The league of gentlemen

Scenes

Introduction

The introduction explains that for the last thirty years, politicians in Britain have used economic theories in an attempt to build a new prosperity. One after another, Labour and Conservative governments became convinced that if they followed what they believed were a set of scientific laws, the economy would grow faster. But instead of restoring the country’s fortunes, the economic experiments failed to halt Britain’s relative decline.

Neddy and Keynes

In an attempt to address Britain’s relative economic decline in the early 1960’s the Conservative governement set up the National Economic Development Council/ Office (known as Neddy). This corporatist economic planning forum would advise the government on economic policies. Their aim was to stabilize the economy by increasing government expenditures during recession and limit inflation during economic growth – otherwise known as Keynesian economics.

Labour response to economic boom

By 1963, the economic policies of the Conservatives had lead to an economic boom. By Keynesian reasoning the logical policy should be reducing government expenditures in order to limit inflation. However, as this clip illustrates, when Labour came to power in 1964 under Harold Wilson political convictions prompted them to continue stimulating economic growth.

Boom out of control

The reluctance of the 1964-1970 Labour government to devalue the pound in the mid-1960s – and thus stimulate British export – had resulted in an increase in inflation. By 1965 the economic boom was out of control and Labour tried to – to no avail – hold down wages and prices in order to limit inflation. The comments by Brian Reading of the Department of Economic Affairs (1964-1966) clearly illustrate how the intervention of political interests in economic theory thwarted the stabilization of the UK economy.

Dash for growth

By the early 1970s, the Conservative government under Edward Heath (1970-1974) sought to stimulate the flow of money by privatizing credit and increasing public spending. The result was something previous believed to be impossible, stagflation; inflation combined with economic stagnation. According to a growing group of economists adhering to monetarism – mainly associated with the work of Milton Friedman -, the solution lay in slowing down monetary growth.

Monetarism in the background

After the fall of the Conservative government under Edward Heath in 1975, monetarism began to look like a viable alternative to the Keynesian economics of the past. As this clip illustrates, monetarists such as Professor Alan Walters and Lord Keith Joseph (ab)used the economic situation by presenting doom scenarios of the economy in order to attack the Labour government in power. Lord Joseph in particular sought to translate monetarism into a political program.

Monetarism takes centre stage

Following the severe shock of the 1973 oil crisis and the 1973–1974 stock market crash, the British economy went into recession in 1974, with GDP falling by 1.1%. In 1976 the Labour government was granted a loan by the IMF on condition that the UK would adopt monetarist economic policies. In this clip former Labour MP Tony Benn explains that economic theories – Keynesian and/ or monetarist – are inherently infused with political interests.

Medium term financial strategy

This clip illustrates how, by 1978, monetarism had moved from the margins of economic theory to centre stage. Keith Joseph was the closest adviser to the leader of the new Conservative Party, Margaret Thatcher. He and other economist had drawn up and economic plan that sought to combat inflation by raising interest rates and cutting public spending.

Monetarism worsens recession

The economic policies of the Conservatives in the early 1980s did not halt Britain’s relative decline. The cuts in government expenditures had in fact worsened the recession. In this clip chief economic advisor Professor Charles Goodhart expresses his puzzlement about the failure of monetarist economics, while Keith Joseph continues to defend his policies. According to Thatcher’s policy advisor (1979-82) John Hoskyns, Joseph’s reluctance to amid failure stems from the fact that politicians “never admin to making mistakes.”

The end of monetarism

By the end of 1980, unemployment in the UK was still on the rise and the economy was declining faster than in the darkest days of the 1930. Therefore, by 1981 Alan Walters – previously an convinced monetarist – advised Prime Minister Thatcher to lower interest rates and thus move away from monetarist economic policies. However, as this clip illustrates, the entanglement of economy theory with politics could not halt the decline of an economy which seemed to be beyond control.

Goodhart’s law

The failure of Keynesian and monetarist economics to restore Britain’s economy had left many disillusioned about the ability to change – in a predicable way – how an economy would behave. It led chief economic advisor to the Bank of England Charles Goodhart to formulate Goodhart’s Law. As this clip illustrates, the implication of the law – encouraging a laissez-faire economy – fitted well with Conservative philosophy and 1980s egocentric culture.

Concluding remarks

In the concluding part of the documentary, adviser to the Treasury (1970-1974) Professor Alan Budd questions whether in the 1970s and 80s economic theories were used to disguise political policies rather than limit inflation. Economic advisor to the Bank of England Professor Charles Goodhart in turn reflects on the validity of economic theories that fail to predict or stabilize the economy.