Last May, the Bank organised an economic history workshop at the St Clere Estate, home of former governor Montagu Norman. In this guest post, one of the speakers David Kynaston, visiting Professor at Kingston University, reflects on more than three centuries of Bank history…
It was a huge honour to be asked by Mervyn King to write a history of the Bank. The eventual book, Till Time’s Last Sand, was published last autumn. It covers 1694 to 2013 and is based heavily on the Bank’s own archive. Fitting more than 300 years of history into a single volume was a difficult task, and condensing that into a short blog post is harder still. Here I will try to bring out a handful of key lessons from my research into the Bank’s history that might be useful for the policymakers, economists and other interested observers of today – and their successors…
The book could not have been written without the run of detailed official histories that the Bank has commissioned over the years: Sir John Clapham on the history up to 1914; Richard Sayers primarily on the inter-war period; John Fforde on the 1940s and 1950s; and most recently, a notably tough-minded account by Forrest Capie of the quarter-century or so before 1979 (year of Margaret Thatcher coming to power and the abolition of exchange controls).
The history is indeed a long haul: well over three hundred years. Are there lessons to be drawn from that history? It is a fair question to ask, though historians at this point usually curl up into a defensive, prickly ball. So with a due sense of circumspection and caveat emptor, here are my seven quick-fire ‘lessons’:
- There’s always a crisis round the corner. ‘You just don’t know when’ (i.e. when things are going to unwind), said by an anonymous senior director to Robert Peston in 2003, provides the title to my postscript chapter.
- In a hierarchical organisation (which historically the Bank always was, with the overwhelming majority of employees performing mundane routine tasks), a particular importance attaches to the people (invariably men until recently) at the top. Personnel matter, as the crisis a decade ago showed more generally. When I recently co-wrote (with Richard Roberts) a history of HSBC, a huge organisation, I was also struck by the truth of this.
- One shouldn’t discount intuition and ‘smell’. Montagu Norman (legendary inter-war governor) has been much mocked for his anti-intellectual tendencies; but relying largely on the personal touch, he did much to ensure the stability of the British banking system – a stability in marked contrast to other countries in the early 1930s. He famously said “I don’t have reasons, I have instincts”, and asked once how he reached decisions, he solemnly tapped the side of his nose three times. There are worse approaches.
- The importance of imagination and the dangers of insularity-cum-groupthink. This comes out passim in my book, never more so than over the disastrous return to gold in 1925 – and of course also, though by definition it is a less full account with the records not yet available, during the fateful early-to-mid 2000s, when things seemed to be going along so swimmingly.
- The importance of reaching out and explaining to the wider world. This was the great Norman defect, responsible to a significant degree for the Bank being nationalised in 1946. Indeed, Norman was so secretive that he did not even reach out to his colleagues, let alone the world at large. And it took the Bank a remarkably long time to learn the broader lesson that trust has to be a two-way relationship.
- Unsophisticated morality is a dangerous thing, as exemplified during the 1950s and 1960s, and arguably even later, by the ‘honest money’ approach. Kit McMahon has recalled how, when he came to the Bank in 1964, just to mention the word ‘devaluation’ was the equivalent of swearing in church. In short, the argument is that central bankers should be technicians – albeit technicians with an imaginative faculty – rather than priests.
- In the past, the Bank has distrusted politicians. . Yet arguably, whether historically or now, what is helpful (however understandable that distrust may be) is a more rounded awareness and appreciation of the circumstances in which democratic politicians operate – very different to those of a central banker, even in the more exposed and accountable post-1997 context. Or put another way, the quality of imagination again…
My approach to the subject has essentially been – as it was in the case of my four-volume history of the City of London – that of a social and political historian rather than that of an out-and-out financial or economic historian; and as with those books, my main target audience has been the general rather than the specialist reader. I am conscious of weaknesses. Not enough on how the Bank became the bankers’ banker as well as the government’s banker; in relation to the gold standard, not enough on the Bank and ‘the rules of the game’; and in general, not sufficiently close attention, in a technical sense, to the working at different times of monetary policy and/or exchange-rate policy. There should also perhaps have been more on the international side of the Bank’s activities – though if there had been, an already very long book would have become completely unwieldy.
I’m grateful for the thought provoking reactions the book has generated, which I will try and summarise as well adding few accompanying comments.
James Grant (of Grant’s Interest Rate Observer fame) in the Wall Street Journal. From his very much free-market perspective, Grant draws a sharp contrast: on the one hand, those olden days when money had a fixed value, and prices and wages were left to adapt to changing economic and financial circumstances; on the other hand, what he calls ‘central-bank management by doctors of economics’, involving (to paraphrase him) the manipulation of the value of money in order to control for example the rate of economic growth. But leaving aside the issue of ultimate responsibility for monetary policy, when exactly did this shift take place? I’m not sure I was able to identify it in my book; and I’m not sure that the Bank ever consciously debated the implications of the change.
Colin Kidd (high-class academic historian, not a specialist in this area) in the Guardian. Kidd is struck over the long run of the Bank’s history by its remarkable versatility, its fluid character, its distinctive and often introverted culture, and its reliance on informality and unexplained, unobtrusive intervention. He asks: is central banking a branch of economics or an art? And if an art, is it one that involves sleights of hand in order to maintain confidence? For myself, I don’t think I’ve seen a historical analysis of the Bank that systematically pivots on these questions.
Mervyn King (no introduction needed) in the Spectator. He argues that historically the Bank has been too close and trusting in its relationship with the major clearing banks – and that, following the collapse of the American banking system in the 1930s, it should at some point have devised what he calls ‘a tougher regulatory framework’ and ‘a legal resolution mechanism for handling failing banks’. Put another way, he calls for a long-run perspective on 2007/8 and all that. King also has a suggestive passage (which I find essentially sympathetic) in his final paragraph: ‘The history of the Bank of England is not the playing out of a single grand design. In the struggle to maintain the value of money and to prevent costly banking crises, the story is not one of inevitable, if unpredictable, progress to a better world – a Whig theory of economic history – but an unrelenting drama played out among the personalities and ideas of the time. As most of my predecessors experienced, it was simply one damn thing after another.’
John Plender (veteran financial commentator) in the Financial Times. Discussing the Bank in the nineteenth century, he wonders how it is possible to reconcile its pre-eminent role at the very heart of the global financial system with Walter Bagehot’s convincing critique about the amateurishness and lack of training of most of the directors in that era. I have often wondered the same, without ever quite coming to an answer. Future historians of the Bank may – and I hope will – manage to crack it.
I’ll leave it there. Except to finish by expressing my gratitude for all the practical help – non-judgemental, non-interfering, always friendly – that the Bank has given to my work as a historian over the years.
David Kynaston, Kingston University