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The Pound in Post-War Britain — 1945 to 1976
Three days a week
Six steps, about nine minutes, one question at each. You need no economics and no preparation, only a willingness to guess before you are told.
Step 1 of 6
A government held the pound at one published price through four attacks on it, took hundreds of millions out of its own economy rather than move the price, and moved it anyway a year and a half later.
The question
The pound had a published price for twenty-three years and then, one afternoon in June 1972, it did not. Governments turned instead to control of what firms could pay, which both parties had been trying since 1961.
The rule they settled on raised wages automatically when prices rose. It was set out in the Commons on a Wednesday, and on the Friday an oil embargo began.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
Britain had argued about the price of the pound for decades. One afternoon there was no price to argue about.
On 23 June 1972 Britain stopped publishing a price for the pound altogether.
The anchor moved. In 1971 the country whose currency the whole system was built on stopped letting other central banks exchange dollars for its gold. Later that year it agreed to lower the dollar against gold “by approximately 8.5 percent to $38 per ounce”, a net 10.7 percent against the other main currencies. In 1973 it lowered the dollar again, to $42 an ounce, and “within a month nearly all major currencies were floating against the dollar.”
Not here, because the institutions read for this work do not give the economics of it a heading. Britain signed the treaty on 22 January 1972 and joined on 1 January 1973, in the middle of the years this covers. Two separate searches found no institutional figure for what membership cost or earned, not even a contribution to the budget. The silence is stated rather than filled in from memory.
The pound was now , which means its price was whatever buyers and sellers made it that day, and no reserves went on holding it anywhere.
The Chancellor, Anthony Barber, told the Commons “that, as a temporary measure, sterling will be allowed to float”, and that the London market would close for two days.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
Barber gave the Commons a cause for the decision. What did he say had made it necessary?
For scaleHe called it “a temporary measure”. The pound has had no published price since.
Governments held pay instead, and had been doing it on and off since 1961.
A government that cannot set the price of its currency can still set what firms are allowed to pay. It is the same instinct as the 1950s, aimed at a different quantity.
Four such policies ran between 1961 and 1978, under governments of both parties, and none of them lasted.
Pay control was not one government's idea. Both parties used it once the older instrument had gone.
Put these four attempts to control pay in the order they were tried, earliest first.
For scaleThe first was in 1961, eleven years before the pound was cut loose, and the last ran to 1978.
There is a way of controlling pay that sounds fair and has a hidden spring in it. Britain used that one.
The Prime Minister set out a to the Commons on 17 October 1973, and it let each settlement choose a flat weekly sum or a percentage.
Through a trigger, and the reach of it is what the Commons was not given. The agreements it covered took in about a third of the workforce, and it fired eleven times in the twelve months that followed. All of that comes from the Bank of England and from no other institution read for this work, which also calls the policy “one of the most disastrous (albeit unfortunate) economic policy decisions”. One institution, said out loud.
The flat sum was worth more than 7 per cent. to anyone earning under £33 a week, which is why the choice was offered.
The Bank of England records a second part of the rule that the Commons was not told. Extra payments would fire automatically once the Retail Price Index had risen 7% above where it started.
A settlement could take 7 per cent., or a flat sum for every worker. What was the flat sum, a week?
For scaleHeath told the House the flat sum was worth more than the percentage to anyone earning below £33 a week.
Module 5 of 6 in The Pound in Post-War Britain — 1945 to 1976
Your score will appear here.
[1] The day Britain stopped publishing a price: Hansard, Commons, 23 June 1972, £ Sterling.
[2] What had happened to the dollar behind it: Federal Reserve History, The Smithsonian Agreement.
[3] Wages tied to prices, in the Commons: Hansard, Commons, 17 October 1973, Price and Pay Code.
[4] The mechanism, and one institution's verdict on it: Bank of England, on the pay policy of 1973.
[5] What happened two days later: Federal Reserve History, Oil Shock of 1973-74.
[6] Days not worked: Office for National Statistics, Labour disputes in the UK.
[7] Three days of electricity: Hansard, Commons, 13 December 1973, Energy Supplies.
[8] What the coal ran down to: Hansard, Commons, 9 January 1974, Fuel Situation.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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