Unreal City

The City of London, Vol III: Illusions of Gold 1914-45

David Kynaston <em>Chatto & Windus, 584pp,

Now that sex has lost its mystery, money is the new rock'n'roll. Or so we are led to believe. Biographers are certainly encouraged to pay as much attention to their subjects' financial as to their love affairs. Families which are happy to expose their forebears' romantic foibles remain reluctant to share details of their bank balances. And what has been the most gripping television series of the summer? Not ITV's mediocre The Sexual Century (which was axed in the middle of its run) but Adam Curtis's films on the economic clout of Jimmy Goldsmith and his fellow punters at the Clermont Club.

David Kynaston understands the lubricity of money. A level-headed economic historian with a talent for narrative and an eye for detail, he has been diligently working his way through the story of the City of London - from Lloyds Coffee House to Starbucks. His current volume (the third in a series of four) covers the troubled years from 1914 to 1945, from the start of the first to the end of the second world war. Its tone is generally downbeat, with little to celebrate as it chronicles Britain's gradual economic decline and the City's faltering efforts to keep pace with the rest of the world.

At the beginning, London still dominates world financial markets; by the end, it lies physically in ruins, laid waste by the Luftwaffe. Throughout this period, the old glory days are epitomised by the puckish Montagu Norman, governor of the Bank of England. He fights a rearguard action to maintain Britain on the gold standard; but as the subtitle notes, these are "illusions of gold". The coming figure is John Maynard Keynes, who argues that false concepts of financial rectitude hold back economic performance and lead to unemployment. There is a telling moment, in 1931, when Britain abandons gold parity (as required by Ramsay MacDonald's incoming National Government). Norman is in mid-Atlantic returning from a gubernatorial trip to Canada. He is informed cryptically by telegram, "Sorry we have to go off tomorrow and cannot wait to see you before doing so." Keynes's ascendancy is underlined when, late in life, in 1942, he joins the Court of the Bank of England.

Kynaston's ability to juggle various balls ensures that this is no turgid textbook. The move from gold is a neat example: he unravels a complicated economic tale, while exploiting the dramatic potential of his two main characters and keeping his eye on underlying historical trends. More generally, he moves seamlessly from deliberations at Barings or the Bank of England to the recollections of a fringe City figure - a junior clerk at a City solicitors or a passing observer, such as the young Cecil Beaton, who worked briefly in his family's timber-broking business and found the atmosphere insufferable. Beaton compared his bowler-hatted colleagues to "a lot of dirty beetles fighting for existence", thought his office smelt like an underground lavatory and was mercifully spared a long-term office career by his ineptitude for "feeguires", as his stern father called them.

As in Kynaston's short book about W G Grace's 50th birthday match (he doubles as a cricket historian), he is firmly on the side of the players rather than the gentlemen. His City is stiffly hierarchical and displays little generosity of spirit. At Morgan Guaranty the staff eat at Joe Lyons and the ABC, while only managers are allowed to grace the tables of Fullers. One jobber, saved from bankruptcy by the prompt action of a clerk who liquidated his American positions shortly before the 1929 Wall Street crash, takes this smart junior to lunch in the unusual luxury of Simpson's. But when the lad orders steak and potatoes, he is told not to bother with the potatoes: "You can spear one of mine."

This colour is complemented by Kynaston's skill as a business reporter, grappling with the City's inter-war scandals, such as the Clarence Hatry affair, and its cosiness towards fascism. The financial markets were no more corrupt than today, although they were less regulated and insider trading was considered a legitimate professional perk. Perhaps it was inevitable that Anglo-German banks should try to put an attractive gloss on Hitler - they had the greatest exposure and were keenest on repayment of old debts. Less obvious is why, in such a short period, Britain's dominant economic influence in South America should have disappeared.

For all Kynaston's skill in coordinating this material, his coup is to show the City as more than merely a mindless engine of money. T S Eliot, one of his many literary sources, was so scarred by working for Lloyds Bank that he berated the "Unreal City" in The Waste Land. Kynaston is more subtle: his Square Mile is an engaging, complicated community with a Dickensian life of its own.

Andrew Lycett's most recent book is "Rudyard Kipling" (Weidenfeld & Nicolson)