Inside the Bank of England

In Febmary 1984 one of the most accomplished British economists of the post-war generation, if perhaps not among the best known, gave up the chauffeured limousine that had ferried him over the previous 11 years between his London home and the Bank of England in Threadneedle Street, and boarded the bus — the proverbial Clapham Omnibus — to start the last phase of his professional life in comparative seclusion, doing research at the National Institute of Economic and Social Research (NIESR). His influence and his relative anonymity came from devoting most of his career to public service: first, in Whitehall’s small pioneering unit of economists after the war; then, after a spell at NIESR, at the Organization for Economic Cooperation and Development (OECD) in Paris; and finally at the Bank of England, where he wrote these memoirs.

I am starting these memoirs on holiday in France, in August 1976. During the last four or five months I have felt I ought to make a record of events, of what it felt like and why people acted as they did; but have not found time to do so. If I do not start now then impressions will be lost.

I have started writing this section of my account on 3rd January 1977, an extra New Year bank holiday this year. It takes up from where I left off in the early autumn and covers the run-up to the negotiations with the IMF, which started at the beginning of November and were completed just in time for Christmas. All that has happened since the summer has in a sense been no more than playing out events which had already been set in train. But there were several features which I find notable. The way in which events were handled gives me the feeling of a government re-establishing some control over the direction in which it was being carried.

I have not written up this record of events since last summer when we were in Montélimar, and now we are back here. Previously I have written three times a year and had three or four months to record at a time: now I have a year.

This was the year in which the Shah fell, and the Ayatollah Khomeini returned to preside over mounting chaos in Iran, which had the consequence of a world shortage of oil and a second oil crisis. It was the year in which Italy’s former prime minister Aldo Moro was assassinated; in the midst of yet further deepening of disorder in Italy, the shafts of intrigue were directed even at poor Paolo Baffi, Governor of the Banca d’Italia. (Hitherto the Bank of Italy had stood above the fray: now its Governor was accused by a high court of magistrates of technical improprieties in its investigation of some bank failure; none of us quite understood what.) It was the year when John Paul II was elected Pope. In the USA, President Carter could do nothing right; and late in the year he dismissed the entire Cabinet. As a result, Paul Volcker became Chairman of the Federal Reserve Board in place of William Miller, by whom no one had been impressed.

Another year passed, and unanswered questions of last summer remain unanswered.’ Mrs Thatcher’s government has had just over a year of office. The novelty of a new government has evaporated. Ministers remain untested by adversity and the unexpected: we still do not know what they are like. Can they really be what they seem? Monetarism, one might have thought, is no creed for politicians. Are there votes in setting the controls, standing back and waiting years for the results — meanwhile doing nothing? Perhaps not, but this has not been demon-strated. The government goes on. The economic situation worsens. No one notices. Nobody says the Emperor is naked. Ministers, even, seem not to notice. I am told that when Howe has briefing sessions on the state of the economy, it is about the stock exchange that he asks, not output or employment. It is as if we have been brainwashed not to talk of real things, deception has taken root, and we are all sleepwalking.

July 1981: looking back once more, one thinks this has been a very uneventful year; not that nothing has happened, but that the government appeared not to notice for one more year the disaster to which they are drifting. It is the protractedness of this slow motion which creates the sensation of uneventfulness.

This could be the last summer when I am still at the Bank, and thus the last time I write up this record — though it now seems likely I will stay another year. It could also be the last summer before the General Election. But, again, it seems likely that the government will have another year.

London, quite unusually, basked and gasped in continuous sun for most of July this year (1983), which happened also for us to be a very social time. We all counted the days till we would re-establish ourselves in the idle life of Le Chainas.¹ This area of France had been having the same humid heat, which lasted our first few days; and now, after a storm, has been replaced by the bracing cool wind and smiling sun of a Mistral.

I left the Bank at the end of February 1984. The six months before that was a period of gradual disengagement. I did each thing for the penultimate or the last time, as the case might be; thought how to ease the way for my successor; and was increasingly taken up with plans for my own future and for the book to be written when I left. In the six months since then I have been able to guess the internal story, but heard little of it direct and in detail; and thinking and writing about economic policy has involved a distancing of myself from the present. I am therefore no longer able, nor do I wish, to write as in previous summers. All that remains is to set down some brief final notes.