Inside Thatcher's Monetarism Experiment: The Promise, the Failure, the Legacy.TimLankester, (Policy Press, 2024. Pp. 240. ISBN: 9781447371359. HbK £19.99)

Tim Lankester was private secretary for economic affairs to Margaret Thatcher for the first 2.5 years of her premiership. This gave him an insider's view of the policy-making process as the new Conservative government launched its monetarist experiment. From this distinctive location, the author provides a lively account of one of the most important episodes of attempted policy change in the post-war period. For those familiar with the extensive literature on these years, there are no great surprises here. Lankester emphasizes how strongly Thatcher was committed to a simple monetarist story, in which controlling the money supply, in the form of Sterling M3, would lead directly and unproblematically to a fall in inflation. On this proposition no argument was to be entertained: ‘The monetarist strategy was the one policy matter on which Mrs Thatcher, in her early years at least, did not welcome debate’ (p. 13). There was what we might now think of as Truss-like unwillingness to listen to dissenting voices, not least from the Treasury and Bank of England. The job of these institutions was to make the strategy work, not to question it. This dogmatism very quickly ran-up against the evidence that ‘controlling the money supply’ is by no means a straightforward policy, especially if only one measure of that supply is focused upon. It soon became apparent that the path of Sterling M3 grossly understated the degree of monetary tightening that was occurring, most evident in the extraordinary rise in the real exchange rate of around 40 per cent in 18 months. This led to the biggest squeeze on corporate finances in the modern period, focused of course in the tradeables sector. Output and employment fell much more than even the most pessimistic forecasts about how the economy would respond to monetary tightening. How did this happen? One element is the striking lack of preparation amongst the Conservative opposition before 1979 on monetary policy. While enormous attention had been given to tax policy, the incoming Treasury team, as well as Mrs Thatcher, were, in Lankester's words, ‘alarmingly ill-prepared’ (pp. 79–80) on every aspect of how ‘controlling the money supply’ could be operationalized. Hence the decision to carry on with inherited Sterling M3 targets, but give them a centrality in the government's policy framework, the Medium Term Financial Strategy, which was a recipe for failure. Of course, such a decision was only possible given the political context. Thatcher had just won a striking election victory as a radical reformer, so she was well positioned to characterize opponents as defenders of an old, discredited order. She successfully established a narrative about the ‘decline’ of Britain, of which high inflation was the most worrying symptom. The fact that inflation had fallen sharply since its mid-1970s peak was glossed over in this account, as was the fact that much of the talk of long-run overall ‘decline’ was seriously exaggerated. But the Winter of Discontent gave Thatcher an opportunity to seize the moment and cement this narrative into popular (and historical) understanding. Despite his critical view of the early Thatcher years, and his self-characterization as an ‘unbelieving monetarist’, Lankester is forgiving of much that happened in economic policy in the 1980s. In places he seems to say: ‘Mrs Thatcher was basically right, but was too hurried and abrasive in her approach.’ Her long-run legacy appears to him a largely favourable one. Thus, he completely concedes the Thatcherite story about the need to tame the trade unions, even if he believes this could have been done without being so dismissive of Len Murray, the General Secretary of the TUC. Yet if we look back at the various indices of economic performance over the long run, and put the Thatcher period in that context, one thing seems clear. Comparing the 1980s with that long run, rather than the generally poor, but atypical performance of the 1970s, few of these trends seem to shift much. Productivity, for example, returns to its 1950s/60s trend. The one striking exception is income inequality, which started to edge-up from the mid-1970s, but then leapt up in unprecedented fashion in the 1980s. There was no one cause for this, but deindustrialization, high unemployment, and tax and benefit changes are surely part of the story. But today most economists would agree that a significant element was the weakening of trade unions, bringing a major shift in bargaining power, and allowing employers to secure a major shift in National Income away from wage earners to owners of property. Lankester nowhere mentions inequality, but its trajectory suggests a rather different verdict on the Thatcher years might be appropriate.