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This chapter explores the 1971 Competition and Credit Control financial liberalization, which saw the British state relinquish most of its direct controls over credit creation and instead rely on interest rates to govern lending. In the 1960s, Britain’s worsening trade performance had resulted in a series of currency crises, to which Harold Wilson’s government responded in 1967 by devaluing sterling. In aid of devaluation, the government enacted a series of contractionary measures. An important element of this disciplining strategy was the tightening of monetary policy through state-imposed lending ceilings. However, people proved resistant to this reduction in their living standards, and thus endeavoured to combat income losses by extending their bank borrowing. Further, due to falling profitability, companies faced a liquidity crisis that threatened to derail the export recovery. As such, the state authorities sought to use the lending ceilings to both restrict credit to persons and extend credit to companies. This hybrid disciplining/palliation strategy was extremely difficult to operate with the blunt monetary instruments at hand. In addition, the lending ceilings were becoming increasingly politicized. Consequently, the Treasury and Bank sought to discover a better system of monetary governance. It was the Bank that designed the uniquely arm’s-length CCC proposals. Yet these proposals were accepted by the Treasury and government in significant part because they appeared to offer a depoliticized mechanism through which the state could redistribute credit resources from persons to companies in aid of augmenting Britain’s world market competitiveness in a moment of intensifying crisis.

The aim of this chapter is to reappraise three perspectives that exist in relation to the Heath premiership and economic management. First, the chapter considers whether the Heath premiership betrayed the liberal economic ideas implicit within the Selsdon agenda (agreed upon by the Conservatives when in opposition) via a number of high profile U-turns in economic policy once in office. This common assertion is challenged via analysis of Competition and Credit Control (CCC), which is argued to have made a significant contribution to the erosion of the Keynesian consensus vis-a-vis economic management. Second, the chapter examines the Heath governments supposedly poor record in tacking inflation. comparing it to that of the Thatcher era. Third, the chapter scrutinises the macroeconomic objectives of the Heath administration contextualising its disappointing economic performance.

The Bank of England's ‘consultative document’ on Competition and Credit Control (C&CC) was published on 14 May 1971. It was a landmark occasion, representing a decisive break with the prior system of maintaining direct controls over bank lending to the private sector; the intention was now to achieve the monetary authorities’ objectives of policy via the operation of market mechanisms, notably adjustments in interest rates and open market operations. Although the ‘credit control’ aspect was, over the next few years, notably less successful than the encouragement of competition amongst the banks (where the London clearing banks previously had maintained a restrictive cartel with the support of the authorities), nevertheless the direction of travel towards a more liberal, market-based system, remained, despite a partial reversion towards a direct control system in the guise of the ‘corset’, introduced at the end of 1973, and finally laid to rest in June 1980.

Duncan Needham UK Monetary Policy from Devaluation to Thatcher, 1967-1982, Palgrave Macmillan: Basingstoke, 2014; 272 pp.: 9781137369536. 70 [pounds sterling] (hbk) Duncan Needham has not written a particularly long book, but you may be forgiven for thinking it was, considering the sheer density of the information packed within. Drawing heavily from Bank of England and Treasury archives from the late 1960s to the early 1980s, the author presents an incredibly detailed history of Britain's monetary policy development during a period of severe economic duress. The microscopic attention paid to the main policymakers, academics and commentators of this period is the great achievement of this book. Yet it is also its weakness, since at points Needham is in danger of ascribing too much causal power over the broad economic dynamics of this era to the ideas and actions of these individuals. The slowdown of the post-war boom presented novel and often contradictory challenges for British policymakers, prompting them to rummage in their toolboxes in search of new strategies for alleviating these pressures. Bank official Christopher Dow wrote in 1976 that the 'night-time electrocardiogram recordings of those whose daytime duties gave them close concern with the British balance of payments over the years ... would surely show more disturbance than other peoples' (Dow 2013: 47). As inflation and the money supply began to creep upwards from the late 1960s, further eroding British capital's competitive position, monetary policy became a central site of innovation and contestation. The period from 1967 to 1984--the focus of this book--was one of particularly desperate experimentation with the ideas of a group of economists proposing a new quantity theory of money. Needham's account starts with the formulation of Competition and Credit Control (CCC)--the first major financial deregulation in postwar history--in the years leading up to 1971. To supplement the positive effects of the 1967 sterling devaluation on the current account, monetary policy was tightened; but when this proved insufficient Chancellor Callaghan went to the IMF for the first of a series of loans. These loans came with progressively stricter conditionalities, especially regarding money supply targets. This sparked vigorous debate between the Bank, Treasury and IMF regarding the merits and feasibility of monetary targeting. At the same time, the traditional clearing banks--the institutions British monetary policy was chiefly designed to regulate--were rapidly losing market share to new 'secondary banks', such as building societies, undermining the effectiveness of many of the Banks monetary tools. Most importantly, lending ceilings were becoming increasingly unworkable and painful to impose. In this respect, the evidence presented supports the thesis advanced by Moran (1984). Needham carefully examines the interplay between the Bank's practical knowledge and academic monetarism, as policymakers desperately sought to reframe policy in line with changing conditions. Another catalyst for the monetary policy transformation of CCC was the Bank's frustration with the Treasury and Ministers--a recurring theme throughout the book. After the election of the Conservative Heath government in 1970, Bank officials expected that their requests for high er interest rates to combat inflation would meet a warmer reception; yet they were mistaken. Heath and Chancellor Barber were keen that British capital should utilise its excess capacity, which would not be aided by either more expensive credit or a stronger pound, leading them to reject the Bank's pleas. Needham charts how such stinging rebukes further spurred Bank officials' desperation to circumvent the traditional avenues of monetary control, through the working groups set up in the wake of the IMF consultations. (1) The result was the basic framework of CCC, designed to shift emphasis away from clumsy quantitative lending ceilings towards more flexible use of interest rates to control the broad money supply. …

Within the financialisation literature, a number of approaches identify the coexistence of financial expansion and productive stagnation. Yet there is no consensus on which direction causality operates between these two phenomena. This impasse has been widened by the lack of attention paid to the role of statecraft strategies in mediating possible causal mechanisms. This article contributes to rectifying this shortcoming by focusing on the governance advantages granted to states through financial deregulation. By presenting archival evidence on Britain’s 1971 Competition and Credit Control deregulation, this article lends support to financialisation accounts that argue that weaknesses in the productive economy spurred financial expansion, yet it also indicates that the state’s desire for depoliticised forms of governance played a crucial role in mediating this relationship. This further suggests that International Political Economy should focus on the strategic manner in which states relate to mar...

Evaluates and replicates an improved specification of the transactions’ demand for money model, and shows that some empirical econometric equations which appear to ‘break down’ out of sample, had already ‘broken down’ but had not been rigorously tested for constancy. New observations can highlight pre‐existing failure, so regime changes help evaluation. Congruence defines the null of model validity (matching the evidence in all salient respects), but the nature of destructive testing reveals that there are no sufficient conditions for model validity in an empirical social science. However, a stringent list of necessary conditions exists. Personal computers with powerful, friendly software (PcGive) facilitated a leap in productivity: model evaluation could be undertaken at home in one evening. The M1‐demand equation did not exhibit predictive failure on data, which included the new 1979 policy on monetary control.