Military historians have not determined the exact moment when a mixture of sulfur, charcoal, and saltpeter was first packed into a metal tube, ignited, and used to hurl a projectile at an enemy, but the analogous event in financial history has fortunately been much better recorded. This occurred in the last decade of the seventeenth century, when the Bank of England demonstrated that a potentially explosive mixture of government debt, high leverage, and note issue could be contained within a single institution and directed to a public purpose (financing a war with France, in this first instance).
The storied success of this initial experiment, plus the fact that the same weapon has been continuously firing ever since, has given rise to a monumental literature on the history of the Bank. Everyone who claims to understand central banking needs to know something of this literature, but its size and extent can easily intimidate the nonspecialist. The four previous authorized histories, the many classic treatises, and an ever-expanding contemporary literature can on occasion induce the type of scholarly anxiety as must be experienced by beginning theology students.
David Kynaston’s book represents an attempt to lessen the intimidation factor, by providing a single-volume, authorized history targeted at the general reader. At 879 pages, his account will not be read by many book clubs, but it does provide a highly readable introduction to the Bank’s history and historiography. User-friendliness is enhanced by the choice of format: four fairly self-contained sections (1694–1815; 1815–1914; 1914–1946; 1946–1997), plus a brief coda on recent events for which many archival materials are not yet available.
Kynaston’s specialization is in social history, and this influences the book’s style of narrative. The famous names and events of the Bank are all there, but these are interwoven with stories of more ordinary people and everyday circumstances. Throughout the book, one encounters not only the Houblons, Lidderdales, Normans, and other famous Governors of Bank legend, but also many nervous Deputy Governors, despotic Chief Cashiers, bored/overworked clerks, harassed female employees, and rarely successful embezzlers. The depictions of these players are enlivened with numerous, artfully applied brushstrokes to give a sense of what the rhythms of life at the Bank must have been like at various levels within its hierarchy, over many phases of its history. Some readers of this journal may be inclined to downweight the relevance of this type of narrative to the modern field of financial history, but it does provide some informative glimpses into the habits of thought that contributed to the Bank’s successes and failures.
Stepping back from the canvas, Kynaston’s portrait of the Bank is often an unflattering one. Well into the twentieth century, the Bank’s outlook and actions repeatedly stray toward the worst populist caricatures of central banks: distant from political sensitivities, cozy with the financial markets, authoritarian, backward-looking, and obsessively secretive. The Bank’s instinctively Whiggish Weltanschauung is revealed not only in its disagreements with high-profile figures such as William Pitt the Younger and John Maynard Keynes, but also in its rough treatment of interlopers (e.g., Overend Gurney) and gratuitously paternalistic treatment of its own employees (ritually warned against “habits of dissipation” until 1971). The Bank’s traditional tendencies were famously embodied in Montagu Norman, Governor from 1920 to 1944, and architect of Britain’s return to the gold standard in 1925. Dissatisfaction with Norman’s performance contributed to a political backlash against the privately-owned Bank, leading to its nationalization in 1946. Kynaston’s account suggests that Norman’s policy choices were not so much the reflection of the preferences of one individual, but a continuation of a Bank culture that had grown up during the 226 years before Norman took office.
My only critique of this portrayal would not be in its details but in its perspective. The Bank’s permanent existence was, for at least its first 150 years or so, far from a sure thing. Its charters were temporary, its political pressures immense, and there were no teams of experts from the IMF to call on for guidance. Similarly structured institutions in Britain (the South Sea Company) and elsewhere (France’s Banque Générale Privée, Austria’s Wiener Stadtbank, and the First and Second Banks of the United States, to name but a few) all ended as thudding failures, as the managers of the Bank must have been well aware. Confidence in their conservative (small “c”), time-tested habits and policies must have seemed justified by the Bank’s continued survival, Britain’s continued prosperity, and, eventually, by the creation of imitation Banks of England in virtually every country worldwide. Likewise, that the events of August 1914 would forever shift the political foundations on which that confidence rested, may not have been obvious at that moment or for some time after.
The last section of the book, which chronicles the Bank’s journey from nationalization in 1946 to statutory independence in 1997, provides a partial vindication of the Bank’s traditional values. Nationalization did not translate into the kinder, gentler sort of outcomes that reformers had envisioned, as evidenced by punishing devaluations, multiple major bank failures, and double-digit 1980s inflation. Nor was the Bank’s 1990s migration to a modern, technocratic, inflation-targeting policy regime sufficient to forestall the disruptions experienced in 2007–2008. Post these learning experiences, a certain degree of political insularity, City-connectedness, and authoritarianism appears to have come back in fashion.
To students of central banking, Kynaston’s history offers two noteworthy lessons. The first is that at the end of the day, central banks will be graded on their performance during extreme events, so they would do well to prepare for these. The second is that, to gain lessons from past such events, it is helpful if historians are granted access to the relevant archives. By contributing to the awareness of these lessons, this book may offer a public service not unlike that offered by the Bank itself.
