PRELUDE TO RADCLIFFE Monetary policy in the United Kingdom, 1948-57*
The attempt by Hugh Dalton, Chancellor of the Exchequer in 1945-7, to drive down interest rates in the United Kingdom immediately after the Second World War has attracted much attention from monetary historians. Less well known is the subsequent experience of monetary policy between the departure of Dalton from the Treasury in November 1947 and the resignation of Thorneycroft just over ten years later. Yet it was this experience which gave rise to the appointment of the Radcliffe Committee in April 1957 and coloured the recommendations of the Committee two years later.
There were at least four attempts in the decade 1948-57 to use monetary policy to check inflation. None of them, with one possible exception, met with much success. There was, first, a debate in 1948-50 between the Treasury and the Bank of England on how a budget surplus could be turned to account in checking inflation by restraining the growth of the money supply. Next, there was a revival in the use of Bank Rate as an anti-inflationary weapon in November 1951, after it had remained fixed at 2 per cent for nearly twenty years; the incoming Conservative government relied on higher interest rates to dampen the inflation brought on by rearmament. In 1955 a second attempt to use ‘a flexible monetary policy’ for the same purpose was ineffective except in producing marked disagreement between the Treasury and the Bank. Finally, there was Thorneycroft’s invocation of the quantity theory of money in 1957 and his subsequent resignation, in January 1958, along with two other Ministers (Enoch Powell and Nigel Birch), over the Cabinet’s unwillingness to back his policy.
Now that the official files for most of the period are available for study at the Public Record Office and the Bank of England, it seems worthwhile to reexamine the monetary history of those years. In what follows this is done mainly from the point of view of the Economic Section, the group of economists attached as advisers to the government, first in the Cabinet Office from 1940-53 and thereafter in the Treasury. For the whole of the period 1948-57 the Director of the Economic Section was Robert Hall; in that
* From Revista Di Storia Economica, Second Series, vol. 4, 1987, International Issue.