Historical Notes

What was Henry Brandon?

One of the most interesting secondary sources covering the struggles of the British Labour government under Harold Wilson to prevent the devaluation of sterling between 1964-66 is Henry Brandon’s In the Red, published by Andre Deutsch in 1966. It is a remarkably well-informed text and its reliability is underlined by the official record: most of the key points made by Brandon are supported by recently released papers in the National Archives (formerly the Public Record Office). Highlights are the Wilson-LBJ relationship (uneasy), an account of Chancellor Jim Callaghan’s encounter with the US President in July 1965, Wilson’s difficulties with Lord Cromer (Governor of the Bank of England), and the saga of the international support package raised to beat off anti-sterling speculation in the late summer of 1965. When Brandon’s tale started to appear, in The Sunday Times during the 1966 election campaign, the Head of the Government Economic Service, Sir Alec Cairncross, was so struck by its authenticity that he asked, ‘Where on earth did he get it all unless the main actors spilled the beans? It makes the secrecy of government a little silly’.(1)

Brandon was born in 1916 in what was shortly to become Czechoslovakia,. He was educated at the universities of Prague and Lausanne and, as a young man, was a strong supporter of the Benes government. When the Germans invaded in March 1939, he fled to London. After a series of second-string journalistic assignments he landed the job of war correspondent with The Sunday Times. He spent a couple of years in the States, much of this time in Washington, before going to Europe where he reported on the progress of the Allied invasion forces after D-Day. He never really looked back, became The Sunday Times man in Washington, and acquired a reputation for assiduous networking which stayed with him to the end (he died in 1993).

Brandon was by all accounts not an obtrusive operator. In a Sunday Telegraph piece about him published just after his death in April 1993, Peregrine Worsthorne, who was in Washington in the early 1950s, noted that Brandon, with his émigré background and Czech accent, often seemed to be on the outside of or even excluded from the many briefings given by Truman administration insiders, and that it was not until the JFK era that he came into his own. He even suggested that there were some in Washington who suspected Brandon’s loyalty.(2) Another account recorded how Brandon always seemed to be at the back of any crowd of journalists seeking information from senior politicians. Harold Jackson’s somewhat sour obituary in The Guardian pointed out that Brandon was excellent at gathering information but often did not seem willing or able to do anything with it, and that the high-profile quality of his network did not deliver very many major stories.(3)

The index to Brandon’s papers in the Library of Congress bears out his success in this activity: they show regular contacts with US Presidents and key officials such as Robert McNamara, Walt Rostow and Henry Kissinger. There are boxes of classified and Top Secret US government material which cover the cold war period from 1947 to 1966, and which were apparently ‘removed’ for Brandon’s benefit from ‘series, folders and boxes in their home departments’.(4) An early contact seems to have been George F. Kennan(5) during the time when the doctrine of containment was being developed and the post-war Anglo-American alliance constructed. Later subjects were front rank US politicians such as Presidents Kennedy and Johnson and key officials such as Robert McNamara and Henry Kissinger. Brandon lived for many years next door to the UK Ambassador’s residence in Washington and by all accounts was able to come and go more or less as he pleased, even sharing the tennis courts.(6)

Low-key journalist or something else?

There is something of a paradox here. Was Brandon really a well connected but low-key journalist who was not always trusted by the US security establishment, as the obituaries suggested? There are a number of answers. First of all, because Brandon’s sources were so well-placed he had to be careful how he deployed the information he gained from them, in case it resulted in embarrassment and curtailed his access. Secondly, some of the stories he did publish were genuinely revealing insights into the twists and turns of strategy and diplomacy within the western alliance. Examples are his articles on the 1962 cancellation of the US Skybolt missile which was supposed to become the centrepiece of the UK nuclear deterrent, or In the Red’s analysis of sterling’s problems, or Anatomy of Error (1969), which focused on the debates about Indo-China within the Washington establishment in the period from Eisenhower to LBJ. Thirdly, it has been suggested that he was a MI6 asset. True, the source of this was Izvestia in December 1968. But it was later reported that Henry Kissinger had ordered the tapping of the telephone of a British journalist who was suspected of being an MI6 operative; in 1982 The Press Gazette reported on 3 May 1982 that Brandon’s phone had been tapped (it later emerged that Brandon discovered this and took the issue up with Kissinger, who apologised and said that J. Edgar Hoover had insisted on it, leaving him no discretion in the matter).(7)

Was Brandon MI6? Clearly he had the best access a journalist of his type could wish for. Equally clearly he was extraordinarily favoured with inside information by his sources. He also seems to have been very discreet. What we can say with some certainty is that although the exact nature of his connnection with the Anglo-American establishment may not yet be clear, he was an absolutely determined advocate of the US-UK special relationship. The index to his papers suggests that this enthusiasm dates back to the 1940s. Much of his best work examined the dynamics of this relationship in the field of nuclear and financial diplomacy at a time when successive British governments were looking to Washington to help them sustain Britain’s international influence and fend off debilitating economic crises. From the perspective of the British establishment the great merit of Brandon was, first, his ability through his Sunday Times articles to carry to the liberal intelligentsia the case for the special relationship, and secondly, his talent for delivering to senior British politicians and diplomats his well-founded insights into what their opposite numbers in the USA were privately thinking. Whatever the truth about Brandon’s relationship with MI6, this is intelligence work.

The coming of Monetarism

Monetarism, which both the UK and the USA had rejected as a means of keeping inflationary pressures under control in the 1960s, made a spectacular and increasingly successful return in both the Anglo-American and wider international economy during the 1970s and 1980s. But its rise to prominence goes back to the late 1960s and owes much to the economic difficulties of the British Labour governments of Harold Wilson (1964-70) and the uneasy relationship these administrations had with the international financial community.

Monetarism had been developed at Chicago by the economist Milton Friedman in the 1950s. His work seemed to point to a connection between rising price levels and the growth of the money supply and in so doing apparently offered to policy-makers a means of reducing inflation. By the late 1960s the most common definition of money supply was one that involved currency in circulation and sight, or demand deposits (known as M1). This was accepted by the OECD although in the 1970s there was a shift in favour of M3,(8) which embraced M1 and added all time deposits, savings deposits, institutional and non-institutional money-market funds, repurchase agreements (these are not unlike secured loans) and other assets. The central tenet of the monetarist outlook was that the growth of the money supply in excess of the expansion of real GDP stimulated inflationary booms. Efforts to monitor and control this variable centred on domestic credit expansion (DCE), which, if excessive, would lead to a surplus in the money supply over the demand for it. The result would be pressure on the cost of living and a balance of payments deficit, with efforts to rein these in via tax increases, incomes policies and higher interest rates being negated by the superfluity of credit.

Britain’s December 1967 Letter of Intent to the International Monetary Fund (IMF), sent in return for external support after the November 1967 sterling devaluation of 14.3 per cent (from £1=$2.80 to £1=$2.40), mentioned the importance of controlling domestic credit expansion, and this was tightened in the 1969 Letter of Intent, when the UK committed itself to an annual target of £400m for DCE in the public and private sectors as a condition of IMF assistance, progress towards this figure being reviewed on a quarterly basis.(9) Moran (see note 8) makes the point that by this time the IMF had become increasingly influenced by monetarist ideas. Other policy prescriptions (such as fiscal measures and incomes policy) either failed to contain rising costs very efficiently or, if they did, it was by generating increasing social tension. As a recipient of significant IMF support over the 1964-69 period, the UK could hardly escape this shift in economic thought away from orthodox Keynesianism.(10) The point was that the IMF wanted HMG to pay attention to monetary targets as part of the effort to control inflationary pressures since the persistence of these pressures was believed to be a key factor preventing Britain from overcoming its balance of payments deficit. A series of fiscal and monetary measures all the way from November 1964, including controls on bank lending, had failed to bring down the rising cost of living, it was alleged, because the growth of the money supply in excess of the expansion of real GDP had led to excessive consumption.

Monetarist ideas spread through the economics profession in the USA, where there were also persistent balance of payments problems, during the 1960s – although Bill Martin, the Federal Reserve Chair under President Johnson (1963-69), was not at all convinced. Nonetheless, Friedman, regarded as a rather eccentric figure in the early 1950s, had something approaching guru status in many university Economics faculties by the late 1960s. His work seemed to suggest a good fit between excessive monetary expansion and inflation in the USA earlier in the decade: it followed that the application of his ideas to economic policy might provide a yardstick by which creditors could assess the progress of countries like the UK to equilibrium in their external accounts.iPresident Nixon’s first CEA Chair, Paul McCracken, was sympathetic to monetarist ideas: the devotees of the Keynesian ‘new economics’ were in retreat by this time. In the UK this process took much longer to work through (Sir Alec Cairncross, head of the Government Economic Service, gave it short shrift (12) but the government could not ignore it. Quite apart from the influence of monetarist policies on the IMF staff there was the Group of Ten largest western economies (G10).(13)The record of public statements and the archives show that their finance ministers and central bankers, as well as the technicians whom they sent to the Fund as directors, were all keen to promote the idea that there was a relationship between monetary expansion and the price level.(14)And there was the City. Here there had never been much faith in the Labour government, and the new thinking squared with the traditional Square Mile prejudice against government spending and high taxes.(15) These pressures were reinforced by developments in the financial markets: their increasing size and complexity during the course of the 1960s provided fertile ground for an approach to economic policy which revolved simply around the management of money and eschewed physical intervention in the form of credit controls and exchange restrictions.(16) As Sam Brittan argued, it meant that in 1968 the view that ‘money mattered’ became ‘fashionable overnight in the policy-making world’.(17)

The link between market ‘confidence’ and the emergence of monetarist ideas as an influence on policy debates can be traced through the 1964-69 period. Labour’s need for external support bred an increasing concern with confidence on the part of the international institutions, namely the G10, the BIS and the IMF, who became its creditors. When the government came to power facing a very large current account deficit there was a lot of doubt within these institutions about its ability to reduce this external imbalance because, so it was alleged, Labour’s prioritisation of domestic developmental and social spending, in accordance with its commitment to modernise Britain, would detract from the need to place resources into the balance of payments. More precisely, it would prevent the ‘adjustment’ necessary to taking the UK out of the red, and this could only be achieved through deflation – public spending cuts, a tight monetary policy, a statutory incomes policy (this became a key expectation in 1965), willingness to see a rise in unemployment and the abandonment of much of the manifesto including welfare reforms and the National Plan. During the following years the government introduced some of these measures but never went as far down the road of cuts and deflation of demand as the international financial community required for its satisfaction. When recovery in the balance of payments came, the process was halting and interrupted by speculative crises, revealing that ‘confidence’ had not yet been won. During the months after the 1967 sterling devaluation, as exports responded only slowly and demand remained high (mostly in the first two quarters of 1968), attention turned to monetarist prescriptions as a means to the end of reducing costs and so restoring confidence on the part of the international financial community. A key attraction, therefore, was the apparent simplicity and measurability of concepts like domestic credit expansion and money supply growth as far as international financial institutions and the markets were concerned. The process was finally reflected in the inclusion of a commitment to monetary targets in the government’s 1969 Letter of Intent to the IMF. It was the first but certainly not the last time a major economic power had made such a declaration, and a harbinger of what the next Labour government was to experience in 1975 and 1976.

Notes

1. Alec Cairncross, The Wilson Years: a Treasury Diary 1964-69 (London: Historian’s Press, 1997), p. 120, entry for Sunday 13 March 1966.
2. Peregrine Worsthorne, ‘A Kindness to Cherish’, Sunday Telegraph 25 April 1993.
3. The Guardian, 24 April 1993
4. Brandon papers, Library of Congress, Box TS1
5. For a recent piece on Kennan, who died in 2005, see Scott Newton, ‘Historical Notes,’ Lobster 48 (2004), p. 22.
6. Obituary, ‘Henry Brandon’, The Daily Telegraph 22 April 1993
7. Ibid.
8. Michael Moran, The Politics of Banking, second edition (London and Basingstoke: Macmillan, 1986), p. 35 and reference 23, p. 183, for a note on the timing of this shift.
9. Moran (see note 8) p. 37; TNA PREM 13/3151, ‘Draft Letter of Intent for Stand-by’, 20 May 1969.
10. Although another standard-bearer for the monetarist cause, Harry G. Johnson, argued that the theory was quite compatible with what Keynes had said about monetary policy and liquidity preference in The General Theory; what had happened was that his disciples, notably Robinson and Kahn, had distorted their mentor’s ideas as part of a misguided attack on Keynes’s colleague Dennis Robertson, whose work was also compatible with the new thinking. See Professor Harry G. Johnson and Brian Griffiths, ‘Argument over the Money Supply’, The Times 29 October 1968. The Times was one of the first major British newspapers to promote monetarism.
11. Peter Jay, ‘Inflation: is the Money supply Crucial?’, The Times 31 May 1968.
12. Cairncross (see note 1) p. 327, entry for 1 October 1968, ‘I asked Paul Bareau why the English press (and especially The Times) was making such a fool of itself over Milton Friedman.’
13. Richard Goode, the leader of the delegation which undertook a series of missions in the UK at this time, was another who leaned towards monetarism.
14. This comes through the documents relating to the dealings of the UK Treasury with the Bank for International Settlements (BIS), with the OECD and the G10 and with the IMF, all the way through 1964-70. Key figures were Marius Holtrop, of the BIS and the Netherlands’ Central Bank, and Pieter Lieftinck (a Dutch executive director of the IMF); there were sympathisers in France like Rene Larre (also a Fund director, though the issue was muddied here by French desire to replace the US-UK dominated post-war international monetary order), and Belgian bankers. The Italians usually sat on the fence but representatives from the West Germany sometimes added their support to calls for sharp deflationary measures in the UK and to an increasing concern with domestic credit expansion (this comes through the negotiations the UK held with the IMF as early as 1965, for its drawing in May that year).
15. Cairncross (see note 1) p. 310, entry for 1 July 1968. The occasion was a lunch with the staff of the City merchant bank Keyser Ullmann: ‘nearly all young men, younger than Edward Du Cann and confident of disaster….Change the government or at least the PM; cut government expenditure; deflate….’
16. Moran (see note 8) pp. 20-21.
17. Brittan quoted in Moran, ibid, p. 33