1956: Macmillan as Chancellor

During 1955, the Treasury had felt acutely uncomfortable that they were not in control of credit policy, which had suddenly become the only policy weapon left available to restrain domestic demand. If they understood Cobbold’s reservations about the continued use of requests to the banks to constrain advances, and about the possible use of a variable liquidity ratio as a credit control device, they could see no alternative. And Hall did not believe that Cobbold had been wholehearted in the pursuit of credit restraint; this was why the Chancellor himself had spoken to the clearing bank chairmen in July.1 They thought that Cobbold was trying to prevent the adoption of monetary policies which he disliked by pretending that they were impracticable. There had in any case been pressure on the government from Members of Parliament to establish a ‘new Macmillan committee’ to investigate the working of the monetary system. Macmillan rejected the idea of a public inquiry but had asked for an internal review.2 In the spring and summer of 1956, monetary policy was therefore managed concurrently with the review, conducted jointly by the Treasury and the Bank of England, of what had gone wrong in 1954–55 and of possible improvements to monetary policy techniques.