‘It is of course evident that with the change of ownership the Treasury must have power of direction (which as a matter of fact it has had in practice for many years past),’ Catto wrote that day to his counterpart at the Fed about the Treasury/Bank relationship. ‘I regard the requirement to consult the Governor of the Bank as of prime importance: and although no limit is set to the scope of any directions that may be given to the Bank, it may be accepted as the intention that they will cover only questions of financial policy and not internal organisation and administration.’ Moreover, he went on, ‘the new authority of the Bank with regard to “bankers” makes statutory a position which has hitherto relied on custom and tradition’. In short, the proposed legislation ‘preserves to the fullest possible extent the continued existence of the Bank and its independence in the general conduct of its affairs’.31
Press reaction to the Bill was reasonably mild. ‘It would take a very nervous heart to register a flutter,’ observed the Economist. ‘Nothing could well be more moderate.’ And indeed, the whole thing was on Labour’s part little more than ‘a symbolic sacrifice on the altar of party doctrine’. The Financial Times tended to agree, relieved that ‘so far as status – apart from ownership – is concerned, the Bank’s unique and responsible position is maintained’, and adding that ‘the City, which is jealous of the reputation of the Bank the world over, will hail that fact with satisfaction’. Perhaps predictably, a more querulous tone came from the Daily Telegraph. In an editorial headed ‘A Gilded Pill’, the paper argued that ‘the Bill owes everything to past Socialist chatter about private dictatorship over finance, and nothing to practical experience’; noted that ‘though the Bill may only legalise existing practices, it gives them the sanction of compulsion rather than co-operation’; and concluded that altogether it made the Bank ‘the Treasury’s agent instead of its ally’, given that ‘theoretically, the Bank will have no right even to discuss the financial measures decided by the Treasury, and its “recommendations” to the Joint Stock Banks will for all practical purposes be orders’.
Later in October, on the 29th, the Commons gave the Bill its decisive second reading. In the course of a fairly low-key debate, Dalton commended ‘a streamlined Socialist Statute’ containing ‘a minimum of legal rigmarole’ and offered the double justification for the Bill that it not only brought ‘the antiquated and out-moded constitution of the past into a form which fits the practical realities of the present’, but ensured ‘a smooth and efficient growth of our financial and banking system, in order to meet the new needs of the future’; the previous chancellor, Sir John Anderson (Conservative), called it a ‘wholly unnecessary Bill’; a future chancellor, Hugh Gaitskell (Labour), reminded the chamber of the Czech gold episode before contending that ‘the real issue’ was ‘whether this country is to take control of the head and fount of financial power in this country’; and the most memorable – and possibly most telling – passage came from the rogue Tory Robert Boothby:
Mention has been made of Lord Norman. I think that, in some respects, he is the real architect of this Bill. Nobody denies that he was one of the most selfless public servants who ever worked day and night in the interests of this country – or in what he conceived to be the interests of this country. He had only one fault; he was nearly always wrong. He held the Governorship for so many years that he came to be regarded, not only in the City but far beyond its confines, as the embodiment of power without responsibility. I remember an eminent Governor of the Bank of England telling me many years ago that it was essential, if that institution was to remain outwith the control of the Government, that the Governorship should be constantly changed. Prior to Lord Norman’s tenure that did happen. You always had a number of ex-Governors, men with great authority and experience, to keep an eye on the Governor; and that system worked rather well, especially during the last century. I remember this Governor [Cokayne?] telling me that if ever the Governorship came to be held for any great length of time by one man, it would be only a question of time before the Bank was nationalised. He has proved to be right.
Boothby ended by quoting Abraham Lincoln: ‘The privilege of creating and issuing money is not only the supreme prerogative of the Government, it is the Government’s greatest opportunity. Money will cease to be master and become the servant of humanity. Democracy will rise superior to money power.’32
The Bank had another central preoccupation this first autumn of peace: Britain’s appallingly weak economic situation – and, specifically, the enormous loan from America that Keynes was negotiating in Washington.33 As with Bretton Woods, the whole process saw the Bank largely sidelined. It had no one present at the key decision-making meeting in London in late August, prior to the delegation sailing; while when in mid-October the recently elected deputy governor, Cameron (‘Kim’) Cobbold, pushed hard for Keynes’s recall, Catto (historically close to Keynes) failed to support him. ‘Clearly he does not want any general settlement on the lines contemplated with the Americans,’ one of Keynes’s colleagues, James Meade, noted of Cobbold’s attitude. ‘He would like us to snap our fingers at the Americans … He is a clever ass.’ Keynes himself – under huge pressure – was also unimpressed. ‘Some fig leaves which may pass muster with old ladies in London wilt in a harsher climate,’ he dismissively cabled the Treasury in early November about Treasury/Bank concerns over the sterling area.
For his part, Cobbold of course viewed it all rather differently. The Bank’s position, he recalled, was that ‘although we should be prepared to move steadily towards “convertibility” and doing away with restrictive “sterling area” and “payments” agreements, it would be madness to accept any commitment which would limit our transitional freedom under Bretton Woods agreements or to give any specific undertakings about writing down or otherwise dealing with sterling area balances’ – the last a reference to the increasingly vexing legacy of the accumulation in London during the war of very substantial overseas sterling balances unmatched by external reserves. Cobbold would also come to reckon that Keynes that fateful autumn ‘basically agreed’ with the Bank’s position, but ‘gradually got immersed in the Washington atmosphere’; as for ministers, ultimately responsible, they were ‘mainly concerned to get the money without too much row with the Americans’. In any case, the eventual upshot was a $3¾ billion loan in return for multilateral trading arrangements, early convertibility of sterling and an interpretation of the Bretton Woods agreement that gave the whip hand to the Americans – a deal accepted in Britain, shortly before Christmas, with the utmost reluctance, encapsulated by the Financial Times’s opinion that ‘the consequences of present refusal of American aid would be more grievous than the possibility of subsequent failure to live up to its conditions’. As unreconciled as almost anyone was Norman. ‘He is entirely opposed to Bretton Woods and the whole of the Washington Loan ramp,’ recorded Leo Amery a few months later after a conversation with him. ‘In his curiously ingenuous way he said that he did not understand the economics of the matter but that he had a strong hunch that we were being done down and resented it.’34
By then the Bank, in its 252nd year, was under public ownership. The vesting date was 1 March 1946, two days after a ‘Last Supper’ in Threadneedle Street for past and present directors of the Court: native oysters, clear turtle soup, lamb cutlets and fruit salad with ice cream were washed down by ‘Old Trinity House’ Madeira, Steinberg 1935 hock and Cognac 1884 brandy. ‘I am deeply appreciative,’ Catto told those present, ‘of the manner in which all members of the Court stood solidly behind me in this crisis in the Bank’s history’:
A break in our ranks would have enormously increased the difficulties! The policy we adopted has proved its worth and gradually everyone is coming to realise that although the essential principle of Public ownership had to be conceded, on all other matters, particularly those questions concerning the future of the Bank and its management and the protection of the Staff, we put up a fight behind the scenes and obtained
every point we considered essential to the well being of this great and ancient institution.
Catto coupled the toast – ‘Long live the Bank of England’ – with the name of his predecessor who ‘has given all the best years of his life in living up to that toast’. Norman replied, apparently in a ‘slightly pessimistic’ tone; and when asked a few weeks later whether the Bank was still the same place, he replied mournfully, ‘They try to pretend it is the same place.’
Yet in truth they did not have to try so hard. Nationalisation involved no vision of how a central bank should function in the new era of a more planned economy; no convincing model of the ideal triangular relationship between government, central bank and commercial banks; and no insistence that the Bank shed its culture of secrecy and deliberate cultivation of mystique. Arguably, however, it was the Bank as well as the Labour government that missed a historic opportunity. ‘During the preceding twenty-five years, including the very difficult period of the late 1920s and early 1930s, the Bank had not attempted, under private ownership as it was, to develop a position of public accountability for discretionary monetary policy,’ reflects one of the Bank’s historians, John Fforde, in a suggestive passage. ‘On the contrary, it had cultivated considerable public reticence while in private zealously building up its position as confidential monetary and financial adviser to the Government, its most important customer. Besides suiting Norman’s personality, this part was natural enough for an institution whose experience and expertise in monetary policy, though deep, tended to be narrow and technical.’35 In short, operational autonomy and the right to continue to offer advice from behind the throne – without ultimately being responsible for the consequences of policy – suited well enough during the 1945 negotiations an institution that psychologically had been badly scarred by all the scapegoating, fair or unfair, it had endured. Accordingly, there was little appetite to stake out in a bold, confident way what precisely the Bank was now going to be responsible for. At least two generations of politicians would have to do their best and worst before Norman’s and Catto’s successors even started down that challenging road.
PART FOUR
1946–1997
13
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 p
erhaps 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.’
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