Development and Underdevelopment in the History of Economic Thought

Forged in the Crucible: Cunliffe, Norman, and the Birth of Central Bank Independence

Morrison James, London School of Economics & Political Science

From the 1914 financial crisis to the unprecedented emission of paper currency, nothing before--or since--challenged the Bank of England like the First World War. How did the Bank face these challenges? How did competing ideas and interests combine to transform the centuries-old institution into the modern, central bank that emerged in the interwar period? At the time, contemporaries from Cunliffe (at the Bank) to Keynes (at the Treasury) stressed the cleavage between the monetary authorities and the private banks in the City of London. Since then, scholars from Sayers to Roberts have highlighted the many cleavages between the Bank and the Treasury throughout the War. As yet, there has been rather little exploration of the tensions *within* the Bank at this critical juncture. Drawn from a book manuscript, this paper explores the disagreements within the Bank of England at the highest levels during and after the War. Specifically, it shows that Governor Walter Cunliffe and the soon-to-be-governor Montagu Norman developed deep disagreements about the appropriate relationship between the Bank and the Treasury, the optimal strategy for defending the gold standard, and even the essential features of the gold standard itself. These disagreements were not small; and they were not between minor figures. As this paper shows, the war between Cunliffe and Norman was integral to Cunliffe's (essential) ousting from the Bank, to the rise of Norman within the Bank, and to Cunliffe's approach to the "Cunliffe" Currency Committee, the infamous report of which was "the most important document of the late war and post-war periods." (Kitson, 1933). But both men were deeply troubled and profoundly problematic, leaving historians with (seemingly) contradictory accounts. This paper triangulates a variety of sources (from within the Bank and without) to reveal a clearer picture of the personal and ideological disagreements that redefined the Bank of England and the UK's gold standard.


Keywords: Bank of England; Keynes; Cunliffe, war

Paper file