Radcliffe and his team continued their inquiry through the whole of 1958. ‘I personally should think that the more and closer the contacts we have with the Bank of England the better,’ David Robarts of National Provincial Bank asserted early in the year. ‘That is very important indeed; and we do have them; I am quite satisfied with that. Having arrived at that position, I do not think we want to go and discuss very much the same problems with the Treasury.’ Radcliffe’s two main monetary experts were the economist Alec Cairncross and the historian Richard Sayers, and that summer the former privately heard from the latter that the Bank ‘not only engaged in forward dealings but that they had been very heavily in the market in September 1957 and didn’t want this known’, with Cairncross reflecting in his diary that ‘they must have cleared a big profit’; about the same time, another economist, Harold Wilson’s adviser Thomas Balogh, submitted a memorandum of evidence proposing that the Court’s chairman should be a senior Treasury official, with the governor relegated to being a member of Court only.
In December – by when it had been announced that Cobbold would stay on as governor until after Radcliffe had published his report – it was the turn of two former chancellors, with Gaitskell (now the Labour leader) appearing at the inquiry on the morning of the 18th and Butler in the afternoon. The main thrust of Gaitskell’s evidence was the urgent need to improve the frequency and depth of contact between Treasury and Bank, as well as wanting the Treasury (including the chancellor himself) to enjoy direct access to the leading clearing bankers. Altogether, commented Cairncross privately, ‘he didn’t try to screen the Bank and yet did not take a position obviously hostile to it’. Predictably, his successor at No. 11 was more emollient, tactfully delineating what he saw as the essential differences between the two bodies that sought in their distinctive ways to serve government:
I think that there are things the Bank can do that the Treasury cannot, and things the Treasury can do that the Bank cannot. The Bank is more instinctively intuitive, and the Treasury is more instinctively deliberative – at least, so it seems to me – and so the two partners rather supplement each other. The management of the day-to-day market, which is the fundamental job of the Bank, apart from their agency functions in relation to the debt, the note issue and so forth, is a different sphere from the more deliberative long-term policy aspect of the Treasury.
Throughout Butler’s feline performance there was no hint that the Bank’s failure three years earlier to deliver him the monetary conditions it had apparently promised had gone a long way towards costing him the premiership. Or, as Cairncross acutely put it, ‘He took pains to defend the Bank and seemed to want to tell us that everything was all right now. No question at all that he would tell a different story in private.’29
1958 was also the year of financial liberalisation – sometimes though not always in accordance with the Bank’s wishes. The Stock Exchange, Cobbold warned its chairman in May in the context of a possible return there of option dealing (banned since 1939), would be ‘most unwise to hand this particular weapon to their critics’; but to no avail, and option dealing resumed that autumn. He fared better, as credit controls eased, with the burgeoning, barely regulated hire-purchase sector, successfully encouraging the clearing banks to buy into hire-purchase companies as a way of enabling the Bank indirectly to exercise some control; while, as the banks themselves for the first time in their history made a serious effort to reach out to society at large, a year after Macmillan’s famous ‘never had it so good’ speech, they did so with the Bank’s blessing, Cobbold broad-mindedly telling the chancellor that ‘the more they can attract the new highly paid classes to open bank accounts the better’. Another aspect of financial liberalisation, scarcely noticed at the time but ultimately of huge significance to London’s future as an international financial centre, was the emergence in 1957–8 of what would by the early 1960s be known as the eurodollar market – an innovation, according to Catherine Schenk’s subsequent analysis, ‘tolerated’ by the Bank because ‘it was not strictly illegal’. No doubt it helped too that the key visionary behind the market was Bolton, chairman of the Bank of London and South America (BOLSA) after leaving the Bank. The final piece in the 1958 liberalising jigsaw was the full convertibility of sterling (that is, of sterling held by non-residents), attained – simultaneously with the French and West German currencies – on 29 December: an achievement owing much in its final phase to Cobbold’s insistence that this was crucial for the City’s international prestige and his determination to override Treasury qualms about the consequences of an even speedier-than-usual drain on the reserves if the world once again lost confidence in sterling. The most articulate critic of Cobbold’s position, arguing that the priority given to the strength of sterling imposed an unacceptable burden on British industry and economic growth generally, was Andrew Shonfield; and earlier that year, a caustic internal note by the deputy governor, Mynors, referred to that journalist (who during the war had served in the British Army as a gunner and intelligence officer) as ‘Andrew Shönfeld’. Still, the press as a whole did its patriotic duty and acclaimed full convertibility. ‘Pound Flies High’ (Sunday Express), ‘This Proud, Free £’ (Daily Express), ‘The £ Stands Firm on Freedom Day’ (Evening Standard): this was sterling’s rare moment in the sun.30
All the time, Cobbold continued to act as the great arbiter of that intimate, personal place that was the old-style City. Take almost at random a couple of typical moments from July 1958:
Sir John Benn came in to mention one or two possible names for his Board. At his request, I checked up on Sir Henry Warner with Lord Kindersley and gave him a good report. He asked whether I saw any objection to their putting on a sensible Labour M.P. I said ‘on the contrary’ …
Sir George Bolton came in for a gossip. He wants somebody to reinforce them at Director level in New York and Bahamas. After a good deal of discussion with his colleagues, he is thinking of Henry Tiarks. I said that, provided he knows what he is buying and squares Helmut Schroder, I had no comment …
By this time, though, a legendary City episode was looming – an episode that saw not just Britain’s first out-and-out contested takeover (‘in the modern sense’, to quote Niall Ferguson, ‘that a controlled shareholding in a public company was acquired on the open market with the conscious aim of ousting the company’s management and board’), but the governor’s authority significantly undermined. Managing director of the company under attack, British Aluminium (BA), was Geoffrey Cunliffe, son of the former controversial governor; while the rival bidders were on the one hand Alcoa, favoured by BA, and on the other hand an alliance of another American company, Reynolds Metals, and a British one, Tube Investments, with that combination’s principal financial adviser being the merchant banker Siegmund Warburg, still regarded with considerable misgivings by the City establishment. During the closing weeks of the year the Bank maintained a carefully neutral position, but became increasingly concerned about the acrimony within the square mile that the ‘Aluminium War’ was generating. On New Year’s Eve, Cobbold spent much of the day trying and failing to arrange a two-month truce, not least with a view to curbing the activities of Warburgs and what he called their ‘monkey business’. The early days of 1959 proved decisive, with Warburgs piling into the market to buy shares, even as other combatants held off for apparent fear of upsetting the Bank. ‘A troublesome little trouble’ was how Cobbold many years later would refer to the Aluminium War; and in retrospect it is debatable whether even his predecessor but one would have been capable of keeping Warburg in check.31
Radcliffe, meanwhile, maintained into 1959 its steady, impervious course, with Cobbold submitting on 15 January a written statement that included a paragraph deliberately raising the stakes:
In a totalitarian state, with private enterprise and markets more or less eliminated, it would make sense for central bank operations to be handled under direct Treasury control, both as to policy and as to detail. For any count
ry operating to a great extent with private enterprise and markets, and working with other countries similarly placed, I should regard direct Treasury control over central bank operations as a major weakness. For a country as dependent as the U.K. on international trade and confidence, it could be a disaster.
‘I base these views,’ he added, ‘on twenty-five years’ experience, under Conservative, Labour and Coalition administrations, of the Bank of England’s working relations with Government; and also on a fairly intimate knowledge, over the same period, of the problems and developments in this field in the United States and the principal countries of the Commonwealth and of Europe.’ The governor insisted, moreover, that ‘the strength and the independence of thought of the Bank derive largely from a Court constituted on present lines’, so that accordingly ‘if the nature of the Court were to be altered so that it were not to be composed of active practical men of business, or if directors were to become mere figure-heads divorced from the real affairs of the Bank, the standing of the Bank throughout the world, and its ability to perform its public duties efficiently, would both be gravely prejudiced’. Accompanied by his deputy, Cobbold that day also gave oral evidence:
The Governor [noted Cairncross] talked far more sensibly than his paper … George Woodcock [the trade union representative on the Committee] asked one particularly sharp question that implied a resemblance between the Bank of England and the House of Lords pre-1911. The Governor obviously disliked a couple of long questions that I put at the end and fell back on his usual stonewalling tactic – put that to the Treasury. Mynors said nothing but nodded agreement once or twice when appealed to by the Governor.
Throughout the lengthy Radcliffe process, Cobbold was absolutely determined not to forfeit the Bank’s operational independence; and the following week, in a bilateral communication to Radcliffe himself, he stressed that ‘the Bank, to do its job properly, must be a “market” animal and not an “administrative” animal as a Government Department must be’. Furthermore, he went on, there were two ‘even more fundamental reasons for favouring a degree of Central Bank independence’: first, the desirability of a ‘free and intimate interplay of ideas and criticism between Treasury and Bank’; and second, the Bank’s role in helping to prevent the ‘democratic government’ of the day from being ‘pushed in directions which will tend to prejudice confidence in paper money, thereby risking inflation, exchange crises and all the social troubles to which they give rise’. Not long afterwards, Radcliffe and his team discussed the governor’s evidence. For his part, Cairncross observed that Cobbold seemed ‘still to dream of taking monetary policy out of the political arena’ and ‘to want to exercise more influence on economic policy than was altogether wise’; but his colleagues were significantly less inclined to be critical. ‘Radcliffe,’ noted Cairncross, ‘thought I was “inhuman” and R.S.S. [Richard Sayers] also disagreed, saying that Cobbold saw how things were going but didn’t want to go there fast.’32 Eventually, at the end of April, the Committee heard its final evidence, and there ensued a summer of waiting for the report, mainly written by Sayers.
The other uncertainty that hot summer was political: would it, as the City strongly hoped, be a hat-trick of Tory election wins? Macmillan, abetted by his chancellor, had already laid the economic groundwork. If only ministers were allowed to pursue a Keynesian stimulus to consumption, he told Midland’s chairman (the former politician Lord Monckton) early in the year, then ‘the Conservative party will be re-elected, prosperity will be secured, the Bank of England will be preserved, and funding in 1960 will be easier than ever before’. During the weeks leading up to the April budget, Cobbold successfully resisted the chancellor’s wish to reduce Bank rate, but effectively at the price of allowing by default a distinctly reflationary package. On 7 April – the day after the governor in a speech at Newcastle had called on ‘the normal citizen’ to ‘accept some disciplines and make some sacrifices’ for the cause of ‘stable money’ – Heathcoat Amory duly cut income tax by ninepence and overall released into the economy some £6 billion in present-day values. Sidelined by a strong-willed prime minister (who for monetary as well as fiscal advice looked neither to the Bank nor to the Treasury but instead to the Keynesian economist Sir Roy Harrod) and by the demands of the electoral imperative, Cobbold could do little more over the next few weeks and months than ‘warn’ the chancellor that if his party was indeed returned in an autumn election, ‘it might be necessary to pull in the reins rather sharply’. All this was no surprise to Cobbold (although arguably he might have done more to resist Macmillan). ‘The moment unemployment figures become at all menacing,’ he had with timeless gubernatorial sentiments observed to a bank chairman exactly a year before his somewhat academic warning to Heathcoat Amory, ‘our political friends will wish to jump in in a great hurry and we shall again be cast for the unpromising role of carrying a larger part of the baby than we can handle.’33
The Radcliffe Report was finally published on 19 August 1959. ‘I have had a private copy,’ the governor almost a fortnight earlier informed one of his directors. ‘In general the background is not too bad but there are a few very tiresome suggestions … As a whole I do not find the document very constructive – but it is unanimous, which is important.’34 William Allen, in his survey of monetary policy during the 1950s, has called the report ‘notoriously hard to summarise’, but from a Bank perspective it had perhaps five main aspects: first, the recommendation, following the events of 1957, that the Bank’s part-time directors be excluded from Bank rate discussions; second, the further recommendation that Bank rate changes be made at the explicit directive of the chancellor of the day; third, the key assertions that economic policy needed to be integrated, that monetary policy alone was not enough and should not be permitted to pursue autonomous objectives, and that within monetary policy interest rate changes were a more effective weapon than attempts to control the money supply; fourth, a call to the Bank to provide more statistics and information generally; and finally, the recommendation that a standing committee on monetary policy be set up, to include representatives from the Bank, the Treasury and the Board of Trade.35 Cobbold’s considered reaction to all this took the form of a letter to Makins at the Treasury, despatched two days before publication. While willing to go more or less quietly on the recommendations concerning non-executive directors, statistics and public relations, he expressed himself unequivocally unhappy ‘that the full responsibility for Bank rate decisions should be transferred to the Chancellor’ and that ‘a Standing Committee should be appointed in Whitehall to which all decisions on monetary policy should be referred by the Chancellor for advice’. Instead, he insisted that ‘Bank Rate is an integral part of the Central Bank’s own business’; and, though not disputing the fact of the chancellor’s ‘over-riding decision’, the governor maintained that ‘to place on the Chancellor direct responsibility for what is essentially a market and operational decision would blur the real responsibilities’.
Press reaction was almost unanimous that the report represented a significant rap on the knuckles for the Bank, indeed a potentially significant shift of power away from it. ‘The main impression that emerges,’ noted one City commentator, ‘is that the power and authority of the Bank of England should be trimmed and the Old Lady be made more visibly amenable to Treasury control.’ Inevitably, the central question now became whether the Treasury and its masters had the desire and the stomach to act on the aspects of Radcliffe that not unnaturally perturbed the governor. The answer soon emerged. By mid-September it was clear that the Treasury had no appetite for a standing committee on monetary policy that involved the Board of Trade; by late October, after the general election, the re-elected Heathcoat Amory was letting it be known not only that there would be no new standing committee, but also that it would only be in a situation of irreconcilable disagreement that the Treasury would publicly reveal that it, not the Bank, was responsible for a change in Bank rate; and by late November, following a d
ullish Commons debate on the report which showed how relatively little of it was to be implemented, the Financial Times was even claiming that the Bank had achieved ‘a complete rout of Radcliffe’. In short, monetary policy was to remain primarily the responsibility of the Bank, which would continue to take the initiative, albeit subject to the ultimate say-so of the Treasury; and more broadly, the Bank would continue to enjoy operational autonomy. The setting up by the Bank of a Central Banking Information Department for the collection and publication of statistics, the start (from 1960) of the Bank of England Quarterly Bulletin, the recruitment of more economists, the partial easing out of non-executive directors from the interest rate decision-making process – all this was small beer by comparison.
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