The Past Speaks

Montagu Norman

When Mark Carney took over as the Governor of the Bank of England, he ordered the removal of the portrait of Montagu Norman, the legendary Governor  of the Bank from 1920 to 1944. When I first heard about the removal of the portrait, I thought that Carney had done so to signal to markets that he was opposed to hard money policies and willing to accept a relatively high rate of inflation. Norman, after all, was a doctrinaire inflation fighter who,  in 1925, persuaded Chancellor of the Exchequer Winston Churchill to return to the gold standard at the pre-war parity. This decision is widely regarded as this worst single economic policy in interwar British economic history. Churchill later said that accepting Norman’s advice was the worst decision of his life.  Although the shibboleth of the gold standard is now ancient history, a modern equivalent is the Bank of England’s statutory inflation target of 2%. By law, the Bank of England is supposed to aim for this rate of inflation, which would normally mean involve tightening monetary policy by raising interest rates. For many months, actual inflation has been above this target. Not wishing to repeat the same mistakes of 1925, the British government has basically chosen to ignore the Bank of England’s decision to ignore the target,  likely on the grounds the UK economy is too weak to cope with an increase in interest rates.

It turns out that there may be another set of reasons for not wanting Norman’s portrait to hang alongside those of the other BofE Governors. He may have been a Nazi sympathizer. At the very least, his friendship with the head of the German central bank, Horace Greeley Hjalmar Schacht, appears to have persisted after the rise of Hitler to power in 1933 and even the outbreak of the Second World War in 1939. Norman went to Berlin to attend the christening of Schacht’s grandson.  A few months later, after the Czech capital of Prague had been occupied by Hitler’s army, Norman arranged for the gold Czechoslovakia’s central bank had deposited in London to be credited to the account of the German central bank. In other words, Norman helped the Nazis to loot Czechoslovakia and to fund their re-armament programme.  New information about the March 1939 transfers was published on the website of the Bank of England archives section on Tuesday.

United States officials expressed concern over the possibility that Norman harboured Nazi sympathies during the war.In 1942 FDR asked Winston Churchill, who in turn asked future Prime Minister Anthony Eden to investigate the allegations, particularly the charge that Norman had met Hjalmar Schacht in neutral Sweden  in May 1941. When pressed by Eden about his relationship with Schacht, Norman defended himself by saying  that he hadn’t seen Schacht in over a year. Churchill was somewhat dissatisfied with this defence, since the war had been underway for almost three years at that point!

You can read more here.

If you are interested in the relationships of the four great central bankers of the interwar world, you should read. Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World ( New York: Penguin Press, 2009). This magisterial work explores the complex personal relationships between four individuals whose decisions shaped the lives of millions:  Benjamin Strong of the Federal Reserve of New York, Montagu Norman of the Bank of England, Emile Morceau of the Banque de France, and Hjalmer Schacht of Germany’s Reichsbank. Liaquat Ahamed argues persuasively that it was the decisions made by central bankers that made a recession into the Great Depression of the early 1930s.  Each year, I deliver a lecture that is largely based on Lord of Finance to the students in my history of globalization class. I’m told its one of the most exciting lectures of the year.