Till Time's Last Sand

by David Kynaston

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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