The Bank's main policy goal in the 1960s was to maintain the exchange-rate parity. Apart from this, a prime function was to ensure the smooth financing of the exchequer, and of lesser importance was the control of bank advances. To these ends, the Bank pursued order (nowhere defined) in the money and gilts markets. As Radcliffe saw it, debt management and funding were central in monetary policy. The containment of inflation was seldom explicit, but concern was frequently expressed over the expansion of credit or the growth of bank advances. However, it should be stressed that monetary policy at the time was neither remotely like that of previous periods nor of later ones, nor did it bear much resemblance to what was found in textbooks. The monetary authorities, especially the Treasury, had for some time been uncertain as to the effectiveness of conventional monetary policy for controlling the domestic economy. The views found in the Radcliffe Report were not far from those of the Treasury, and it was these kinds of ideas that gave rise to the enquiry in the first instance. That is, it was the reading of the experience of the years 1955–57 in particular that suggested that monetary policy did not deliver or certainly not quickly. Thus monetary policy became instead a collection of devices intended to work on both the domestic and external variables: ‘It was neither aimed at controlling the stock of money nor was it much relied upon to combat inflation.

The Bank in the 1950s had a recognisably similar structure to that at its foundation 250 years before. Perhaps the more striking feature, however, was that it was still in essence Montagu Norman's Bank, and that included the structural reforms of the 1930s. Most of the senior figures in the 1950s, and often into the 1960s and sometimes beyond (e.g., Cameron Cobbold, Humphrey Mynors, Leslie O'Brien, Jasper Hollom, Roy Bridge, Maurice Parsons, and Hilton Clarke) had joined the Bank in the 1920s and 1930s, and the very powerful personality of Norman left its mark. Hollom, for example, who joined the Bank in 1936 and was Deputy Governor through the 1970s, recalled going to listen to Norman speak to a group in the Bank soon after he joined. He was entranced as Norman spoke, using the recent difficulties of a firm called Huntley and Palmer to illustrate what he said. Hollom said that he felt that Norman was speaking only to him and that he had never understood anything so clearly before, ‘that I was learning the innermost secrets of high finance and that this was him and him alone and he absolutely captivated one’. It was not only the people on whom he left a mark but the building itself, which still bears the marks of Norman's reconstruction. Although the world had changed greatly and the problems facing the Bank had too, the approach to these problems can still be seen to be those of a previous era.

In the latter part of the twentieth century, a view developed that while the market economy was superior to alternative models and that competition generally was desirable for promoting optimal outcomes, it did not hold in banking, where ‘the social costs of failure outweigh any advantages that untrammelled competition might bring’, to cite just one authority. Some regulation therefore is required. The argument for regulation in banking derives in part from the problem of asymmetric information; markets then do not work as well as they might and could benefit from intervention. But there is also an important externality. When an ‘ordinary’ firm fails, its shareholders lose. When a banking firm fails, however, depositors also lose. If one such failure alarms depositors elsewhere and more generally, then there is a risk of a flight to cash or greater liquidity or quality. And this means that there is a potential threat to the payments system. One means of allaying the fears of depositors is the provision of insurance. However, even if this does not exist, or is seen as inadequate, or is not otherwise trusted, the authorities had a powerful tool at their disposal. The issuer of cash, usually the central bank, can reassure the banks by making it clear in advance that liquidity will always be available, albeit on terms – the role of the lender of last resort.

When the Governor Cameron Fromanteel Cobbold was being chauffeur driven in his Rolls Royce from his country seat, Knebworth House, to give evidence to the Radcliffe Committee, the car broke down. Cobbold and his chauffeur had to walk to the nearest railway station. Neither of them was carrying any cash. Cobbold approached the ticket clerk and said, ‘Now look, I am the Governor of the Bank of England but I don't have any money.’ There would be those in the following years who would have wished that he and his successors had taken a similar line with the long list of Chancellors who knocked on their door. The Radcliffe Committee began taking evidence in 1957 and completed its report in 1959. It was the most important document on money and banking in the period. Its origins lay in dissatisfaction with how monetary policy was believed to be working in the 1950s. The findings and recommendations provoked immense debate and subsequent controversy. It set the scene for the next decade. For the Bank though, the enquiry had relatively little impact on the way in which it conducted its operations. It prompted a little more openness, more research, and the provision of statistics, even if it could be argued that the Bank was already moving in that direction.

Antecedents: Old and New Orthodoxy

Before the First World War, a considerable body of central banking theory and practice developed.

Although the Bank had long had responsibility for the exchange rate, in a sense since the eighteenth century, and from the 1930s it had managed the Exchange Equalisation Account (EEA) on behalf of the Treasury and was steeped in its roles as adviser, as an operator in the foreign-exchange markets, in the 1970s its task was to become less clear and more difficult. The breakdown of the Bretton Woods arrangements, the accompanying upheaval in currencies, sterling's problems as a reserve currency, and the ‘overhang’ of sterling balances from which the exchange rate could not easily be separated all contributed. As far as the exchange rate went, the Bank was subordinate to the Treasury, although in terms of what could be achieved and how, it still had some freedom and was central to decision making. It took a long time before anything resembling an exchange-rate policy emerged. For the first years of the decade, it was a case of reacting to events, hastily arranged consultations with the Treasury without a view as to what rate was desired or what reserves were wanted or ‘needed’. Efforts were concentrated on holding operations while a new system was designed. However, attempts at reform were abandoned in the wake of the oil-price hike of 1973–74. In rudderless Britain, things came to a head in the crisis of 1976. The wildly expansionist policies had failed.

In the 1950s and 1960s, the Bank performed a number of functions that would no longer be considered central bank business and might even baffle a student of modern central banking. For example, a legacy of the interwar years, it continued to participate in organising and, on occasion, supplying industrial finance. It also took a keen interest in anything that affected the City; it oversaw all merger activity. It became heavily engaged in anything it felt was for the greater good of central banking and spent time and money on promoting central banking abroad. In addition, it had direct responsibility for a range of things such as note issue, and it frequently would be called on to give advice, often extensive in its coverage, on subjects such as decimalisation. This chapter describes its activities in some of these fields and concludes with an assessment of the Bank's financial position at the end of the 1960s. The results of other assessments, one by management consultants that the Bank appointed and the other by a select committee to which they agreed to submit, are also noted.

Industrial Finance

The Bank had been closely involved in the financing of industry from the 1920s. Montagu Norman had engaged in it as one way of deflecting interference from the state, and then, following the Macmillan Report, the Bank established an Industrial Finance Division that continued until late in the twentieth century.