Monetarism Under Thatcher

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Monetarism Under Thatcher

Lessons for the Future

9781840646375 Edward Elgar Publishing
Gordon T. Pepper, CBE, former Honorary Visiting Professor, Department of Banking and Finance, City University Business School and Chairman, Lombard Street Research Ltd., UK and Michael J. Oliver, Professor of Economics, ESC Rennes School of Business, France and Associate of Lombard Street Research
Publication Date: August 2001 ISBN: 978 1 84064 637 5 Extent: 144 pp
This authoritative book analyses the recent problems associated with the UK’s monetary system and suggests a long-term solution to control bank lending in the future. It draws on extensive historical material, discussions with former senior officials and politicians, and the perceptive insights of Gordon Pepper, an advisor to Margaret Thatcher when the foundations of monetary control were being laid, to revisit and re-examine the monetarist experiment of the 1980s.

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This authoritative book analyses the recent problems associated with the UK’s monetary system and suggests a long-term solution to control bank lending in the future. It draws on extensive historical material, discussions with former senior officials and politicians, and the perceptive insights of Gordon Pepper, an advisor to Margaret Thatcher when the foundations of monetary control were being laid, to revisit and re-examine the monetarist experiment of the 1980s.

The authors argue that, in spite of the instinct of the Prime Minister, the authorities never attempted to control the supply of money in the 1980s and only paid lip service to controlling the demand for money. Extraordinary behaviour of bank lending was a significant cause of the Barber boom in the mid-1970s, of the Lawson boom of the 1980s and of the depth of the recession in the early 1990s. They assert that varying interest rates is an ineffective tool to manage lending and controversially propose that the only enduring solution is to control the banks’ reserves. The authors forcefully argue that should the UK not become a member of the European Single Currency the debate surrounding monetary base control will need to be reopened.

By reassessing a significant era in British economic policy and suggesting a strategy for the future, this book will be of great interest to economic historians, monetary and political economists, policymakers and investment advisers.
Critical Acclaim
‘Many monetarists would agree with the premise of this book, namely that the monetarist experiment was a flawed or incomplete experiment. The authors argue that a major flaw was the lack of monetary control. In doing so they resurrect a long-standing debate on interest rate versus money base control (MBC). Those who think that the issue of MBC was buried in the 80s should think again and read this book.’
– Kent Matthews, Cardiff University, UK

‘At last, something approaching a technically rigorous and politically informed account of the British monetarist policy experiment of the 1980s. Love or loath Thatcherism, admire or abhor those who brought the revised quantity theory from the Chicago lecture hall to the City dealing room and onward to the British Cabinet and Treasury, you will need to read this latest work from Gordon Pepper, the leading City monetarist of the 1970s and 1980s, and Michael Oliver, the unofficial chronicler of this fascinating episode in British monetary history. Moreover, in speaking of the present, as well as of the past, they will command attention for their controversial recommendations for monetary policy today and in the future.’
– Roger Middleton, University of Bristol, UK

‘No-one can truly comprehend the role of monetarism both during and after the Thatcher years without a thorough reading of this book. To complement Pepper''s incisive analysis of processes and institutions, Oliver provides an historical context for the skirmishes and full scale battles that attended the principles and practice of monetarism. The authors rightly identify the "true monetarists" and the miscellaneous pseuds that litter the history. On the whole the ideas, if not the detailed mechanisms, of
monetarism seem to me to have won the day and the decades since 1979.’
– Sir Alan Walters, Chief Economic Adviser to Lady Thatcher

‘A characteristically provocative critique by two of monetarism’s most tenacious theologians which identifies Margaret Thatcher and Keith Joseph as the only “true believers” – perhaps significantly the two who had been furthest away from the coal-face of economic policy.’
– The Rt. Hon. The Lord Howe of Aberavon, CH, QC Chancellor of the Exchequer, 1979–1983

‘Economics is sometimes thought of as abstract, divorced from the real world, incapable of saying anything useful for practical decision making. This book by Michael Oliver and Gordon Pepper shows just how false that view is. The book embeds a discussion of the principles of monetary policy in the context of economic and political history, thus illuminating both monetary theory and monetary policy. It draws on a wide range of sources, making highly skilled use of the recollections of participants in policy making during the years of the Thatcher governments. This book will interest and inform present day readers, and will be an invaluable source for future historians.’
– Geoffrey Wood, City University Business School, UK
Contents
Contents: Foreword Preface Introduction Part I: History 1. A Brief History of Monetary Policy since Radcliffe 2. Monetarism in the UK 3. Monetarism and the Officials 4. Monetarism under Thatcher 5. Monetarism and the Politicians 6. Summary and Conclusions of Part I Part II: Policy Dilemmas 7. A Type of Supply-side Control: Control via the ‘Counterparts’ 8. Overfunding: A Useful Tool or Cosmetic Device? 9. Asset-Price Inflation 10. Debt Deflation 11. Summary and Conclusions of Part II Part III: Policy Solutions 12. Monetary Base Control 13. MBC versus Funding Policy 14. A Published Target for the Monetary Base 15. Summary and Conclusions of Part III Appendices References Index
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