MONEY The Old Lady unveiled
NICHOLAS DAVENPORT Any move to break down the secrecy sur- rounding the City pope and his court hiding behind Soane's classical wall is to be wel- comed. The all-party Select Committee on Nationalised Industries under the chairman- ship of Mr Ian Mikardo, which decided last year to investigate the Bank of England, therefore deserves our thanks but I doubt whether their report, running to nearly 550 pages and costing three guineas, is really worth the trouble it has taken. The Treasury managed to get excluded from their inquiry the activities which really mattered—the formulation and execution of monetary and financial policy and the management of the Exchange Equalisation Account and the foreign exchange markets. Why should a Commons Committee not be allowed to in- vestigate and discuss the formulation of monetary and financial policy?
The citizens of any intelligent and sophisti- cated democracy ought to be engaged in an endless economic debate, especially when problems like a wage-cost inflation or a stock exchange slump are creating a crisis situation. A friend of mine has recently attended a council meeting in Washington of the us Investment Community Inc. and he tells me that top officials and ministers attended and made speeches. For example, Mr Paul McCracken, chairman of the Council of Economic Advisers, explained the government's economic policy, how it was devised to slow down the rate of inflation from 6 per cent to 3 per cent, how it was succeeding, how soon lhe recession should be ending and so on. Can you imagine the Economic Adviser to the Treasury attending an investment forum in the City and explain- ing what was in the Chancellor's mind? The economic assessments which the Treasury nuts out are famed for glossing over prob- lems and in any case are read only by econo- mists and financial writers.
The Select Committee had a confronta- tion with the Chancellor towards the end of their meetings and they were full of praise for his frankness and condescension. He explained that most of his discussions with the Governor, which usually take place on a Friday morning, were now concerned with foreign exchange and gilt-edged management. Naturally he would take pleasure in learn- ing daily how much sterling was in demand after the return to surplus on our balance of payments but Mr Jenkins did not disclose to the committee whether he had acrimoni- ous debates with the Governor about the management or mismanagement of the gilt- edged market. Sir Leslie was frank enough to admit to the committee that he had great difficulty in reconciling 'the pedestrian day- to-day desire for an orderly gilt-edged market and the over-all desire to restrain the money supply'. It is the Treasury's devotion to the money supply theory of the Chicago school which has caused stIth havoc in the gilt-edged market. Here surely is a matter for public discussion and debate.
In the other matters falling within its purview the Select Committee showed plenty of bite. It ridiculed the idea that the Bank of England should be the only one of the nationalised industries which does not have to produce accounts. Its only return is the weekly Bank Return, giving the level of bankers' balances, discounts and advances. It does not even have to disclose what it pays the Governor and Court. Under the Charter of the Bank the Governor is paid £2,000 and the Court is left to decide what additional remuneration he should have. Sir Leslie O'Brien now discloses that he receives a total of £25,000 and the deputy governor £18,000. The Court is the only body in the country which fixes its own remuneration and then keeps silent. The committee mildly regards this practice as 'inappropriate'.
As the Bank never publishes detailed accounts the Treasury cannot tell whether it is conducting its affairs efficiently. The Chancellor tholornt that it maintained a high standard of efficiency but the report of McKinsey, the business efficiency experts re- cently called in by the Bank, would norm- ally not be presented to him, being 'a matter of the affairs of the Bank'. The committee were rightly indignant at this sacrosanctity of the Bank and commented on 'the assump- tion of institutional infallibility' to which even the modest Sir Leslie O'Brien was not immune.
The committee rightly regarded it as absurd that the Bank should not disclose and pay over to the Treasury the profits of its banking and other departments after charging proper fees and an agreed pro- vision for reserves and working capital. For example, in the course of its monetary con- trol it can order the joint stock banks to make special deposits at the Bank and fine them with a fancy rate of interest and then pocket the profit! It could use these profits
to build expensive branch offices in provin- cial cities—the 'Taj Mahals' the committee was critical of in Birmingham—without being called to account. The committee were satisfied that the publication of full accounts would in no way damage the independence of the Bank- of which the Governor was so jealous.
On the vexed question of part-time direc- tors of the Court the committee was sur- prisingly tolerant of the Governor's view. The Governor felt that it was 'quite essen- tial' that the sixteen part-timers should always out-number the full-timers on the Court. The part-time members, he said, were representatives of the public interest: they were there to see, as it were, that the com- pany was properly conducted. If I may be allowed to contradict the Governor, I view the part-time directors as a jest of the state ceremonial. They gave their amateur selves away at the Bank rate tribunal. With a few notable exceptions they are ignorant of monetary affairs and are awed by the char- ade of Governor and the Court.
The committee is also surprisingly recep- tive to the idea that the most important part of the Bank's monetary control is through 'moral suasion'. It was better for the Governor to read the 'riot act' to a recalci- trant banker than to resort to sanctions under the Bank Act. lhe trouble is that there are no sanctions in the ambiguous clause four ot the Bank Act. No direction can be given to the Treasury to the Bank it- self except after consultation with the Governor, who would, of course, be opposed to any direction. No directions can be given to the joint stock banks except by the Bank itself (not the Treasury) and no sanctions are attached to them. I he truth is that Dalton's Bank Act lacked clarity and force but no government has yet dared to revise it. It is clear that the Bank has become far more independent since it has been nationalised. "I he only good advance under the Labour regime is that the fixing of Bank rate is no longer regarded. as it was at first, as 'an affair of the Bank'.
ffolkes's taxp'ayers' alphabet X is for X-tra sensory perception
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