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The Evolution of British Monetarism: 1968-1979

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  • Aled Davies

Abstract

How far were monetary targets imposed on the post-1974 Labour Government by international and domestic financial markets enthused with the doctrines of ‘monetarism’? The following paper attempts to answer this question by demonstrating the complex and contingent nature of the ascent of British ‘monetarism’ after 1968. It describes the post-devaluation valorisation of the ‘money supply’ which led investors to realign their expectations with the behaviour of the monetary aggregates. The collapse of the global fixed-exchange rate regime, coupled with vast domestic inflationary pressures after 1973, determined that investors came to employ the ‘money supply’ as a convenient new measure with which to assess the ‘soundness’ of British economic management. The critical juncture of the 1976 Sterling crisis forced the Labour Government into a reluctant adoption of monetary targets as part of a desperate attempt to regain market confidence. The result was to impose significant constraints on the Government’s economic policymaking freedom, as attempts were made to retain favourable money supply figures exposed to the short-term volatility of increasingly-globalised and highly-capitalized financial markets.

Suggested Citation

  • Aled Davies, 2012. "The Evolution of British Monetarism: 1968-1979," Oxford Economic and Social History Working Papers _104, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:esohwp:_104
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    References listed on IDEAS

    as
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    13. Emanuele Felice, 2011. "The determinants of Italy's regional imbalances over the long run: exploring the contributions of human and social capital," Oxford Economic and Social History Working Papers _088, University of Oxford, Department of Economics.
    14. Avner Offer, 2012. "The Economy of Obligation: Incomplete Contracts and the Cost of the Welfare State," Oxford Economic and Social History Working Papers _103, University of Oxford, Department of Economics.
    15. Rui P. Esteves, 2011. "The Political Economy of Global Financial Liberalisation in Historical Perspective," Oxford University Economic and Social History Series _089, Economics Group, Nuffield College, University of Oxford.
    16. Jane Humphries, 2011. "The Lure of Aggregates and the Pitfalls of the Patriarchal Perspective: A Critique of the High Wage Economy Interpretation of the British Industrial Revolution," Economics Series Working Papers Paper 91, University of Oxford, Department of Economics.
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    19. Eric B. Schneider, 2011. "Evaluating the Effectiveness of Yield-Raising Strategies in Medieval England: An Econometric Approach," Oxford University Economic and Social History Series _090, Economics Group, Nuffield College, University of Oxford.
    20. Douglas A. Irwin & Kevin H. O'Rourke, 2013. "Coping with Shocks and Shifts: The Multilateral Trading System in Historical Perspective," NBER Chapters,in: Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century, pages 11-37 National Bureau of Economic Research, Inc.
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