1 E EcaHun n
A New Governor
By NICHOLAS DAVENPORT
AST week the lively City column of the Daily Mail carried this extraordinary statement in ig black type: 'More than guessing money is oing on Sir Eric Roll as the man to replace ord Cromer at the Bank of England. Sir Eric ,,s come down fast from 10-1 to 6-4 against, bile the odds on Lord Cromer staying have one from 3-1 on to evens. Some £10,000 has ten bet.' And lost! On Monday the news broke f Lord Cromer's resignation and the appoint- ent of Mr L. K. O'Brien, a life-long Bank
official, who has been Deputy Governor since March 1964. Lord Cromer's time was up on
lune 30 and it is understandable that after seven ears of hard and distinguished public service would want to return to his family and bank- ing interests—and avoid the possible embarrass-
ment of not being reappointed.
A sporting nation like the British will bet on nything which looks like a race or a fight, but t is not without significance that a routine event le the appointment of the Governor of the Bank, which happens every five years, should ale attracted so much betting money. Everyone knew that there had been a fight between Lord romer and the Government. Rumour had it at when the attack on the £ first broke out awards the end of 1964 the Governor wanted o put up Bank rate before the Government was eady and then threatened to resign if it was not sprung from 5 per cent to 7 per cent (which it sa, on November 23). Apparently he wished to hape the economic policy of the nation and et the Government to deflate to the point of easy unemployment. In February last year he again annoyed the political triumvirate by de- manding cuts in government expenditure in a speech he made to Scottish bankers. Later he let eseryone know that he disapproved of the Cox ernment's policy of discouraging and restrict- ing investment overseas, both direct and port- folio. He even spoke in favour of investment oler,:eas at a banquet attended by the Prime Minister and some of his colleagues, but by this time the Government, having got the measure of the Governor, did not deign to make any reply. It says much for free democracy in Britain that a public servant like the head of the central bank can openly speak against some aspects of government policy without being called to account and told to shut up or get out. Per- haps Lord Cromer felt that another storm was bound to arise sooner or later and that he had better get out before he was told to shut up. The reason why Lord Cromer and the Gov- nrnent came into conflict more or less in public is because the Act nationalising the Bank of ngland did not clearly define the Governor's ition. but left him almost, as it were, the head I a public board, like the Chairman of the bard of Governors of the BBC, with inde- pendence of speech. The Radcliffe Committee eported that the Bank had laid 'mistaken tress upon those provisions of the Act con- 'erning 'the affairs of the Bank' in which it was Ilowed to act independently. The Bank witnesses, of which Mr O'Brien was one, had actually told he Committee that, in the Governor's opinion, the affairs of the Bank were the fixing of Bank ate, the management of the money market and
the management of the Issue Department's port- folio.' This would have meant that the Governor could decide the level of employment in Great Britain, for, if he were to fix a punitive rate of interest and cut the money supply of the banks, he could bring on an appalling slump. It seems incredible that officials could have been so naive as to suppose that any government, Tory or Labour, would be content to leave such power in the hands of a Threadneedle Street banker.
If Mr Wilson's first Government had felt strong enough to change -the Governor and intro- duce a new and better Bank of England Act it would no doubt have done so, but we may assume that the Prime Minister lost no time in telling Lord Cromer where economic as well as political power. lay. It was left to the Chancellor to assert the authority of the Treasury over the so-called 'affairs of the Bank,' such as the fund- ing policy, the management of the debt, and the fixing of the price of new or conversion issues. I am sure that Mr Callaghan, with his tough- ness and tact, was capable of bringing this about. The warm tone of his letter accepting Lord Cromer's resignation suggests that harmonious relations had already been established. If the Treasury position of all-power is now recognised, a revision of the old Act may no longer be necessary.
For those of us who lived through the 'thirties under the governorship of Montagu Norman it is wonderful to think that a Governor of the Bank will no longer be allowed in future to dictate government opinion on the state of demand and supply in the economy. It was not so long ago that even the stupidest chairman of a joint stock bank used to lecture the Gov- ernment once a year on how to manage our economic affairs! They have now learned their
political lesson and so, I imagine, has Lord Cromer's successor. The governorship of the nationalised state bank is really no longer a post suitable for City merchant bankers, who are invariably rich and dictatorial persons of the ruling clique, ignorant of economics and sociology and withal given to expressing their fixed diehard opinions on the state of the domes- tic economy and creeping wage-cost inflations in general. It is really a job for an academic civil- servant type of financial expert who has no nostalgic feelings for the £ and the sterling area, no obsequious regard for the powerful vested interests in the City, but knows exactly how the money system works or can be made to work to carry out the economic policies of the political power. Whether Sir Eric Roll or Sir William Armstrong or any other Treasury knight would have been a better choice than Mr O'Brien, I would not know, but I am content to rely on Mr Callaghan's judgment. It is intriguing to find that Mr O'Brien was a grammar-school boy who started life as a humble clerk. He will no doubt be welcomed by the editor of the SPECTATOR as the man who delivered the letter to the Ameri- can Treasury in 1949 devaluing sterling.
So we take leave of Mr Callaghan making up his own mind on the budget happily free now from the fretting of bankers. As Mr Becker- man said in this journal last week, the budget is largely irrelevant to the issue at stake, which is British competitiveness, but Mr Callaghan must bear in mind that we are suffering from a cost-push for wage-cost) inflation, not from a demand-pull inflation. If he increases taxation slightly to please Lord Cromer's banking friends abroad he will be forgiven, but he will not be forgiven for adding greatly to direct and in- direct taxation. which can only have inflationary effects upon the wage-price spiral. Perhaps his best course is to tighten up the domestic hire- purchase regulations still further so as to release resources for more exports (if we can get them), and introduce a better system for helping ex- porters than the unpopular cash grants for select investment. And why not increase the betting tax on those feckless people who are mad enough to wager big money on the appointment of a Governor of the Bank?
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