The Radcliffe Report

Abstract

W1 rITH return of a Conservative AdAl ministration in I95I, Britain re-activated monetary policy as an instrument of economic control after a lapse of twelve years. At first, relatively mild adopted in November I 9 5 I and in early months of I 9 52 seemed justify high hopes of protagonists inflationary trends of Korean boom year were rapidly reversed; there was considerable de-stocking, and Britain's balance of payments on current account improved sharply. In fact, as is now recognized, these were repercussions of changing trend of world prices after short speculative boom engendered by Korean War and had little if anything do with monetary adopted by Britain. The turn of events, however, had certainly enhanced belief in efficacy of a flexible monetary policy, and when there was a renewed threat of domestic inflation and of a balance of payments crisis in February I955, much sharper restrictionist were taken. But on this occasion hoped-for consequences did not materialize. Despite pressure on liquidity, bank advances continued rise, inducing a whole series of further of quantitative and qualitative credit restriction, including an unprecedented request by Chancellor of Exchequer clearing banks (in July I955) a positive and significant reduction in advances over next few months. Nonetheless, level of demand and pressure on domestic resources continued rise even after volume of bank advances was at last stabilized. By time Suez crisis supervened (in September I9 56), opinion was fairly general that there was something wrong with way monetary controls operate, and that if any reliance were be placed on monetary in future, there had be a thoroughgoing review of mode of operation of financial institutions and of controls exercised by Bank of England. Hence appointment, in May I957, of a Committee to inquire into working of monetary and credit system and make recommendations under chairmanship of Lord Radcliffe.' The Committee (the first of its kind since Macmillan Committee reported in I931) sat for two years, questioned over 200 witnesses, received some I50 special memoranda, and finally issued a unanimous report of some 340 pages.2 The really remarkable feature of this Report is that it manages maintain complete unanimity (without a single note of reservation by any of its members!) whilst putting forward views that are far from traditional or orthodox. The Report contains a detailed review of history of monetary since I95I and an exhaustive analysis of nature of British financial institutions which brings light many important and interesting features not hitherto known, as well as a number of statistical compilations concerning assets and liabilities of various types of institutions that were not previously available. But for American readers, and for students of monetary theory generally, 6o pages devoted the influence of monetary measures which deal with fundamental issues will undoubtedly provide main interest of Report. It is not an easy task summarize Committee's views without danger of misrepresentation partly because some of its conclusions are expressed in rather guarded terms and partly because conclusions stated in some of paragraphs are contradicted (or at least seemingly contradicted) in others; thus, it is not possible distill a consistent set of principles without a certain amount of interpretation. The reasons for this are be sought, not in any lack of expository talent in Committee, but in their desire for unanimity, which could only be secured at cost of vagueness at critical points and omission of important links in chain of argument. From point of view