Thatcher and the bankers

31st December 2010

I have argued in the past that we are governed effectively by bankers, and that we Brits and Americans live within ‘bank-owned states’.  Many might  dismiss this point of view as hyperbole.

But the latest documents released under the 30-year rule by the National Archive shed some light on the close relationship between Mrs Thatcher’s government, private bankers and their pet economists.  According to the FT “Swiss bankers convinced Margaret Thatcher (in August 1980) that the governor of the Bank of England and her chancellor, Geoffrey Howe, were not ‘fulfilling her desires to control money supply’. ”

On holiday at Lake Zug, near Zurich that August, Mrs Thatcher met a group of Swiss bankers and economists, including Karl Brunner, a Swiss working in the US.  Summarising their conversation, Mr Brunner wrote in a letter to the PM that: ‘that the “inherited procedures” of the Bank were inappropriate for monetary control and should be changed, particularly reserve arrangements for commercial banks and the discount window it operated. “The Bank should abandon its lender of first resort attitude and concentrate on controlling the monetary base” Mr Brunner wrote. He offered to “help change the Bank by providing a group of academics who would give a philosophical underpinning to her monetary policies. One of the names he put forward was Allan Walters, who was to become one of Mrs Thatcher’s key economic advisers” reports the FT.

I want to write at greater length about the differences between the Keynesian monetary policies espoused in this blog, and those championed by Mrs Thatcher and Milton Friedman. Suffice to say this: a vast gulf exists between the two. Friedman and monetarists believed that markets work well when left to themselves.  As we have witnessed over 2007-10, dysfunctional financial markets precipitated a catastrophic global recession – one that looks likely to rival the Great Depression in its scale and impact. One from which the global economy has still to recover.

Laissez faire was said to be Thatcher and Friedman’s  preferred approach to finance and markets. Central banks, they argued, should have their hands tied, with little discretion in the conduct of economic policy. And government should shrink in size and reach – leaving private bankers and big corporations to effectively run the show.

Sadly those views became ideologically dominant, leading to today’s predicament: a weakened state and central bank, governed effectively by private banks. Nothing less than a bank-owned state. Keynes must be turning in his grave.

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6 comments to Thatcher and the bankers

  • No, no, Ann, no hyperbolic view AT ALL!!! Clear analysis instead!!!

    Many thanks for that key quote / action of Swiss bankers twisting Geoffrey Howe’s arms in 1980…

    Remember that, at the end of WWII, the amount of Credit in the money supply was around 53%. Now it’s 97%!

    But NOBODY created the interest necessary for paying for credit! And all Credit comes from thin air! Notes and coins at least have some sort of real value and real costs involved in their production as “money”…

    Too bad and sad how politicians have sold their countries by selling their souls…

    Sighingly yours,
    Sabine
    http://publicdebts.org.uk/problems/

  • Brian P. Smith

    I fail to see how anybody could even begin to accuse you of hyperbole, Ann. They have ony to listen to the threats of the big bankers to “leave the coutry and go elsewhere” whenever taxes on their bonuses are mentioned. (I was going to say profits, but of course they are not strictly that, as they are in reality winnings from their gambling!) By such statements they try to hold the country, and parliament, to ransom. If only the government had the courage to call their bluff and do something honourable for a change.

    Yes, we benefit from the taxes they pay, but in my view much of what they do to “earn” this is immmoral. They play games with people’s livelihoods, they bet on whether prices of basic commodities will rise or fall, whether a business will succeed or fail, which country’s economy will prosper … And all in the name of making a profit. At whose expense? Ours of course, for we are all connected to the global market and when a business fails we all feel it in some way, even if it is because the people it employed no longer buy the products we make, many thousands of miles away.

    The only “winners” are the bakers who can add another few pounds to their bonuses!

    For all her reputation as the Iron Lady, Margaret Thatcher was in reality either a weak or a vain person. She was prepared to listen to a foreigner, who preumably had ulterior motives, over her own chancellor and cabinet, just because he massaged her ego. It is indeed a great pity that her actions haven’t yet been seen for what they really were, the desire for power and stautus rather than to lead the whole country into greater stability and prosperity! I know I was taken in at the time, but thankfully I have come to understand what a disater the Thatcher years really were. It’s just a shame that I have so little power to affect the situation now.

  • Joe Smith

    It is very strange how we all seem to have been transported back 30 years in a time machine.

    Tory cuts, restless unions, a Royal marriage, “there is no alternative”. Why oh why do we never learn from the past?

    The simple answer is that each generation has to learn the same lessons again. We who lived through the 1980’s understand the Tories only too well. Those who have known only Major, Blair and Brown are in for a nasty shock.

  • Ann, I can’t make sense of the sentence you used “Central banks, they argued, should have their hands tied, with little discretion in the conduct of economic policy.” maybe it’s just me.

    @Joe, I don’t think we have been transported back. I think the same forces are at play, and those forces are based on the same mutual interests between central bankers and politicians. Policiticans get to implement vote-winning schemes by lending from the central banks at a cost that isn’t felt in the short term (while they are incumbent), and central bankers get to keep their power to create credit [out of nothing]. Power like that will always work to preserve itself. In this case, the power works in an upward spiral (for the bankers). They have power (in the monetary system) to give themselves more power (to buy off select politicians). As a result, political will which would appose the power given to bankers is diluted and scattered. Under the current dynamic, it would require such political will to reach a huge critical mass.

    The end of this dynamic is not in sight.

    It will have to come from the people, but for the people to care (and therefore wake up), they will need to experience catastrophic hardship first…. however, frogs in the pot…

    It has very little to do with whatever appears on mainstream media (bonuses etc). Anything related to individuals (such as corrupt CEOs or politicians) is not impactful on the dynamic (causality) and is a red herring for public interest and awareness.

  • apj

    “Friedman and monetarists believed that markets work well when left to themselves. As we have witnessed over 2007-10, dysfunctional financial markets precipitated a catastrophic global recession ….”

    Don’t feel the need to stop at just one episode 🙂

  • The attempt by Mrs Thatcher and her allies – notably Alan Walters – to impose Monetary Base Control (ie controlling the amount the banks could lend) is discussed in some detail in an essay in issue 60 of Lobster, ‘Thatcher versus the City of London’, at http://www.lobster-magazine.co.uk.

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