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Harold Wilson, the 1964–66 Sterling Crisis and ‘The Second Try’

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Abstract

According to Schenk, the historiography of Britain’s accession to the EEC has neglected monetary issues despite their subsequent importance.1 When it comes to Britain’s second application to join the EEC, it seems plausible that monetary issues acted as the spur for Wilson to take an initiative on Europe. ‘The timing of the initiative thus points to the 1966 July sterling crisis as Wilson’s main source of motivation.’2 A Cabinet reshuffle followed from this crisis, with the result that George Brown moved from the Department of Economic Affairs to the Foreign Office on 11 August 1966. The appointment of ‘an ardent pro-European’ as Foreign Secretary was ‘seen as tantamount to a decision to take an initiative on Europe’.3 The crisis was ‘Labour’s Suez’; ‘it fundamentally altered what the Party’s leading figures thought they could do as a government’.4 ‘The July 1966 crisis, by causing people to consider what devaluation would really mean, began to indicate the fault line, which was not identical to the old tribal boundary.’5 A fundamental question remains that needs to be discussed. While the existing historiography almost unanimously points to the impact of the sterling crisis on Wilson’s decision to apply to join the EEC, it has failed to examine the implications of ‘the fault line’. As Daddow suggests, ‘“something changed” in British politics during the 1960s’.6 Chapter 6 attempts to shed more light on what that change was from the point of view of monetary diplomacy and external economic policy.

Keywords

  • Reserve Currency
  • Labour Party
  • International Liquidity
  • Forward Market
  • Reserve Asset

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Notes

  1. H. Parr, ‘Gone Native: The Foreign Office and Harold Wilson’s Policy towards the EEC, 1964–67’, in O. J. Daddow (ed.), Harold Wilson and European Integration: Britain’s Second Application to Join the EEC (London, 2003), p. 82. Parr also suggests that ‘Wilson’s decision to embark on the initiative [for EEC membership] was not the result of Foreign Offce pressure, but of the shock of the 1966 July sterling crisis’ (ibid., p. 89).

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  2. B. Pimlott, Harold Wilson (London, 1993), pp. 432, 435.

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  3. H. Wilson, The Labour Government 1964–1970: A Personal Record (London, 1971), pp. 2–3.

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  4. Britain’s share of world trade in manufactures had fallen from about 25 per cent in 1949 to 12 per cent in 1967. See A. Cairncross and B. Eichengreen, Sterling in Decline: The Devaluations of 1931, 1949 and 1967 (Oxford, 1983), p. 219.

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  5. P. Catterall, ‘Foreign and Commonwealth Policy in Opposition: The Labour Party’, in W. Kaiser and G. Staerck (eds.), British Foreign Policy, 1955–64. Contracting Options (Basingstoke, 2000), p. 102.

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  6. Labour Party, Foreign Policy and Defence (London, 1960), p. 1, cited in Catterall, ‘Foreign and Commonwealth Policy in Opposition’, p. 94.

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  8. J. Darwin, The End of the British Empire: The Historical Debate (Oxford, 1991), p. 46.

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  9. J. Darwin, ‘Between Europe and Empire: Britain’s Changing Role in World Politics since 1945’, in A. M. Birke, M. Brechtken and A. Searle (eds.), An Anglo-German Dialogue: The Munich Lectures on the History of International Relations (Munich, 2000), p. 209.

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  16. See John Dumbrell, ‘The Johnson Administration and the British Labour Government: Vietnam, the Pound and East of Suez’, Journal of American Studies, Vol. 30, No. 2, Part 2 (August 1996), p. 227.

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  17. In August and September 1965, George Ball (US Undersecretary of State) and Henry Fowler (US Secretary of the Treasury) travelled around Europe in order to secure short-term facilities of $925 million, to which the United States contributed $400 million. These facilities were available for three months, except the facility with the United States, which had no terminal date. See J. Fielding, ‘Coping with Decline: US Policy toward the British Defence Reviews of 1966’, Diplomatic History, Vol. 23, No. 4 (Fall 1999), p. 645. BOE EID 1/24, ‘A History of the Sterling Crisis’, Appendix I, p. 3.

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  18. R. H. S. Crossman, Diaries of a Cabinet Member, Volume 1 (London, 1975), p. 539.

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  19. Pimlott, Harold Wilson, p. 273. Pimlott relies on the analysis of Perry Anderson, an articulate theoretician of the New Left. See, P. Anderson, ‘Critique of Wilsonism’, New Left Review, Vol. 27 (1964), pp. 3–27.

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  21. S. D. Cohen, International Monetary Reform, 1964–69: The Political Dimension (New York, 1970), p. 63, emphasis in the original.

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  22. Thompson-McCausland suggested that: ‘The new plan [for SDRs] passes no judgment on whether there is now a shortage of assets or not.’ See L. P. Thompson-McCausland, ‘The Place of Special Drawing Rights in the International Monetary System’, BOE Quarterly Bulletin, Vol. 8, No. 2 (1968), p. 147.

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  23. It is pertinent to refer here to the difference of status as economic adviser between them. After Wilson became Prime Minster in 1964, Balogh became Economic Adviser on Economic Affairs to the Cabinet, with special reference to external economic policy. Kaldor was Special Adviser to the Chancellor of the Exchequer on the Social and Economic Aspects of Taxation Policy. In other words, Balogh was adviser to Wilson and attached to the Cabinet, whereas Kaldor was adviser to Callaghan and attached to the Treasury and seconded to the Inland Revenue. Kaldor’s work as economic adviser concentrated on two areas: balance of payments and taxation. See P. Arestis and M. C. Sawyer (eds.), A Biographical Dictionary of Dissenting Economists (Cheltenham, 2000), pp. 14–21 (Thomas Balogh), pp. 293–302 (Nicholas Kaldor); J. E. King, Nicholas Kaldor (Basingstoke, 2009), pp. 96–9; A. P. Thirlwall, Nicholas Kaldor (Sussex, 1987), pp. 229–57; F. Targetti, Nicholas Kaldor: The Economics and Politics of Capitalism as a Dynamic System (Oxford, 1992), pp. 20–4.

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© 2015 Kiyoshi Hirowatari

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Hirowatari, K. (2015). Harold Wilson, the 1964–66 Sterling Crisis and ‘The Second Try’. In: Britain and European Monetary Cooperation, 1964–1979. Palgrave Studies in the History of Finance. Palgrave Macmillan, London. https://doi.org/10.1057/9781137491428_7

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