Sovereignty and a Single European Currency (in 1991)

Your money or your sovereignty?

Brendan Clifford discusses the advantages of a Prime Minister who does not pretend to understand the economy, but is content to go with the flow. He shows how Thatcher, in her later years, was acting sharply against the interests of industrial capitalists.

The present Prime Minister, when Chancellor of the Exchequer, said that control of British money by the British government was the essence of British sovereignty. But John Major has the great advantage over his predecessor at the Exchequer, Nigel Lawson, that he does not pretend to understand the economy. He is a politician first and last, and therefore he is free to go with the flow. He had to say certain things as Chancellor because they were then the things to say. He could say them with impunity because the Labour Front Bench either lacked the confidence to challenge them, or was so confident of winning the next election because of the Thatcher factor that it didn’t bother its head trying to think. And now Major can if he pleases do with impunity something entirely different as Prime Minister from what he said as Chancellor, because the Labour Front Bench is floundering because of the surgical removal of the Thatcher factor.

The view that Government manipulation of money is the essence of British sovereignty indicated that Thatcherism had become intellectually and morally bankrupt. Its specific morality was economic. Its mission was to create a favourable business environment for entrepreneurship. There were two obvious obstacles to business enterprise to be dealt with. The first was a trade union movement that was too powerful to remain disengaged from managerial responsibility, but that refused to become involved in managerial responsibility. That was dealt with by breaking all Government relations with the unions and letting nature take its course. In the late 1970s the unions chose the capitalist market in preference to workers control. Thatcher let them have the capitalist market.

But that is really all that Thatcher has done for business enterprises. The tax cuts contributed to the affluence of high-earning individuals, but the notion that they would fuel an economic development was grossly ill-founded.

The second obvious obstacle to enterprise was the money system. This consisted of inflation on the one hand and currency barriers within the market on the other.

By 1979 it was the case that British industry must flourish within the Common Market or not flourish at all. But everyone with an historical knowledge of European affairs would have known that tariff barriers would be reduced only to reveal currency barriers to trade.

It became Thatcherite doctrine to say that what Britain wanted was a Common Market, a free trade area, not a European super-state. And that the establishment of a single European currency had to do with establishing a European superstate, not a free market. That doctrine indicated the slight connection between Thatcherism and business.

British manufacturing must sell in Europe. But its trade with Europe is obstructed by eleven currency systems. The buying and selling of goods therefore involves the buying and selling of money. Unless there are fixed exchange rates, that means that business has to operate in an unstable monetary medium.

A manufacturer operating entirely within the British market takes the value of money for granted in buying and selling. Because it is the same for everyone, the only problem about it is whether you’ve got it or not Money itself is not a commodity. But a manufacturer producing for the European market must take account of the fact that his currency must be exchanged for other currencies, and that the rates of exchange fluctuate. He has therefore a strong incentive to engage in currency speculation in order to keep his money in prime condition.

The arrangement which Thatcher favoured – and which Major favoured as her Chancellor – was more conducive to the business of currency speculation that to any other business. Kinnock might, if he was not so clever, have made himself the champion of British industry against Thatcher by pointing out that having different currencies in one market was bad for business. But he left it for Heseltine to do that, thus bringing about a condition in which the Government and Opposition were both in the Tory Party.

It became obvious in the course of the eighties that Thatcher had picked up a bundle of phrases which she did not know the meaning of. This was especially clear in the interview she gave to Radio 4 last summer in the bicentenary of Adam Smith. She had a clutter of names running around in her head, and at one point she referred to people such as Adam Smith and Adam Ferguson who demonstrated that the market was not a theory but an elementary fact of human nature. Her statement that there is no such thing as society, only individuals and their families, might be a vulgar inference from Adam Smith. But Adam Ferguson took the fundamentally different view that society is prior to individuals, and that radically different forms of society are possible. (She also referred to Edmund Burke as Edward Burke.)

In the ordinary course of things, it would be no great matter that a Prime Minister was not familiar with the different professors of Glasgow and Edinburgh two hundred years ago, because in the ordinary course of things Britain is not governed by theorists. But when a theorist is in command, it is important that the operative theory should be derived from the broadest possible experience.

Thatcher fantasised about capitalism without knowing what it was, and she got so much out of joint with its requirements that the CBI fought a protracted propaganda war against her. It was her good fortune that the Labour Front Bench ceased to be socialist without becoming anything else. And it was her bad fortune that she sacked a Cabinet Minister who proceeded to make himself the spokesman for the actual business interest in the country.


It is less than a month since Major declared that the establishment of a single currency was incompatible with the continuing sovereignty of the United Kingdom. It has never happened, he said, that there were two Chancellors of the Exchequer within a single currency. If that was so, it would not mean that it was impossible to have two chancellors within a single currency. All permutations are possible. But it is not so. For fifty years there was a single currency between Britain and Ireland. The notes had different pictures on them, but there was no rate of exchange between them – unless a pound for a pound is a rate of exchange. And in Northern Ireland, the two were treated as one, as Bank of England and Bank of Scotland notes in Britain – as they would be if English shopkeepers were not so provincial.

John O’Sullivan, who was in Thatcher’s entourage of enthusiasts before she came to power, and was her advisor in the mid- 1980s, is now Thatcher’s apostle in the USA. He appeared in American television (CNN) on the evening that she was mortally wounded by Heseltine. And in his hour of anguish he was jeered at in the following terms: you Thatcherites claim to be capitalists, but you insist on preserving currency obstacles to trade in Europe. Look around you and see what a capitalist market is! See how American capitalists trade freely across state boundaries through the medium of the dollar!

The United States had a single currency from the late 18th century, while the individual states retained very great independence. Indeed, it was not until the 1860s that it was determined that the individual states were not sovereign units voluntarily cooperating with each other. But they still retain considerable independence, and there is more difference between them than is generally supposed.

I have never seen a detailed comparison between the degree of commercial uniformity within the USA and within the EEC. But I suspect that the EEC is on the brink of being more uniform than the USA in some respects.

As commercial activity in Europe is increasingly subject to common standards and conditions, the existence of a multitude of currencies must become increasingly irksome. It is probable that Major, prompted by his back-seat driver – who is not Thatcher – will eat his words of last month – doing so all the more easily because he does not pretend to be an economist – and will adapt to a single currency under cover of his ‘hard ECU’ proposal. (It was never clear what the ‘hard ECU’ meant. But if it was established as actual money that you could put in your pocket and spend anywhere in the European Community, and was not a mere accounting unit, then I can’t see how it could fail to become the single currency.)

I think it is already too late for the Labour Front Bench to get any advantage from supporting a single currency. But it might make itself economically credible to the country by explaining the political economy of it all. And if it doesn’t know the political economy of it, I suggest it read Volumes 2 and 3 of Marx’s Capital.

And the very best way for Labour to convince the country that it does not intend to produce confetti money, and that it is serious about low inflation, is to support the formation of a single currency on the lines advocated by Germany. Britain on its own is demonstrably incapable of keeping inflation at one or two per cent, or of making any serious effort to control inflation without damaging effects in another part of the system.

Thatcher’s delusion was that a free market is not a political creation. In fact a free market can only exist within a political structure. And the political framework of a free market is an incipient state.

The existence of different currencies within an otherwise free market will not be tolerated indefinitely, and the exchange rate mechanism cannot be maintained indefinitely. There is a will in Europe to establish a free market, in the sense of a market without internal obstacles to trade. This does not mean, and never had meant, that the EEC is committed to unbridled capitalism, and the British Left had no reasonable grounds for supposing that it did.

It is now patently obvious that working class advance is not less likely in an European context than in Britain taken by itself. The quicker Britain includes itself within the European dimensions, and subjects itself to the constraints and opportunities of that dimension the better.



This article appeared in January 1991, in Issue 21 of Labour and Trade Union Review, now Labour Affairs.  You can find more from the era at