Churchill, Norman, and the industrial crisis

By the end of 1925 Montagu Norman's ‘big idea’ was still far from realised. Britain had returned to the gold standard with unexpected ease: none of the credits arranged in New York had been required, and following Britain's lead some thirty other countries had also returned to gold. On the other hand, Norman had found himself with far less autonomy over the management of credit and currency than he expected, and his hopes of a ‘special relationship’ with the American central bank authorities had also received a severe knock. In August he had been pressured by the Chancellor to reduce Bank rate in order to help resolve the coal dispute. Facing renewed pressure in September, he looked for a rise in the New York discount rate to forestall the need for action, but found that Benjamin Strong was unable to act against the mounting speculation in his securities markets because of Washington's determination to assist the financing of American crop exports. Norman lowered his rate, but no sooner had he done so than Strong warned him to expect a rise in the New York rate. Norman peevishly complained about this inopportune development and requested Strong to hold off for three weeks while Churchill considered the Norman committee's recommendation to remove the embargo on long-term lending. But, with speculation in New York drawing balances from London and forcing the Bank to sell gold in defence of the exchanges, the writing was on the wall.