British school children learn about the Glorious Revolution of 1688 which installed without bloodshed a new bill-of-rights respecting monarchy (William and Mary) on the throne in the place of the autocratic short-reigning King James. The Protestant elites feared his dismantling of restrictions on Catholics and his geo-political rapprochement with France under Louis XIV. They opted for Dutch King William.
Now there is a new lesson: the inglorious coup against PM Liz Truss in office just 7 weeks.
What was the aim of this coup led by plotting centrist parliamentarians within the Conservative Party1? It was to abort her free-market capitalist agenda – the first time a Conservative Government led by a PM from the right-wing of the Party had embarked on this since the 1980s under Margaret Thatcher. Geopolitics was not a factor; outwardly at least there is no dissent in Parliament about Britain’s prominent role in supporting Ukraine and joining in the US-led proxy war against Russia.
The pretext of the coup-organizers was to stem a market crisis ostensibly triggered by the government’s early budget decisions.
Many fellow conservative MPs (members of parliament) were anxious that the crisis would be the catalyst to the opposition Labour party gaining a landslide victory at the next General Election (due at latest by end 2024); wild swings in the opinion polls fanned the alarm. A leading concern was that the jump in interest rates would unsettle swathes of traditional conservative voters with large mortgages outstanding on homes bought at notoriously high prices fanned by monetary inflation.
The inglorious coup, unlike the glorious revolution, brings no new freedoms. Rather a rapid return journey looms into the status quo where Big Government, Big Finance, and crony capitalism thrive. The brooms of de-regulation and market-determined interest rates to which the Truss Government had opened the door are now firmly back in the cupboard.
The new PM, Rishi Sunak was selected under rules for a conservative party vote stitched up overnight by the coup plotters, and duly rubber-stamped by the so-called “1922 committee”. The requirement for any eligible candidate to have 100 MP sponsors to go forward into an election process meant Sunak would be the only name on a ballot. Hence no election necessary, whether amongst parliamentarians or rank and file conservative party members.
Within a few days of Liz Truss’s resignation announcement came the anointment as PM of ex-Finance Minister Sunak who had presided over the Big Government and highly inflationary economic program of the Boris Johnson administration through the pandemic years. As such he had perfectly toed the line to the beliefs and preferences of the status quo whether at Davos, the global central bankers’ club, or “the City”.
The success of this coup is sad for anyone who believed that Britain had a real prospect of shaking off the fetters of a high tax Big Government and reaping the benefits of freedom and prosperity from a new competitive capitalism under sound money.
Deriving and learning the lessons about how the coup succeeded will not help undo the sombre outcome for the UK. The process, however, should be of huge consequence for the US and indeed the rest of the world. Hopes for a renaissance of capitalism and freedom should gain new substance from those lessons as its advocates in the political arena are better prepared in consequence when their opportunity comes.
The biggest lesson will surely be one going all the way back to Adam Smith, repeated by J.S. Mill and Milton Friedman.
The essential foundation of competitive capitalism and freedom is sound money. The ill-fated ex PM Truss came into office with no coherent let alone compelling program for monetary reform – how to overturn the actual bad money regime, the so-called “2 per cent inflation standard”.
As a practical matter it is only possible to pursue supply side tax reform which transitorily widens the budget deficit if indeed there is a monetary regime in place which enjoys confidence about its money being good. Tax cuts delivered up front can be matched then by credible programs of public spending reduction. If the economic reformers leave the bad money regime in place, then any serious widening of the budget deficit becomes a catalyst to an intensification of inflationary fears. These can short-circuit in currency and bond market collapse.
President Reagan and PM Thatcher understood those interdependencies in the early 80s. They accompanied supply side tax cuts with their endorsement of the “monetarist experiment”. Reagan gave political support to the Volcker Fed’s blunder-buss rate rises through 1981-2 to end high inflation: Thatcher supported tough monetarist medicine, ostensibly taking advice from internationally renowned professors.
Of course, the applied forms of practical monetarism had flaws. Both leaders came under intense political pressure later to abandon monetarism, which they did. The wider free market crusades in Britain and the US bore the consequences of that failure to persevere with monetary reform in the direction of good money.
By contrast ex-PM Truss led the charge for a new low tax competitive capitalism whilst leaving the old regime under inflation-maker Bank of England Chief Bailey in full command. His institution announced only a tame 50bp rise of its policy rate to 2.25% on the eve of a bold unveiling of Truss’s tax-cutting plan, despite year-on-year CPI inflation already moving in double digits. No wonder the markets (the pound and gilts) reacted in scare.
Glaringly PM Truss had totally failed to make any popular appeal about creating a new hard money and slaying the scourge of high inflation.
Is there not a way to sell the benefits of a good money to the public, whether in the US or Europe, in a way which would be a powerful vote winner?
After all we have the example in Germany where the Social Democrats and Liberals won the 1969 elections on the promise of a strong currency and breaking with the inflationary dollar. They allied themselves with the monetarist pioneers within the Bundesbank, The hard DM became the most popular German institution.
Is it out of the question, especially in present high inflation circumstances, for a mainstream British or US or German political party to find the same route to victory?
Obviously the big and most important sell is that a hard currency wins advantages of prosperity and freedom and soothes the widespread deep anxiety at this time of widespread serious loss of wealth in real terms.
Symbolism can be important here.
Perhaps in time a Truss government if it had survived would have embraced the idea of launching a 100-pound note (at present the maximum denomination is 50 pounds, much lower than the maximum 100 in dollars, 200 in euros, and 1000 in Swiss francs) with the head of the new King on it. The new notes could have born a promise saying we (the Bank of England) will be faithful to our duty to maintain the soundness of this money.
All this would have indicated a radical change from the Elizabethan pound; notes as first issued with the Queen’s image on one side in 1960 had lost (through the course of several exchanges) almost 96% of their purchasing power by the time of that monarch’s death.
Now pie in the sky.
The simple lesson repeated ad nausea in the media from all this is the need to reduce fiscal deficits. The argument is that in today’s world of permanently higher interest rates governments can no longer run large deficits and expect the tolerance of financial markets to do so.
That is a lesson to suit the monetary and economic status quo. The central banks are back to the age-old ploy of blaming the finance ministers for bad outcomes. No fault of the monetary regime!
The free-market competitive capitalist agenda will never win popular support based on good housekeeping as its main plank, though that will doubtless be incentivized by good money.
