Memories of Edward Holloway (1906-1985)

by Jim Bourlet

Edward Holloway was my predecessor as Hon Secretary of the Economic Research Council a position he held from 1954 to 1985 when he unexpectedly died at the age of 79. He had been a founder member of the Economic Reform Club (the original name for the embryo economic think tank which later became the ERC) in 1932. His autobiographical account Money Matters (published posthumously in 1986) gives a vivid account of the personalities and enthusiasm which accompanied these events. Suffice to point out that in 1932 Edward was a young man co-ordinating a group of senior and much older statesmen whereas when I first met him in 1969 he was an older man whose experience I greatly respected but whose circle of colleagues I could by then only partially share. At that time I was involved in the debate on Britain’s proposed entry to the EEC. Trade issues were central to this debate and so my first introduction to Edward was at the Commonwealth Industries Association after which he invited me to become an ERC member.

Economic Research Council dinner meetings were mostly held, during the 1970s, at the St Ermin’s and Washington hotels. “Political correctness” had not yet inhibited the pleasures of cigar smoking with coffee during the speaker’s after dinner address and Edward always enjoyed a Hamlet – a little tradition which I seem to be the only member to keep up to this day! Afterwards I often drove Edward back to Victoria Station for him to collect the late train back to Brighton. Those short drives were a moment of reflection and relaxation as we discussed the speaker’s points, commented on the turn-out and concluded whether it had been a good meeting – or just an ordinary one. These were the times when I most wanted to understand what, after so many years of thought and experience, he understood (and I didn’t), what was wrong with the monetary system (which the textbooks didn’t reveal) and what the associations which he had been central to forming and maintaining, needed to achieve.

My curiosity was not simplistically rewarded because Edward was gentle and indirect rather than forceful – preferring to show with a kindly smile, his approval when one mentioned a point with which he agreed. He had a keen intellect but this never lost him friends. Indeed his ability to draw in to his orbit a great variety of forceful characters was quite remarkable.

Central to his concerns was monetary policy. The period 1920 to 1935 had witnessed the return to the gold standard, the reversal of that policy, the mismanagement of monetary affairs (Keynes argued that interest rates had been kept ruinously high in relation to the “natural” rate which would have balanced investment and savings at the time) by the Bank of England, embarrassingly high profit levels by the commercial banks – and all this amidst high unemployment, underused industrial capacity and widespread hardship. “Money” – its definition, creation and reward had to be the central concern for London’s first economic think tank with the Economic Reform Club’s members drawn from the ranks of top bankers, politicians and businessmen.

Money, of course, is simply tokens of transferable debt. Any debt owed by an individual, an organisation or a whole community which has a high likelihood of being discharged can be passed to a third party in settlement of a transaction or hoarded to accumulate rights to future goods and services. Overall indebtedness must grow, by definition, if the supply of money is to increase and that increase is the precondition for increased transactions and thus increased economic activity and employment. What happened in the interwar years was that private individuals and private firms chose to reduce their debts (or failed to increase them sufficiently) thus contracting the money supply whilst the government failed to increase community indebtedness on a sufficient scale to offset this. Deflation followed when a slow-down in the velocity of circulation compounded the initial mistake.

Edward’s reaction slow-burned in cold fury, leading him to organise meetings, establish organisations, stand for Parliament, give lectures in schools and universities and to devote his retirement years to the cause to the very end. John Maynard Keynes he respected but felt that he had befuddled the main issue. At the same time he saw Irving Fisher as mechanistic, and so he preferred the contributions of often lesser known writers such as Frederick Soddy (though not Major Douglas), as interpreters of monetary processes.

Edward knew that the first task was to gain widespread agreement on what constituted money creation. Bank lending to private individuals does, of course create debt and thus money. It seems almost incredible to us now that it took a mighty political effort to persuade the government to set up the Radcliffe Commission which, in 1959, insisted beyond argument that banks do indeed “create” money. Edward played a key role behind the scenes in all of that, and the result marked, I suggest, the highest achievement of his career.

But beyond this basic point, the Radcliffe Commission’s report was somewhat disappointing. The report needed to go further on the issues of “seignorage”, on non-interest-bearing current account balances, overall control of interest rate and credit policy, the circumstances when increased government indebtedness is appropriate and the justifiable rate of interest which might be payable on government bonds.

Notes and coins are produced at trivial cost and we keep these tokens of debt which “promise to pay the bearer on demand…” in our pockets without claiming interest payments. The benefit handed to the government is equal to the interest payments we have foregone or, put another way, the face value of the notes and coins. This benefit or value is called seignorage. If, in a community, individuals are prepared to increase substantially their holdings of notes and coins, a government can boost “national” income almost costlessly by printing more money. Edward noted events in the Channel Islands when the local authorities there had succeeded in this way and wanted the matter to be more clearly understood here in London. Beyond this, which organisation should gain the benefit from individuals’ preparedness to forego interest payments on sums held in non-interest-bearing bank current accounts the government or the bank? Edward tended to the view that this benefit should normally accrue to the bank to offset their costs for their various services.

What was of greater concern to him was that, if the banks created money through their ability to issue loans to individuals and companies against their credit worthiness, then their collective influence on the overall sums is highly significant in political terms. He railed against the ability of the banks to exercise monopoly control of the power to “liquefy the nation’s credit” which gave them the ability, during the upswing of the credit cycle, to irresponsibly generate a boom, and the ability, during a downswing of the credit cycle to deepen a depression. Fredrich Hayek sought to remedy this through greater competitive forces within the banking industry. Edward, being that much less of a free marketeer, advocated more enlightened and more hands-on central bank guidance. This issue remains unresolved.

Nonetheless, it can be said that we have moved towards the solutions advocated by both camps. Hayek would be pleased today to count the vastly increased number of banks, the diminished influence of Britain’s “big 5” (now I suppose “big 3”) banks, the internationalisation of competition in banking and the encroachment of other firms even supermarkets into banking territory. Edward would be pleased to see the independence of the Bank of England and the freedom of action (and transparency) of the Monetary Committee, a body chosen for their expertise rather than allegiances, now has in deciding the key issue of money’s price (interest rates) in the marketplace.

So far so good, but when is it appropriate for governments to substantially increase state borrowing? Certainly not, Edward told me, when interest rates are high because there is no need at such a time, plenty of reflationary “ammunition” exists in the potential to reduce interest rates, and if full employment exists at these rates, government borrowing would simply be inflationary. On the other hand, if interest rates have reached rock bottom then the government may need to borrow and spend. That then raises the question of what rate of interest the government should pay to the banks which purchase the bonds.

Edward’s view was that since government bonds are totally secure, interest payments on them to bank holders should be very little more than the deposit interest rates which the banks pay to balance their books in fact a margin close to the administration costs involved. In this way, he was prepared to argue that the exchequer could save substantial taxpayer expenditures.

Edward died in 1985. One might say that this was at the beginning of “the long boom” during which he could, had he lived, have spent his retirement in the observation that much seemed temporarily well. I think however, that he would now be concerned concerned that prospective excess government borrowing must fuel an unsustainable upswing in the credit cycle and concerned lest Britain fall for the superficial attractions of abandoning the pound sterling in favour of the euro.

And where did all this leave Edward in terms of party allegiance and in his views on other issues? The Economic Reform Club and then later the Economic Research Council, he steered along strictly non-party political lines. I have, through the ERC known as many members of the one party as of the other as well as (remembering that Edward stood as a Liberal candidate for Parliament) politicians of other views. Heads of industry and leaders of Trades Unions have addressed our meetings and we have been supported as much by maverick MPs on both sides as we have been by those following the party line. The ERC has every right to pride itself on this long history of independence from any party label.

And it has also avoided any label for economic doctrine. It is not just in favour of free market economics, nor just an advocate of macro-economic balance. It is not, taking the longer term, “monetarist” in the 1980s sense. Its guidance comes from an open minded, common sense, networked approach to economic problems a home of sanity with a long run reputation for integrity, interest and companionship in pursuit of solutions for problems we can’t always pretend to fully understand.

On other policy issues I found Edward to be shall we say an “antiextremist”. His sympathy for Commonwealth countries and his correspondence with war veterans associations, his appreciation of the complementary nature of inter-continental trade, his bitter distaste for the dishonesty of many of the arguments used by the Europhiles inclined him to resist Britain’s ignominious collapse under Edward Heath’s obsession, into the EEC. But for all that, issues concerning money dominated our conversations. On one occasion I remember saying to him that I had bought some gold coins. Through a smile he said that “it is a good investment, but I hate you for it”!

So many memories. On another occasion I found myself at a party at his home in Brighton. It was a summer occasion out on his lawn which was as neat and trim as only a lawn on chalk country can be and I remember the occasion for the guests such as John Biggs-Davison MP and the gentle atmosphere of Edwardian elegance.

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