Struggling with the Impossible: Sterling, the Balance of Payments and British Economic Policy, 1949–72

Abstract

Our purpose in this paper is to explore how endemic sterling crises and balance of payments weaknesses contributed to that developing debate about how to halt national economic decline, a key constituent of which was a process of exploration as to how to lessen the external constraint to high growth and employment. This necessarily entails a close study of Britain ’s balance of payments situation (one often misunderstood) and a review of current thinking about the key exchange rate policy episodes (a euphemism for crises) of the golden age (principally, devaluation in 1949, the radical ROBOT plan of 1951—2 to float sterling, the 1967 devaluation and the eventual decision to float in 1972). Our survey encompasses official thinking and that of the wider market for economic ideas. Given the binding nature of the external constraint, and that Britain was one of the world ’s largest and most open economies during this period, economists (both insiders and outsiders), officials and politicians should have been particularly receptive to new thinking in international and open economy macroeconomic theory and policy. This paper discusses why in practice such new ideas were largely tangential to the British policy debate and in the process reveals something about both Britain ’s political economy and the more general relationship between developments in economics and their diffusion into policy.