THE OLD LADY SNUBBED

By NICHOLAS DAVENPORT IT would be ungrateful of me to devote the first of two articles on the Radcliffe Report to carping criticism of its monetary state- ments. I prefer to begin with a psalm of praise and thankful- ness. It is good to get 360 pages of calm, balanced comment on the monetary system; it is on the whole a fine essay in eco- nomic empiricism.. A critical but unbiased report on monetary policy was long overdue and we must all be grate- ful to Lord Boothby for having pressed for it for years in the House of Commons—not to mention those of us who served on his pressing committee—and to Mr. Macmillan for having listened to him—and us—and above all for having appointed a clear-minded lawyer as chairman. It is obvious that Lord Radcliffe was determined to avoid on the one hand the tech- nical jargon of the economists and on the other the ritualistic mumbo-jumbo of the City fathers. The repbrt was truly a lawyer's judgment. Incidentally it took two years to deliver—a mass of evidence was taken which will be published in the autumn—and it cost £18,000. It was worth every penny of it—its educational value alone is inestimable—and it Should be made compulsory reading for Members of Parliament and especially for candidates in the coming election who were planning to talk their quota of economic nonsense.

The outstanding feature of the report is, I think, that it puts monetary measures and their

managers in their proper places. Chapter 9, on the organisation and status of the Bank of England, is of first importance. The Act of 1946 made the Bank subservient to the Government but allowed it to have a life of its own with a Governor capable of generating and tendering advice to the Chancellor. The wording of the Act was none too clear and the Committee bluntly suggest that the Bank has been putting the wrong construction on it. After declaring that the Treasury could give such directions to the Bank as it thinks necessary in the public interest, the Act left 'the affairs of the Bank' to be managed by the Court. The Bank witnesses told the Committee-that they regarded the 'affairs of the Bank,' for which they had 'first' and 'direct' responsibility, as being the fixing of Bank rate and the management of the money market, etc., while the management of the Exchange Equal- isation Account and exchange control were purely 'agency' functions. The Committee dis- agreed with that view and with the opinion of other witnesses that the central bank should be assured complete independence from political influence. Monetary policy, in the Committee's conception, is not to be looked upon as a form of economic strategy 'which pursues its own independent objectives' (like 'hard' money). It is part of the country's economic policy as a whole and this policy may demand supplemen- tary, non-monetary measures such as control of hire-purchase, of capital issues and of in- vestment. The Bank, say the Committee, is therefore merely an executant in the monetary field of the current economic policy of the Government—I made the same point in a recent article on the Bank's annual report—and the problem of finding the right relationship between Treasury and Bank is merely one of organising the best way to exchange views and advices.

The Committee's proposals for improving this organisation will no doubt shock the City. They recommend the setting up of an advisory Standing Committee to keep under review 'all matters relating to the co-ordination of monetary policy as a whole,' its membership being the Chancellor as chairman, the Economic Secre- tary as deputy chairman, the Governor, Deputy Governor and two others from the Bank, four from the Treasury and two from the Board of Trade. This implies, as they admit,. some dim- inution of the influence of the Governor and the Bank, but they do not think that the weight of policy-making should fall, as it does today, on the Governor himself. They soften the blow to the Governor's prestige with these honeyed words: 'It is no more than a reflection of the changed aspect of monetary policy . . . that decisions about the courses which the Bank is to pursue can no longer be disposed of either according to a single set of working principles or by a single self-contained governing body.' Shade of Montagu Norman! What a snub to the Old Lady of Threadneedle Street! The Committee even recommend (which I do not agree with) that changes in Bank rate should be announced by the Chancellor of the Exchequer and not by the Court of the Bank! It was almost an anti-climax for the Committee to bless the institution of part-time directors of the Bank. Having robbed the Court of its Bank rate powers and prescience, the part-time directors drop naturally into their unimportant place.

The Old Lady comes in for a lot more criticism in respect of her old-fashioned ways. The meagreness of her annual report, they say, 'has bt fe

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become a byword.' The weekly Bank return 'no longer performs its intended function of proving to the public that the Bank of England is be, having itself according to accepted prin. ciple. Nevertheless—and in spite of a contrail recommendation by the Macmillan Commine in 1931—the Bank clings to the ancient forni: The Committee therefore recommend a revival of the 1844 idea that the Bank should pubIiit certain key figures exposing its operation in th` monetary system. They would like to see regii!,11 and frequent publication, coinciding with th clearing banks' statements, of bankers' deposi non-residents' deposits, holdings of Treasur bills and government bonds, etc. Incidental! as regards bonds, they object to the Bank's customary announcements of full subscripti(10 to issues which are in fact often taken up if large part by the Issue Department. They suggc51' as I did recently, that the authorities should announce the amount of an issue actually solo outside the 'Departments' after the closing O. the lists. To one Who has written for twenty-tilt years against the absurd secrecies and obscurant' ism of the Bank of England these recommenja' tions come as a breath of the freshest air.

The lack of statistical information which h hitherto made it impossible for the Bank or 111 Treasury to judge the likely effects of Ill` monetary measures they were applying receive much emphasis in the Committee's report. Till recommendation is made that the Bank shou, have a strong Economic Intelligence Departmeill and that the head of it should have the rank 0,' executive director. I think there is some dans. in the latter proposal. A Governor who resentc'i, the directions of the Chancellor might be temrt . to employ a 'tame' economist who would ()pro' the chief economic adviser at the Treasury. all means let the Bank have a strong fact-findi statistical department, but do not duplie, economic advice. Professional economists ra agree among themselves and we do not wo clandestine economic warfare between Bank a Treasury.

(To be concluded)