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Published online by Cambridge University Press: 07 November 2014
The Radcliffe Committee was appointed by Treasury Minute in May, 1957, “to inquire into the working of the monetary and credit system … [of the United Kingdom], … and to make recommendations.” It held eighty-eight meetings, collected three volumes of written evidence and one volume of evidence given orally, compiled new statistical information, and finally on July 30, 1959, presented a unanimous report to the Lords Commissioners of Her Majesty's Treasury. The public saw the Report three weeks later.
The prestigious composition of the Committee and the controversial ground which it was required to investigate alone ensured widespread attention for the Report. But the virtual flood of detailed comment emanating from academic economists and financial journalists in the United Kingdom is not entirely explained by this; nor even by the Committee's controversial views on matters of monetary theory and central banking practice. Because the views of the Committee on monetary policy and theory are not always fully developed, and in some instances appear to be ambiguous and contradictory, the Report offers limitless opportunities for articles on “What Radcliffe Really Meant,” including, of course, analyses of the essential deficiencies of the interpretations suggested. Unfortunately, the Report is such that the views of the Committee are easily misinterpreted, a danger of which this writer is aware, but one which he may not have succeeded in avoiding in every instance.
I am grateful to my colleague Professor Wm. C. Hood for commenting on an earlier draft of this paper.
1 Report of the Committee on the Working of the Monetary System, Cmnd. 827 (London: H.M.S.O., Aug., 1959, viii, 339 pp.).Google Scholar Also Principal Memoranda of Evidence, 3 vols., and Minutes of Evidence, 1960.
2 The Chairman was The Rt. Hon. the Lord Radcliffe, G.B.E. Other members of the Committee were Professor A. K. Cairncross, C.M.G., The Rt. Hon. Sir Oliver Franks, G.C.M.G., K.C.B., C.B.E., The Viscount Harcourt, K.C.M.G., O.B.E., W. E. Jones, Esq., O.B.E., Professor R. S. Sayers, Sir Reginald Verdon Smith, George Woodcock, Esq., C.B.E., Sir John Woods, G.C.B., M.V.O.
3 One critic has remarked that “on matters of policy, unanimity has been purchased at the price of compromise, ambiguity and, at times, inconsistency. Detailed study makes it more rather than less difficult to discover precisely what the Committee's views are.” Morgan, E. Victor, “What Role for Interest Rates?” The Banker (London), CIX, Oct., 1959, 584.Google Scholar This is a view on which there appears to be agreement among many economists who have commented on the Report.
4 In evidence put before the Committee, Professor H. G. Johnson rightly stresses the need for and advantages of obtaining explanations of policy from official sources. See Principal Memoranda of Evidence, III, 136–8Google Scholar, and Minutes of Evidence, 706–8. The Committee takes a similar stand, and does so in unequivocal terms. Cf. Report, 300–2.
5 Parliamentary Debates, House of Lords, vol. 219, no. 10, Nov. 11, 1959, 511.Google Scholar
6 Parliamentary Debates, House of Commons, vol. 614, no. 26, Nov. 26, 1959, 575.Google Scholar
7 This idea is developed by Minsky, Hyman P., in “Central Banking and Money Market Changes,” Quarterly Journal of Economics, LXXI, 05, 1957.Google Scholar
8 That is, it may be impossible to change these from what they would be when monetary controls are being used freely to influence interest rates, but without assistance from any form of direct intervention. This clarification is necessary because of the now frequently stated view that higher interest rates may themselves tend to restrict the supply of loanable funds through their effect on the operations of financial intermediaries. It is, of course, also possible that decisive use of monetary controls may change the shape of the demand curve for loanable funds if it changes the expectations of borrowers regarding future trends of prices of goods and services.
9 See Report, par. 162, p. 58.
10 Report, par. 180, p. 64, and par. 589, p. 218.
11 And of course it was this ready convertibility of Treasury Bills into cash through central bank assistance, if necessary, that shifted the emphasis from cash control (8 per cent ratio) to liquidity control (30 per cent ratio).
12 “… Just how large … [the short bond market] … is we are unable to estimate, but we have the impression that no great progress in funding might bring supplies of short bonds down to uncomfortably low levels.” Report, par. 546, p. 201. See also Report, par. 586, pp. 216–17, where the growth of the Bill market is noted, and also pars. 557–77, pp. 206–13.
13 Interest rates rose persistently over the period September, 1958, to September, 1959, and supply of money remained about constant. Yet the general public (which excludes the banks, Bank of Canada, and the Government of Canada) increased its holdings of marketable Government of Canada securities by $1,907 million.
14 While accurate statistics are not available, the trend is indicated by the fact that whereas the general public (as defined in the preceding footnote) held $24 million Treasury Bills at the end of 1953, or about 4 per cent of the total outstanding, on May 11, 1960, they held $676 million or 32 per cent of the total Bills outstanding.
15 See references in n. 17 below.
16 It is curious that while the Committee recognizes that larger borrowers shift between the short- medium- and long-term markets for given purposes (cf. Report, par. 316, p. 108) it none the less appears to emphasize control of long-term interest rates more than other rates.
17 Riefler, Winfield W., “Open Market Operations in Long-Term Securities,” Federal Reserve Bulletin, Nov., 1958, 1260–74.Google Scholar See also Mr. Riefler's evidence put before the Radcliffe Committee, in Minutes of Evidence, 613–27, 639–48.
18 Cf. Roosa, Robert V., “Interest Rates and the Central Bank” in Money, Trade and Economic Growth (New York, 1951), 270–95Google Scholar; Scott, Ira O., “The Availability Doctrine,” this Journal, Nov., 1957 Google Scholar; Gurley, J. G. and Shaw, E. S., “Financial Aspects of Economic Development,” American Economic Review, Sept., 1955 Google Scholar, “Financial Intermediaries and the Savings-Investment Process,” Journal of Finance, XI, 05, 1956 Google Scholar, and “Reply,” American Economic Review, March, 1958; Smith, Warren L., “On the Effectiveness of Monetary Policy,” American Economic Review, Sept., 1956 Google Scholar; Minsky, Hyman P., “Central Banking and Money Market Changes,” Quarterly Journal of Economics, LXXI, 05, 1957 Google Scholar; Cagan, P., “Why Do We Use Money in Open Market Operations?” Journal of Political Economy, Feb., 1958 CrossRefGoogle Scholar; Culbertson, J. M., “Intermediaries and Monetary Theory,” American Economic Review, 03, 1958 Google Scholar; Aschheim, Joseph, “Commercial Banks and Financial Intermediaries: Fallacies and Policy Implications,” Journal of Political Economy, LXVII, Feb., 1959 Google Scholar; Ritter, L. S., “Income Velocity and Monetary Policy,” American Economic Review, XLIX, 05, 1959.Google Scholar
19 The views of the Committee on this issue are best outlined by Rose, H. B. in “Another Look at Liquidity,” The Ranker, CX, no. 409, 03, 1960.Google Scholar
20 Some results of research in this general area appear ambiguous. For example, one author related interest rates to velocity and drew pessimistic conclusions about the effectiveness of monetary policy. Another economist, after inspecting the former's evidence, suggested that the relevant curve appeared asymptotic and, if it was, that interest rates could control velocity. See Rousseas, Stephen W., “Velocity Changes and the Effectiveness of Monetary Policy, 1951–1957,” Review of Economics and Statistics, XLII, Feb., 1960, 27–36.CrossRefGoogle Scholar
21 Lord Robbins has remarked: “… I am not in the least surprised to find that the cross-examination of witnesses whose main business experience has been acquired in a period of brisk inflation should yield ambiguous conclusions. … Indeed, to me, the remarkable thing about the evidence quoted is not that some of the witnesses said they paid no regard to the rate of interest, but that some of them said that they did.” Parliamentary Debates, House of Lords, vol. 219, no. 10, Nov. 11, 1959, 511.
22 Cf. Report, par. 767, p. 273, and par. 980, p. 337.
23 Parliamentary Debates, House of Commons, vol. 614, no. 26, Nov. 26, 1959, 579. Italics added.
24 Royal Commission on Indian Currency and Finance, 1926, Minutes of Evidence, Answer to Question 14,597, quoted by Sayers, R. S. in Modern Banking (3rd ed., Oxford, 1951), 70.Google Scholar
25 See Radcliffe Committee, Minutes of Evidence, Answers to Questions 256–85, pp. 14–16, and Questions 12, 813–81, pp. 892–9.
26 See Neufeld, E. P., Bank of Canada Operations and Policy (Toronto, 1958), 11–12.Google Scholar
27 See Neufeld, E. P., “The Bank of Canada and the Radcliffe Report,” Saturday Night, LXXIV, no. 22, Oct., 1959, 9–11.Google Scholar
28 As the Governor of the Bank of England said before the Radcliffe Committee, “ … I can conceive of circumstances in which some or all members of the Court might wish to resign after further discussion and debate. All sorts of varieties and stages of consultation and argument are possible.” Minutes of Evidence, Answer to Question 269, p. 15.