A group of nine men in London control what is almost certainly the most powerful policy instrument for managing the economy. The instrument is nation's money, and the nine men – there are no women – comprise the Monetary Policy Committee (MPC) of the Bank of England. An overlapping board of another twelve people – there is at least one woman this time – decide how the banks are to run their businesses. This is the Court of Directors of the Bank of England.
You know that paper money we have in our purses and pockets, and use to pay for our lunch, our newspaper and our groceries? They decide how much of it is printed. At the stroke of a keyboard, they can create deposits with the commercial banks – which is rather like just printing money – and give them loans. They can determine how much of that money the banks can lend out, and how much they have to keep in their vaults, which naturally has enormous consequences for individuals and private businesses who are trying to get loans to buy cars, or houses, or equipment, or factories. They have the power to raise or lower the interest rates on those loans, which like any change in price, changes our willingness to take out loans and the banks' willingness to supply them.
These men (and solitary woman) are not chosen by voters. They are appointed by civil servants and by the Chancellor of the Exchequer. Yet they have enormous power over our economy, and therefore our lives. For many decades they have attempted to predict where the economy is going and make sure that the operation of the banks, and the supply of money they have to work on, are right for the job in hand – namely, the job of keeping the economy growing and making us wealthy, while not creating so much money that we all feel a bit too wealthy and bid up prices with our spending – the hugely damaging phenomenon we call inflation.
Have they done a good job? Hardly. The fact is that they have tried to stem every slowdown, and every threat to confidence and growth (stockmarket downturns, sovereign debt defaults, terrorist attacks) by flooding the economy with more money. Then, as growth raced on, they did not rein that new money back in again. Over and over they did this, until our economy was growing white hot. But then, as business went into meltdown, they chilled it even more by curbing the growth of money too fast. They did not avert a banking crisis: they contributed to it.
It must be clear by now that we have concentrated far too much power into too few, too human hands. For all the problems it might cause us from time to time, I believe that the best way to control the supply of money to banks and businesses is through some inflexible rule, by which it grows at some small, steady rate, or maybe even doesn't grow at all. Then we can all predict what our money will be worth tomorrow. And if interest rates are to do the job of balancing the supply of and the demand for loans – the same balancing act that any other price does, in fact – that is better done by the interaction of millions of economically active people in the marketplace than by a few men (and one woman) round a table in the elegant committee rooms of the Bank of England.