A second-year review of Mr. Butler’s monetary policy

Abstract

The article follows up on a previous work which described the developments of British monetary policy in 1951 consequent upon the measures taken by the Chancellor of the Exchequer, Mr. Butler. In light of more recent experience the author clarifies the scope and significance of what had seemed to some a revolutionary change in British monetary policy. Looking back from the summer of 1953, a change of emphasis is noted: the removal of abnormal liquidity from the commercial banks and the raising of interest rates appear to have played a smaller role that was first anticipated, and the reliance on qualitative control of bank lending a larger role. The author concludes that the changes actually made in interest rates after the autumn of 1951 were largely conceived as a measure for protection of the pound by discouraging leakages of capital through the exchange control, and that Mr. Butler’s policy demonstrates a readiness of the authorities to use the interest rate and other weapons in the case that qualitative credit control should not suffice to prevent inflationary pressure.

JEL: E43, E51, E52, E58