The economic disorders that succeeded the First World War, a failed restoration of the gold standard, a stock market bubble, the Great Crash of 1929, the Great Depression, and the Second World War all occurred in the span of twenty-five years. The Bank of England was led by one man for almost the entirety of this period. He was Montagu Norman, a man the length of whose service at the Bank makes a brief summary of his leadership, let alone an assessment, nothing short of impossible. In the spirit of Montagu Norman, who himself tried to achieve the impossible, here is an attempt at just that.


             Montagu Norman served as Governor of the Bank of England from 1920 to 1944. He was not an unlikely leader of the Bank. He was descended of two banking families. His father’s family owned a bank called Martins Bank; a young Norman joined this firm as a trainee clerk. His mother’s father was a senior partner at the British branch of Brown Brothers. Norman also worked here prior to leading the Bank of England.

             Both his grandfathers had previously served on the board of the Bank of England and one of them as the Bank’s Governor. Still, neither Norman’s personality nor fashion were that of a typical banker. The veteran of the Boer War who became the Bank of England’s longest serving Governor, known for the occasional emotional breakdown, would dress with a cape, a floppy broad-brimmed hat, and an emerald tie pin. With his pointed beard, he was compared to a grandee or a courtier of the 17th century. Time magazine, who put Norman on their cover in 1929, likened him to ‘the Chief Conspirator in an Italian opera’.

             Norman was not at all like a modern Governor of the Bank in still other ways. He was suspicious of economists; he briefed the Bank’s new chief economist that “You are not here to tell us what to do, but to explain to us why we have done it”. Regardless, Norman was usually more diplomatic than such terse instruction suggests.

             Leslie O’Brien, a secretary to Norman and a future governor of the Bank of England himself, said that Norman had “the most magnetic personality he ever met”. Montagu Norman developed close relationships with the politicians of the day and his counterparts abroad; he left Britain frequently and could be likened to a travelling one-man World Economic Forum. He enjoyed particularly good relations with his American counterparts at the Federal Reserve but worked in Europe as well to rebuild the continent’s monetary institutions, ravaged by the First World War and its aftermath. Among the results of these efforts was the creation of the Bank for International Settlements in 1930.

             Norman also instituted regular meetings with bankers who could provide him good information on market activities. These relations were vital in an era when the statistical and analytical capabilities of the Bank were hardly impressive.

Gold Standard

             Among the international institutions destroyed by the war which Norman sought to rebuild was the gold standard. Europe had abandoned the link between money and gold during the war and prices rose during and after the fighting. Rising prices encouraged countries to return to the gold standard, something Norman supported. For Britain especially, this carried extra urgency because of the common belief that restoring gold would also make the world safe for international trade and finance, on which Britain was particularly dependent.

             However, returning to the gold standard while the European economies were still recovering from war was not going to make the transition to a new economy any easier. Rather, the continent’s monetary authorities were looking to restore a past more distant than the passage of time alone would suggest.

             Britain returned to the gold standard in 1925 at roughly the pre-war valuation of the pound. Norman worried of the effect that a devaluation would have on the cost of living and the international perception of the stability of British finance. Maintaining this was to some extent the point of returning to the gold standard to begin with so restoring the role of gold at a devalued exchange rate was not an appealing option.

             Regardless, the fact remained that prices had risen relative to gold in the intervening years and this meant that the amount of gold relative to prices and the monetary requirements of the country had fallen meaningfully. Britain would also face persistent drains of gold through the rest of the 1920s. Norman was devoting his administration of the Bank to maintaining a painful struggle to preserve the gold standard amidst the most difficult circumstances of its history.  

             A gold standard meant that the supply of money and credit was constrained by the availability of gold. The Bank of England would have to keep British interest rates high to prevent the pound from losing value, essentially incentivizing investors to hold sterling assets rather than export this capital abroad. If the Bank allowed the pound to lose value, traders would buy gold in Britain, taking advantage of the favorable exchange rate, and export it, creating an excessive drain of gold and threatening the country’s gold standard.

             By keeping interest rates high, or at least higher than those in the United States, the Bank of England could attract capital to Britain, deflect demands for capital to markets with cheaper money and thereby limit capital outflow, and keep the exchange rates in check. However, high interest rates would harm British industry in the meantime and the country’s economy stagnated in the 1920s.


             In 1927, the pound was under pressure. The international reaction to this would be critical in determining the course of the global economy in the subsequent few years. France had been accumulating gold, much of it withdrawn from the Bank of England. Because Britain had an exchange rate against the U.S. dollar and other currencies that was judged to be too high, and France one judged to be low, French exports could be marketed abroad more successfully. Following these trading conditions, gold flowed from Britain to France.

             Crucially, neither country was willing to accept a revaluation. Norman travelled to the United States, along with the leaders of central banks in France and Germany, to work out a solution. To his counterparts, Norman was outspoken in pointing out the dire extent of Britain’s shortage of gold. To keep the system afloat, it was agreed that the Federal Reserve would cut American interest rates.

             Such a move was designed to increase the differential between British and American rates, reducing pressure on the pound. The decision provided some relief but it also helped accelerate the stock market bubble underway in the U.S., something the central bankers were aware could happen, but accepted as a risk of maintaining the link to gold.

Great Depression

             The arrangement Norman secured did meet his ends, but only briefly. Gold flowed to Britain until 1928 but only for a short visit; that year, the flow reversed and capital was again flowing back to the United States. Believing that the stock market bubble there was responsible for sucking capital from abroad, Norman this time argued that the Americans should raise their interest rates to stop the bubble and the drain of gold from Europe. Then with the bubble burst, Norman thought the banks could reduce interest rates in unison, supporting their economies without a drain of gold from Europe.

             The Federal Reserve did eventually raise interest rates to stop the bubble but it was far too late to prevent the bubble from reaching dangerous proportions. European economies entered recession, starting with Germany, which had also seen a speculative boom in the late 1920s. Britain had to keep interest rates high because of its intractable gold problems. Indeed, 1929 saw interest rate increases in Britain and elsewhere. The movement of interest rates in this period had at least just as much to do with maintaining the system of fixed exchange rates as stabilizing the economy.

             In any case, the bubble burst in September and October 1929. The Bank of England and other central banks could now cut interest rates, as they did through mid-1930. However, this was also short lived. As U.S. imports of European goods fell with the economic contraction and American investment in Europe retreated, the flow of gold was once again from Britain towards America and to some extent France, which had avoided the worst of the slump. Germany also saw capital flight after the collapse of the Austrian bank Creditanstalt, which prompted the Reichsbank to raise interest rates to protect the currency’s value. The Bank of England also had to raise interest rates in 1931 to defend its currency, despite the dismal economy.

             Even Norman, who had invested so much in restoring and maintaining the gold standard, was loath to do this. British interest rates were increased from 2.5% to 4.25% in 1931. The government also secured $400 million in loans from American and French banks to replenish its reserves but this was exhausted within weeks; the country was losing $25 million of gold daily. There was now a growing acceptance that the gold standard simply had to be abandoned. There were few other options.

             Britain left the gold standard in September 1931. Montagu Norman was aboard the HMS Duchess of Bedford, returning from Canada, at the time. Having forgotten his codebook, Norman had to be informed of the decision of the government and his colleagues at the Bank through cryptically worded messages on an open line. It’s said Norman was out of the loop and didn’t understand the decision his colleagues made until after he arrived in Liverpool. The United States would follow Britain’s move in 1933 and France in 1936. To some extent, the timing of the British and American recoveries from the Great Depression seems to match their decisions to abandon gold.


             The final decision on gold did not lift the public’s impression of Norman. After the failed restoration of the gold standard, he suffered a diminished reputation. Like most of the monetary authorities of his era, he was judged to be insufficiently imaginative. Norman and others were slow to abandon the financial sacred cow of their day, the gold standard. As a result, he was more concerned with external factors, like exchange rates and movements of gold, than internal problems like unemployment and production. Norman regarded monetary policy as fit only for solving the former.

             Still, Norman remained Governor of the Bank of England until 1944. The start of the Great Depression, ten years into his leadership, was still closer to the start of his administration of the Bank than to its end. In this time, Noman did contribute meaningfully to the professionalization of the Bank of England, which used to be run by patricians on a largely part-time basis. He was also ahead of his time in advocating greater international cooperation to solving economic problems.


             Montagu Norman was certainly a talented Governor of the Bank of England. However, his skills were applied towards the wrong problem, restoring the broken link between money and gold. Rather than accept that an entirely new kind of financial understanding needed to be picked up after the First World War, Norman tried to do the impossible and put Britain back on a footing with which he and others were already familiar. Not even a true ‘Chief Conspirator in an Italian opera’ could maneuver his way around the challenges Norman volunteered to take on and implement the kind of designs for the world economy he only gave up when there were no other appealing options left.

More from the Tontine Coffee-House

        Under Norman, the Bank of England encouraged the restructuring of several industries that had little to do with finance, such as cotton spinning. During the Great Depression, the Federal Reserve in America also lent directly to non-financial businesses. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.  

Further Reading

1.     Ahamed, Liaquat. Lords of Finance: The Bankers Who Broke the World. Penguin Press, 2009.

2.     Einzig, Paul. Montagu Norman. A Study in Financial Statesmanship. Kegan Paul & Co., 1932.

3.     “Foreign News: Palladin of Gold.” Time, 19 Aug. 1929.

4.     “Great Britain: Professor Skinner.” Time, 29 Aug. 1932.

5.     Seib, Gerald F., and Liaquat Ahamed. “After Words: Lords of Finance: The Bankers Who Broke the World – Financial Crisis (2009).” BookTV CSPAN2, 15 Apr. 2009.

6.     Swinson, Chris. “Montagu Norman and the Transformation of the Bank.” Bank Underground, Bank of England, 11 Nov. 2020.

7.     Williams, David. “Montagu Norman and Banking Policy in the Nineteen Twenties.” Bulletin of Economic Research, vol. 11, no. 1, 1959, pp. 38–55. 

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Comments (2)



    1933 is when theU S started to recover from the Great Depression? Someone please get that memo to 1937.

    • Daniel DeMatos


      From some review of National Bureau of Economic Research data, it seems US unemployment peaked in May 1933 at 25.6% and had exactly halved to 12.8% by year-end 1936. Over the course of 1937, it actually rose to 15.9% (and continued to rise until mid 1938).

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