The Facts

The economy before de-regulation (1945-1971) and after de-regulation (1971-2008)

The decades from 1945 - 1970 have been described as a “golden era of tranquillity in international capital markets, a fulfilment of the benediction ‘May you live in dull times’ ”, by the renowned historian, Barry Eichengreen and co-author Peter Lindert (Eichengreen and Lindert, ‘The International Debt Crisis in Historical Perspective.’ 1991).

These graphs (which we hope to add to over time) show how the liberalisation of credit and international capital flows after 1971 led to the inflation of prices - e.g. oil prices and house prices - and how neo-liberal policies led to a fall in wages and salaries as a share of the national cake. It was falling or stagnating wages that forced people to borrow and become debtors, to compensate. Before the neo-liberal era, in the era of Keynes’ policies for regulated credit, controlled capital flows and ‘cheap money’, people had no need to get into debt to finance and secure homes, university places,  or investment.

Neo-liberal policies for de-regulating credit and capital flows naturally fuelled the rise in inflation. Inflation was not caused by Keynesian policies - quite the contrary. Keynesian policies had been abandoned by 1971. Easy money fuelled inflation. Easy money was in turn facilitated by e.g. the UK’s Competition and Credit Control Act of 1971 - dubbed ‘all competition and no control’.  Nor were trades unions responsible for inflation in the first instance. They simply fought to defend the living standards of their members.  When unions succeeded in defending living standards, wages rose in line with rising prices, and inflation soared.

These graphs help to illustrate the point that the inflation of asset and other prices was caused directly by ‘monetarist’ policies to de-regulate finance, which in turn led to the dramatic rise in indebtedness. Today we are witnessing the chaotic and hugely destructive unwinding of those debts.

Source:  Nationwide’s house price database.

Until 1971, there was no quarterly year-on-year rise in average house prices above 10%.  At the end of 1971, year on year price rises began to far exceed this.  The Q4 rise in 1972 was 42%. This was the greatest single year on year rise, but during the early 1970s, late 1970s, late 1980s and early 2000s quarterly year-on-year price rises regularly exceeded 20%.