Alan Walters' career exemplifies what Hegel called "the cunning of history": accidental and incidental factors interact with "necessity" in unexpected ways to create new, hard realities. Greatness was thrust upon him when Margaret Thatcher, then wrestling with her tangled inheritance of economic chaos as Prime Minister of a government which was not of her mind, decided she needed her own personal economic adviser. She appointed Alan Walters, whom she had met and learned to appreciate some years previously. Walters lived up to the challenge to an extent that few would have predicted. His two-year stint at No 10 added a dimension of economic doctrine, logic and consistency to the largely instinctual Thatcherite canon.
Of the qualities needed for a prime-ministerial economic adviser at that time, knowledge of economics was less important than character, since it was necessary to fight a mind set which dominated the civil service, academe, the broadsheet press, and, in a word, the establishment. Walters fitted the bill. A member of the provincial working classes who went from school to a job in a factory before being conscripted into the Army during the closing stages of the Second World War, he took advantage of the post-war expansion of educational opportunity to enrol at Leicester University College, then an affiliate of London University.
There, he demonstrated an ability for abstract thinking together with the robust self-confidence and determination which was to be his characteristic. He came out first in economic statistics in the final BSc (Econ) examinations of London University and its affiliates; a star was born. An academic career followed: an MA at Nuffield led to a post at Birmingham University, and in due course to the prestigious Cassel professorship at the London School of Economics. Monetary policy and transport were among the subjects he submitted to analysis.
When Edward Heath took office in 1970, Walters was invited to become part-time prime ministerial economic adviser. Two years later, when Heath and his colleagues panicked over the rising unemployment figures and began reflation, Walters warned that it would generate massive inflation, a balance of payments crisis andirresistible pressures for a pricesand incomes policy. All his prophecies were to prove correct, but Heath's reaction was to terminate his contract forthwith.
Later in the decade, after obtaining a divorce from his first wife and marrying Paddie, who was to be his lifelong companion, he made his way to the United States, to a chair at Johns Hopkins concurrent with a senior advisory post at the World Bank, covering transport, and a foothold in the influential American Enterprise Institute.
With their imposing Georgetown mansion, he and Paddie became part of the Washington intellectual scene, which was more sympathetic to his economic views and where the rewards to high-flying academics were more lucrative than in Britain's resource-starved higher-education sector. They could have been expected to stay there and disappear from the British radar had it not been for the call to assist Thatcher.
Walters' experience in Britain eventually helped bring about an evolution in the British climate of opinion. The early post-war "brave new world" mood in Britain had favoured the idea of utopian-socialistic, Keynesian welfare and full employment imposed by fiat. Reservations based on neo-classical economic logic were rejected as "monetarism", anathematised by some as an eighth deadly sin.
It took decades for the hardy souls like Walters who braved the opprobrium meted out to "monetarists" to gain a fair wind from the effects of economic malaise. As Milton Friedman had prophesied, the majority's conversion owed more to bitter experience than to the battle of ideas.
When Walters returned to Britain at the end of 1980, having negotiated his advisership with conditions favorable by British standards but less favorable than those he had left behind, "anti-monetarism" was still in the ascendant. This was testified by the letter to The Times signed by 364 economists forecasting doom if the proposed 1981 budget, Walters' handiwork, was enacted. (It was designed to reduce the budget deficit – euphemistically dubbed the "Public Sector Borrowing Requirement" - partly by squeezing runaway government expenditure and partly by raising taxation.)
The interest-rate squeeze inherited from the Labour Chancellor Denis Healey – which had led to an excessively high pound, generating balance-of-payments difficulties and unemployment – was identified and moderated on the advice of a Swiss economist's study which, in my capacity as an adviser to Thatcher, I had commissioned in consultation with Walters, who was then still serving out his notice in Washington. The study enabled him to hit the ground running when he arrived in London in December 1980, and also signalled that his approach was to be more econometric than ideological.
With Walters' guidance, Thatcher made macro-economic policy at No 10 while Geoffrey Howe in No 11 implemented it. His lecture "The British Renaissance, 1979-?", given at the American Enterprise Institute on his return to Washington, chronicles this exercise in monetary stringency and its benefits, which were becoming visible in Britain. He amplified his encomia in Britain's Economic Renaissance: Margaret Thatcher's reforms, 1979-1984, published in 1986 while the sun still shone on Thatcher's Britain.
He returned to the US in 1983 at the end of his two-year stint, in part to work out his pensions but in part because Paddie was dissatisfied at life in London without a responsible job, as she had held in Washington. (The Institute of Economic Affairs had undertaken to find her one but failed.) It is tempting to speculate how things would have turned out had he stayed on in Britain; the 20th century has witnessed several examples of counter-intuitive individual defiance of given historical trends. By the time he returned to Britain for good at the end of the decade, the Prime Minister's position had weakened and her reforms were unravelling. It transpired that monetary policy alone could not achieve its objectives so long as government expenditure could not be correspondingly bridled: the whole government machine – politicians, civil servants and industrial beneficiaries – was predicated on spending.
At the time, the Prime Minister had come under increasing pressure to join the European Exchange Rate Mechanism favoured, among others, by Chancellor Nigel Lawson and his predecessor Geoffrey Howe as a step towards a European currency. In his 1990 book Sterling in Danger, Walters explained his opposition to their policies and aspirations in detail.
Lawson, his policy of shadowing the Deutschmark in tatters, used Walters' return to No 10, with a brief to give the Prime Minister a second opinion, as a rationale for resigning, supported by a sycophantic press campaign which depicted Walters as "Rasputin" and revived anti-Thatcher sentiment in a new Conservative form. When Lawson resigned, Thatcher came under pressure to let Walters go, too. Then, against her own better judgement, she took Britain into the ERM, with eventual catastrophic results for both the economy and the Conservative Party – which had been forecast by Walters, a reluctant Cassandra for the second time.
He returned to private life, with a lucrative consultancy with the insurance company AIG and a foothold in the IEA, and stood as general election candidate for Sir James Goldsmith's short-lived Referendum Party. The onset of Parkinson's disease ruled out further major contributions to economic ideas on his part, though he summed up his views and lessons of experience in The Economics and Politics of Money (1998) and made a vigorous assault on campaigns to write off African debt (though his arguments have yet to prevail).
Walters remains part of the Thatcher era, both its heroic age and its embattled conclusion. Partly thanks to his achievements, the intellectual framework within which economic analysis and policy-making now take place owes far more to his innovations than to the then prevailing mindset which he had challenged in the 1970s and 1980s. "Monetarism" is no longer demonised; indeed, the epithet has dropped out of the mainstream political vocabulary. "We're all monetarists now" can be a passing tribute to Walters' triumphs and tribulations.
Alan Arthur Walters, economist: born Leicester 17 June 1926; Lecturer in Econometrics, Birmingham University 1951-61, Professor of Econometrics and Social Statistics 1961-68; Visiting Professor of Economics, Northwestern University, Evanston, Illinois, USA 1958-59; Visiting Professor of Economics, MIT 1966-67; Cassel Professor of Economics, London School of Economics 1968-76; Professor of Economics, Johns Hopkins University, Maryland 1976-91; Economic Adviser to World Bank 1976-80, 1984-88; Chief Economic Adviser to the Prime Minister (on secondment) 1981-84, 1989; Visiting Fellow, Nuffield College, Oxford 1982-84; Kt 1983; twice married (one daughter), secondly 1975 Paddie Wilson; died London 3 January 2009.
Sir Alfred Sherman died 26 August 2006.
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