The Politics of Central Banks

By Robert Elgie; Helen Thompson | Go to book overview
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The core executive and the Bank of England (1694-1987)

1 From the beginning of the eighteenth century, England was involved in the War
of Spanish Succession (1701-13), the War of Austrian Succession (1739-48), the Seven Year War (1756-63), the American War of Independence (1775-83) and the War Against Revolutionary France (1792-1802, 1802-15). The Bank’s operations, as government debt servicer, allowed Britain, with a substantially smaller population, to defeat France in war throughout the eighteenth century and contributed to the eventual emergence of Britain as an imperial power (Dickson 1967; Brewer 1989).
2 In practice, for all the moral fervour which ministers brought to the task—
Gladstone: ‘[t]he expenses of a war are a moral check which it has pleased the Almighty to impose on the ambition and lust of conquest that are inherent in so many nations’ —debt still eventually played an important part in financing the Crimean War (see Anderson, 1963-4).
3 In a sequel William Gladstone in his second tenure as Chancellor, fuming at
what he saw as the Bank’s profiteering through the timing of dividend payments on the national debt, set up the Post Office Savings Bank as an alternative source of credit.
4 The Bank Rate originated in the aftermath of a monetary crisis in 1836-7 when
the Usury Laws were repealed. Under the Usury Laws, the rate of interest was subject to a legal maximum of 5 per cent. From 1822 to 1839 the level fluctuated between 4 and 5 per cent. Only in June 1839 did the official rate at which the Bank of England supplied credit rise above 5 per cent, establishing the modern Bank Rate (Moggridge 1971:167).
5 It is by no means clear that the Bank’s operation of the Bank Rate during this
period did in practice damage the domestic economy. Concluding his seminal empirical study covering the subject, Charles Goodhart wrote:

the great years of the Gold Standard (1890-1914) were remarkable not because the system enforced discipline and fundamental international equilibrium on this country [Britain] by causing variations in the money supply but because the system allowed for the development of such large-scale, stabilising and equilibrating, short term, international capital flows, that autonomous domestic expansion was rarely disrupted by monetary or balance of payments disturbances.

(Goodhart 1986:219)


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