The 1950s are a curious decade in British monetary and financial history. It is remembered by economists and economic historians for several episodes: the “revival of monetary policy” in November 1951; the controversial “Robot” plan of 1952 which was only the first of several proposed attempts to restore convertibility of the pound (subject to exchange control since 1939); two contradictory budgets in 1955, which led to the replacement of R.A. Butler as chancellor of the exchequer by Harold Macmillan; the crisis of September 1957, when bank rate was raised to its highest level since 1921, and the subsequent resignation of another Conservative chancellor and his two junior ministers over the refusal of the prime minister (Macmillan) to countenance a tight fiscal policy; and the Radcliffe report on the working of the monetary system (1959), notorious for its statements of the unimportance of the money supply. All throw up puzzles of explanation for the policy decisions taken.

But there is a larger underlying puzzle, on which William Allen has focused in this interesting book. As he puts it in his Preface,

How did the U.K. monetary authorities cope what would now be regarded as unsustainable debt?

WWII left Britain with a total debt burden double its national income. Although the debt/gross domestic product (GDP) ratio had fallen from 237 percent in 1946 it was still 175 percent in 1951 and 112 percent in 1959, the latter decline only partly attributable to nominal GDP growth, for inflation was low (by later standards) in the 1950s and real growth modest (Table A2). The U.K. monetary authorities (Treasury and Bank of England) had to continuously make sure maturing debt was refinanced while simultaneously trying to keep down the interest cost of the debt. As in WWII they were forced to resort to direct controls on bank and other credit, which became increasingly hard to sustain. Given also the government's commitment to full employment, and the need to restrain inflation to reduce pressure on the balance of payments, monetary policy was “unavoidably extremely complicated” (p. 21).

Allen describes the authorities' manoeuvres in a series of chronological chapters, which provide an excellent narrative account of monetary policy and debt management over the decade. There have been several accounts of the various episodes, utilizing Treasury and Bank records, published since Christopher Dow's classic Management of the British Economy 1945–60, which was written before these records were available. Allen judiciously uses all of these (such as the books by Burnham, Holmans, the present reviewer, Peden, and Schenk, and the official histories of the Bank of England) but his illuminating account of debt management and monetary policy 1951–1959 is firmly based on his own research in the archives, especially those of the Bank of England. He follows this with three thematic chapters, elaborating on monetary policy techniques, financial repression, and management and communication of monetary policy, before providing his assessment of that policy. As with the narrative chapters they benefit greatly from his own experience in the Bank of England.

Financial repression has been defined as a means of reducing the debt/GDP ratio other than economic growth, fiscal adjustment, default or restructuring, or unexpected inflation. In Britain in the 1950s it included low short-term interest rates, comprehensive exchange controls, and controls on bank assets and liabilities; however, Allen points out, “The purpose of financial repression in the U.K. in the 1950s was not just to ease the problem of managing the public finances … it was also to restrain private spending” (pp. 181–83). Furthermore, the way financial repression was applied to the banks significantly increased the influence of the governor of the Bank of England, Cameron Cobbold, even though the chancellor of the exchequer supposedly had control over monetary policy under the Bank of England Act of 1946 (which nationalized the Bank). In assessing the result, Allen reviews the criticisms made then and later (monetary policy was not sufficiently powerful, or used with enough determination, to restrain private demand; interest rates were too low; the Bank should have maintained tighter control of the cash base) and shows convincingly that fiscal policy dominated monetary policy, inevitably given the debt problem, and that this was not properly recognized at the time. “In truth, the inflation of the 1950s had its origins in fiscal policy and the decision not to continue with the budget surpluses of the late 1940s [under the postwar Labour government], and in the economy's inability to grow any faster than it did.”