Wynne Godley pp 167-185 | Cite as

Spectating on Thatcher and Major

  • Alan Shipman


The Conservatives’ 1979 election victory sidelines the CEPG, as the Thatcher government turns to ‘monetarism’ as its solution to inflation, and deep budget cuts as the way to deliver it. Godley completely rejects the idea that money supply determines inflation or is a stock that governments can control, having long ago recognised that most money is created ‘inside’ the system by bank lending rather than introduced from ‘outside’ by government borrowing. His advice is now wholly ignored by the Treasury, although Chancellor Geoffrey Howe’s decision to tighten the 1981 budget in the depths of recession gives the Cambridge Keynesians a foe to reunite against. CEPG analysis spells disaster for the economy as monetary targeting and North Sea oil strengthen the exchange rate, igniting faster deindustrialisation. When strong recovery from 1983 under Chancellor Nigel Lawson allows the Conservatives to claim an economic miracle, Godley becomes their most vociferous critic, pointing to the looming imbalances that cause renewed collapse into recession and inflation as the decade ends.


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© The Author(s) 2019

Authors and Affiliations

  • Alan Shipman
    • 1
  1. 1.Department of EconomicsThe Open UniversityMilton KeynesUK

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