Bank of England
Britain's central bank (1694–); in Quigley's framing, the institutional anchor of the City of London and the spine of the international gold-standard system before 1914
Also known as: BoE, The Bank, Old Lady of Threadneedle Street
Founded in 1694 by William Paterson and his associates, the Bank of England is the central bank of the United Kingdom and, for Quigley, the institutional anchor of the City of London's position as the financial capital of the world from the 1810s through 1931. Quigley treats its founding as "one of the great dates in world history" (T&H 63) because it inaugurated the system of fractional-reserve credit on which English world supremacy was built. The Bank's governors — most consequentially Montagu Norman between 1920 and 1944 — operated in close coordination with the New York Federal Reserve, the Bank of France, and the Reichsbank, and at the Bank for International Settlements in Basel.
Founding and the Secret of Credit
Quigley's account in Tragedy and Hope makes the Bank of England's 1694 founding the institutional pivot in the rise of England to world supremacy. "Financially, England had discovered the secret of credit. Economically, England had embarked on the Industrial Revolution. Credit had been known to the Italians and Netherlanders long before it became one of the instruments of English world supremacy. Nevertheless, the founding of the Bank of England by William Paterson and his friends in 1694 is one of the great dates in world history" (T&H 63). The Bank made it possible for London's goldsmiths' notes and Treasury bills to circulate as paper money against fractional gold reserves — the technical innovation that, in Quigley's analysis, distinguishes commercial capitalism from the financial capitalism that would dominate the world after 1815. By 1810–1850, when the merchant bankers of London faced the new demands of industrialism, they already had "at hand … the Stock Exchange, the Bank of England, and the London money market" (T&H 66) — an integrated apparatus that allowed them to absorb provincial banking, commercial banks, savings banks, and insurance companies into a single national financial system tied outward to international finance.
The Bank in the Gold-Standard System
Between 1815 and 1914, the Bank of England sat at the apex of the international gold standard that Quigley calls one of "the most efficient and most beneficial economic mechanisms ever devised by man" (T&H 64). Its discount rate was the regulator that shifted gold flows worldwide: "the discount rate was raised at the Bank of England from 3 percent to 10 percent" at the outbreak of the First World War to halt the haemorrhage of gold (T&H 330). Even after the wartime suspension of gold payments, the Act of 1928 left the Bank's notes uncovered up to £250 million and gold-backed for 100 percent above that threshold (T&H 70). The Bank's authority over Treasury policy was so great that — as Quigley notes — it could authorize violations of the law itself, as it did during the financial emergencies of 1847, 1857, and 1931 (T&H 482). In Quigley's reading, the Bank's policy was substantially set in private collaboration with the Treasury, the City's merchant banks (Baring Brothers, Rothschild, Schroders), and the personal network of Montagu Norman — not by Parliament.
Bank, Treasury and the Milner Group
The Anglo-American Establishment documents the personal interpenetration between the Milner Group and the Bank of England across the first half of the twentieth century. Milner's patron was Lord Goschen, "Member of Parliament and director of the Bank of England" (AAE 11) — the connection through which Milner first acquired political influence. Edward Peacock, a Milner-Group financier, was "a director of the Bank of England from 1921–1946, managing director of Baring Brothers from 1926" (AAE 73). When the Royal Institute of International Affairs solicited endowment, the Bank itself was among the donors, and the list of corporate benefactors included "the Anglo-Iranian Oil Company; the Bank of England; Barclay's Bank; Baring Brothers; … the British South Africa Company" (AAE 157) — Quigley's evidence that the Bank functioned not as a neutral state agency but as a node in a single integrated City–Empire network.
1925, 1931 and the Inter-War Crisis
The Bank's two great inter-war decisions were the 1925 return to gold at the pre-war parity, executed under Norman and Chancellor Churchill, and the 1931 suspension of gold under the second Labour government of Ramsay MacDonald. Quigley reads both as politically catastrophic. The 1925 return-to-gold over-valued sterling and condemned the British economy to a decade of deflation; the 1931 crisis was substantially manufactured by the Bank: "the deflationary policy of the Bank of England and the outflow of gold from the country were simultaneously intensifying the depression, increasing unemployment and public discontent, and jeopardizing the gold standard. In fact, the Bank of England's policy made it almost impossible for the Labour Party to govern" (AAE 190). MacDonald's secret negotiations with Baldwin and the King — bypassing his own Cabinet — produced the National Government, the Bank got the deflation it wanted, and Britain went off gold three weeks later. The 1931 episode is, in Quigley's account, the cleanest documentary case of the Bank acting as an autonomous political power.
Czech Gold and the Munich Aftermath
Quigley's most pointed institutional charge against the Bank lies in the disposition of the Czechoslovak gold reserves in March 1939. After the German occupation of Prague, the Bank of England transferred £6 million of Czech gold on deposit in London to the Reichsbank's account — "with the puny, and untrue, excuse that the British government could not give orders to the Bank of England (May 1939)" (T&H 657). The episode appears in both Tragedy and Hope and The Anglo-American Establishment (AAE 248) as Quigley's clinching evidence that the Bank's autonomy was not technical but political, and that under Norman's governorship its policy continued to align with the Chamberlain Cabinet's pursuit of an Anglo-German economic settlement long after the Munich-era diplomatic premises had collapsed.
Cited in
- tragedy-and-hope · p. 63 Quigley
the founding of the Bank of England by William Paterson and his friends in 1694 is one of the great dates in world history.
- tragedy-and-hope · p. 66 Quigley
The merchant bankers of London had already at hand in 1810-1850 the Stock Exchange, the Bank of England, and the London money market when the needs of advancing industrialism called all of these into the industrial world.
- tragedy-and-hope · p. 70 Quigley
The Bank of England, by an Act of 1928, had its notes uncovered up to £250 million, and covered by gold for 100 percent value over that amount.
- tragedy-and-hope · p. 330 Quigley
The discount rate was raised at the Bank of England from 3 percent to 10 percent to prevent inflation, a figure taken merely because the traditional theory of the bank stated that a 10 percent bank rate would draw gold out of the ground itself.
- tragedy-and-hope · p. 337 Quigley
Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government.
- tragedy-and-hope · p. 482 Quigley
It can authorize violations of the law, as was done in regard to payments of the Bank of England in 1847, in 1857, or in 1931.
- tragedy-and-hope · p. 502 Quigley
the Macmillan Committee, after two years' study, reported that the whole financial structure of England was unsound and should be remedied by a managed currency, controlled by the Bank of England.
- tragedy-and-hope · p. 657 Quigley
£6,000,000 in Czech gold reserves in London were turned over to Germany with the puny, and untrue, excuse that the British government could not give orders to the Bank of England (May 1939).
- anglo-american-establishment · p. 11 Quigley
George J. (later Lord) Goschen, Member of Parliament and director of the Bank of England, who in the space of three years (1880-1883) refused the posts of Viceroy of India, Secretary of State for War, and Speaker of the House of Commons.
- anglo-american-establishment · p. 73 Quigley
He was a director of the Bank of England from 1921-1946, managing director of Baring Brothers from 1926, a director of Vickers-Armstrong from 1929.
- anglo-american-establishment · p. 157 Quigley
In 1926 the Carnegie United Kingdom Trustees gave £3000 for books; the Bank of England gave £600; J. D. Rockefeller gave £3000.
- anglo-american-establishment · p. 190 Quigley
the deflationary policy of the Bank of England and the outflow of gold from the country were simultaneously intensifying the depression… the Bank of England's policy made it almost impossible for the Labour Party to govern.
- anglo-american-establishment · p. 248 Quigley
Chamberlain, however, in his eagerness to make economic concessions to Germany, gave to Hitler £6 million in Czechoslovak gold in the Bank of England.