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The central character in Andrew O’Hagan’s book The Illuminations is based on Canadian-Scottish photographer Margaret Watkins.Geraint Lewis

I don't really know where the people in my books come from. Sometimes I wake up and find one standing by the bed, like a lost person or a ghost, maybe a girl who walked out of my dreams and into my heart. Sometimes a man will appear when I'm digging in my notebook, not so much a man at that stage but like a glint at the edge of a muddy Roman coin. Only when I rub it with my thumb do I see a man with a strong profile. A character is born, and you can't help feeling that he was waiting for you under the ground. The main character in my first novel Our Fathers was a high-rise housing guru called Hugh Bawn. I remember the day he came to me. I was reading an interview with the widow of a former Glasgow housing convenor. "He was obsessed," she said. "All he thought about was getting rid of the slums. He took seven sugars in his tea."

That was it. The character was in. But the journey towards a character's essence will sometimes involve many journeys and much tracing. In my new novel, The Illuminations, the central character is an elderly lady called Anne Quirk. It took me five years to write the book, and I still recall when she was made of tinder, a small, dry mass of possibilities inside my head. My mother had spoken to me about a lady who lived near her in Scotland who had seen a rabbit in the snow. The lady became captivated by the rabbit and she began to look after a small ceramic version and dress it and talk to it.

Not long after, I found a photograph taken by a Canadian-Scottish photographer called Margaret Watkins. It was taken about 1919 and was truly miraculous – modern, experimental and gracious, totally original, it revealed a sink of dishes and soapy water in a terrific sphere of light, and was called The Kitchen Sink.

This was the spark I needed and I wanted to find Margaret. I realized she'd been rather forgotten as a photographer, and I felt compelled to resurrect her, not only as inspiration for the lady in my novel but as a woman of vision in her own right. I went to Glasgow to see a man I'd heard about called Joe Mulholland, a former solicitor and a one-time journalist on the Daily Express, who had known Watkins before she died in 1969. A few years before, he had noticed some curious comings and goings at number 41 Westbourne Gardens, across from where he lived. One day they went over there with his wife and daughter and knocked on the door. An elderly lady appeared and she spoke with a mid-Atlantic accent, seeming glad to see them. "Come in, children," she said. Mulholland and his family entered into a different age. "Everything was covered in soot," he said, "from a chimney-fire some years before." It was a 17-room house stuffed with furniture and belongings, and Watkins had left a trunk by the door, labelled for New York, which, it turned out, had been standing there for 40 years.

Over their few years of friendship, Watkins never said the word "photography" to Joe Mulholland; then, one day, she asked him if he would take custody of a very large package wrapped in paper and string. "I think that day she might have said something about photography," says Mulholland, "but I thought she meant Victorian family prints or whatever. The house was full of junk and the chests were packed with lace. She made me promise not to open the parcel until after she was dead."

Margaret Watkins was born in Hamilton, Ont., in 1884, the only child of a Canadian dry-goods merchant and his Glaswegian wife. It was a beautiful house with an orchard, and a great deal of home-making fervour at "Clydevia" was mixed with a strong Methodism. Margaret was an only child, a keen reader and lover of beautiful objects, which she learned from her mother's formidable sisters how to keep and how to keep clean. The family suffered a crash around 1900 and Margaret was already by then an outsider, a reader of Edith Wharton, a critic of the bourgeois life, and someone who wanted to strike out on her own. But her world of stifling domesticity and religious obligation held onto her for a few years, and shaped her further. Watkins was one of those people who left home already an artist, and her photographs, in a way, look back at the domestic scene, but from a place of complete individuality.

The more I looked for Margaret Watkins, the more I found a woman constantly in search of emancipation and artistic opportunity. Her camera was her vote: As a young woman she stayed at several artistic farm communities, studying humanism, Arts and Crafts, William Morris. She later went to the Clarence White Summer Photography School in Maine, where she grew very close to White, that brilliant teacher, said Dorothea Lange, "this little, gentle, inarticulate man." An envelope full of photographs would later turn up in the Glasgow parcel, labelled "Summer School Maine, 1914." There are exquisite lines in her photograph The Wharf, and, after she came to New York, she showed signs of becoming the most interesting portrait photographer since Julia Margaret Cameron.

A working woman with her own apartment, Watkins built up a professional career in advertising whilst being a prime mover in the new photographic modernism. And it was as a domestic still-life photographer in that apartment in Jane Street that Watkins would haunt the early world of photography before disappearing. For a bright moment, Margaret was free, writing notes about the "beauty of design" and "relation of forms," studying Matisse, Picasso and her own conscience, and looking at the world in her own way. She became close for a time to Stieglitz and Steichen and was exhibited in New York, before it all slipped away.

She had once written that she was "domesticated to death." And her freedom was never straightforward: After a spell of teaching photography, and after disappointment, perhaps in love, she was forced to come to Glasgow to look after the aging aunts who lived there together in a sprawling house. I came across payments she'd made to storage firms in New York, who held her furniture for years in Battery Park, waiting for her return. But the young woman of brilliant promise who came to Westbourne Gardens never left. She somehow couldn't. For years she continued to take photographs, but very much in private, and eventually she seemed to close down. There is a portrait of her that struck me during my research, a photograph of an elderly lady's shadow on a Glasgow pavement, to which she gave the title, Self Portrait.

My search for Margaret was also a search for the women I had grown up with on the west coast of Scotland. Walking away from McMasters University, where the archive of her papers is held, I realized the book was a tribute to the hidden creativity of those women. I was always drawn to them as a child, and their sense of themselves, their pain and their Glasgow houses were a kind of haunting thing for me. I was always aware of a certain amount of thwarted ambition on their parts, and by the sense of duty that clung to their gingham "pinnies," their tabard overalls. As a novelist you come to know that people can be metaphors of one another. My fictional elderly lady has a grandson who is a captain in the British Army fighting in Afghanistan. She is interested in reality, as every photographer is, but her own story, and the masking of her talent, play a part in explaining the daily news coming from the battlefront, and I was happy to have found the source for some of that life in the Canadian Margaret Watkins. One's job as a writer is sometimes to find new proteins for the ideas that matter to you, and the story of this forgotten photographer locked onto my family history in a way that gave the novel the building blocks of life.

What makes one person become Georgia O'Keeffe and another Margaret Watkins? Each was a radical artist in photography but only one of them returned to endless domestic duty halfway through her life, and sat alone each night listening to the radio, hiding her talent. Many of the shots taken by Watkins still only exist in negatives; they are yet to be processed, and, though Canada has begun to wake up to who she was and what she achieved, the woman who photographed urban Scotland so sublimely in her private decades has yet to be honoured with a show at a major Scottish gallery. "A man came from the Arts Council years ago," Joe Mulholland told me recently, "and he took 20 minutes to look at 1,200 prints. I still resent the man's measured tones. 'Of interest,' he said. 'If she were associated, even peripherally, with some photographer of even minor importance, we might be able to do something with her. Try the local camera club.'"

"And what was it like after she died," I asked, "opening the box for the first time?"

"I'd forgotten about the box," he said. "I came out of a bath one evening and was looking for a towel when I found the box in the cupboard. I pulled at the string and it burst. And three hours later I was still there, shivering, with a towel around me, looking at these incredible photographs. There's a genius about her and you wonder what it means to live alone with your story. Margaret Watkins had created a mystery and it's up to us now to do something with it."

Andrew O'Hagan's The Illuminations is published this week by McClelland & Stewart.

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