IDEAS home Printed from https://ideas.repec.org/p/syd/wpaper/2017-01.html
   My bibliography  Save this paper

Reaffirming the Influence of Milton Friedman on U.K. Economic Policy

Author

Listed:
  • Nelson, Edward

Abstract

This paper finds a significant influence of Milton Friedman on U.K. economic policy from the 1970s onward, and especially during the period of the Thatcher Government. The finding is based on a consideration of statements by policymakers and key economic advisers, as well as an analysis of Friedman’s commentary in the 1970s, 1980s, and 1990s on U.K. economic developments. It is shown that explicit acknowledgments of Friedman’s influence were given on the record over the years by Margaret Thatcher, Chancellor of the Exchequer Geoffrey Howe, Bank of England officials, and others in policy circles. Examples of Friedman’s influence include the absorption into U.K. policy doctrine of the permanent income hypothesis and the natural rate hypothesis, the rejection from 1979 onward of incomes policy as a weapon against inflation, and U.K. officials’ repeated appeals to monetary sovereignty when arguing against monetary union or a sterling peg. Evidence of influence by Friedman on privatization policy and on the official perspective on the current account deficit can also be discerned. Friedman had only limited personal interaction with U.K. policymakers, but his influence was felt in the adoption into actual U.K. policymaking of recommendations made in his writings and in the fact that those writings—which were studied closely by a number of senior U.K. economic advisers—helped alter economists’ conceptual framework in the United Kingdom and thereby fostered doctrinal changes in U.K. economic policy. The analysis in this paper also shows that two key critics of the Conservative party’s economic policy under Margaret Thatcher—Labour’s Harold Wilson and the Conservatives’ Edward Heath—had good reason to ascribe this policy partly to the influence of Friedman, whom each of them had met before the Thatcher era.

Suggested Citation

  • Nelson, Edward, 2017. "Reaffirming the Influence of Milton Friedman on U.K. Economic Policy," Working Papers 2017-01, University of Sydney, School of Economics, revised Feb 2017.
  • Handle: RePEc:syd:wpaper:2017-01
    as

    Download full text from publisher

    File URL: http://econ-wpseries.com/2017/201701-02.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dellas, Harris & Tavlas, George S., 2009. "An optimum-currency-area odyssey," Journal of International Money and Finance, Elsevier, vol. 28(7), pages 1117-1137, November.
    2. Tim Congdon, 1992. "Reflections On Monetarism," Books, Edward Elgar Publishing, number 102.
    3. Nelson Edward, 2005. "The Great Inflation of the Seventies: What Really Happened?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-50, July.
    4. Nicoletta Batini & Edward Nelson, 2001. "The Lag from Monetary Policy Actions to Inflation: Friedman Revisited," International Finance, Wiley Blackwell, vol. 4(3), pages 381-400.
    5. Charles Bean & James Symons, 1989. "Ten Years of Mrs. T," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 13-72, National Bureau of Economic Research, Inc.
    6. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3.
    7. R. J. Ball, 1982. "Money and Employment," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-16695-4, June.
    8. Milton Friedman & Anna J. Schwartz, 1982. "Monetary Trends in the United States and United Kingdom: Their Relation to Income, Prices, and Interest Rates, 1867–1975," NBER Books, National Bureau of Economic Research, Inc, number frie82-2, May.
    9. King, Mervyn, 1997. "Changes in UK monetary policy: Rules and discretion in practice," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 81-97, June.
    10. James Forder, 2016. "Friedman's lack of influence on British economic policy," Economics Series Working Papers Paper-802, University of Oxford, Department of Economics.
    11. Nelson, Edward & Nikolov, Kalin, 2004. "Monetary Policy and Stagflation in the UK," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 293-318, June.
    12. Nelson, Edward & Schwartz, Anna J., 2008. "The impact of Milton Friedman on modern monetary economics: Setting the record straight on Paul Krugman's "Who was Milton Friedman?"," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 835-856, May.
    13. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, May.
    14. Miller, Marcus, 1981. "Monetary Control in the UK," Cambridge Journal of Economics, Oxford University Press, vol. 5(1), pages 71-79, March.
    15. A. A. Walters, 1965. "Professor Friedman on the Demand for Money," Journal of Political Economy, University of Chicago Press, vol. 73, pages 545-545.
    16. Tim Congdon, 1982. "Monetary Control in Britain," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-04728-4, June.
    17. David A. Martin, 1976. "Comments," Journal of Economic Issues, Taylor & Francis Journals, vol. 10(2), pages 350-352, June.
    18. K. Alec Chrystal, 1984. "Dutch disease or monetarist medicine?: The British economy under Mrs. Thatcher," Review, Federal Reserve Bank of St. Louis, vol. 66(May), pages 27-37.
    19. Friedman, Milton, 2008. "Milton Friedman on Economics," University of Chicago Press Economics Books, University of Chicago Press, number 9780226263496, December.
    20. -, 1986. "Agenda = Agenda," Series Históricas 8749, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    21. Milton Friedman, 1989. "Using the Market for Social Development," Cato Journal, Cato Journal, Cato Institute, vol. 8(3), pages 567-584, Winter.
    22. Taylor, Alan M. & Aikman, David & Bush, Oliver, 2016. "Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe R," CEPR Discussion Papers 11353, C.E.P.R. Discussion Papers.
    23. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    24. Aikman, David & Bush, Oliver & Davis, Alan, 2016. "Monetary versus macroprudential policies causal impacts of interest rates and credit controls in the era of the UK Radcliffe Report," Bank of England working papers 610, Bank of England.
    25. Cuthbertson, Keith, 1985. "Sterling Bank Lending to UK Industrial and Commercial Companies," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 91-118, May.
    26. repec:ucp:bkecon:9780226264141 is not listed on IDEAS
    27. Edward H. Chamberlin, 1962. "Labour Union Power and Cost-Inflation," International Economic Association Series, in: Douglas C. Hague (ed.), Inflation, chapter 0, pages 221-232, Palgrave Macmillan.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ötsch, Walter, 2018. "Wissen und Nicht-Wissen angesichts "des Marktes": Das Konzept von Hayek," Working Paper Series Ök-43, Cusanus Hochschule für Gesellschaftsgestaltung, Institut für Ökonomie.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lothian, James R., 2009. "Milton Friedman's monetary economics and the quantity-theory tradition," Journal of International Money and Finance, Elsevier, vol. 28(7), pages 1086-1096, November.
    2. Edward Nelson, 2019. "Karl Brunner and U.K. Monetary Debate," Finance and Economics Discussion Series 2019-004, Board of Governors of the Federal Reserve System (U.S.).
    3. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    4. Nelson Edward, 2005. "The Great Inflation of the Seventies: What Really Happened?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-50, July.
    5. Edward Nelson, 2009. "An Overhaul of Doctrine: The Underpinning of UK Inflation Targeting," Economic Journal, Royal Economic Society, vol. 119(538), pages 333-368, June.
    6. Boyer, Russell S., 2009. "Reflections on Milton Friedman's contributions to open economy money/macro," Journal of International Money and Finance, Elsevier, vol. 28(7), pages 1097-1116, November.
    7. Aurélien Goutsmedt & Erich Pinzon-Fuchs & Matthieu Renault & Francesco Sergi, 2015. "Criticizing the Lucas Critique: Macroeconometricians' Response to Robert Lucas," Post-Print halshs-01179114, HAL.
    8. Edward Nelson, 2008. "Why Money Growth Determines Inflation in the Long Run: Answering the Woodford Critique," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(8), pages 1791-1814, December.
    9. Akhand Akhtar Hossain, 2015. "The Evolution of Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 14611.
    10. Riccardo DiCecio & Edward Nelson, 2013. "The Great Inflation in the United States and the United Kingdom: Reconciling Policy Decisions and Data Outcomes," NBER Chapters, in: The Great Inflation: The Rebirth of Modern Central Banking, pages 393-438, National Bureau of Economic Research, Inc.
    11. Xiaojing Song & Thu Phuong Truong & Mark Tippett & John van der Burg, 2022. "The quantity theory of stock prices," The European Journal of Finance, Taylor & Francis Journals, vol. 28(17), pages 1685-1707, November.
    12. Brückner, Markus & Gradstein, Mark, 2013. "Effects of transitory shocks to aggregate output on consumption in poor countries," Journal of International Economics, Elsevier, vol. 91(2), pages 343-357.
    13. Nelson, Edward & Nikolov, Kalin, 2003. "UK inflation in the 1970s and 1980s: the role of output gap mismeasurement," Journal of Economics and Business, Elsevier, vol. 55(4), pages 353-370.
    14. Nelson, Edward, 2008. "Ireland and Switzerland: The jagged edges of the Great Inflation," European Economic Review, Elsevier, vol. 52(4), pages 700-732, May.
    15. Andrea Giorgio Tosato, 2022. "Considerations on the Monetary Policy Framework of the European Central Bank," CBM Working Papers WP/01/2022, Central Bank of Malta.
    16. Nelson, Edward & Schwartz, Anna J., 2008. "The impact of Milton Friedman on modern monetary economics: Setting the record straight on Paul Krugman's "Who was Milton Friedman?"," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 835-856, May.
    17. Habimana, Olivier, 2018. "Asymmetry and Multiscale Dynamics in Macroeconomic Time Series Analysis," MPRA Paper 87823, University Library of Munich, Germany.
    18. Sylvie Rivot, 2017. "Economic policy as expectations management: Keynes’ and Friedman's complementary approaches," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 24(5), pages 1053-1084, September.
    19. Edward Nelson, 2008. "Friedman and Taylor on monetary policy rules: a comparison," Review, Federal Reserve Bank of St. Louis, vol. 90(Mar), pages 95-116.
    20. Tahir Mukhtar & Aliya H. Khan, 2016. "The Current Account Deficit Sustainability: An Empirical Investigation for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 397-419.

    More about this item

    Keywords

    Milton Friedman; U.K. economic policy; incomes policy; monetarism; Thatcher Government; doctrine of economic policy.;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:syd:wpaper:2017-01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vanessa Holcombe (email available below). General contact details of provider: https://edirc.repec.org/data/deusyau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.