The period from the end of World War II until the first oil shock of 1973 is known in France and in Western Europe more generally as a golden age, economically speaking. In France, the period is still referred to as the Trente Glorieuses – the “Thirty Glorious Years” – in recognition of Jean Fourastié’s book of the same title (Reference Fourastié1979), even if recent historical work has shown that one should not take for granted the unity of this period, and even less should one downplay its negative aspects, notably its ecological consequences, colonial wars and the persistence of poverty (Pessis et al. Reference Pessis, Topçu and Bonneuil2013). If one limits this period to the twenty-five years between 1948 and 1973, France experienced the highest average growth rate in its history, relatively moderate inflation, low unemployment and a significant expansion of credit without banking crises.
The usual explanations of this achievement, which are not specific to France, give little attention to the role of the central bank and monetary policy. It is usually considered enough to note that they were guaranteed by “catch-up” growth and the stability of the Bretton Woods system, on the implicit assumption that these two factors were independent of the actions of monetary authorities. Equally widespread is the idea that moderate inflation and growth occurred despite the Banque de France’s activity, which, it is believed, consisted primarily in inflationary government financing through direct advances to the Treasury and additional constraints on the banking and financial system.Footnote 1 As this period is seen as the apotheosis of what is sometimes called “financial repression,” it is assumed that the expansion of credit was constrained by strict financial regulation and by low, government-mandated interest rates, that were needed to finance the public debt. This view, once again, attributes central banks a passive role, stuck in a relatively immobile financial system or pulled along by exogenous economic growth.
This vision, which is still the consensus view, of central banks’ role during the three decades following World War II does not, however, resist closer scrutiny, as this book will show. But when one plunges into the archives, it quickly becomes apparent why it has persisted. During this period, central banks exhibited two traits, which are particularly evident in the case of the Banque de France, which made their policy difficult to grasp and surrounded their actions with a web of confusion. This difficulty is exacerbated when one views this period with assumptions shaped by the direction monetary policy took in the 1980s. The two traits are, first, that monetary policy belonged to a larger framework of “credit policy” and, second, that interest rates were not the leading policy instrument of the central bank.
Monetary Policy and Credit Policy
Monetary policy can be defined as the means that a central bank uses to affect variables of the short-term economic cycle such as inflation, production and employment. Monetary policy’s goal is to act on price levels, exchange rates and the credit and money mass, but its primary goal is not to influence credit allocation or bank and non-bank assets. A credit policy, on the contrary, seeks to act on the way credit is allocated across the economy by favoring particular sectors and institutions. One of the postwar period’s distinctive characteristics in France and many other countries is that credit policy encompassed monetary policy. When the term credit policy (politique du crédit) was used, it could, at times, be meant in the relatively limited sense of monetary policy, referring to measures a central bank takes to fight inflation or, on the contrary, to stimulate economic activity.Footnote 2 Yet, in most cases, the concept of “credit policy” had a much more extensive meaning, denoting the full array of interventions supported or elaborated by a central bank to encourage the development of credit and influence its allocation, thus replacing free-market mechanisms that were deemed insufficient, unfair or defective. The concept of credit control(s), whether in the singular or the plural, was also often used as a synonym for credit policy, in the restrictive as well as in the extensive sense.Footnote 3 Historians who undertake the task of studying central banks during this period thus encounter a multiplicity of uses, which are often a source of confusion, especially since certain national particularities can further complicate them, as we shall see in the case of France. Moreover, the goals of a policy of intervening in credit allocation were multiple, and uses of the term were, consequently, numerous and often vague and multivocal: it could be pursued for purposes of monetary policy (attempting to limit the credit level through better allocation), industrial or social policy (helping key economic sectors), budgetary policy (giving priority to government financing), trade policy (favoring credit for exporting sectors), capital controls (favoring domestic loans), financial stability (preventing an excess of credit that is potentially disconnected from real activity in particular sectors) and so on. The very nature of credit policy was thus to interact with many other policies by directing financing and rendering credit control’s various tools consistent with the latter. The central bank was thus connected to many other institutions and bureaucracies involved in implementing government policy. Something that might resemble a relationship of dependence – and was subsequently often interpreted as such – can be seen, from a different point of view, as evidence of the bank’s central role at the heart of the political and bureaucratic system.
A Policy without Interest Rates
Making monetary policy and credit policy compatible – acting on the level of credit as well as its allocation – was an essential question, and one crucial to central bank policy. In doing so, the same instruments and operating procedures were used to regulate the overall quantity of credit in the economy (since credit expansion was seen as necessary to economic expansion, but also as inflationary) and to act on its allocation. It could involve simple recommendations and incentives given to banks, as well as direct controls of the credit supply (such as credit ceilings), of bank liquidity (reserve or liquidity ratios) and of the access to central bank financing (rediscount ceilings, informal selection and the choice of various loan maturities).Footnote 4 Credit policy, in this way, combined quantitative and qualitative controls, direct constraints on credit expansion and indirect constraints aimed at the distribution of credit institutions’ assets and liabilities and on the financing they received from the central bank. These various instruments could branch out into various sub-categories, making credit controls more precise, and evolve significantly over time to adapt to the banking system’s characteristics. Of these multiple instruments, the central bank’s interest rate generally played a minor and often merely psychological role, as was recognized at the Banque de France, where it was partially indexed on foreign rates (in particular the US Federal Reserve rate). The fact that the interest rate was not Banque de France’s primary instrument of monetary policy did not mean that it was indifferent to interest rates: it intervened to keep treasury bond rates low, it cared about the spread with foreign rates, it participated in regulating debtor and creditor rates and so on. But the Banque de France’s discount rate was not modified to fight inflation or, on the contrary, to increase demand and production. It could remain relatively disconnected from other central bank instruments, as financial and bank markets were highly regulated and thus segmented. Debtor and creditor rates were themselves regulated for much of this period. Thus, it was possible that a credit restriction would not result in a general increase in the various interest rates that banks applied. Monetary policy was, consequently, transmitted by quantities rather by prices. The Banque de France, like other European central banks, embraced this disconnection between its quantitative tools and interest rates in order to affirm the autonomy of its monetary policy vis-à-vis other countries and to favor the financing of the public debt in periods when credit was restricted. Often, the interest rate level provided no information making it possible to determine whether domestic monetary policy was expansive or restrictive, except when it was deemed necessary to send a “psychological” signal. Not all these characteristics were fixed; they could evolve over time, in conjunction with changes in the banking system or the views of the central bank’s decision-makers.Footnote 5
This brief description of instruments and objectives suggests why it is so difficult to understand a central bank’s policies during this period. This is all the more true given that we have become accustomed to the idea that monetary policy is pursued through interest rates or control of the money supply, that these variables are sufficient for expressing the central bank’s goals and that monetary policy can be disconnected from credit allocation.Footnote 6 Chapter 4 will show that if one measures the Banque de France’s monetary policy stance in terms of its interest rate, as standard economic works on monetary policy would suggest, one would mistakenly conclude that the latter had no effect. By elaborating, however, a way of measuring the direction of monetary policy that takes into account the range of instruments used by the Banque de France as well as its goals, I find that it had an important effect on credit, money, prices and production, explaining nearly half of these variables’ volatility during the period being studied.
For a Common History of Credit Policy and Central Banking
The primary task for an economic history of the Banque de France during the Trente Glorieuses is thus to reach a comprehensive understanding of the various facets of credit policy – its medium- and long-term goals as they pertain to credit development and allocation, as well as its role in specific circumstances and its short-term effects on inflation and the economic cycle. This also requires institutional reflection on the way authorities perceived credit and the bases of legitimate state intervention in credit allocation, which, in Part I, I will call the “institutionalization of credit.” Credit policy cannot exist unless credit is thought of as a political problem.Footnote 7
Credit policy, understood in the broad sense of state intervention in credit allocation (or “Credit Activism in Interventionist States,” to use Loriaux [Reference Loriaux and Loriaux1997]’s particularly explicit title) has been the subject of several major studies by American political scientists, in the wake of Zysman’s seminal work (Reference Zysman1983) dealing with France. These studies focused primarily on the end of these policies and the reasons for the retreat from state intervention. Loriaux (Reference Loriaux1991) notably studied financial liberalization and the end of industrial policies in France by linking these transformations to the end of the Bretton Woods system, which led him to describe French credit policy from the 1950s on, including the role played by the central bank. These analyses, which followed the theoretical framework known among political sciences as “international political economy” (IPO), were based on secondary sources and concentrated on the moral hazard induced by credit policy and the possibility of autonomous public policy in a period of increasing globalization (see, more generally, the essays gathered in Loriaux et al. Reference Loriaux, Woo-Cumings, Calder, Maxfield and Perez1997), rather than on a detailed analysis of political decision-making and its economic effects. As Michael Loriaux (Reference Loriaux and Loriaux1997, p. 7) also recognizes, the literature on financial liberalization is voluminous, “though the literature on credit activism in interventionist states is not extensive in English.” Regrettably, almost the same statement can be made twenty years later, despite the fact that archives have since become available. Most importantly, these pioneering studies gave relatively little attention to central banks, and even less to the instruments through which they intervened, whether to fight inflation or to allocate credit. The fact that credit controls were used to contain inflation and limit balance of payment deficits – even before devaluations – has never been the subject of in-depth analysis. It follows that the consequences for central banks of the end of credit policy in the 1980s have never been fully considered and, as a result, that international scholarly literature on the history of central banking has remained on the sidelines of political science literature on interventionist credit policies. Thus, the main synthetic works on the history of central banks in the second half of the twentieth century (Siklos Reference Siklos2002; Singleton Reference Singleton2011) make no mention of this literature or of central banks’ role in credit policy.Footnote 8 Nor in his history of European monetary integration from the 1970s to the 1990s does Harold James (Reference James2012) discuss the importance of the end of credit policy for central banks that gradually joined the Eurosystem, even though the conversations he cites between central bank governors in the early 1970s explicitly use the term “credit policy” in a way that is different from “monetary policy” (James Reference James2012, pp. 78–79, 127).
One of this book’s goals is thus to reactivate and to incorporate, based on the French example, the main insights provided by political science on “activist credit policies” into the history of central banks and their effects on the economic cycle and, more generally, in the longer history of financial intermediation and credit regulation. Chapter 7 will show how credit policy was not specifically French, even if the ways of conducting it differed from country to country, and will discuss its consequences for the history of European monetary integration.Footnote 9
Integrating credit policy into the history of central banks makes it necessary to combine a historical approach based on the study of new qualitative and quantitative primary sources, on the one hand, and a macroeconomic perspective on the other, while resorting, when necessary, to economic theory and econometrics to study the central bank’s political and economic role in the economy. Such an approach will guide the historical study of the Banque de France’s policy. I also blend into this approach an institutionalist perspective, in order to shed light on the emergence and evolution of credit policy and the ways in which this policy was embedded in a distinct social, ideological and legal context that it influenced, in turn.
An Institutionalist Approach to Credit Policy
The institutionalist perspective does not consist solely in “contextualizing” the Banque de France’s postwar policy. It also makes it possible to understand the various elements on which this policy was based. In particular, the production of statistics and a new legal arsenal allowed bank regulations to be used to achieve short-term and sectoral policy goals. These legal aspects have not been studied in previous historical accounts of the Banque de France. Most importantly, the institutionalist perspective helps us to understand why the fight against inflation was, by the late 1940s, seen as a condition of possibility and of the stability of interventionist policies in credit allocation. Excessively high inflation, by reviving memories of 1947–1948, would render state interventionism illegitimate for business leaders as well as employees, as unions are always suspicious that moments of high inflation will lead to a decline in real salaries. Thus, there are no grounds for opposing the “monetary” side of credit policy to its “interventionism” in credit allocation. One must, rather, understand why the sustained inflation of the 1970s – that the dirigiste system did not know how to contain – ultimately delegitimated and spelled the end of credit policy. The process of delegitimating credit policy over the 1970s and 1980s must be distinguished from the much more widely known and discussed way in which inflation challenged traditional Keynesian theories, notably the use of the Phillips curve over the same period. There is no reason for believing that it was only due to the stability of the international Bretton Woods system that interventionist policy was possible and could preserve its legitimacy. The structure of the international system was not exogenous to national policy, but resulted, on the contrary, from a partial convergence of national norms and practices. It is mainly on this crucial point that my argument concerning Banque de France policy differs from that of Michael Loriaux (Reference Loriaux1991), for whom the Bretton Woods system and frequent devaluations allowed the Banque de France to support credit policy in the 1950s and 1960s at no cost, leading to moral hazard. Loriaux (Reference Loriaux1991, pp. 38–39) thus believes that the Banque de France’s monetary restrictions increased during the 1970s, following the end of Bretton Woods, when the limits on bank credits (encadrement du credit, or credit ceilings) became permanent. On the contrary, I show that the permanent use of credit controls in the 1970s was accompanied by an anti-inflationary policy that was far less restrictive than it was over the previous two decades and that this reveals a reconsideration of the earlier principles guiding how credit policy functioned. The mechanisms and policies that were supposed to ensure the institution’s domestic stability through relative price stability had, in this way, changed, partly due to emerging institutional changes in the late 1960s (the intellectual reassessment of credit policy, the first attempts to establish an open market, the government’s growing role in the Banque de France’s decision-making processes and so on). We shall see that the transformations that occurred in the mid-1970s should no longer be seen as the culmination of the previously existing policy, but, on the contrary, as evidence that it was being undermined and was off course.Footnote 10
The study of credit policy from an institutionalist perspective will be the subject of the first part of this book. I will borrow frequently from various institutionalist theories (including from legal history, economics and political science), but the general framework primarily bears the influence of Karl Polanyi. From Polanyi, I have drawn two key ideas. First, the economy is viewed as an instituted process: “The study of the shifting place occupied by the economy in society is therefore no other than the study of the manner in which the economic process is instituted at different times and places”(Polanyi Reference Polanyi, Polanyi, Arensberg and Pearson1957, p. 250). In contrast to many recent studies in the field of economics and political science (which are often described as neo-institutionalist), the concept of institution is not defined here as a set of rules that are exogenous to the market economy and actors’ behavior, but as a process through which a set of rules, behaviors and economic practices is constructed.Footnote 11 This is why I speak of institutionalization as well as institution, and use the term “institutionalization of credit” in studying the history of credit policy. One consequence of this stance is that I will not, from the outset, oppose the realm of the market to the realm of state intervention. Chapter 6 in particular will examine the difficulty of establishing a boundary between the state and the market if one wants to understand investment in France during the Trente Glorieuses. Second, I follow Polanyi when he says that “the instituting of the economic process vests that process with unity and stability; it produces a structure with a definite function in society … A study of how empirical economies are instituted should start from the ways in which the economy acquires unity and stability, that is the interdependence and recurrence of its parts” (Reference Polanyi, Polanyi, Arensberg and Pearson1957, pp. 249–250). Embracing this definition’s implicit functionalism, Part I of this book will broadly examine how credit policy emerged, stabilized itself and was then challenged. Specifically, it will consider how economic thought, the legal framework and administrative and political adjustments contributed to this theory. It is from this perspective that one should understand the role of the fight against inflation, which is conceived as a safeguard for protecting the institution’s stability. I will, consequently, speak of institutional coherence when describing the interdependence between the institution’s different components. The unity of the institutionalization of credit can be grasped through the complexity and uniqueness of its distinctive political, economic and ideological interactions in the wake of World War II. This book is not able to propose a social history of credit, which would have required drawing on a much wider and more diverse body of sources, but it does try to show the political and social mechanisms – and not merely economic ones – that made the question of credit a priority in the postwar years, and to explain why the answer to this question meant a major role for the state and the central bank.
In Part I of the book, I define three components of this institutionalizing process that will serve as an analytical perspective for considering the development of credit policy from the end of World War II to the mid-1970s. The first component is legal: principles are anchored in law, which functions as the institution’s “conditions of possibility.” A second component consists of the social norms or beliefs that guide action: an institution can, in particular, exist only if actors share beliefs about the rules of the game. This is the ideological component of the institution. Finally, a third component of the institution relates to its capacity for “control” or “self-control,” which is crucial to its preservation. Any institutionalizing process engenders a set of more or less formal constraints designed to avoid institutional breakdown. I interpret various approaches to fighting inflation as a form of control and self-control of credit policy. A large part of the analysis in Chapters 1, 2 and 3 is devoted to studying the evolutions of these three components and their interactions over time.
By taking these various paths, I have encountered the recent literature in economic history that studies how the question of credit and financial risk has become a political and social issue and the social and legal mechanisms through which forms of financial intermediation and economic practices are justified (Hoffman et al. Reference Hoffman, Postel-Vinay and Rosenthal2000; Hyman Reference Hyman2011; Ott Reference Ott2011; Levy Reference Levy2012; Fontaine Reference Fontaine2014; Yates Reference Yates2015). What makes my approach original is to link the study of the political vision of credit with macroeconomic history and to highlight how state-organized credit policies have been a key driver of postwar capitalism. In contrast to what has been done for debt and capital (Dyson Reference Dyson2014; Piketty Reference Piketty2014), few recent works have attempted to connect macroeconomic history and the social history of credit, with the notable exception of Avner Offer (Reference Offer, Dimsdale and Hotson2014, Reference Offer2017) on housing credits in England and Hoffman et al. (Reference Hodgman2018) on notarized credit in nineteenth-century France.Footnote 12 The institutional analysis of credit policy also overlaps with work in economics and political science that calls attention to how various institutional configurations can lead to the rise of different forms of capitalism (Hall & Soskice Reference Hall and Soskice2001; Amable Reference Amable2003; Fioretos Reference Fioretos2011). Chapter 7 revisits this question, by emphasizing the common denominators but also the divergences between credit policies in several countries. This is in fact a return to the pioneering study of the “varieties of capitalism” approach, Andrew Shonfield’s book (Reference Shonfield1965), which compared different forms of planning in Western Europe and devoted a few pages to the “management of credit.”
A New Perspective on the Postwar Economy
The type of credit policy described above could exist only in a legal and ideological framework that is very different from the one we are familiar with in present-day Europe. In the first place, the central bank needed the legal capacity to use certain types of bank regulation measures (relating to credit and liquidity control) as instruments of short-term monetary policy. Consequently, it not only needed power over banks, but also sufficient flexibility in exercising this authority to ensure that decisions pertaining to quantitative restriction could be taken quickly and independently, without parliamentary approval or a ministerial decree. Second, the central bank needed sufficient legitimacy to ensure that its decisions relating to the loan selection process, which amounted to giving priority to particular sectors or particular banks (and thus indirectly influencing competition) were seen as serving the general interest and economic growth. Such was the ideological framework that informed the origins of the law of December 2, 1945 relating to “the nationalization of the Banque de France, major deposit banks, and the organization of credit,” which at the time was referred to as the “law for nationalizing credit.” Though it is often remembered primarily for nationalizing the bank’s capital, the law also granted the bank significant power to control other banks and to intervene in the allocation of credit. We will see in the following chapter how the origins of the 1945 law lay in socialist and economic planning movements of the 1930s, which the National Resistance Council took up again in 1944. But it must also be situated within two institutional traditions. First, it continued the Banque de France’s practice of intervening directly in the banking sector through rediscounting, which had been common in France since the nineteenth century. Next, it involved a rediscovery of legal instruments, notably banking laws, established under the Vichy regime that allowed the state to establish its control over the banking sector and industry. The ideological break with the previous regime did not, in this instance, entail a significant institutional break: while modifying the way the institutions it borrowed from Vichy functioned, the new policies defined in 1945 shared Vichy’s rejection of the interwar years, which stood accused of favoring French banks and financial markets as they pursued goals contrary to the general interest.
Contrary to the conventional wisdom about this period, the Banque de France’s policy had little in common with Keynesianism, or in any case with the monetary theory of Keynes and his British disciples, who were eager to emphasize budgetary policy. Unless one is prepared to defend the idea that “Keynesianism” is a very general concept that covers any form of state intervention in the economy, it is impossible to understand the specificities of the connection between the Banque de France and the banking and financial system from the standpoint of traditional Keynesian theory. Conflating the Banque de France’s policies with Keynesian principles prevents us, moreover, from making sense of the deep differences that characterized France’s discussions with the United States and England about monetary issues, as we shall see in Chapters 2 and 7. Specific references to Keynesian monetary and budgetary ideas did not appear at the Banque de France until the late 1960s and these took, in part, the form of a plea for the liberalization of the banking and financial system and for a radical change in the Banque de France’s means of intervention. From the French central bank’s perspective, Keynes’s ideas were conflated with English money markets operations, the opposite of credit controls. The Banque de France doctrine – a blend of interventionist convictions and monetary orthodoxy – which held that the money supply and inflation must be controlled through quantitative and selective credit controls was primarily the result of the unique characteristics of the French credit market during the period, as well as a legacy of peculiar French intellectual traditions and central banking practices. I see the developments in central banking taking place between 1930s and 1950s – namely the rise of interventionist credit policies – as a part of a “global New Deal” led by ideals of economic planification in capitalist (non-communist) economies (Patel Reference Patel2016). The 1944 Bretton Woods conference was a defining moment in this history as it recognized the priority of domestic policies over international constraints and gave official recognition to developmental activist policies (Helleiner Reference Helleiner2014). Referring to such ideas as “Keynesian” neglects the many national traditions which developed in parallel and were often very different from Keynes’s vision of state intervention (especially about the role given to financial and money markets), as well as how the war economy shaped domestic economic and political institutions.Footnote 13
Finally, the conclusions of this study of credit policy calls into question the idea that growth during the Trente Glorieuses can be explained as a process of catching up that occurred, as it were, naturally, and in which financial factors played a minor role. On this point, I agree with the conclusions of Alexander Gerschenkron (Reference Gerschenkron1962), who has shown how, in the late nineteenth century, financial institutions were essential to catching up and how states played a key role in creating them (“substitution of prerequisites”). Similarly to what Gerschenkron had observed in the case of late nineteenth-century Europe, the state in post-1945 France asserted its new role with the help of a deeply national ideology and theory that served to justify these interventions. This is the conclusion informing the analysis of the chapters of Part I on the values and social norms that were the basis of the new credit policy pursued following World War II. As Gerschenkron also remarked, it is essential to understand how the challenge the market presents to allocation does not contradict policies seeking to develop capitalism and the banking sector. This argument is also perfectly consistent with Barry Eichengreen’s Reference Eichengreen2006 study of “coordinated capitalism” in Western Europe after World War II, which showed how the various institutions established in these countries were all essential to growth. Whereas Eichengreen’s analysis focuses on the labor market and industrial policy, I offer a complementary perspective on financial and monetary policy. I insist in particular on the robust institutional coordination required to pursue the goals of fighting inflation, allocating credit, regulating banks and providing the government with financing. It is very difficult to offer an exact account of the Banque de France’s role in credit allocation as Chapters 5 and 6 argue: on the one hand, the Banque de France directed many of its recommendations to banks through multiple informal channels; on the other hand, coordination between the bank and the government, the Commissariat Général du Plan (CGP) and “specialized bodies” also occurred through various means of which only very incomplete traces can be found in the archives. The distinctive trait of an economy that is “dirigiste” or “concertée” (i.e., “organized”), to use the period’s vocabulary, is that state intervention takes the form of the coordination of various private and public entities, rather than decrees issued by an all-powerful planner capable of defining in isolation the amount of credit and investment that each company and sector requires.
Understanding how certain policies produced positive results during the Trente Glorieuses also makes it possible to consider the French economy’s subsequent development from a new standpoint. Contrary to what is sometimes thought, the Great Inflation of the 1970s was not the logical culmination of the Trente Glorieuses’ inflationist policies. The archives used in this book show how, in the early 1970s, the Banque de France’s policy changed profoundly (see Chapter 3 and the conclusion of Part I). As for monetary policy instruments, the extent and means of selective controls, central bank’s financing of the government and the influence of economic theory, the 1970s appear as a very distinct period. Many of the conclusions in this book converge on the need to recognize the major institutional and political changes that occurred in the early 1970s and shaped a singular decade of transition. In particular, many developments of the 1970s were the results of early attempts to liberalize financial markets and reform credit policy and economic planning.
Recent studies have examined the evolution of the policies of the Federal Reserve and the Bank of England after 1945.Footnote 14 The approach of this book is different in two ways. First, the French system is so different from those of the United States and United Kingdom that it is crucial to situate the development of its beliefs and norms in the broader context of the Banque de France’s intervention in credit allocation, rather than contenting oneself with connecting them to monetary theories established in very diverse contexts. As said previously, references to Keynesian and monetarist theories – built in the Anglo-American contexts and in reference to peculiar models of central banking – are misleading to understand the objectives of the Banque de France and the evolutions of its policy. My assumption is that a similar observation can be made for other European central banks as well as in Japan. Second, I refrain from explaining the outcomes of the policies in the 1950s and 1960s based on what happened in the 1970s. Whereas most studies have attempted to find the roots of the inflation of the 1970s in the policies of the preceding decades, I am more interested in understanding why inflation remained surprisingly contained in almost two decades after World War II and in emphasizing the institutional changes that took place in the early 1970s.
Domestic Credit Policy and the International Monetary System
Like catch-up growth, the stability of the Bretton Woods international monetary system is often cited as a mechanical explanation of Western countries’ economic performance between 1945 and 1971. As its approach focuses on the Banque de France’s internal policies, this book is not able to undertake an exhaustive analysis of France’s place in the international monetary system. Exchange rate policy and the functioning of the European Payments Union would, in particular, require a different study. But the example of French monetary policy suggests that the stability of the international monetary system was preserved because these European countries took measures required to ensure the stability of their balance of payments. Once again, economic results are not the consequence of good fortune or natural adaptation, but of deliberate policies. The French example shows that devaluations, capital controls, credit controls and the disconnect between interest rates and quantitative controls could ensure that credit policy remained, within the Bretton Woods framework, highly autonomous. France regularly pursued a restrictive monetary policy to solve balance of payments problems or to combat imported inflation, such as during the Korean War, so that monetary policy cannot be seen as isolated from international constraints and shocks during this period. But the many instruments of credit policy allowed the central bank to make credit restrictions selective in the short term, and devaluations relaxed the medium-term constraints. Thus, the incompatibility between democratic demands at the national level and the system of fixed exchanges, which sealed the fate of the gold standard (Polanyi Reference Polanyi1944; Eichengreen Reference Eichengreen1992; Mundell Reference Mundell2000), had very much disappeared under Bretton Woods.
I will explain, particularly in Chapters 4 and 7 and the Conclusion, why understanding central banks’ credit policy during the postwar years is essential to the study of the operation of the Bretton Woods international monetary system. The analysis of the French case is, of course, too limited, but it offers clues for rethinking the history of Bretton Woods that are to be found in the study of national monetary policy. To avoid interpreting interest rates as monetary policy’s primary instrument and to account for the central bank’s interventionist role in the credit allocation helps us to better understand the historical role of capital controls, the degree to which central bank policy was autonomous and the social norms associated with the international monetary system. Consistent with the work of John Ruggie (Reference Ruggie1982) and Eric Helleiner (Reference Helleiner1996), the Bretton Woods system no longer appears as an exogenous constraint – dominated by American hegemony – bearing down on central banks, but as the result and the convergence of practices and norms that were (partially) developed and embedded at the national level. One cannot understand the Bretton Woods system solely by considering the principles decreed by international institutions or through theoretical frameworks defining the constraints imposed on national policies. It is necessary to consider what Ruggie called “the congruence of social purpose among the leading economic powers” (1982, p. 384). Even if France never stopped criticizing the United States’ hegemony during the 1950s and 1960s (Gavin Reference Gavin2004; Bordo et al. Reference Bordo, Monnet and Naef2017; Monnet Reference Monnet2013, Reference Bordo, Monnet and Naef2017), the credit policy that it pursued was, in part, similar to that of its neighbors and trading partners and participated in a set of norms that valued the expansion of trade, adjustable exchange rates and state intervention to control credit.Footnote 15 If credit policies have survived the Bretton Woods system and have continued to be practiced by many emerging market economies, their nature and conditions of possibility have no doubt changed over time, due to the very fact that they had ceased to be recognized at the international level as a legitimate model of central banking.
Chronology, Sources and Archives
As will become evident to the reader, the timelines in this study are rather broad and fluctuating. Chapter 1 tracks the origins of credit policy before and during World War II. Chapters 3 and 7 extend their focus toward the end of the 1970s and early 1980s. 1948 and 1973 were, however, two clear and important milestones for postwar credit policy. Indeed, it was in 1948 that the Banque de France’s major role in credit control was truly established, with the introduction of quantitative instruments to limit inflation and guide credit allocation. Credit policy evolved during the 1950s (Chapter 2) and 1960s (Chapter 3), but it really changed its modus operandi in 1973 with the introduction of permanent but not very restrictive credit ceilings and a greater role given to open market operations rather than to quantitative control. As we shall see, the nature of credit policy became hybrid from 1973 onwards. 1973 also marked a moment when the government increased its power over the central bank and, in particular, its decisions on monetary techniques. The unity of the 1948–1973 period is also strikingly evident in the method of financing the Treasury by the Banque de France, as shown in Chapter 5. In this area, 1973 marked a clear shift toward market financing of public debt. This chronology is of course determined by external events and the general course of history. 1948 is the year of political and economic stabilization in postwar France (marked by the Mayer stabilization plan; see Caron Reference Caron1982; Casella & Eichengreen Reference Casella and Eichengreen1993) while 1973 is the year of the first oil shock and the beginning of stagflation.
The work in this thesis is based, for the most part, on the archives of the Banque de France (henceforth, ABF).Footnote 16 When it proved necessary to consult other sources in order to understand the Banque’s internal debates or decisions, I used documents from the French Finance Ministry, the Commissariat Général au Plan, the Conseil Économique et Social and various committees constituted at a ministry’s or the National Assembly’s request.Footnote 17 Archives of the Bank for International Settlements (BIS), of several other European central banks (Italy, Belgium) and of the committee of the governors of the central banks of the European Community, as well as some official publications and reports from international (OECD, EEC, BIS) and foreign institutions (central banks, US Congress) provided information for Chapter 7. All original quotations in French have been translated into English.Footnote 18
The choice of sources thus emphasizes the Banque de France’s perspective. This position is justified, as this book’s primary goal has been, above all, to analyze the instruments as well as the motives of its interventions. Despite the Banque’s lack of independence vis-à-vis the government, I believe the archives contain enough information to help us understand the goals of its monetary policy. Disagreements or agreements with the government, even when they were not made public, appear clearly in the archives and were notably expressed in the General Council. When ministers suggested or imposed policies, they were always the occasion of discussions at the Banque. We shall see how this situation changed, in part, at the beginning of the 1970s, when the government acquired more and more power over monetary policy. In late 1972, monetary policy measures were, for the first time, implemented at the government’s command without triggering internal debate at the Banque de France. I also benefited from the fact that Finance Ministry archives from this period have been well studied (Margairaz Reference Margairaz1991; Quennouëlle-Corre Reference Quennouëlle-Corre2000; Effosse Reference Effosse2003) and an important body of secondary literature exists on the economic policies pursued by successive governments.
The transcripts of meetings of the General Council of the Banque de France (procès-verbaux du Conseil Général, or PVCG), which met every Thursday and where decisions were made affecting the entire range of the bank’s activities, were one of my main sources. These minutes were never made public and members expressed themselves freely. They are, moreover, quite complete, as they include discussions in their entirety, the numbers presented and the documents that were approved. The PVCG have the advantage of being regular and continuous, and are a good starting point for retracing the Banque de France’s decisions. They make it possible in particular to follow the Banque’s short-term policies. Sometimes, as Chapter 5 will show about the financing of public debt, quantitative information in the PVCG is more precise and consistent than in the published balance sheet of the Banque and in the studies of staff economists. But PVCG are very insufficient when it comes to understanding, on the one hand, the relationship between the central bank and other banks and, on the other, the origins of monetary and financial reforms during this period. The great reforms (for example, medium-term rediscounting, the money market, rediscount ceilings and reserve requirements) were conceived and prepared, often over several years, within different offices of the Banque de France. As with daily relationships with banks, I thus found most of the information needed for understanding these reforms in the archives of the various directorates of the organization. Generally speaking, the consultation of these various archives proved indispensable to understanding the functioning of the various instruments used by the bank in fighting inflation and influencing credit allocation. Such technical information is not found in the PVCG.
Not until 1970 did the Banque de France acquire an economic research office (the Service of Econometric Studies and Research, or Service d’études économétriques et de recherche [SEER]), which gradually made prediction forecasting a common practice and built important bridges with university research (in France and English-speaking countries). It really took off beginning in the mid-1970s. I was thus also able to use the archives of this office to analyze the end of the period. But for most of the Trente Glorieuses, economic forecasts on the part of the Banque’s staff are not available. Economists of the Banque focused on producing and analyzing statistical series (including many credit statistics). The creation of this research office poses an additional problem for the historian, as it is difficult to know to what extent its work represented the opinions of the Banque de France as a whole and if it really influenced political decisions. When considering some of SEER’s studies (notably on money supply targets), I do not assume that it reflects the opinion of the Banque de France’s management, except when its arguments are also used by other offices or at the General Council.
One of the primary and paradoxical challenges of recent history is the abundance of sources. To attempt a systematic and exhaustive reading of the ABF’s various offices, which notably includes its entire correspondence with banks as well as all of its transactions, is a vain and impossible task. I have concentrated on political choices, with the goal of understanding the purpose of short-term policies, reforms of the bank’s instruments of intervention and credit policy’s overall direction.
Sources that make it possible to understand the ins and outs of monetary policy are, of course, abundant, but the paucity of the information they offer can, at times, be striking. One should not expect to find in the Banque’s archives complete and perfectly articulated justifications of decisions taken, nor is it always possible to determine an idea’s or a reform’s origin. Even less frequently does one fall upon a satisfying and sufficiently neutral assessment of the consequences of adopted reforms and policies. I have, for that reason, sought to combine quantitative analysis, economic theory and quantitative methods in formulating interpretations. Quantitative analyses were facilitated by the quality of the statistics put together by the Central Risks Service (Service central des risques) on behalf of the National Credit Council (Conseil national du crédit). The Banque de France’s desire to control the overall volume of credit and money and credit allocation led it to gather data the precision and extent of which is absolutely remarkable.
This book is not a history of the Banque de France. The focus is credit policy and the effect of the Banque’s decisions on the domestic economy. Many aspects and roles of the central banks are not studied, not even mentioned: banknote production, the role of the many branches of the Banque in regional economies, the relationships with the Banque d’Algérie, the management of real estate, the management of the staff as well as the pensions of the employees. All these topics were discussed widely during the weekly meetings of the General Council, at least as much as credit policy.Footnote 19 The management of gold reserves and the functioning of the Exchange stabilization fund are also outside the scope of this study, although I will speak about the relationships between credit policy and the balance of payments in Chapter 4.Footnote 20 This choice is justified by the fact that the goal of credit policy was also to isolate the French economy from external shocks and constraints and support the economic priorities defined by the government.
Terminology
Some of the vocabulary used by the Banque de France during the Trente Glorieuses is no longer used today and did not necessarily have equivalents in other countries. I have tried as much as possible to offer translations or equivalent words, while systematically referring to the French original term. Some terms that are still used today had, at the time, distinctive meanings that differ from their current meaning. Thus, it is useful to present, at the outset, the keywords of the Banque’s vocabulary during this period. The more technical and contextually specific words, as well as the Banque’s various offices and directorates, will be defined and presented in the chapters themselves.
The term “credit ceilings” (encadrement du crédit) refers to direct limitations of exposures, meaning that credit institutions could not increase their outstanding sums beyond a certain percentage for a given period of time. The term dates back to the mid-1960s, but it was then used to describe retroactively the measure introduced in France in 1958.
The term “credit control” (contrôle du credit) is a more general term that denotes the ability of the central bank to influence the stock and the allocation of credit in the economy, either in order to combat inflation or to channel funds to specific sectors. It is usually loosely defined, referring to all the instruments of the central banks and, during this period, is frequently used as synonymous to monetary policy, especially in the PVCG.
The term “credit selectivity” (sélectivité du credit) was narrower and referred to the ability of the central bank to intervene in the allocation of credit.
The concept of liquidity is, at times, used very generally to refer to money, credit and bank refinancing. Yet, in most cases, it does in fact refer to the capacity of an asset to be exchanged. Thus, the bank distinguishes between the controlling of credit, which directly affects the sums banks can lend, and liquidity controls, which seek to immediately freeze certain bank assets and thus to shape the composition of bank balance sheets.
The term “transformation,” the cornerstone of most discussions of the French banking system, refers to banks’ use of short-term deposits to grant long-term credits.
After 1945, the Banque de France made no distinction between the terms discounting (escompte) and rediscounting (réescompte) when referring to its repurchasing of (already discounted) commercial paper or Treasury bills held by banks before they reached maturity. Direct discounting (discounting commercial papers presented by companies rather than by banks), continued to be practiced by the Banque’s branches, even if it was minor after the war. The term “rediscountable” (réescomptable) was also known as mobilizable (mobilisable). After 1945, the Banque expanded its rediscounting capacities to various medium-term loans known as mobilizable medium-term credit (credit à moyen terme réescomptable). The discount rate was the rate applied to discounting eligible paper. Rediscounting was the main refinancing operation of the Banque de France and the discount rate its leading interest rate from its origin until 1971.
Commercial bills were a claim of one party against another (say, a customer and a merchant). They could be discounted by a bank to provide cash to the holder of the bill before the due date. Once discounted by a bank, the bill carried three signatures and could then be rediscounted by the central bank (or another financial institution).Footnote 21
The terms “money market” (marché monétaire) and “open market” were used indistinguishably even if the French money market was at this time different from the English open market. Banks and credit institutions could trade on this market, in which the Banque de France had, since 1938, been able to intervene by purchasing, selling or purchasing under a resale agreement government bills and certain kinds of private bills. The Banque de France calls the bills that it uses on the markets negotiable bills (effets négociables).
Finally, the Banque de France, like the rest of the French civil service, frequently uses the terms “directed,” “organized” or “planned economy” (économie dirigée, économie concertée or économie planifée) to refer to the French economic system of this period, which was characterized by robust state intervention in the economy.
Outline and Main Arguments
The book is divided into two parts. The first part contains three chapters ordered in a chronological order. Chapter 1 studies the intellectual and institutional origins of French postwar credit policy. It focuses mainly on the 1930s and the war. Chapter 2 explains the institutionalization of credit policy after the war until the end of the Fourth Republic in 1958 while Chapter 3 investigates the evolution of credit policy in the 1960s and 1970s. Although most of the analysis of Banque de France policies ends in 1973, I provide some insights on how the criticisms of credit policies developed further in the second half of the 1970s. The implementation of money targets in 1976, following their unofficial use starting 1973, is also studied in this chapter. The main purpose of these reflections, which go beyond the 1973 chronological boundary, is to explain what can be drawn from previous analyses in order to understand the Great Inflation of the 1970s and the “neoliberal” turn that followed. These three chapters are organized around the institutionalist analysis mentioned above which is presented in more detail in the introduction of Part I and highlights three components of credit institutionalization which made it “stable” and “unique” (Polanyi): the legal aspect, the ideological aspect and the self-control of the institution (i.e., controlling credit to avoid inflation). Each chapter therefore includes a section devoted to the evolution of each component during the period studied. One of the main contributions of this historical analysis is to show, from an institutionalist point of view, first, that the fight against inflation in the 1950s and 1960s was seen as an essential dimension of government intervention in credit allocation, and second, that the institutional basis of credit policy in the 1970s was very different from that of the previous decade, which I call a process of deinstitutionalization.
The second part of the book is thematic. While the first part studies the historical evolution of the institution and focuses on the breakdowns and continuity of the French postwar credit policy, the second part focuses on a few specific subjects and highlights the unity of the economic issues associated with these subjects throughout the period 1948–1973. The four chapters of this second part allow for a deeper economic analysis – in particular from a quantitative and theoretical point of view – of historical subjects whose evolution has been discussed in Part I. They can be read independently, although many links are made between them and with Part I.
Chapter 4 examines in detail the instruments used by the Banque de France to combat inflation and proposes a quantitative estimate of the effects of monetary policy on the main macroeconomic variables. It also examines the interaction between credit and capital controls, and thus analyses the interactions between domestic and international objectives of the Banque de France. This chapter constitutes the book’s primary contribution from the point of view of economic analysis. It bring several methodological novelties and theoretical insights that change the common view on postwar monetary policy under Bretton Woods and could be extended to historical analyses of other central banks. It shows that the only way to estimate properly the effects of postwar Banque de France’s policy is to build a measure of the policy stance by quantifying the objectives of the Banque de France (a “narrative approach”) rather than by looking at interest rates. Quantitative results from this method run counter to the notion that monetary policy during the Trente Glorieuses was passive and suggests, on the contrary, that it was the primary factor driving the economic cycle. Using interest rates as a measure of the policy stance provides misleading results because they were mostly disconnected from quantitative credit controls used to combat inflation and restore balance of payments equilibrium. Understanding the disconnect between interest rates and credit controls is also key to understand the functioning and rationale of capital controls and to fully appreciate the autonomy of monetary and credit policies (i.e. the trilemma).
Chapter 5 describes how the Banque de France financed the Treasury. Its main quantitative contribution is to provide, for the first time, statistics on the financing of public debt by the central bank, which include the hidden part of this financing, not included in the official statistics. From the mid-1950s to 1973, this hidden part was roughly equal to official loans. This system was reformed in 1973 to make the financing of public debt more transparent, simple and accountable. This chapter goes beyond the discovery of new statistical data. Against the traditional narrative that describes the monetary financing of public debt as a simple free lunch for the state, I try to contextualize central bank loans to the Treasury in the politics and economics of the postwar public debt. As with credit policy in general, the main objective was to exit the market, but there were institutional mechanisms of self-control (although not always fully working). The rediscovery of the market in the 1970s therefore profoundly altered these self-control mechanisms. In the 1950s and 1960s, the increase in loans to government was thwarted by disinflationary policies. The system offered great flexibility to the government, but there were constraints on the monetary financing of public debt and, in this way, on the general expansion of public debt. The year 1973 marked a turning point: the real value of the Banque de France’s loans to the Treasury began to decline irremediably and, at the same time, the share of marketable public debt in French public debt began to rise. As a result, the disinflationary policies implemented by the central bank were no longer a brake on the expansion of public debt in subsequent years. As also argued about credit policy in Part I, a new political economy of public debt emerged as a consequence of the turn to the market in the 1970s.
Chapter 6 makes a link between credit policy and the exceptional rates of capital accumulation during the postwar era. The chapter pays attention to the means of Banque de France’s intervention in credit allocation but is not restricted to the central bank. The dirigiste financial system focused on the development of medium- and long-term loans (named “investment credit”) to firms. By contrast to short-term credit, “investment credit” was mainly granted by public credit institutions rather than commercial banks. The Banque de France and CNC monitored closely the allocation of these loans but often not in a direct way. Credit policy was not limited to directed credit. It is all the more misleading to describe such a financial system with ubiquitous state intervention as a bank-based system. Using a new database matching credit and corporate tax statistics in forty sectors from 1954 to 1974, I find evidence that the allocation of “investment credit” across sectors supported capital accumulation as well as capital reallocation. It was not the case for short-term credit. Hence commercial banks played almost no role in the postwar expansion of capital. The main result of this quantitative analysis is that, besides capital accumulation and financial deepening, the postwar Golden Age of growth is the story of reallocation of capital and credit. Growth of credit and capital was not concentrated in a few leading sectors. These results go against the belief that credit policy in the dirigiste system focused on specialization only at the expense of adaptability. However, this chapter is silent on the potential misallocations, especially those that may have spread in the 1970s, undermining the legitimacy of credit policy.
Chapter 7 has two main objectives. The first is to show that credit controls and policies were widespread in Europe after World War II, but that there were significant differences between countries in the way they were implemented. I provide some explanations of these differences in a “varieties of capitalism” approach, highlighting the importance of factors such as organization of the state (centralized versus federal), market ideologies, history and structure of the financial system. The second objective of this chapter is to take stock of both national differences and the general importance of credit policies in Western Europe to inform historiographical debates on the construction of the European monetary union. The decline of credit policies and the construction of the European monetary union appear as two parallel historical processes that converged in the late 1980s only. Hence, understanding the end of credit policies and the evolution of central banks toward market-based interventions is crucial to understand the form the European monetary integration finally took in the early 1990s. Based on an analysis of the discussions of the governors of European central banks in the 1970s and 1980s, I show that the end of credit policies was not a concerted process at European level. The end of credit policies has been a crucial historical development for shaping European monetary integration in a particular way, but it should not be concluded that European integration has been the driving force behind this major change in central banking. Like their birth, the end of credit policies was a deeply national process.
Finally, the general conclusion examines the main findings of the book from the perspective of understanding the economic and political changes that occurred in central banks, financial systems and the international monetary system during the 1970s and 1980s. It goes back to the main objective of this book, which was to study the Banque de France during the three decades following World War II, without applying a backward perspective shaped by the dominant model of central banking that subsequently developed. I submit that, in many ways, a better understanding of the 1950s and 1960s radically changes our perception of the reforms that took place in the following decades. In particular, I discuss how the emphasis on central bank independence in historical and economic literature has overshadowed the historical significance of credit policy, or how a vision of capital controls has been constructed forgetting how and why they were historically associated with credit controls. I will conclude with what can be drawn from this historical study for the current policies of central banks, in particular for those of emerging economies that are still attached to credit policy, and others which have rediscovered the importance of credit in the economy, with a benign neglect of their history.
