7 - The financial system

Summary

The 1931 crisis and demise of the Labour government stimulated a radical reappraisal of Labour's whole approach to policy, especially economic policy. In the area of financial and monetary policy this concern to rework Labour's positions was driven not only by the general belief that the problems of 1929–31 had been in part a policy failure but also by the belief that the collapse of 1931 had flowed directly from a combination of the malevolence of financial institutions towards a Labour government (‘the bankers’ ramp') and weaknesses in Labour's understanding of those institutions. Hence, central to the Labour policy review of the 1930s was the reformulation of policy on money and finance, a review led by Hugh Dalton.

This policy review ranged over most aspects of domestic monetary and financial policy – from how to secure price stability, the desirable exchange rate regime, through to specific proposals for institutional reform of the financial system. The focus of this chapter is the latter area, for two reasons. First, the problems of monetary policy have been exhaustively dealt with in recent work by Susan Howson. Second, the striking feature of the 1940s is the extent to which all the debates of the 1930s seem to have had so little impact in the following decade. In an area where, arguably, Labour was as well prepared with detailed policy proposals as any, the actual experience of government after 1945 was that all these efforts yielded meagre results.