See also:
Modifications of productive and commercial organization and of
financial practices made it almost impossible after 1919 to restore
the financial system of 1914. Yet this is what was attempted.
Instead of seeking to set up a new financial organization adapted
to the modified economic organization, bankers and politicians
insisted that the old prewar system should be restored.
These efforts were concentrated in a determination to restore
the gold standard as it had existed in 1914. In addition to these
pragmatic goals, the powers of financial capitalism had another
far-reaching aim, nothing less than to create a world system of
financial control in private hands able to dominate the political
system of each country and the economy of the world as a whole.
This system was to be controlled in a feudalist fashion by the
central banks of the world acting in concert, by secret agreements
arrived at in frequent private meetings and conferences.
The apex of the system was to be the Bank for International
Settlements in Basle, Switzerland, a private bank owned and
controlled by the world's central banks which were themselves
private corporations. 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 by its ability to control Treasury loans, to manipulate
foreign exchanges, to influence the level of economic activity in
the country, and to influence cooperative politicians by
subsequent economic rewards in the business world.
In each country the power of the central bank rested largely on
its control of credit and money supply. In the world as a whole the
power of the central bankers rested very largely on their control
of loans and of gold flows. In the final days of the system, these
central bankers were able to mobilize resources to assist each
other through the B. I. S., where payments between central banks
could be made by bookkeeping adjustments between the accounts which
the central banks of the world kept there.
The B. I. S. as a private institution was owned by the seven
chief central banks and was operated by the heads of these, who
together formed its governing board. Each of these kept a
substantial deposit at the B. I. S., and periodically settled
payments among themselves (and thus between the major countries of
the world) by bookkeeping in order to avoid shipments of gold. They
made agreements on all the major financial problems of the world,
as well as on many of the economic and political problems,
especially in reference to loans, payments, and the economic future
of the chief areas of the globe.
The B. I. S. is generally regarded as the apex of the structure
of (inancial capitalism whose remote origins go back to the
creation of the Bank of England in 1694 and the Bank of France in
1803. As a matter of fact its establishment in 1929 was rather an
indication that the ccntralized world financial system of 1914 was
in decline.
It was set up rather to remedy the decline of London as the
world's financial center bv providing a mechanism bv which a world
with three chief financial centers in London, New York, and Paris
could still operate as one. The B. I. S. was a vain effort to cope
with the problems arising from the growth of a number of centers.
It was intended to be the world cartel of ever-growing national
financial powers by assembling the nominal heads of these national
financial centers.
The commander in chief of the world system of banking control
was Montagu Norman, Governor of the Bank of England, who was built
up by the private bankers to a position where he was regarded as an
oracle in all matters of government and business.
In government the power of the Bank of England was a
considerable restriction on political action as early as 1819 but
an effort to break this power by a modification of the bank's
charter in 1844 failed. In 1852, Gladstone, then chancellor of the
Exchequer and later prime minister, declared, "The hinge of the
whole situation was this: the government itself was not to be a
substantive power in matters of Finance, but was to leave the Money
Power supreme and unquestioned."
This power of the Bank of England and of its governor was
admitted by most qualified observers. In January, 1924, Reginald
McKenna, who had been chancellor of the Exchequer in 1915-1916, as
chairman of the board of the Midland Bank told its stockholders: "I
am afraid the ordinary citizen will not like to be told that the
banks can, and do, create money. . . . And they who control the
credit of the nation direct the policy of Governments and hold in
the hollow of their hands the destiny of the people." In that same
year, Sir Drummond Fraser, vice-president of the Institute of
Bankers, stated, "The Governor of the Bank of England must be the
autocrat who dictates the terms upon which alone the Government can
obtain borrowed money."
On September 26, 1921, The Financial Times wrote, "Half
a dozen men at the top of the Big Five Banks could upset the whole
fabric of government finance by refraining from renewing Treasury
Bills." Vincent Vickers, who had been a director of the bank for
nine years, said, "Since 1919 the monetary policy of the Government
has been the policy of the Bank of England and the policy of the
Bank of England has been the policy of Mr. Montagu Norman."
On November 11, 1927, the Wall Street Journal called
Mr. Norman "the currency dictator of Europe.". This fact was
admitted by Mr. Norman himself before the court of the bank on
March 21, 1930, and before the Macmillan Committee five days
later.
Montagu Norman's position may be gathered from the fact that his
predecessors in the governorship, almost a hundred of them, had
served two-year terms, increased rarely, in time of crisis, to
three or even four years. But Norman held the position for
twenty-four years (1920-1944), during which he became the chief
architect of the liquidation of Britain's global preeminence.
Norman was a strange man whose mental outlook was one of
successfully suppressed hysteria or even paranoia. He had no use
for governments and feared democracy. Both of these seemed to him
to be threats to private banking, and thus to all that was proper
and precious in human life. Strong-willed, tireless, and ruthless,
he viewed his life as a kind of cloak-and-dagger struggle with the
forces of unsound money which were in league with anarchy and
Communism.
When he rebuilt the Bank of England, he constructed it as a
fortress prepared to defend itself against any popular revolt, with
the sacred gold reserves hidden in deep vaults below the level of
underground waters which could be released to cover them by
pressing a button on the governor's desk.
For much of his life Norman rushed about the world by fast
steamship, covering tens of thousands of miles each year, often
traveling incognito, concealed by a black slouch hat and a long
black cloak, under the assumed name of "Professor Skinner."
His embarkations and debarkations onto and off the fastest
ocean liners of the day, sometimes through the freight hatch, were
about as unobserved as the somewhat similar passages of Greta Garbo
in the same years, and were carried out in a similarly "sincere"
effort at self-effacement.
Norman had a devoted colleague in Benjamin Strong, the first
governor of the Federal Reserve Bank of New York. Strong owed his
career to the favor of the Morgan Bank, especially of Henry P.
Davison, who made him secretary of the Bankers Trust Company of New
York (in succession to Thomas W. Lamont) in 1904, used him as
Morgan's agent in the banking rearrangements following the crash of
1907, and made him vice-president of the Bankers Trust (still in
succession to Lamont) in 1909.
He became governor of the Federal Reserve Bank of New York as
the joint nominee of Morgan and of Kuhn, Loeb, and Company in 1914.
Two years later, Strong met Norman for the first time, and they at
once made an agreement to work in cooperation for the financial
practices they both revered.
These financial practices were explicitly stated many times in
the voluminous correspondence between these two men and in many
conversations they had, both in their work and at their leisure
(they often spent their vacations together for weeks, usually in
the south of France).
In the 1920's, they were determined to use the financial power
of Britain and of the United States to force all the major
countries of the world to go on the gold standard and to operate it
through central banks free from all political control, with all
questions of international finance to be settled by agreements by
such central banks without interference from governments.
It must not be felt that these heads of the world's chief
central banks were themselves substantive powers in world finance.
They were not. Rather, they were the technicians and agents of the
dominant investment bankers of their own countries, who had raised
them up and were perfectly capable of throwing them down. The
substantive financial powers of the world were in the hands of
these investment bankers (also called "international" or "merchant"
bankers) who remained largely behind the scenes in their own
unincorporated private banks.
These formed a system of international cooperation and national
dominance which was more private, more powerful, and more secret
than that of their agents in the central banks. This dominance of
investment bankers was based on their control over the flows of
credit and investment funds in their own countries and throughout
the world.
They could dominate the financial and industrial systems of
their own countries by their influence over the flow of current
funds through bank loans, the discount rate, and the rediscounting
of commercial debts; they could dominate governments by their
control over current government loans and the play of the
international exchanges. Almost all of this power was exercised by
the personal influence and prestige of men who had demonstrated
their ability in the past to bring off successful financial coups,
to keep their word, to remain cool in a crisis, and to share their
winning opportunities with their associates.
In this system the Rothschilds had been preeminent during much
of the nineteenth century, but, at the end of that century, they
were being replaced by J. P. Morgan whose central office was in New
York, although it was always operated as if it were in London
(where it had, indeed, originated as George Peabody and Company in
1838). Old J. P. Morgan died in 1913, but was succeeded by his son
of the same name (who had been trained in the London branch until
1901), while the chief decisions in the firm were increasingly made
by Thomas W. Lamont after 1924. But these relationships can be
described better on a national basis later. At the present stage we
must follow the efforts of the central bankers to compel the world
to return to the gold standard of 1914 in the postwar conditions
following 1918.
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