Unhappy Memories

• Author: Graham Hacche
• Position: Deputy Director, IMF External Relations Department
• Pages: 51-52

Page 51

Decline to Fall

The Making of British Macro-Economic Policy and the 1976 IMF Crisis Oxford University Press, 2008, 399 pp., £55 (cloth).

The IMF's 1977 Stand-By arrangement with the United Kingdom was a big deal, for the IMF as well as for Britain. For the IMF, the loan that it made available to the United Kingdom-still then the country with the second-largest quota-stood for some years as its largest. The arrangement was also one of the IMF's last with an industrial country. For the United Kingdom, as argued in Decline to Fall, the IMF- through the arrangement-"played a crucial role" in the resolution of the crisis that had erupted in 1976.

The story of the United Kingdom's 1977 IMF-supported program has been told before, including in the IMF's official history and British ministers' memoirs. The main novelty of this book is that it is based largely on recently released official British documents. and who better to have as a guide to those documents than Sir Douglas Wass who, as Permanent Secretary to H.M. Treasury, was the leading British official in the negotiations with the IMF? (He had earlier been the United Kingdom's alternate executive Director at the IMF, in the period leading up to the country's 1967 IMF-supported program.)

Wass uses the documents now available to provide a detailed history of the making of U.K. macroeconomic policy in the period 1974-76 that led up to the IMFbacked arrangement. He tells the story year by year, under the headings of the major policy issues (public expenditure, the exchange rate, and so on), and he tells it memorandum by memorandum and meeting by meeting. This account alone will make the book essential for students of this episode. But the study is also interesting for its review of the conduct and evolution of U.K. macroeconomic policy in the mid-1970s, and for the author's thoughtful and critical assessment of policymaking then, and especially of the work of the Treasury.

In the early 1970s, the United Kingdom's policy framework was unlike it is today. Fiscal policy was the main tool used to regulate demand, with the principal aim of maintaining full employment, and monetary policy was supplementary to fiscal policy. Inflation was seen mainly as a cost-push process: dampening it through demand mea-Page 52sures, certainly from the 10 percent a year level it had reached in early 1974, "would take a very long time and require substantial unemployment," which was...