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.