It had been one of those glorious English summers, not a cloud in the sky for days on end, with temperatures in the 90s. Norman had taken an earlier e
xtended two-month holiday in the United States, spending his time, as he usually did on his annual visits, in New York and Maine. He had sailed back to England at the end of June, to spend a leisurely July in London, enjoying the good weather, catching up with old friends from Eton, and passing the days at Lord’s watching cricket, a family obsession. He had also finally settled with his partners about withdrawing his capital, and going his own way. It had been a painful decision. His grandfather had been the senior partner at Brown Shipley, an affiliate of the U.S. investment house of Brown Brothers, for more than thirty-five years. Norman himself had worked there since 1894. But a combination of ill health and recurring conflicts with the other members of the firm had seemed to leave him with little choice but to sever his connections.
Norman returned to Gloucestershire on the morning of Wednesday, July 29, to find an urgent telegram recalling him to London. Taking a train the same day, he arrived in the evening, too late to attend a frantic meeting of the “Court”—the board of directors—of the Bank of England. Norman had been a member of this exclusive club since 1905.
Though forty-three years old, Norman was still not married and lived alone in a large two-story stucco house, Thorpe Lodge, just off Holland Park in West London. The house and his staff of seven servants were his two great luxuries. When he had bought it in 1905, it was a wreck; over the next seven years, he had devoted his energies to a complete reconstruction. He had designed much of the interior himself, including the furniture. Influenced by the ideals of William Morris and the Arts and Crafts movement, he had hired the best craftsmen and employed the most expensive materials, even occasionally stopping by the workshops on his way home from the City to help with the carpentry.
His taste in decoration was, it has to be said, a little idiosyncratic, even odd. The house was paneled in exotic woods imported from Africa and the Americas, giving it the austere and gloomy air of a sort of millionaire’s monastery. There was little ornamentation: an entrance hall of shimmering bricks, which looked like mother-of pearl but were in fact a type of industrial silicone; two giant embroidered Japanese panels depicting peacocks; and a gigantic seventeenth-century Italian fireplace. But it was his haven from the world. On one side, he had built a huge groin-vaulted music room, in which he held small concerts: string quartets playing chamber music by Brahms or Schubert, occasionally for Norman alone. And below the house, he had converted a small paddock into an exquisite little terraced garden shaded by fruit trees, overlooked by a pergola where he took his meals in summer.
Although he had some inherited wealth, the house aside, Norman lived quite simply. He had passed his father’s estate at Much Hadham, in Hertfordshire, on to his younger brother, who was married and had a family, while he contented himself with a little farmyard cottage on the grounds.
NORMAN NEITHER LOOKED nor dressed like a banker. Tall, with a broad forehead and a pointed beard, already white, he had the long fine hands of an artist or a musician. He looked more like a grandee out of Velázquez or a courtier from the time of Charles II. But despite appearances, his professional pedigree was impeccable: his father and mother had come from two of the most established and well-known English banking families.
Born in 1871, Montagu Norman, from his early childhood, had never quite seemed to fit in. He was sickly from birth and as a boy suffered from terrible migraines. His emotional and highly strung mother, herself subject to depressions and imaginary illnesses, fussed over him excessively. Like his grandfather and father before him, he went to Eton. But unlike his grandfather, father, uncle, and eventually his brother, who had all been captains of the cricket XI, Montagu did not excel in the atmosphere of competition and athleticism, and was a misfit—lonely, isolated, and generally moody. In 1889 he went up to King’s College, Cambridge, but again unhappy and out of place, he withdrew after a year.
Even as a young adult, he seemed to have a hard time finding himself. He spent a desultory couple of years traveling in Europe, living for a year in Dresden, where he picked up German and an interest in speculative philosophy, and a year in Switzerland. In 1892, he returned to England to join the family concern, Martins Bank, in which his father and an uncle were partners, as a trainee clerk in the Lombard Street branch. Unable to muster much enthusiasm or interest in the dull business of commercial banking, in 1894, he decided to try out his maternal grandfather’s bank, Brown Shipley. Its main activity was financing trade between the United States and Britain, which at least got him out of London and enabled him to spend almost two years working at the offices of Brown Brothers in New York City. He found life in America, with its fewer social restrictions, more liberating and less hidebound than the constricted world of London banking and even began to contemplate settling in the United States.
Instead, he found his deliverance in war. In October 1899, the Boer War broke out. Norman, who had joined the militia in 1894, spending several weeks in training every summer, and by now a captain, immediately volunteered for active service. He was not a particularly fervent imperialist. Rather he seems to have been motivated by a romantic quest for adventure and a desire to escape his mundane existence.
By the time he arrived in South Africa in March 1900, the British occupying force of some 150,000 men was engaged in a bitter guerrilla war with a Boer insurgency of some 20,000 men. Placed in command of a counterinsurgency unit, whose job it was to hunt down Boer commandos, Norman became a changed man in the field. Despite the difficult conditions, poor food, oppressive heat, and lack of sleep, he relished the danger and discovered a newfound confidence. “I feel a different person now . . . ,” he wrote to his parents. “One looks ahead with something of dismay to the time when one will again have to settle down to civilized life.”
He was eventually awarded a D.S.O.—the Distinguished Service Order, the second highest decoration for bravery by an officer. It would remain one of his proudest achievements—for many years, even when he had attained worldwide prominence, it was the only distinction that he insisted on including in his entry in the British edition of Who’s Who. But sheer physical hardship took its toll on his frail constitution, and in October 1901, he developed severe gastritis and was invalided home.
Back in civilian life, he spent the next two years rebuilding his health, including several months convalescing at his uncle’s villa at Hyères on the Riviera, thus beginning a long affair with the Côte d’Azur. Not until 1905 was he able to resume full-time work at Brown Shipley, where for the next six years he was one of the four main partners—an especially dispiriting time marred by endless disagreements with his colleagues over business strategy.
But it was his personal life that weighed most on him. In 1906, a broken engagement drove him into the first of his nervous breakdowns. Thereafter he displayed the classic signs of manic depression: periods of euphoria followed by severe despondency. Normally one of the most charming of companions, when afflicted by one of his black moods, which could last for weeks, he would become extremely irritable, indulging in tantrums and lashing out irrationally at anyone and everyone around him. After 1909, these episodes intensified until in September 1911 he collapsed. Advised by his doctors to take a complete rest, he worked only intermittently for the next three years, becoming progressively more reclusive. As if searching for something, he traveled a great deal. He embarked on a three-month holiday through Egypt and the Sudan in December 1911, and set off, a year later, on another extended journey through the West Indies and South America.
In Panama, a friendly bank manager recommended that he consult the Swiss psychiatrist Dr. Carl Jung. He immediately returned to Europe and arranged for an appointment in Zurich. In April 1913, following a few days of tests, including blood and spinal fluid tests, the rising young psychiatrist informed Norman that he was suffering from “general paralysis of the insane” (GPI), a term then used to describe the onset of mental illness associated with tertiary syphilis, and that he would be dead in a few months. While some of the symptoms of GPI were in fact
similar to those associated with manic depression—sudden shifts between euphoria and profound melancholy, bursts of creativity followed by suicidal tendencies, delusions of grandeur—this was an egregious misdiagnosis.
Profoundly shaken, Norman sought a second opinion from another Swiss doctor, Dr. Roger Vittoz, a specialist in nervous diseases, under whose care he spent the next three months in Zurich. Vittoz had developed a method of alleviating mental stress, using techniques similar to those used in meditation. His patients were taught to calm themselves by concentrating on a series of elaborate patterns, or sometimes on a single word. Vittoz would later become very popular in certain social circles in London, where his patients included Lady Ottoline Morrell, Julian Huxley, and T. S. Eliot.
For Norman it was the beginning of a lifelong history of experimenting with esoteric religions and spiritual practices. For a while, he was a practicing Theosophist. In the 1920s, he became a follower of Émile Coué, a French psychologist who preached the power of self-mastery through conscious autosuggestion, a sort of New Age positive-thinking cult very much in vogue during those years. He even dabbled in spiritualism. He would end up embracing all sorts of strange ideas, insisting to one of his colleagues, for example, that he could walk through walls. Because he also took a certain mischievous pleasure in twitting people with his more unconventional notions, it was always difficult to know how seriously to take him.
It was perhaps not surprising that Norman should have acquired a reputation as an oddity and an eccentric. He was viewed by his City acquaintances as a strange and lonely man who spent his evenings alone in his grand house immersed in Brahms, and who frequently quoted the Chinese sage Lao Tzu. He certainly made no attempt to fit into the clubby atmosphere of the City. His interests were primarily aesthetic and philosophical, and though he counted a few bankers among his close friends, he generally preferred to mix in a more eclectic circle of artists and designers.
By THURSDAY, July 30, it had become apparent that what had initially appeared to be just a remote Balkan affair between a fading empire and one of its minor states was escalating toward a general European war. In response to Austria’s attack on Serbia, Russia had now ordered a general mobilization. The international political crisis brought a financial crisis in its wake. The Berlin, Vienna, Budapest, Brussels, and St. Petersburg stock exchanges all had to suspend trading. With all the bourses of Europe except Paris’s shut, the panic liquidation of securities concentrated on London.
On Friday, July 31, when Norman arrived at his City office, just north of the Bank of England, he found the financial community solidly against any British involvement in a Continental conflict. David Lloyd George, the chancellor of the exchequer, would later recount how Walter Cunliffe, the governor of the Bank of England, a man of few words not usually given to theatrical displays, came to plead “with tears in his eyes ‘Keep us out of it. We shall be ruined if we are dragged in.’”
London was the financial capital of the world, and the City’s livelihood depended much more on foreign finance than on providing capital to domestic industry. The merchant bankers housed in the warren of streets around the Bank of England, that select inner circle of household names—Rothschilds, Barings, Morgan Grenfell, Lazards, Hambros, Schroders, Kleinworts, and Brown Shipley, which gave the City of London its mystique—oversaw the greatest international lending operation the world had ever seen. Every year a billion dollars of foreign bonds were issued through London bankers. In the previous year, Barings and the Hongkong and Shanghai Bank had syndicated a loan of $125 million to China; Hambros had brought a loan to the Kingdom of Denmark to market; Rothschilds had underwritten a $50 million issue for Brazil and was in the midst of negotiations for another loan; there had been bond issues for Rumania, for the cities of Stockholm, Montreal, and Vancouver. In April, Schroders had even led an $80 million bond issue for the imperial government of Austria, a country against which Britain might soon be at war. All of this financing and the profits that went with it would dry up in the event of war.
The closure of stock exchanges around Europe, and the risk that gold shipments would be prohibited, causing the entire gold standard to unravel, created a more immediate problem. It was now difficult, if not impossible, for Europeans to send money abroad to settle their trade debts. The merchant banks, which had guaranteed all this paper, were faced with bankruptcy.
Bankers were not the only ones terrified by the threat posed to world financial order by the prospect of war. Even the foreign secretary, Sir Edward Grey, who of all the cabinet had staked his career on the ambiguous “understanding” with France and was most committed to fighting, warned the French ambassador that “the coming conflict will plunge the finances of Europe into trouble, that Britain was facing an economic and financial crisis without precedent, and that British neutrality might be the only way of averting the complete collapse of European credit.”
At ten o’clock on Friday morning, a notice was posted on the door of the stock exchange announcing that it was to be closed until further notice, for the first time since its founding in 1773.
Banks around the city began refusing to pay out gold sovereigns to customers. Soon a long queue assembled outside the Bank of England on Threadneedle Street, the one bank that remained legally obliged to convert five-pound notes into gold coins. There was no panic, just an atmosphere of “acute anxiety.” While the crowd, many of them women who “stood nervously fingering their notes,” was admitted into the Bank’s inner courtyard, an even larger group of bemused onlookers gathered on the steps of the Royal Exchange opposite. The Times reported that “although many hundreds of people, a great many of them foreigners, must have been in the queue in the course of the day, there was no kind of disorder.” This was in sharp contrast to the reports of panic coming from the cities of Europe and could be attributed, asserted the Times haughtily, to the “traditionally phlegmatic and cool” character of the English. On the next day, the crowd outside the Bank was even larger, but there was still no sense of real alarm. Nevertheless, just in case, the Bank’s porters, in their distinctive salmon-pink tailcoats, red waistcoats, and top hats, were sworn in as special policemen, with the right to make arrests.
There may have been no riots in the streets, but fear was sweeping through the boardrooms of the great commercial banks. For the previous six months they had been engaged in a terrible controversy with the Bank of England over the adequacy of both their own and the Bank’s gold reserves in the event of just such a crisis. In February, a memorandum circulated to a committee of bankers had warned that “in case of an outbreak of war, foreign nations would have the power, and would use it ruthlessly, of inflicting serious financial disturbance by demanding gold.” Now faced with the prospect of large parts of the City of London going under, the commercial bankers in a panic had begun withdrawing gold from their accounts at the Bank of England. Its bullion reserves fell from over $130 million on Wednesday, July 29, to less than $50 million on Saturday, August 1, when the Bank, to attract deposits and conserve its rapidly diminishing stock of gold, announced that it had raised its interest rates to an unprecedented 10 percent.
Meanwhile on the Continent, the crisis was inexorably ratcheting up. Germany countered the Russian mobilization with a general mobilization of its own on Friday, July 31, and dispatched an ultimatum demanding that France declare its neutrality and turn over the fortresses of Toul and Verdun as a pledge of good faith. Next day, it declared war on Russia, and France ordered its own general mobilization. By Sunday, it was clear that in a matter of hours, France, committed to its alliance with Russia, would also be at war with Germany. That weekend Norman cabled his American partners at Brown Brothers in New York, “European prospects very gloomy.”
Over the weekend, the mood of Britain shifted decisively in favor of war. It was the August Bank Holiday weekend and thousands of people, too excited to stay home and drawn outdoors by the sunshine, crammed into the center of London all the way from Trafalgar Square across Whitehall to Buckingham Palace, blocking all car and bus traffic, cheering and singing patriotic songs—“La Marseillaise” as well as “God Save the King”—and clamoring for action.
On Monday, the City would normally have been completely deserted for the August Bank Holiday. Instead, Norman joined 150 other bankers gathered at the Bank of England. It was a stormy meeting. As Lloyd George, the chancellor of the exchequer, would later remark, “Financiers in a fright do not make a heroic picture.” Many of the men participating did not know whether or not they had lost everything they had. Voices were raised and one banker even “shook his fist” at the governor himself. The meeting decided to recommend to the chancellor that the Bank Holiday should be extended for another three days to buy time for the panic to subside. The Treasury also announced that all trade debts would automatically be extended for an extra month while the Bank of England decided how best to go about bailing out the merchant banks threatened with insolvency or even bankruptcy.2