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The City of London and Social DemocracyThe Political Economy of Finance in Britain, 1959 - 1979$
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Aled Davies

Print publication date: 2017

Print ISBN-13: 9780198804116

Published to Oxford Scholarship Online: July 2017

DOI: 10.1093/oso/9780198804116.001.0001

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The City of London and the Evolution of British Monetarism

The City of London and the Evolution of British Monetarism

(p.181) 5 The City of London and the Evolution of British Monetarism
The City of London and Social Democracy

Aled Davies

Oxford University Press

This chapter considers whether the City of London was capable of dictating British macroeconomic policy in the twentieth century. Historians have explored this with regards to the 1960s sterling crises, but have not considered the City’s role in the 1970s transition from ‘Keynesian’ demand management to ‘monetarism’. The chapter argues that investors in the markets for government debt and currency were central to the emergence of British monetarism. The collapse of the global fixed exchange rate regime, coupled with domestic inflationary pressures after 1973, meant investors employed the ‘money supply’ to assess the soundness of British economic management. The 1976 sterling crisis forced the Labour government to adopt monetary targets in an attempt to regain market confidence. This imposed significant constraints on the government’s economic policymaking freedom, as attempts to retain favourable money supply figures were exposed to the volatility of increasingly globalized and highly capitalized financial markets.

Keywords:   monetarism, Keynesianism, macroeconomic policy, monetary targets, financial markets, Bretton Woods, monetary policy, inflation, Thatcherism, Labour

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