Far From Consensual The Politics of British Economic Policy 1950-55. by Scott James Kelly Ph.D. Thesis London School of Economics and Political Science University of London 2000 UMI Number: U615585 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U615585 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 f S F 1771 POLITICAL AND l^Ur&Ob Abstract This thesis examines the conduct of economic policy from the moment Hugh Gaitskell joined the Treasury in 1950 as Stafford Cripps’ deputy to Rab Butler’s departure in December 1955. It shows that, contrary to the prevailing view of this period, there was no consensus about the ways in which the economy should be managed. There was a sustained argument over the use of physical controls, monetary policy and direct taxation. This thesis examines Gaitskell’s economic thought and the underlying economic and political rationales for the positions taken by the Labour and Conservative Parties. In examining the structure of economic policy-making, this thesis demonstrates that ministerial determination of policy is far more important than previous authors have assumed and that this is why a developing consensus among civil servants about the conduct of economic policy is not reflected in outputs. ‘Set the People Free’ was more than a political soundbite. This thesis is based on extensive research in the Public Record Office, but it also makes use of private and Parliamentary papers as well as elite interviews to illuminate the various inputs into policy-making and the way policy developed over the period. 2 Acknowledgements I am particularly grateful to my Ph.D. supervisor, John Barnes for all of his advice and support during the writing of this study. I am also grateful to Alan Beattie, Steve John, Sir Donald MacDougall, and the late Lord Jay for their valuable comments on some or all of the draft chapters. In addition, I would like to thank all those individuals who consented to be interviewed and provided many valuable insights into the economic policy-making process in the 1950s and the personalities at the heart of it. I have also benefited from the assistance of numerous archivists and archive assistants at the following institutions: The Bodleian Library, Oxford; The British Library of Political and Economic Science, London; Churchill College, Cambridge; Nuffield College, Oxford; The Public Record Office, Kew; Trinity College, Cambridge and University College, London. Finally, I would like to thank my parents for all of their support and encouragement. 3 Glossary A.P.U. Atlantic Payments Union (proposal). C.E.P.S. Central Economic Planning Staff. E.C.A. Economic Cooperation Administration. E.E.C. European Economic Community. E.C.O.S.O.C. Economic and Social Council of the United Nations E.E.A. Exchange Equalisation Account. E.I.U. Economic Information Unit. E.P.L. Excess Profits Levy. E.P.U. European Payments Union. F.B.I. Federation of British Industries. G.A.T.T. General Agreement on Tariffs and Trade. H.O.P.S. Home and Overseas Finance Division. I.M.F. International Monetary Fund. I.T.O. International Trade Organisation. M.E.W Ministry of Economic Warfare. N.A.T.O. North Atlantic Treaty Organisation. N.U.M. National Union of Mineworkers. N.U.R. National Union of Railwaymen. 0 .E.E.C. Organisation for European Economic Co-operation O.F. Overseas Finance Division. O.N.C. Overseas Negotiations Committee. P.P.S. Principal Private Secretary. T.D.R. Treasury Deposit Receipt. T.U.C. Trade Union Congress. 4 Contents Abstract 2 Acknowledgements 3 Glossary 4 Chapter 1: Introduction 7 Chapter 2: The Changing Structure of Economic Policy-Making 29 Chapter 3: The Treasury view 69 Chapter 4: The Wider Economic Policy Network 85 Chapter 5: The Chancellors 106 Chapter 6: The Politics of Economic Controls 130 Chapter 7: The Politics of External Economic Policy 187 Chapter 8: ‘One-World’ or ‘Two-World’? Discord and International Trade Agreements 236 Chapter 9: The Expanding Role of Budgetary Policy 280 Chapter 10: A Difference of Faith in Monetary Policy 324 Chapter 11: Conclusion 356 Bibliography 365 5 List of Diagrams The Treasury 1951 37 The Treasury 1955 38 The Network of Economic Planning 1948 40 6 Chapter 1 Introduction The Birth of Mr Butskell November 13 1954 witnessed the birth of a new political figure. His arrival was heralded by Norman Macrae in The Economist. In an article entitled ‘Mr Butskell’s Dilemma.’ Macrae wrote that ‘Mr Butskell is already a well-known figure in dinner table conversations in both Westminister and Whitehall, and the time has come to introduce him to a wider audience. He is a composite of the present Chancellor and the previous one... Whenever there is a tendency to excess Conservatism within the Conservative party - such as a clamour for too much imperial preference, for a wild dash to convertibility, or even for a little more unemployment to teach the workers a lesson - Mr Butskell speaks up for the cause of moderation from the Government side of the House; when there is a clamour for even graver irresponsibilities from the Labour benches, Mr Butskell has hitherto spoken up from the other.’1 Mr Butskell was an amalgam of the names of Hugh Gaitskell, the Labour Chancellor of the Exchequer from October 1950 to October 1951 and his Conservative successor R.A.(commonly called Rab) Butler who was Chancellor until December 1955. The point of Macrae’s article was to demonstrate the tactics the Labour front bench should use to oppose Churchill’s Conservative Government.2 Although Macrae under-estimated the differences between Gaitskell and Butler, particularly on convertibility policy where Butler had, in fact, favoured a ‘wild dash to convertibility’, it was not his intention to suggest that there were no policy differences. Macrae was conscious of the fact that ‘they were not the same man’ and wrote at length about some of the crucial differences in Sunshades in October published in 1963.3 Mr Butskell might have become one of the forgotten men of British politics had he not been resurrected by historians and political scientists who used the character to personify a consensus over economic policy they argue persisted until the 1970s. This thesis will show that rather than personifying consensus, Gaitskell and Butler held beliefs and followed polices that amounted to a fundamentally different 7 approach to economic management. The disagreement centred on the use of economic controls on the economy. Gaitskell argued that physical controls such as building licencing and import controls were central to economic planning; to the maintenance of full employment; and to the fulfilment of the policy of providing ‘fair shares’ of what he classified as ‘essential’ goods. Gaitskell’s belief in a controlled economy lead him to reject the idea that the establishment of convertibility of the pound and of a ‘one-world’ trading system should be the goals of British policy. He believed that such objectives would be incompatible with a continuation of a socialist economic policy at home. Although Butler did not share Gaitskell’s training as an economist, he also had a set of beliefs that supported a clear economic strategy. He believed that controls constrained economic activity and created artificial shortages which justified the imposition of even greater restrictions. He believed that if the realities of the world economy were not brought to bear on the British economy then economic policy would amount to little more than constant crisis management. He therefore favoured a policy of decontrol, the immediate restoration of convertibility at a floating rate and movement towards a ‘one-world’ economy. Butler believed that economic management should centre on indirect methods, in particular fiscal and interest rate policy. The divergence between the policies pursued by Gaitskell and Butler reflected differences between political as well as economic doctrines. In particular, it reflected a fundamentally different approach to the relationship between the individual and the state and to what constitutes individual freedom. This was not an esoteric debate confined to academic literature but an important part of political discourse at the time. Given the fundamental differences that this thesis will argue existed in economic policy between 1950 and 1955 it is necessary to investigate how it is that the idea of consensus has come to dominate the historiography of the period and how the overwhelming evidence that no consensus existed has come to be ignored. The Consensualists The origins of the postwar consensus school of history lie in the second volume of Alan Bullock’s biography of Ernest Bevin and Arthur Marwick’s book Britain in the Century of Total War, both of which were published in the late 1960s.4 Bullock and Marwick argue that what they saw as a continuing political consensus had its roots in the work of the wartime coalition government. The greatest landmark in the development of the postwar consensus thesis was the publication of Paul Addison’s book The Road to 1945 in 1975; this greatly expanded upon Bullock’s and Marwick’s arguments.5 The central argument of Anthony Seldon’s book on the postwar Churchill administration, published in 1981, is that the Conservatives programme represented continuity in policy.