The Banking System and National Policy

We saw in Chapter 1 that the 1970s and early 1980s witnessed the build-up of considerable pressures which led successive British governments — and governments elsewhere in the industrialised world — to become much more preoccupied with the banking system than they had been previously. One group of such pressures was the gradual acceptance by the British authorities, and to some extent at least by the public at large, of the importance of control over the money supply as a crucial weapon in the control of inflation and economic policy generally. But to identify and recognise this importance of control of the money supply is one thing; to identify an accurate and durable definition of ‘money supply’ and then methods of controlling it which do not conflict too painfully with other objectives of policy is quite another. From the early 1970s right through to the time of writing in 1983, a great debate has developed amongst academic economists, economic journalists, Treasury and Bank of England officials and practising bankers as to how some sort of control can be imposed on the supply of money.