The Governor of the Bank of England, Robin Leigh-Pemberton, played a surprisingly prominent role in the drafting of the Delors Report 1988–1989, a report that laid down a blueprint for a three stage move to European Monetary Union. The Treasury was very sceptical of the plan, and Margaret Thatcher was appalled: she never forgave Leigh-Pemberton for what she saw as a betrayal. Leigh-Pemberton pressed for a premature conclusion of the Delors Committee meetings and the publication of the report in April 1989 because he feared that a Financial Times leak of the draft would make his position unsustainable in face of the Prime Minister’s opposition. There is a large measure of irony in the way in which the Governor of the Bank of England became a key architect of the single European currency, the Euro.

Households were dynamic economic units organized for their collective well-being. The nature of this dynamic organization is discussed and illustrated using information on household diversification in 16th-century Central Mexico and the role of Indian households in trans-Asian textile exchange. Finally, the house model of society is discussed as a template for organizing formal institutions in early complex societies.

In practice, the early 1980s UK policy involved sporadically – but surprisingly often – responding to exchange rate movements, even when the exchange rate was specifically not designated as either a policy goal or an instrument, as well as raising interest rates as a way to cool down inflation but also economic growth. The 1981 budget, the most controversial of the Thatcher years, was accompanied by the attempt to take the pressure off manufacturing industry by lowering interest rates. The Bank responded to a surge in broad monetary aggregates by overfunding, that is, selling more than the amount of long-term debt (mainly gilts and National Savings instruments) required to finance the government. In 1983, a new Governor, Robin Leigh-Pemberton, who seemed more aligned with Thatcher’s view, came to the Bank of England, replacing Gordon Richardson, whose relationship with the Prime Minister had been strained. In the same year, a new Chancellor the Exchequer, Nigel Lawson, began a slow move away from monetarism and the application of monetary targets. The exchange rate came to play an increasing role in policy.

In 1976 UK economic policy making and fiscal strategy was transformed as a result of an exchange rate crisis that brought in the International Monetary Fund. Monetary targeting began to be a theme of policy debate. A central part of the pre-1979 influence and effective power of the Bank of England rested on the fact that the British domestic financial market was self-contained or cut off from the rest of the world, through the use of capital and exchange controls, applied to UK residents (corporations and individuals) but not to international holders of sterling. In 1976, as part of the IMF rescue package, exchange controls had been tightened, with a prohibition of use of sterling in trade financing that did not involve the UK. The incoming Conservative government started with a partial decontrol in July 1979, when restrictions on direct overseas investments were removed, and portfolio investment also became easier. In October 1979 exchange controls were completely abolished, a move which challenged the Bank of England’s control of the money supply.

In October 1990, after a sustained campaign from the Treasury, the UK joined the European Monetary System’s Exchange Rate Mechanism. The move was heavily supported by Leigh-Pemberton, who persuaded the US central banker, Alan Greenspan, to persuade Margaret Thatcher that the ERM was a modern version of the nineteenth century gold standard. UK entry into the EMS ERM was accompanied by an interest rate cut, but the consequences of German unification and of German interest rate moves led to tightening of monetary policy at a moment of UK recession. In September 1992, the UK’s exchange rate became unsustainable as very large speculative flows bet on a UK exit from the mechanism (September 16). The result was initially seen as a massive humiliation for the UK and its monetary policy-makers, Black Wednesday, but quite quickly opinion shifted to considering it as a liberation that allowed policy reform, White Wednesday. The UK’s ERM experience thus became a game-changer in thinking about monetary policy and exchange rates.

The incoming Labour government immediately in 1997 set a new framework for the Bank’s operational independence, while removing debt management and transferring financial supervision to the new Financial Services Authority (FSA). The FSA would operate in a trilateral framework, in regular contact with the Bank, which established its own Financial Stability Committee in parallel to the newly created Monetary Policy Committee. But the Bank’s role was increasingly seen as primarily in setting monetary policy, with an overall inflation goal of 2.5 per cent, and the obligation to write an explanatory letter to the Chancellor of the Exchequer if the target were to be seriously missed. Chancellor Gordon Brown saw the Committee structure, with half the Committee appointed by the government, as a path to cutting down the powerful figure of the Bank Governor as an alternative economic policy-maker. The early years of the MPC were overshadowed by disputes over the resources allocated to the external (government-appointed) members of the Committee, and by increasing press attention to divisions within the MPC between ‘hawks’ and ‘doves’. By the time George stepped down as Governor in 2003, the MPC process looked highly credible.

In the 1970s, in the aftermath of the oil price shock and with both major political parties demanding an increase in industrial investment, industrial finance, a question that had first emerged politically in the Great Depression, became once more central to UK policy-making. Finance for Industry (FFI) was established in 1973, was 15 per cent owned by the Bank, with the rest of the capital held by large banks. It was rebranded as Investors in Industry (3i); the Bank in the 1980s wanted to sell off its holding, but only managed to do that in 1994–1995. The Bank also played a central role in a number of industrial and managerial restructurings, including the Channel Tunnel. In the recession of the 1990s, the Bank’s engagement in industrial reform was revived as the ‘London approach’, but then was discarded quite rapidly as the British economy was becoming more complex, more dynamic, and more financialized.

This final chapter provides a summary overview of the main topics raised in the volume. It reiterates that economic plasticity is a fundamental feature of both past and present economies and that economic structure is an important facet that needs more concerted investigation and effort to understand.

Noninstitutional craft production was the foundation of the ancient commercial economy. This chapter discusses the origin of craft production, and how artisans engaged in craft production and overcame the risks and uncertainties associated with it. Differences in the scale and organization of craft production are examined along with how forms of distribution affected the development of full- and part-time craft production.