Economic history · What the Pound Cost — 1945 to 1976
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.
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 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.
Step 1 of 6
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 scale. He 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 scale. The 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 scale. Heath told the House the flat sum was worth more than the percentage to anyone earning below £33 a week.
On 19 October 1973, two days after that debate, an embargo on oil began.
Britain had just written a rule that raised wages automatically when prices rose. The price of the thing that moves every other price was about to go up several times over.
The embargo ran until March 1974, when it “was officially lifted”.
Oil had been $2.90 a barrel before the embargo. What was it by January 1974?
For scale. The rule tying wages to prices had been set out in the Commons on 17 October, two days before the embargo began.
Go back a year from the oil, to the dispute that was already running.
By 1972 industrial conflict had risen to a level Britain had not seen since before the war.
Working days lost counts the days people were on , added up across the year, and 1972's total came almost entirely from one industry.
The Office for National Statistics attributes the 1972 total “mainly to a strike by coal miners”.
Working days lost to strikes. Which year lost more of them?
A tie counts as correct either way.
For scale. The 1926 total is still the highest annual figure on record, half a century on.
A country can run out of money. It can also, more simply, run out of the coal that makes its electricity.
The miners' industrial action began on 12 November 1973, and on 13 December the Prime Minister told the Commons what industry would be allowed.
Power stations burn coal continuously, so a fall in production shows up as a fall in the stock of coal at the stations rather than as an immediate blackout.
Large users were limited from 17 December to “65 per cent. of their normal electricity consumption each week”, and “from 31st December, they will be limited to three specified days each week, which will be consecutive”.
It is the last thing in these six modules that looks like the 1940s: a real shortage of a real thing, shared out by the government.
Power station coal stocks stood at 16.2 million tons on 8 December. In the five weeks after the miners' action began, how far did they fall?
For scale. Coal production was “now down by almost 30 per cent.”, in the Prime Minister's words on 9 January 1974.
Module 5 of 6 in What the Pound Cost — 1945 to 1976
When the pound stopped having a published price
23 June 1972How long governments had been controlling pay by then
since 1961The flat sum a pay settlement could take instead of a percentage
£2.25 a weekOil, from $2.90 a barrel before the embargo
$11.65 a barrelWorking days lost in 1972, against 162.2 million in 1926
23.9 millionThe fall in power station coal stocks in five weeks
3.6 million tonsYou met three terms in this module
, ,
None of this was counted at the time: the bodies that audit British governments arrived in 1983 and 2010, long after the lights went out.
[1] The day Britain stopped publishing a price: Hansard, Commons, 23 June 1972, £ Sterling. The Chancellor of the Exchequer, Mr Anthony Barber, fetched and read twice. Col. 877: “that is to say that, as a temporary measure, sterling will be allowed to float.” And: “The London foreign exchange market will be closed today and Monday in order to provide for an orderly transition to the new arrangements.” Col. 878: “The immediate cause of this decision has been the weight of international short-term capital movements, which have proceeded despite concerted intervention by the Bank of England and other European central banks.” And: “There was nothing in the objective facts of our balance of payments position or the level of our reserves to justify these movements.” ASKED DIRECTLY ON BOTH READS: HE GIVES NO FIGURE FOR THE RESERVES AND NONE FOR THE OUTFLOW.
[2] What had happened to the dollar behind it: Federal Reserve History, The Smithsonian Agreement. Owen Humpage, 22 November 2013, fetched and read twice. “In August 1971, President Nixon 'closed the gold window,' that is, he no longer allowed foreign central banks to exchange dollars for the U.S. Treasury's gold.” “At the Smithsonian meeting, the United States agreed to devalue the dollar against gold by approximately 8.5 percent to $38 per ounce.” “The net effect was roughly a 10.7 percent average devaluation of the dollar against the other key currencies.” “On February 12, 1973 … the United States devalued the dollar by an additional 10 percent to $42 an ounce.” “Within a month nearly all major currencies were floating against the dollar.”
[3] Wages tied to prices, in the Commons: Hansard, Commons, 17 October 1973, Price and Pay Code. A debate on “the Consultative Document on the Price and Pay Code for Stage 3 (Command Paper No. 5444)”, read twice. The Prime Minister, Mr Edward Heath, col. 207: “it is being done through the form of the pay limit which gives a choice to negotiators of either £2.25 or 7 per cent.” And: “The sum of £2.25 for everybody below £33 per week gives a higher percentage than 7 per cent.” ASKED DIRECTLY ON BOTH READS: THE THRESHOLD MECHANISM IS NOT HERE. No sentence ties 7 per cent. to the Retail Price Index and no overall 8 per cent. limit is stated, which is hole 6 confirmed from the other side.
[4] The mechanism, and one institution's verdict on it: Bank of England, on the pay policy of 1973. The threshold mechanism is carried by the Bank alone: payments triggered once the Retail Price Index rose 7% above its level at the start of the policy, agreements covering a third of the workforce, and the threshold fired eleven times over the following twelve months. The Bank also calls it, in its own voice, “one of the most disastrous (albeit unfortunate) economic policy decisions”. ONE INSTITUTION, so the module attributes and does not assert. Reused as the content model's opened locator: the Bank blocks an unattended fetch.
[5] What happened two days later: Federal Reserve History, Oil Shock of 1973-74. Michael Corbett, 22 November 2013, fetched and read twice. The embargo began “On October 19, 1973”. “These cuts nearly quadrupled the price of oil from $2.90 a barrel before the embargo to $11.65 a barrel in January 1974.” “In March 1974, amid disagreements within OAPEC on how long to continue the punishment, the embargo was officially lifted.”
[6] Days not worked: Office for National Statistics, Labour disputes in the UK. 17 May 2019, fetched and read twice. “The highest annual total for working days lost on record was 162.2 million in 1926, the year of the general strike.” And “23.9 million in 1972, due mainly to a strike by coal miners”. ASKED DIRECTLY ON BOTH READS: NO FIGURE FOR 1974, and none for 1967 or 1970 either, which is why those two are cut.
[7] Three days of electricity: Hansard, Commons, 13 December 1973, Energy Supplies. The Prime Minister, Mr Edward Heath, fetched and read twice. Col. 646: “The Government judge that this requires further savings amounting to 20 per cent. of electricity consumption, in addition to the measures already announced.” Col. 647: “From next Monday 17th December, large, continuous process users will be limited to 65 per cent. of their normal electricity consumption each week.” And: “After that, from 31st December, they will be limited to three specified days each week, which will be consecutive.”
[8] What the coal ran down to: Hansard, Commons, 9 January 1974, Fuel Situation. 57,748 words, so both reads were narrow, one string at a time, and they agreed exactly. The Prime Minister, Mr Edward Heath, col. 8: “At 8th December the stocks stood at 16.2 million tons.” “In the five weeks following the miners' action, power stations' coal stocks fell by 3.6 million tons.” “This was a direct result of a fall in coal production, now down by almost 30 per cent., resulting from the miners' industrial action begun on 12th November.”
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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