# The central bankers and the road to war The men who ran the great central banks - Norman at the Bank of England, Schacht at the Reichsbank, Strong at the New York Fed, Moreau at the Banque de France - and how their coordination and gold-standard decisions in the 1920s deepened the Depression that fed the rise of fascism. *This story part of: Infrastructure and logistics* *The pillars of modern power part of this story* *Capital and the totalitarianisms: who funded Stalin and Hitler parallel this story* *Princes of the Yen: Japan built, bubbled, and broken parallel this story* *Reichsbank: independence, hyperinflation, and Hitler parallel this story* *The Bank of Japan's window-guidance machine parallel this story* *How the West supported the Nazis: finance, appeasement, and Cold War bargains parallel this story* *Money and finance parallel this story* ## 1694 — Founding of the Bank of England In 1694 a consortium of English bankers loaned 1,200,000 pounds to the king. In return they gained a royal monopoly on issuing banknotes, monetizing the royal debt. > "In 1694, a consortium of English bankers made a loan of £1,200,000 to the king. In return they received a royal monopoly on the issuance of banknotes." > — Debt: The First 5,000 Years ## 27 July 1694 — Founding of the Bank of England The Bank of England receives its royal charter to fund war against France. It anchors British public credit and becomes the model for central banks worldwide. ## 1800 — Founding of the Banque de France Created with Napoleon Bonaparte's blessing to bring order to France's chaotic currency, the Banque de France opened on 18 January 1800. Napoleon himself bought thirty of its shares. > "The Banque opened its doors on January 18, 1800, or according to the calendar of the Revolution then in force, on the 28th day of Nivose, the month of snow, in the year VIII." > — Lords of Finance ## 18 January 1800 — Founding of the Banque de France Napoleon Bonaparte, then First Consul, establishes the Banque de France to restore confidence after the paper money crises of the Revolution. It becomes France's central bank and note issuer. ## 1 January 1876 — Founding of the German Reichsbank The Reichsbank opened as the central bank of the newly unified German Empire, replacing the Prussian Bank. It managed the gold-backed mark and became one of Europe's most powerful monetary institutions. ## 23 December 1913 — Founding of the US Federal Reserve The Federal Reserve Act created a central banking system for the United States after repeated banking panics, most recently the Panic of 1907. It set up twelve regional reserve banks, of which the New York Fed became the most influential. ## October 1914 — Benjamin Strong takes charge of the New York Fed Benjamin Strong became the first Governor of the Federal Reserve Bank of New York. He dominated American monetary policy through the 1920s and built close personal ties with Europe's central bankers. ## March 1920 — Montagu Norman becomes Governor of the Bank of England Montagu Norman began a record run as Governor of the Bank of England that lasted until 1944. Secretive and devoted to the gold standard, he became the central figure in the interwar network of central bankers. ## April 1922 — Genoa Conference sets up the gold exchange standard An international conference at Genoa encouraged countries to hold reserves in gold-backed currencies rather than gold itself, to spread scarce gold further. This gold exchange standard shaped the fragile monetary order of the 1920s. ## 15 November 1923 — Germany stops hyperinflation with the Rentenmark Germany introduced the Rentenmark to end the hyperinflation that had destroyed the paper mark and wiped out middle-class savings. Hjalmar Schacht managed the stabilization, which restored a working currency but left deep social scars. ## 22 December 1923 — Hjalmar Schacht appointed head of the Reichsbank Hjalmar Schacht became President of the Reichsbank weeks after helping stop Germany's hyperinflation. He quickly formed a close working friendship with Montagu Norman and Benjamin Strong. ## 1 September 1924 — The Dawes Plan restructures German reparations The Dawes Plan eased Germany's reparations schedule and brought in large American loans to stabilize the economy. It tied German recovery to a flow of foreign credit that would reverse sharply after 1929. ## c. 1924 to c. 1931 — An informal club of central bankers coordinates policy Through the 1920s Norman, Strong, Schacht, and the French governors ran monetary diplomacy largely among themselves, by letter, telegram, and private visits. Their shared belief in the gold standard shaped decisions that governments barely oversaw. ## 28 April 1925 — Britain returns to the gold standard Chancellor Winston Churchill announced Britain's return to gold at the prewar rate of 4.86 dollars to the pound, on the advice of Montagu Norman and the Treasury. The high rate overvalued the pound and hurt British exports and employment. ## July 1925 — Keynes attacks the return to gold John Maynard Keynes published The Economic Consequences of Mr. Churchill, arguing the overvalued pound would force wage cuts and unemployment. His warning proved accurate as British industry struggled through the late 1920s. *Source: The Economic Consequences of Mr. Churchill* ## 1926 — France stabilizes the franc France stabilized the franc at 124.21 to the pound at the end of 1926, though the move was made de jure only in June 1928. This was one of several devaluation-based stabilizations that proved more prosperous than Britain's deflation. > "France stabilized at 124.21 francs to the pound at the end of 1926, although the stabilization was made de jure only in June 1928." > — Tragedy and Hope, p. 287-289 ## June 1926 — Emile Moreau becomes Governor of the Banque de France Emile Moreau took over the Banque de France during the franc crisis and oversaw its stabilization. Suspicious of British and American influence, he pushed France to convert its sterling holdings into gold, straining relations with London. ## c. December 1926 — France stabilizes the franc Prime Minister Raymond Poincare and the Banque de France halted the fall of the franc and pegged it at a low, competitive rate. The cheap franc drew gold into France and shifted monetary strength toward Paris. ## July 1927 — Central bankers meet secretly on Long Island Norman, Strong, Schacht, and Charles Rist of France met privately at an estate on Long Island to coordinate policy. Strong agreed to ease US credit to help Britain hold gold, a decision critics later blamed for fueling the Wall Street boom. ## August 1927 — Benjamin Strong's easy-money rate cut Following the Long Island meeting, the Federal Reserve cut its discount rate to support the pound and the European gold standard. The move, sometimes called a coup de whisky to the stock market, is often cited as feeding speculation into 1929. ## c. 1927 to c. 1928 — Gold drains toward Paris and strains London The Banque de France built up large sterling balances and pressed the Bank of England by threatening to convert them into gold. The tug of war over gold reserves exposed how the gold standard set the central banks against one another. ## 1928 — Death of Benjamin Strong Strong returned to New York and underwent surgery for intestinal bleeding on October 15, 1928, dying the next day of a hemorrhage at age fifty-five. His death removed the dominant figure in the Federal Reserve. > "After Strong returned to New York, on October 15, he underwent an operation to stem intestinal bleeding. The next day, he died in the hospital of a severe secondary hemorrhage." > — Lords of Finance ## 25 June 1928 — France returns to gold with the Poincare franc A monetary law fixed the franc to gold at about one-fifth of its prewar value, locking in France's competitive advantage. France then accumulated one of the world's largest gold hoards, tightening credit for everyone else. ## 16 October 1928 — Death of Benjamin Strong Benjamin Strong died in office, removing the steadiest hand in American central banking. His death left the Federal Reserve divided and weakened its coordination with Europe just before the crisis. ## 7 June 1929 — The Young Plan for German reparations A committee chaired by American businessman Owen D. Young produced a plan to reorganize Germany's World War I reparations. The plan proposed a new international bank to handle the payments, which became the Bank for International Settlements. ## 24 October 1929 — Wall Street Crash US stock prices collapse in the panic selling of late October 1929. The crash helps trigger the Great Depression, which spreads mass unemployment worldwide and feeds the political extremism of the 1930s. ## c. 1929 to c. 1933 — Gold-standard orthodoxy deepens the Depression Historians such as Liaquat Ahamed and Adam Tooze argue the central bankers' loyalty to the gold standard forced deflation and choked recovery. The documented cause of the disaster was this policy failure and rigid orthodoxy, not a deliberate plot by bankers to profit from ruin. ## March 1930 — Schacht resigns from the Reichsbank over the Young Plan Hjalmar Schacht quit as Reichsbank President in protest at the terms of the Young Plan reparations settlement. His departure moved him closer to nationalist politics and, in time, to the Nazi movement. ## 17 May 1930 — Founding of the Bank for International Settlements The BIS opens in Basel, created to handle German war reparations under the Young Plan. It survived as the bank for central banks and the oldest international financial institution. ## c. 1930 to c. 1933 — American banking panics begin Waves of bank failures swept the United States from the fall of the Bank of United States in 1930 through 1933. The Federal Reserve largely failed to act as lender of last resort, deepening the collapse of money and credit. ## c. 1930 to c. 1933 — The economic road from Depression to war The documented causal chain ran from the Depression to mass unemployment, the collapse of the Weimar centre, and the Nazi seizure of power. Scholars trace this to policy failures and gold-standard orthodoxy, not to bankers secretly engineering the World Wars for profit. ## 11 May 1931 — Collapse of the Creditanstalt in Austria The failure of Austria's largest bank, the Creditanstalt, set off a chain of financial panics across central Europe. The crisis spread the Depression through Germany and then to Britain. ## 20 June 1931 — Hoover moratorium on war debts and reparations President Herbert Hoover proposed a one-year pause on reparations and war-debt payments to relieve the deepening crisis. It came too late to stop the run on central European banks. ## 13 July 1931 — German banking crisis and the Danatbank failure The collapse of the Danat bank forced Germany to close its banks and impose exchange controls. The crisis pushed unemployment higher and further discredited the Weimar Republic's government. ## September 1931 — Britain leaves the gold standard Amid the Great Depression Britain abandoned the gold standard, letting the pound float. Many other countries soon followed, marking the collapse of the interwar gold system. ## c. February 1932 — German mass unemployment reaches its peak German unemployment passed six million as the Depression tore through the economy. The mass joblessness and misery of these years fed support for extremist parties, including the Nazis. ## 9 July 1932 — Reparations effectively ended at Lausanne A conference at Lausanne suspended German reparations in all but name, ending the payments that had strained Europe since 1919. By then the economic damage and political radicalization were already far advanced. ## 1933 — Hitler appointed chancellor of Germany In January 1933, President von Hindenburg bowed to political pressure and appointed Adolf Hitler chancellor. Schacht had been a prominent supporter and fundraiser for the Nazi movement. > "Finally, in January 1933, the president bowed to necessity and appointed the “Bohemian corporal” as chancellor." > — Lords of Finance *Source: Adolf Hitler and the Nazi Rise to Power, 1918-1933* ## 30 January 1933 — Hitler appointed Chancellor of Germany Adolf Hitler became Chancellor after the Depression shattered the Weimar Republic's centre parties and left millions jobless. The documented path ran from economic collapse to political extremism, the outcome of failed policy rather than any banker conspiracy. ## 17 March 1933 — Schacht returns to lead the Reichsbank under Hitler Hjalmar Schacht was reappointed President of the Reichsbank soon after Hitler took power. He put his financial skill to work funding the new regime's economic and military plans. ## 19 April 1933 — Roosevelt takes the United States off gold President Franklin Roosevelt suspended gold convertibility and later devalued the dollar to fight deflation. Freeing monetary policy from gold helped the American economy begin to recover. *Source: Roosevelt's Gold Program* ## August 1934 — Schacht becomes Minister of Economics and launches the New Plan Schacht took over the Economics Ministry and imposed the New Plan, using trade deals and exchange controls to steer resources toward rearmament. His management kept Germany's war buildup financed despite scarce foreign currency. ## November 1934 — Marriner Eccles becomes head of the Federal Reserve Marriner Eccles, a Utah banker who backed government spending to fight the Depression, took charge of the Federal Reserve. Under the Banking Act of 1935 he reshaped the Fed into a stronger, more centralized institution. ## c. 1934 — Schacht creates the Mefo bills to fund rearmament Schacht devised the Mefo bills, credit notes drawn on a dummy company and guaranteed by the Reichsbank, to hide the scale of German rearmament. The scheme let the state pay for weapons off the books until the bills came due. ## 26 September 1936 — France abandons the gold standard France and the last members of the gold bloc finally devalued and left gold after years of grinding deflation. Countries that had clung to gold longest suffered the deepest and longest slumps. ## 20 January 1939 — Schacht dismissed from the Reichsbank Hitler dismissed Schacht as Reichsbank President after he and the bank's directors warned that runaway military spending would bring inflation. His removal cleared the last check on financing the coming war. ## 1957 — Founding of the Deutsche Bundesbank West Germany creates the Bundesbank in Frankfurt as an independent central bank, shaped by memories of hyperinflation. Its fierce commitment to price stability makes it the model for the later European Central Bank.