Cheap Money and Debt Management in Britain, 1932–51

The twenty years from the spring of 1932 to the spring of 1952 are the longest period during which Britain has enjoyed continuously low interest rates. In the first thirty years of the twentieth century there had been two `cheap money’ periods of approximately a year and a half each before the First World War and three shorter spells in 1914, 1922 to 1923 and 1930 to 1931. In the years since 1952, nominal interest rates have never again been as low as they were in 1932 to 1951.’ During the prolonged cheap money regime, which survived the Second World War and post-war reconstruction, it was not only short-term, money-market rates of interest that were low — the traditional meaning of ‘cheap money’ — but also long-term interest rates — particularly, but not only, on government debt. Furthermore, low long-term rates were, like short-term rates, part of a cheap money policy pursued by the authorities with varying degrees of success. The policy took different forms over the twenty years, being first a matter of lowering high interest rates on government debt in the midst of a severe depression, then a matter of maintaining low interest rates on government borrowing during a major war, and finally an attempt at further lowering rates from their war-time levels as a small contribution to a brave new socialist post-war world.