’ Despite brief and misleading flickers of life thereafter, Cherwell in mid-March put what was in effect the final nail in Robot’s coffin. In a brilliantly crafted memo to Churchill that anticipated appalling consequences – ‘an 8 per cent Bank Rate, 2 million unemployed and a 3/- loaf’ – if Robot was adopted, he took aim squarely:

Our fundamental problem is that the Sterling Area is spending more than it is earning. We have to put that right by exporting more and importing less. No monetary tricks can overcome this hard fact …

It is at first sight an attractive idea to go back to the good old days before 1914 when the pound was convertible and strong and we never had dollar crises. No doubt the bankers honestly believe that, if only the pound could be left to market forces, with the Bank of England free to intervene when necessary by varying the Bank Rate at their discretion, all would be well. The country’s economy, they think, would be taken out of the hands of politicians and planners and handed over to financiers and bankers who alone understand these things …

Sterling, I repeat, cannot be made strong by financial manipulation. It is the real things that count – more steel mills in Britain, more ship loads of British manufactures crossing the Atlantic, more Australian farmers growing wheat and meat for England, more cotton plantations in the Colonies. That is the way to make sterling strong. It is a hard way and it will take time, but it is the only way.

‘I trust,’ concluded Cherwell, ‘we shall not allow ourselves to be persuaded that there is a painless, magical way – by leaving it all to the Bank of England.’

Far from everyone in the know in Threadneedle Street had been convinced of Robot’s merits, including perhaps Cobbold by the end; but the episode still left the Bank, in Fforde’s words, ‘severely bruised’, being perceived as having ‘rashly attempted to engineer a change of economic and monetary strategy without proper consideration or consultation in Whitehall’. The debate would continue for many years whether the failure to implement Robot was the great missed opportunity of post-war economic history; but in the here and now of 1952 the focus switched to achieving convertibility more gradually, with a new and coherent Bank/Treasury plan (‘Collective Approach to Multilateral Trade and Payments’, involving American help and European co-operation) in place by the autumn, followed in March 1954 by the reopening of the London gold market and in February 1955 by the de facto (if not yet de jure) convertibility of sterling for non-residents at practically the official fixed rate. ‘A long steeplechase course with fences to be jumped at intervals, some stiffer than others, but with a lot of steady plodding in between,’ was how Cobbold in 1954 described that route to convertibility, and there was still the odd obstacle ahead.14

By then, the Conservative government had successfully denationalised the steel industry, nationalised by Labour. ‘I found myself,’ recalled Cobbold, ‘in the extraordinary position of having to act as adviser and “pusher” to the sellers (Chancellor and Minister of Supply), the intermediaries and agents (Issuing Houses), and the buyers (mainly Insurance Companies), not to mention negotiation with the banks and the Stock Exchange, as well as many of the individual companies.’ Indeed, it was the governor who in April 1953 assembled an issuing consortium, comprising the major merchant banks and to be headed by Morgan Grenfell. ‘This whole matter is far too political,’ complained one merchant banker, David Colville of Rothschilds, to Cobbold’s face at a meeting at the Bank of the issuing houses:

What the Bank of England is in fact doing is to use its influence in the City, acting as the nationalised agent of a government controlled by a political party, to obtain the support of private enterprise to help implement the election promises of that party. In effect, private enterprise is being suborned by a nationalised institution for political ends and the Bank is, moreover, seeking to throw the whole political onus and possible loss on the City, without taking either risk or responsibility.

Colville received little support for this remarkably frank attack, but it was another reminder of that inherently treacherous terrain that the Bank occupied, somewhere between government on the one hand and the City on the other. Undeterred, Cobbold over the next fourteen months continued to play a key role as the sale to the investing public and institutions was undertaken in turn of six of the biggest steel companies: talking to key figures like Carlyle Gifford of the Scottish Investment Trust, or agreeing to ‘have a word with the Chairman of the Pru’; ensuring that the Bank acted as a long-stop in the underwriting process; persuading Butler that, after a poor response to the Lancashire Steel Corporation’s offer, the process ‘be left to simmer for a bit’ and ‘that there was nothing to be gained by rushing any fences’; and generally, through deft deployment of his considerable force of personality, leading from the front.

The first privatisation virtually coincided with that disturbing phenomenon, the contested takeover bid, previously almost unheard of in the corporate world. In March 1953, in the context of the hard-bitten outsider Charles Clore initiating a much publicised stake-out for J. Sears & Co (parent company of Freeman, Hardy & Willis), the Bank drew up an internal ‘Memorandum on Real and Fictitious Share Bids’, arguing that ‘this kind of manoeuvre may mean the break-up of businesses which are making an important contribution to the country’s needs’. Even so, notwithstanding the concerns of the City establishment at large, there was a limit to how far the Bank felt it could go in preventing such bids, as the senior figure at Morgan Grenfell discovered on a visit to the governor’s room that summer:

Lord Bicester came in to say that he was very agitated about further manoeuvres by Mr Clore and wondered whether I could not suggest to the Insurance Companies that they should not lend him money. I said that I thought this would be extremely difficult. I started by being reluctant to interfere with other people’s business. Although I had no love for Mr Clore’s activities I found it very difficult to draw a line between what was moral and what was immoral in this field and I certainly had no evidence of any misbehaviour by Mr Clore. Finally I thought that if I talked to people, the nice people would play and lose the business which would be taken by the nasty people …

The winter after that tellingly Manichean observation saw the battle for the Savoy group of hotels, including Claridge’s and the Berkeley as well as the Savoy itself. The aggressor was the property developer Harold Samuel, acting in informal liaison with Clore; and for a moment the government was minded to step in on the Savoy’s behalf, until Cobbold pointed out to the minister concerned, Reginald Maudling, that ‘any remedy would cause more trouble than the disease’. Accordingly, the Savoy was left to save itself, which it managed to do with significant help from Anthony Tuke, chairman of Barclays. ‘Mr Tuke told me privately that they had fixed up the Savoy business,’ noted Cobbold in early 1954. ‘The Savoy people had managed to collect some quite good guarantees but it had still meant Barclays taking the shares at 40/- instead of the 30/- they had originally contemplated.’ The governor’s note at the foot of his memo was Normanesque: ‘I am telling HMT [the Treasury] 1st sentence only.’15

The previous autumn had seen Bank rate reduced from 4 to 3½ per cent – the first Bank rate change since the war to be announced in the traditional way, with a notice being posted in the front hall of the Bank at precisely the same time that the government broker (Derrick Mullens) arrived on the floor of the Stock Exchange, climbed on to the customary bench, took off his top hat and bawled out the new rate to the assembled gilt-edged market. The question increasingly, though, was whether monetary policy, having been neglected for so long, could carry the load. ‘I stressed the danger of thinking that monetary policy could do more than it can,’ noted Cobbold as early as July 1953 after one of his quarterly briefings for the clearing bankers. ‘The main problems remain those of Government expenditure, taxation and the tendency for wage increases.’ Moreover, he was uncomfortably aware that if the Bank was to continue to retain a significant degree of control over monetary policy – squeezing out the Treasury, certainly below the very top level – then that policy had to be seen to be working, the chances of which hinged on a whole range of factors, mostly beyond the Bank’s control. By the start of 1955, he found himself in a particularly unenviable position. A summer election was in the offing, the stock market was booming and it would have been little comfort to read the Financial Times on New Year’s Day assuring its readers that, ‘with the monetary weapon available to check inflation’, Butler would be free in his budget in the spring to concentrate on tax cuts.16

A fateful year played out with an implacable inevitability. Eden was prime minister from early April, not long after Churchill had paid his one and only visit to the Bank, for a farewell dinner. There was some anxiety beforehand – Churchill wanting champagne, as well as worried that Niemeyer might be present – but, recalled Cobbold, ‘in any event he came and we made polite little speeches, there was a lot of champagne and a good time was had by all!’ On 19 April, Butler delivered his much awaited budget and duly cut the standard rate of income tax by sixpence, while publicly pinning his faith on ‘the resources of a flexible monetary policy’ in order to counterbalance this fiscal generosity. Already, behind the scenes, the signs were visible of serious trouble ahead. On the Bank’s part, Cobbold the day before the budget was trying to nudge the clearing bankers to apply the brakes, telling them that he had ‘heard a good deal of gossip round the place that there was little or no change in the attitude of the banks towards lending’ and that he ‘thought this ought to be put right’; on the Treasury side, Robert Hall was even more critical of the Bank than usual. ‘They have never been too keen on being tough with the Banks,’ he observed in his diary on budget day. ‘Now the Governor tells the Chancellor that he is being tough with them, but Oliver Franks (now Chairman of Lloyds) tells me that this is not so …’ And he added ominously that ‘altogether we are working up to some sort of éclaircissement with the Governor, but whether the Chancellor will support us I don’t know – he has always felt that the Governor is in the saddle and that it is a very serious thing to disagree with him’.

Some five weeks later Eden and Butler won their election, which was followed even more predictably during the rest of the summer by serious inflationary and balance of payments pressures. The first crunch came in July. While Butler on the 26th announced a round of credit-tightening measures, Cobbold and the Treasury engaged both before and after (going into August) in a fierce tussle over the governor’s exclusive authority to deal with the clearing banks, with the Bank’s man successfully counter-attacking through his usual line that a ‘credit squeeze’ would work properly only if more was done ‘to cut back public spending’. The second crunch came in the autumn as severe pressure on sterling led by late October to an emergency budget and significant cuts in government expenditure – though not significant enough for Cobbold, who told Butler soon afterwards that he ‘continued to feel doubts whether it was possible to run a defence programme and a social programme of the present size at the same time, without keeping the economy overloaded’. As for monetary matters, the mood in the Treasury remained deeply resentful of what it saw as a tacit conspiracy between the Bank and the banks not to implement credit policy with sufficient stringency – a charge that Cobbold strongly denied, claiming in November that ‘in the last few months’ the banks ‘had done much more than anybody else to fight inflation’.17 Increasingly, West End was telling East End how to run its affairs, and vice versa: not a happy situation.

Butler, his reputation badly tarnished, was replaced in January by Harold Macmillan. Believing that the debacle of the previous year had been caused less by his predecessor succumbing to the electoral cycle than by ‘ignorance, lack of proper statistical information, bad Treasury advice, a weak Governor of the Bank, & resistance of the Clearing Bankers’, the new chancellor was soon enjoying personally cordial but professionally difficult relations with the governor, amid a circle increasingly hard to square: the Bank and the banking system wanting to stick as far as possible to a voluntary system of credit control; such a system appearing at best only semi-effective; and naturally the Bank and the bankers looking to shift the blame elsewhere. February, with sterling once again in trouble, saw a temporary accord – Bank rate raised to 5½ per cent, Macmillan acceding to Cobbold’s demand for a package of expenditure and investment cuts – but in late March there was an explicit stand-off:

I am wondering [Macmillan wrote to Cobbold] whether you could not help me, not merely by what you are doing but by getting the full benefit of everyone knowing what you are doing. For it is not only what we are, but what we seem to be, that matters …

The question of liquidity ratio [the ratio of cash held by banks relative to their deposits] seems to be worth considering again from this point of view. I know at present you rely on the banks carrying out your general wishes. But is there not a lot to be said for this system being more regularised? For instance, could I announce in the Budget that the liquidity ratio was now to be imposed by the Bank of England on the banks?

The governor in his reply gave no ground. After arguing as usual that the banks were already being squeezed as severely as possible, and that it was the expenditure side of things that really needed the chancellor’s attention, he upped the stakes:

There has been no major banking failure or moratorium in living memory, no Government has had in this country to rescue the banks from unliquid commitments, the banks have survived two great wars and immense economic changes without loss to anybody and they have provided enormous help to the Government of the day in war and peace.

Our banking system is incomparably better co-ordinated, more responsible and more willing (some critics would say too willing) to listen to official advice and requests than any other banking system in the world …

Macmillan backed off for the moment, but by early May, after further discussion on the vexed subject of liquidity ratios, was noting that ‘the Governor is putting a fast one over me, I fear’. Eventually he did accept that a prescribed liquidity ratio was unrealistic (except in an emergency), but at the same time exacted a price for that acceptance. ‘I want to see & talk to the Clearing Bankers myself,’ he recorded in his diary in early July. ‘Mr Governor does not like this, as he regards himself as the right person to deal with the Clearing Banks. We compromised. He will see them, & tell them my wishes this week. I will see them later on in the month …’ That meeting duly took place on the 24th – the day after an entry in the governor’s diary that would not have surprised the Trollope-reading chancellor: ‘I had a talk with Mr Robarts [chairman of the Committee of London Clearing Bankers] and Sir Oliver Franks about tactics at the Bankers’ Meeting with the Chancellor.’18 At which point, late July 1956, Egypt’s President Nasser nationalised the Suez Canal Company, and suddenly all that tactical manoeuvring seemed rather unimportant.

Three months later, at the end of October, military action began. A Fed memo on the 31st recorded the gist of Bolton’s telephonic commentary on the Suez crisis as seen from Threadneedle Street:

Just don’t know how things are going to turn out. If Suez settles down quickly, maybe alarm in the market may also disappear. We now have an open breach between London and Washington and that may have consequences one can’t foresee very accurately … I was quite convinced that something was going to happen – only thing that surprised me was the speed … I regard that sort of thing as being quite inevitable. Sorry it happened so quickly and also before the [US presidential] election …

‘The pressure on Sterling was considerable,’ Cobbold next day told the discount market, adding that he didn’t ‘wish it to continue in this way for 365 days in the year’. On 6 November, faced by Britain’s reserves draining away and the Americans unwilling to come to the rescue by offering dollar loans, Eden announced a ceasefire. That, though, did not halt the run on sterling (not helped by the recent Russian invasion of Hungary), and on the 15th the Fed’s John Exter recorded a far-from-buoyant Bolton:

Sir George seemed tired and harried. He said there was a real war psychology in Europe and that there was strong pressure away from Continental currencies and toward North American dollars. He said that as far as they were concerned in Britain they were very discouraged about the situation and were at loose ends as to what to do. He emphasized twice in the conversation that the deterioration had gone beyond the point where it could be handled by any available techniques. I inquired about direct controls and he indicated that he did not think tighter controls would do any good.

By the time things stabilised, during the second week of December, Britain had lost $450 million of reserves since 30 October – ultimately, the cost of an episode that had marked, with brutal clarity, the end of Britain as a world power.

That episode also now prompted a Cobbold special:

Whatever longer-term effects Suez may prove to have on the economy [he wrote to Macmillan five days before Christmas], it has certainly had the immediate effect of laying bare to the public eye, both at home and abroad, some of the weaknesses of which we have long been conscious …

The fundamental trouble is that the economy and the public purse have been over-extended for many years, partly as a result of the war and partly because of the many commitments, social, military and political, which we have since undertaken (most of them doubtless justifiable on their own merits but adding up to a total bigger than we could afford).

On top of our domestic commitments, we are overstretched by our banking liabilities to overseas holders of sterling …

Accordingly, he called for ‘dramatic, far-reaching and convincing measures in 1957’; and he ended by asserting that ‘we are, I believe, at a cross-road, where the whole future of sterling, and everything which that implies, depends on the decisions of the next few months’. Just over a fortnight later, Macmillan replaced Eden. ‘Mr Hallett called to say that they were pleased with the way sterling was behaving and that they had been able to acquire some dollars,’ noted the Fed’s Thomas Roche next day after a phone conversation with Richard Hallett, deputising for Roy Bridge. ‘Hallett said that they, in the Bank of England, were of the opinion that the resignation of Eden had cleared the air and they look forward to more settled conditions for the rest of the year.’19

The recent Suez drama did not obliterate memories of the monetary system’s embarrassing failure in 1955 to deliver the credit squeeze on which Butler’s tax-cutting pre-election budget had been predicated; and in April 1957 the new chancellor, Peter Thorneycroft, announced that the eminent lawyer Lord Radcliffe would be chairing a formal inquiry into the working of that system. In mid-May, after a fairly staid, eminently respectable array of Bank-vetted names had been assembled, Cobbold sent Radcliffe ‘Some Thoughts at Random’:

I hope that the Committee will not feel it necessary to go deeply into relations between Government and Bank. They have worked out happily, much along the lines which you will remember we were hoping for at the time of the [1946] Bank Act; though there is a mild blow up from time to time, the relationship is pretty smooth and pretty well defined in practice. This does not seem to me a matter of much public controversy, and I hope it may be ‘taken as read’.

I think you will also find that working relations between the Bank of England and the Banking System are pretty good. The Banks dislike ‘directives’ and are getting tired of the credit squeeze – but, even so, relations are close and harmonious. The only place I expect you to hear contrary views is among some banking economists who feel that they are inadequately consulted …

Many people (and some members of your Committee) will press for more information from the ‘Authorities’ … We ought not to go too fast or too far. And Heaven protect us from a monthly ‘Federal Reserve Bulletin’, a duplication of Government Economic services, and a continuous spate of unreliable statistics and prophecies …

Notwithstanding the Treasury’s intense frustration over the previous couple of years with the Bank’s unwillingness to instruct the clearing banks to cut their advances by a specific amount, Cobbold was also in productive, pre-emptive correspondence with its permanent secretary. ‘Each of us will keep in touch with the other’s thinking while we prepare our positions,’ Sir Roger Makins assured the governor, who for his part replied, ‘We are, I think, in full agreement and I foresee no difficulty in practice.’

Two early sessions in July saw Cobbold giving evidence. Asked about his institution’s openness or lack of it, he insisted that the Bank needed to be able to offer its advice to government ‘on terms of strictest banking secrecy’, adding that ‘there is very much to be said for the policy we generally adopt of hammering out any differences of policy or view and by and large leaving it to the Government to explain the decisions finally taken’; even so, he went on, ‘on balance the Bank’s policy is in fact to be rather more forthcoming than it was, I would judge, in the old days’, and he noted that ‘it has been my practice to make speeches from time to time – not a great many, perhaps two a year – saying a good deal about the Bank’s view on current policy developments’. In short: ‘Our view is that it is very much better that we should be able to choose our own time when it would be useful and helpful to the public to say something rather than be forced by some regular monthly or weekly arrangement to say something, or indeed perhaps to say very little, in frequent, regular statements.’ Cobbold gave a controlled, measured performance almost throughout, but did allow himself the occasional show of emotion. Given that the Bank was now nationalised, would he equate his position, Radcliffe boldly asked, with that of ‘a leading Civil Servant’? To which the governor indignantly replied: ‘Not at all. I am a servant of the Bank Court.’20

Within weeks of these appearances, sterling was yet again under intense pressure, with reserves tumbling fast. ‘We have a difficult time ahead,’ Cobbold warned Thorneycroft on 22 August before going on holiday to Sardinia, adding darkly that ‘the Germans are going to behave like Germans’. The focus turned to his deputy, Humphrey Mynors. ‘We may be in for a real exchange tussle,’ Mynors wrote in early September to an absent director (the Court’s by now semi-obligatory trade unionist, Sir Alfred Roberts) in response to August’s alarming exchange figures. ‘I remain convinced that our prosperity and standard of living will suffer a mortal blow if the pound goes again, even though it is not easy to put this across as it is not apparent in everyday life.’ Over the next week or so there developed what was tantamount to a constitutional crisis: the chancellor was adamant about the necessity of a 5 per cent reduction in bank advances; the clearing banks were equally adamant that such a policy was not only ‘unwise’ but also ‘unworkable’; and as usual the Bank was stuck somewhere in the middle, though with Mynors making it very clear to Thorneycroft that a) it was highly undesirable that the voluntary approach to bank credit be jettisoned, and that b) under the terms of the 1946 Act the government would require fresh powers if it sought to limit bank advances without doing so via the Bank. That left the possibility of Thorneycroft issuing a formal directive to the Bank to get the banks to do his bidding – a drastic option that in the end he pulled back from. Instead, the inevitable outcome was a major hike in Bank rate, with Cobbold persuading the reluctant politician that there was no alternative to a stiff 2 per cent rise – from 5 to 7 – if the pound was to be saved. Thorneycroft duly made the announcement on 19 September. ‘There has recently been a good deal of speculative pressure against the pound,’ a Bank spokesman declared in strikingly robust language. ‘People have been selling sterling. This will show them “where they get off”.’21

The hike did its job – pressure on sterling soon easing – but left a vexed Thorneycroft convinced that proper control over the money supply was imperative if creeping inflation was to be mastered. Cobbold, for every reason, was sceptical. ‘I do not accept the view that we have lost control of the money supply,’ he wrote to Thorneycroft in early October, warning at the same time about the danger of making ‘this country the only leading democracy where the Treasury (as opposed to the Central Bank) has powers to direct the commercial banks’. Or again, later that month in a note on a meeting with Thorneycroft ahead of an economic debate in the Commons: ‘I hoped that the Chancellor would not allow himself to get pinned down in the Debate too exclusively to his money supply arguments. I thought it would be unwise to get too far into an academic argument anyway and, as he was aware, I did not feel that the total money supply was by any means the whole question.’ Such sentiments were entirely consistent with the governor’s general reluctance to pin everything on monetary policy, as he explained to the Radcliffe Committee in early November, reflecting on the six often charged years since the reactivation of monetary policy:

I think, if I examine my conscience, I should find it difficult to feel that we really hoped in any of these Bank Rate moves really to reverse the situation. We have felt throughout this period that we could not reverse the situation by Bank Rate or monetary measures in the private sector unless they were in line with and only used in support of action on a wider field, more particularly on overall Government expenditure. We have felt that it would be not only useless but a mistake to try to overload or overburden the monetary weapon …

Even so, Cobbold’s political antennae told him that it would be a serious error to have a re-run of the September confrontation – and that it was necessary to make a concession on the monetary front in order to avoid the government assuming powers that would enable it to issue diktats to the clearing banks directly, in other words circumventing the Bank. Fortunately from his point of view, there emerged during the winter of 1957–8, as the Radcliffe Committee considered ‘Alternative Techniques’ of credit control, a Bank/Treasury consensus that resisted any extremes of compulsion, with the Treasury explicitly accepting the Bank’s emphasis on ‘the risks of rigidity and dislocation of bank practice’. Accordingly, the concession itself was relatively minor, namely the introduction in due course of a system of ‘special deposits’ – deposits placed by clearing banks, on the Bank’s instructions, with the Bank itself in order to limit the amount of credit the banks could create. Macmillan and his ministers might have hoped for something more dramatic, but for them there was always the sobering thought of a future Labour government having direct access to the resources of the banking system.22

Labour – and specifically, the shadow chancellor Harold Wilson – was also on the Bank’s mind during the winter of 1957–8. ‘I’m spending far too much of my time on this damned leak business,’ Cobbold expostulated to a colleague shortly after the dramatic Bank rate rise in September, with rumours spreading that powerful figures in the City had had advance warning of that rise and had taken advantage of it to sell heavily in the gilt-edged market.23 Wilson pressed hard for an inquiry, and eventually Macmillan gave way, with a tribunal being appointed under Lord Justice Parker.24Two of the Bank’s non-executive (that is, part-time) directors now found themselves under enemy fire – the second Lord Kindersley (of Lazards) and W. J. (‘Tony’) Keswick (of Mathesons) – as evidence was taken at Church House, Westminster during the weeks before Christmas. The case against Keswick was that, while shooting on the Scottish moors in early September, he had heard from Mynors that ‘a swingeing rise in the Bank Rate was in the offing’; that on the 16th, in person at the Bank, he had been told again by the deputy governor that this was a distinct possibility; and that next day, two days before the actual rise, he had cabled Jardine Matheson in Hong Kong, anticipating tighter money and recommending that gilts be sold, which they duly were. As for Kindersley, the uncomfortable fact was that the three major concerns he chaired – Lazards, Royal Exchange Assurance and the British Match Company – had between them sold almost £2½ million of gilts during the day and a half before the Bank rate announcement.

Neither man had a comfortable time (Keswick not helping himself by observing that ‘it is difficult for me to remember the exact timing of conversation on a grouse moor’) as they were questioned by the attorney general, Sir Reginald Manningham-Buller, while Cobbold was also ill at ease. ‘The City is in a rage against Ministers over the Bank Rate Inquiry, because they think the Attorney-General attacked the Governor and the Court and let off the politicians,’ noted the Treasury’s Hall, and indeed there was no doubting the outrage. ‘I thought the Attorney General went out of his way to be offensive about the Governor in his big winding-up speech,’ Kindersley wrote to Bolton (no longer at the Bank) just before Christmas. ‘If he was the next gun to me tomorrow I would certainly use my cartridges in a different direction to the pheasants!!!’ As for the outside world, it watched fascinated, with one observer, Mollie Panter-Downes, evoking for her New Yorker readers ‘a succession of spruce, pink-jowled City gentlemen easing themselves and their briefcases into the witness chair’ and speaking a ‘totally different language’ about ‘“comparatively small”’ deals of a million or so pounds. ‘It has all been a revealing glimpse into a special, jealously guarded world …’ And one Labour politician, Michael Foot, made a prediction: ‘My prophecy is that this whole amazing story of how the City works is bound to lead, at the very least, to plans for the reconstruction of the Bank of England.’25

While Parker over the holiday season pondered his findings, there began to unfold one of the seminal episodes of British post-war political history. ‘I am bound to express the view,’ Cobbold wrote gravely to Thorneycroft on 27 December, ‘that if HM Government accept estimates of the order which you mentioned to me this morning, it will be seen at home and abroad to be in flat contradiction with your statement of 19th September’ – a reference to how that statement had featured not only the Bank rate hike but also a two-year standstill in public sector investment. The governor then went on to warn that despite ‘a distinct improvement in atmosphere and small increase in the reserves’ since those measures, ‘there is no prospect that any weakening of policy … would escape immediate notice and strong criticism’. How much that further fortified an already determined chancellor is impossible to tell; but over the next ten days a bitter battle within the Cabinet culminated on 6 January with the resignation of Thorneycroft and the other two Treasury ministers (one of them Enoch Powell), unable to accept draft estimates for public expenditure for 1958–9 showing an increase of £50 million, viewed by the trio as incompatible with the principle of restraining government spending. ‘I myself think he is right,’ Cobbold wrote that day to Macmillan. ‘I am very sorry, because I felt with P.T.’s courage and with you behind him at No. 10, we were on an improving wicket from the currency’s point of view. And I still feel – perhaps I am prejudiced! – that the success or failure of the next two years depends more on the currency than on anything else.’ But for Macmillan, instinctively a Keynesian and with an understandable eye on the need for a significant degree of reflation before the general election due by 1960, the priorities were rather different as he prepared to ride out the storm – or what, in his blithely immortal words, he called a ‘little local difficulty’. Did the governor, in his sense of regret, have the City behind him? Only up to a point. ‘I would like to see the Government cutting every penny off expenditure,’ a leading broker reported to the minister charged with gauging reaction there. ‘But if it is a matter of political judgement I would prefer to trust Macmillan rather than Thorneycroft.’26Put another way, if the socialists could be kept out, then a certain loss of free-market purity was an acceptable price to pay. It was a trade-off that, for almost another twenty years, would continue to govern City assumptions – and could not help but influence those in the admittedly somewhat less tribal and more objective central bank.

By now Lord Justice Parker was ready to pronounce. ‘I have just read the Report,’ the Treasury’s Makins on 10 January 1958 informed his new chancellor, Derick Heathcoat Amory. ‘It could scarcely be more satisfactory from the point of view of the government, the Bank of England and the City. Everybody connected with the Government and Bank of England is completely exonerated.’ So it proved when the report was published on the 21st. There was, it declared, ‘no justification for allegations that information about the raising of the Bank Rate was improperly disclosed to any person’; as for those in receipt of advance warning of the rise, ‘in every case the information disclosed was treated by the recipient as confidential and … no use of such information was made for the purpose of private gain’. That evening, returning to London after a Rolls-Royce meeting in Derby, Kindersley was handed a copy at St Pancras Station. ‘I am very pleased,’ he told a reporter before leaving in a chauffeur-driven Roller to attend a diplomatic reception. ‘It is very pleasant indeed.’ And next day, Cobbold sent a message to all the staff, noting the complete exoneration of the Bank and acknowledging that it had been ‘a very worrying time for all of us’. Certainly that was how it felt in Threadneedle Street – both then and later. In 1987, paying tribute to Cobbold at his memorial service, his successor but one, Leslie O’Brien, recalled the leak and tribunal as a ‘damaging affair, in which good men and true were pilloried to provide a roman holiday for lesser men’. Yet looked at from the outside it is quite possible that Keswick and Kindersley got away with it. Forrest Capie, in his successor volume to Fforde, suggests that the latter anyway may have done so, pointing to how the British Match Company had for several years faithfully held around £250,000 of gilts – until it abruptly got rid of them the day before the Bank rate hike was announced. ‘They sold that stock,’ the last government broker, Sir Nigel Althaus, would recall almost half a century after the event, ‘and that seemed to me the absolute clincher, and I think Lord Kindersley was very lucky.’27

At the time, what was unavoidable for the Bank was an intense fortnight or so in the public spotlight, culminating in a two-day debate in the Commons instigated by Labour. Immediate press reaction to the report had a distinctly critical tinge, identifying a whitewash, while the leftish economic journalist Andrew Shonfield gave a radio talk on ‘The Future of the Bank of England’, in which he deployed evidence from the tribunal to create a verbal picture of a ‘slow-footed’ institution with ‘too little professionalism’ where ‘the national cult of the not-so-gifted amateur has got out of hand’. Looking ahead, he did not deny that ‘a central bank inevitably has a certain measure of independence in some spheres of policy’, but demanded a firmer, more precise definition of ‘the respective areas controlled by the Bank and the Treasury’; as for the Bank’s relations with the City, he argued that because of its reliance on prestige-cum-persuasion, ‘it acts, in fact, like a head prefect, whereas the real task of a central bank today is to behave like a headmaster’. Shonfield ended by calling on the Bank to ‘now come down firmly on the side of the masters in Whitehall’, rather than be ‘unduly influenced by its special role in relation to the business interests of the City’.

Early February saw the Commons debate, in which Wilson gave an aggressive, virtuoso performance: disparaging not only the Court (‘we cannot defend a system where merchant bankers are treated as the gentlemen and the clearing bankers as the players using the professionals’ gate out of the pavilion’) but the Bank more generally – ‘supposed to be a nationalised industry’, but behaving ‘like a sovereign State’ and conducting its relations with the Treasury ‘with too much out-dated stiffness and protocol’. An even more direct broadside came from Harold Lever, in the process of establishing his reputation as Labour’s expert on monetary matters:

The policies of the Bank of England directorate have meant that our dollars have been diddled away into the hands of every second-rate currency dealer on the Continent. Every commodity shunter has outwitted them. Every dealer in American stocks and shares appears to have been able to get hold of our dollars. Yet all the time the charades of the Bank are religiously maintained. Simple, honest, patriotic and highly talented people have, with great social discipline, continued their efforts to put the country on its feet again, and all the time their efforts have been frustrated because, at one stroke, these blind doctrinaires have poured out the wealth which our people have laboured so hard, so patriotically and with such discipline to produce.

‘Let them answer that one,’ called out Labour’s Jennie Lee at this point, but sadly no one did.

Less than a fortnight later, speaking at the Guildhall to the Overseas Bankers’ Club, the governor sought to answer the critics. After observing that it had recently become a popular national pastime to suggest how the Bank ought to be run, he made a series of assertions: that of the twelve non-executive directors, only three came from merchant banks, while seven ‘have their main experience in industry and commerce’; that ‘both in everyday business and in top-level contacts’ the Bank’s relationship with the clearing banks was ‘second only in importance to the Bank’s relationship with Government’; that although ‘the Bank of England must be a bank and not a study group’ (a no doubt conscious nod to Norman), the ‘charge that the Bank is bereft of economic thinking does not bear examination’ (with Cobbold pointing to ‘two former dons from Oxford on our senior permanent staff’, supplemented by a deputy governor ‘who may still remember something from his ten years at Cambridge’); and finally, that the Bank’s policy remained that of moving ‘gradually in the direction of saying more about what we are doing’. It was a reasoned defence that did its job well enough – albeit one financial editor commented, ‘Two economists for the whole Bank!’ Even so, more was clearly needed and in May the governor opened up a whole front by agreeing to allow the TV cameras into his room and film him being grilled by Robin Day for the ITN series Tell the People. Concentrating mainly on the Bank’s functions and carefully elaborating the nature of its relationship with government – that of a ‘very dutiful wife’ who offered her advice very freely ‘as a good wife should’ and had even been known to nag – he made a favourable impression, displaying, noted the Manchester Guardian, ‘none of the starchiness in his telling which people with low bank accounts might have expected’. In addition, clinching this PR triumph after a somewhat harrowing period, ‘the beadle, the messenger, even the gentlemen in top hats, entered thoroughly into the spirit of the occasion’.28

Radcliffe and his team continued their inquiry through the whole of 1958. ‘I personally should think that the more and closer the contacts we have with the Bank of England the better,’ David Robarts of National Provincial Bank asserted early in the year. ‘That is very important indeed; and we do have them; I am quite satisfied with that. Having arrived at that position, I do not think we want to go and discuss very much the same problems with the Treasury.’ Radcliffe’s two main monetary experts were the economist Alec Cairncross and the historian Richard Sayers, and that summer the former privately heard from the latter that the Bank ‘not only engaged in forward dealings but that they had been very heavily in the market in September 1957 and didn’t want this known’, with Cairncross reflecting in his diary that ‘they must have cleared a big profit’; about the same time, another economist, Harold Wilson’s adviser Thomas Balogh, submitted a memorandum of evidence proposing that the Court’s chairman should be a senior Treasury official, with the governor relegated to being a member of Court only.

In December – by when it had been announced that Cobbold would stay on as governor until after Radcliffe had published his report – it was the turn of two former chancellors, with Gaitskell (now the Labour leader) appearing at the inquiry on the morning of the 18th and Butler in the afternoon. The main thrust of Gaitskell’s evidence was the urgent need to improve the frequency and depth of contact between Treasury and Bank, as well as wanting the Treasury (including the chancellor himself) to enjoy direct access to the leading clearing bankers. Altogether, commented Cairncross privately, ‘he didn’t try to screen the Bank and yet did not take a position obviously hostile to it’. Predictably, his successor at No. 11 was more emollient, tactfully delineating what he saw as the essential differences between the two bodies that sought in their distinctive ways to serve government:

I think that there are things the Bank can do that the Treasury cannot, and things the Treasury can do that the Bank cannot. The Bank is more instinctively intuitive, and the Treasury is more instinctively deliberative – at least, so it seems to me – and so the two partners rather supplement each other. The management of the day-to-day market, which is the fundamental job of the Bank, apart from their agency functions in relation to the debt, the note issue and so forth, is a different sphere from the more deliberative long-term policy aspect of the Treasury.

Throughout Butler’s feline performance there was no hint that the Bank’s failure three years earlier to deliver him the monetary conditions it had apparently promised had gone a long way towards costing him the premiership. Or, as Cairncross acutely put it, ‘He took pains to defend the Bank and seemed to want to tell us that everything was all right now. No question at all that he would tell a different story in private.’29

1958 was also the year of financial liberalisation – sometimes though not always in accordance with the Bank’s wishes. The Stock Exchange, Cobbold warned its chairman in May in the context of a possible return there of option dealing (banned since 1939), would be ‘most unwise to hand this particular weapon to their critics’; but to no avail, and option dealing resumed that autumn. He fared better, as credit controls eased, with the burgeoning, barely regulated hire-purchase sector, successfully encouraging the clearing banks to buy into hire-purchase companies as a way of enabling the Bank indirectly to exercise some control; while, as the banks themselves for the first time in their history made a serious effort to reach out to society at large, a year after Macmillan’s famous ‘never had it so good’ speech, they did so with the Bank’s blessing, Cobbold broad-mindedly telling the chancellor that ‘the more they can attract the new highly paid classes to open bank accounts the better’. Another aspect of financial liberalisation, scarcely noticed at the time but ultimately of huge significance to London’s future as an international financial centre, was the emergence in 1957–8 of what would by the early 1960s be known as the eurodollar market – an innovation, according to Catherine Schenk’s subsequent analysis, ‘tolerated’ by the Bank because ‘it was not strictly illegal’. No doubt it helped too that the key visionary behind the market was Bolton, chairman of the Bank of London and South America (BOLSA) after leaving the Bank. The final piece in the 1958 liberalising jigsaw was the full convertibility of sterling (that is, of sterling held by non-residents), attained – simultaneously with the French and West German currencies – on 29 December: an achievement owing much in its final phase to Cobbold’s insistence that this was crucial for the City’s international prestige and his determination to override Treasury qualms about the consequences of an even speedier-than-usual drain on the reserves if the world once again lost confidence in sterling. The most articulate critic of Cobbold’s position, arguing that the priority given to the strength of sterling imposed an unacceptable burden on British industry and economic growth generally, was Andrew Shonfield; and earlier that year, a caustic internal note by the deputy governor, Mynors, referred to that journalist (who during the war had served in the British Army as a gunner and intelligence officer) as ‘Andrew Shönfeld’. Still, the press as a whole did its patriotic duty and acclaimed full convertibility. ‘Pound Flies High’ (Sunday Express), ‘This Proud, Free £’ (Daily Express), ‘The £ Stands Firm on Freedom Day’ (Evening Standard): this was sterling’s rare moment in the sun.30

All the time, Cobbold continued to act as the great arbiter of that intimate, personal place that was the old-style City. Take almost at random a couple of typical moments from July 1958:

Sir John Benn came in to mention one or two possible names for his Board. At his request, I checked up on Sir Henry Warner with Lord Kindersley and gave him a good report. He asked whether I saw any objection to their putting on a sensible Labour M.P. I said ‘on the contrary’ …

Sir George Bolton came in for a gossip. He wants somebody to reinforce them at Director level in New York and Bahamas. After a good deal of discussion with his colleagues, he is thinking of Henry Tiarks. I said that, provided he knows what he is buying and squares Helmut Schroder, I had no comment …

By this time, though, a legendary City episode was looming – an episode that saw not just Britain’s first out-and-out contested takeover (‘in the modern sense’, to quote Niall Ferguson, ‘that a controlled shareholding in a public company was acquired on the open market with the conscious aim of ousting the company’s management and board’), but the governor’s authority significantly undermined. Managing director of the company under attack, British Aluminium (BA), was Geoffrey Cunliffe, son of the former controversial governor; while the rival bidders were on the one hand Alcoa, favoured by BA, and on the other hand an alliance of another American company, Reynolds Metals, and a British one, Tube Investments, with that combination’s principal financial adviser being the merchant banker Siegmund Warburg, still regarded with considerable misgivings by the City establishment. During the closing weeks of the year the Bank maintained a carefully neutral position, but became increasingly concerned about the acrimony within the square mile that the ‘Aluminium War’ was generating. On New Year’s Eve, Cobbold spent much of the day trying and failing to arrange a two-month truce, not least with a view to curbing the activities of Warburgs and what he called their ‘monkey business’. The early days of 1959 proved decisive, with Warburgs piling into the market to buy shares, even as other combatants held off for apparent fear of upsetting the Bank. ‘A troublesome little trouble’ was how Cobbold many years later would refer to the Aluminium War; and in retrospect it is debatable whether even his predecessor but one would have been capable of keeping Warburg in check.31

Radcliffe, meanwhile, maintained into 1959 its steady, impervious course, with Cobbold submitting on 15 January a written statement that included a paragraph deliberately raising the stakes:

In a totalitarian state, with private enterprise and markets more or less eliminated, it would make sense for central bank operations to be handled under direct Treasury control, both as to policy and as to detail. For any country operating to a great extent with private enterprise and markets, and working with other countries similarly placed, I should regard direct Treasury control over central bank operations as a major weakness. For a country as dependent as the U.K. on international trade and confidence, it could be a disaster.

‘I base these views,’ he added, ‘on twenty-five years’ experience, under Conservative, Labour and Coalition administrations, of the Bank of England’s working relations with Government; and also on a fairly intimate knowledge, over the same period, of the problems and developments in this field in the United States and the principal countries of the Commonwealth and of Europe.’ The governor insisted, moreover, that ‘the strength and the independence of thought of the Bank derive largely from a Court constituted on present lines’, so that accordingly ‘if the nature of the Court were to be altered so that it were not to be composed of active practical men of business, or if directors were to become mere figure-heads divorced from the real affairs of the Bank, the standing of the Bank throughout the world, and its ability to perform its public duties efficiently, would both be gravely prejudiced’. Accompanied by his deputy, Cobbold that day also gave oral evidence:

The Governor [noted Cairncross] talked far more sensibly than his paper … George Woodcock [the trade union representative on the Committee] asked one particularly sharp question that implied a resemblance between the Bank of England and the House of Lords pre-1911. The Governor obviously disliked a couple of long questions that I put at the end and fell back on his usual stonewalling tactic – put that to the Treasury. Mynors said nothing but nodded agreement once or twice when appealed to by the Governor.

Throughout the lengthy Radcliffe process, Cobbold was absolutely determined not to forfeit the Bank’s operational independence; and the following week, in a bilateral communication to Radcliffe himself, he stressed that ‘the Bank, to do its job properly, must be a “market” animal and not an “administrative” animal as a Government Department must be’. Furthermore, he went on, there were two ‘even more fundamental reasons for favouring a degree of Central Bank independence’: first, the desirability of a ‘free and intimate interplay of ideas and criticism between Treasury and Bank’; and second, the Bank’s role in helping to prevent the ‘democratic government’ of the day from being ‘pushed in directions which will tend to prejudice confidence in paper money, thereby risking inflation, exchange crises and all the social troubles to which they give rise’. Not long afterwards, Radcliffe and his team discussed the governor’s evidence. For his part, Cairncross observed that Cobbold seemed ‘still to dream of taking monetary policy out of the political arena’ and ‘to want to exercise more influence on economic policy than was altogether wise’; but his colleagues were significantly less inclined to be critical. ‘Radcliffe,’ noted Cairncross, ‘thought I was “inhuman” and R.S.S. [Richard Sayers] also disagreed, saying that Cobbold saw how things were going but didn’t want to go there fast.’32 Eventually, at the end of April, the Committee heard its final evidence, and there ensued a summer of waiting for the report, mainly written by Sayers.

The other uncertainty that hot summer was political: would it, as the City strongly hoped, be a hat-trick of Tory election wins? Macmillan, abetted by his chancellor, had already laid the economic groundwork. If only ministers were allowed to pursue a Keynesian stimulus to consumption, he told Midland’s chairman (the former politician Lord Monckton) early in the year, then ‘the Conservative party will be re-elected, prosperity will be secured, the Bank of England will be preserved, and funding in 1960 will be easier than ever before’. During the weeks leading up to the April budget, Cobbold successfully resisted the chancellor’s wish to reduce Bank rate, but effectively at the price of allowing by default a distinctly reflationary package. On 7 April – the day after the governor in a speech at Newcastle had called on ‘the normal citizen’ to ‘accept some disciplines and make some sacrifices’ for the cause of ‘stable money’ – Heathcoat Amory duly cut income tax by ninepence and overall released into the economy some £6 billion in present-day values. Sidelined by a strong-willed prime minister (who for monetary as well as fiscal advice looked neither to the Bank nor to the Treasury but instead to the Keynesian economist Sir Roy Harrod) and by the demands of the electoral imperative, Cobbold could do little more over the next few weeks and months than ‘warn’ the chancellor that if his party was indeed returned in an autumn election, ‘it might be necessary to pull in the reins rather sharply’. All this was no surprise to Cobbold (although arguably he might have done more to resist Macmillan). ‘The moment unemployment figures become at all menacing,’ he had with timeless gubernatorial sentiments observed to a bank chairman exactly a year before his somewhat academic warning to Heathcoat Amory, ‘our political friends will wish to jump in in a great hurry and we shall again be cast for the unpromising role of carrying a larger part of the baby than we can handle.’33

The Radcliffe Report was finally published on 19 August 1959. ‘I have had a private copy,’ the governor almost a fortnight earlier informed one of his directors. ‘In general the background is not too bad but there are a few very tiresome suggestions … As a whole I do not find the document very constructive – but it is unanimous, which is important.’34 William Allen, in his survey of monetary policy during the 1950s, has called the report ‘notoriously hard to summarise’, but from a Bank perspective it had perhaps five main aspects: first, the recommendation, following the events of 1957, that the Bank’s part-time directors be excluded from Bank rate discussions; second, the further recommendation that Bank rate changes be made at the explicit directive of the chancellor of the day; third, the key assertions that economic policy needed to be integrated, that monetary policy alone was not enough and should not be permitted to pursue autonomous objectives, and that within monetary policy interest rate changes were a more effective weapon than attempts to control the money supply; fourth, a call to the Bank to provide more statistics and information generally; and finally, the recommendation that a standing committee on monetary policy be set up, to include representatives from the Bank, the Treasury and the Board of Trade.35 Cobbold’s considered reaction to all this took the form of a letter to Makins at the Treasury, despatched two days before publication. While willing to go more or less quietly on the recommendations concerning non-executive directors, statistics and public relations, he expressed himself unequivocally unhappy ‘that the full responsibility for Bank rate decisions should be transferred to the Chancellor’ and that ‘a Standing Committee should be appointed in Whitehall to which all decisions on monetary policy should be referred by the Chancellor for advice’. Instead, he insisted that ‘Bank Rate is an integral part of the Central Bank’s own business’; and, though not disputing the fact of the chancellor’s ‘over-riding decision’, the governor maintained that ‘to place on the Chancellor direct responsibility for what is essentially a market and operational decision would blur the real responsibilities’.

Press reaction was almost unanimous that the report represented a significant rap on the knuckles for the Bank, indeed a potentially significant shift of power away from it. ‘The main impression that emerges,’ noted one City commentator, ‘is that the power and authority of the Bank of England should be trimmed and the Old Lady be made more visibly amenable to Treasury control.’ Inevitably, the central question now became whether the Treasury and its masters had the desire and the stomach to act on the aspects of Radcliffe that not unnaturally perturbed the governor. The answer soon emerged. By mid-September it was clear that the Treasury had no appetite for a standing committee on monetary policy that involved the Board of Trade; by late October, after the general election, the re-elected Heathcoat Amory was letting it be known not only that there would be no new standing committee, but also that it would only be in a situation of irreconcilable disagreement that the Treasury would publicly reveal that it, not the Bank, was responsible for a change in Bank rate; and by late November, following a dullish Commons debate on the report which showed how relatively little of it was to be implemented, the Financial Times was even claiming that the Bank had achieved ‘a complete rout of Radcliffe’. In short, monetary policy was to remain primarily the responsibility of the Bank, which would continue to take the initiative, albeit subject to the ultimate say-so of the Treasury; and more broadly, the Bank would continue to enjoy operational autonomy. The setting up by the Bank of a Central Banking Information Department for the collection and publication of statistics, the start (from 1960) of the Bank of England Quarterly Bulletin, the recruitment of more economists, the partial easing out of non-executive directors from the interest rate decision-making process – all this was small beer by comparison.

‘We here feel that this is a satisfactory outcome, which makes virtually no change in the reality of existing normal practices,’ Cobbold assured central bankers around the world on 27 November, the day after the chancellor’s formal statement to the Commons about the government’s response to Radcliffe; and a week before Christmas, the Bank gave Makins a well-earned dinner in his honour, with his Treasury colleague Hall among those present:

As the governor made clear in his speech, it was a sort of demonstration of appreciation for all the help Roger gave them in the troubled weeks of the Bank Rate Tribunal and of Radcliffe. Almost the whole Court were there … We were received by swarms of tall footmen in their plush livery and had sherry in the ante-room and dinner in the Court Room, which was comfortably filled but with plenty of room. One large table with a white cloth and a good deal of silver, nearly all bought by the Bank because it was [hallmarked] around 1694 … All the servants have learned one’s name for the occasion and whisper in a friendly manner when they offer you anything. In fact it was rather like dining in one’s own College.

The Governor made a little speech about how much their safe survival owed to Roger, and he replied pleasantly. I sat between the Governor and Cadbury [Laurence Cadbury, a non-executive director since 1936] – the former much more talkative than I had ever known before and making slightly malicious sketches of his colleagues. Afterwards we stayed at table and the hosts moved around … About 9.45 the Governor began to edge us out and it must have been all over about 10. And it was really extremely well done and most enjoyable …36

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