Till Time's Last Sand

by David Kynaston

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  Norman: No, I have no plan.

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

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

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

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

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

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