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The Evolution of British Monetarism:
1968-1979
Aled Davies
Mansfield College, University of Oxford
Abstract
How=
far
were monetary targets imposed on the post-1974 Labour Government by
international and domestic financial markets enthused with the doctrines of
‘monetarism’? The following paper attempts to answer this quest=
ion
by demonstrating the complex and contingent nature of the ascent of British
‘monetarism’ after 1968. It describes the post-devaluation valo=
risation
of the ‘money supply’ which led investors to realign their
expectations with the behaviour of the monetary aggregates. The collapse of=
the
global fixed-exchange rate regime, coupled with vast domestic inflationary
pressures after 1973, determined that investors came to employ the ‘m=
oney
supply’ as a convenient new measure with which to assess the
‘soundness’ of British economic management. The critical junctu=
re
of the 1976 Sterling crisis forced the Labour Government into a reluctant
adoption of monetary targets as part of a desperate attempt to regain market
confidence. The result was to impose significant constraints on the
Government’s economic policymaking freedom, as attempts were made to
retain favourable money supply figures exposed to the short-term volatility=
of
increasingly-globalised and highly-capitalized financial markets.