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Among the many charges still laid at her feet, the late Baroness Thatcher is often blamed for deliberately increasing unemployment as Prime Minister so as to bring the trade unions to heel.

The truth, however, is somewhat different. The huge rise in unemployment which occurred during her first term in office was in fact the unintended consequence of what one might call blind monetarism. 

Her Chancellor Geoffrey Howe, whose background experience was law and not   business, embraced the new concept of monetarism wholeheartedly, convinced that the only way to kill inflation was to raise interest rates. So as inflation rose, bank rates in 1979 climbed even higher to contain it. This had two deeply perverse effects.

First, it substantially raised the cost of existing mortgages so that many households simply could not afford the unanticipated cost — which was often more than double that originally entered into. Such households were desperate to see an increase in wages. So inevitably inflation was primarily driven by a wage price spiral — not specifically by any material increase in import prices but by the fuel on the fire of ever-increasing mortgages and the consequent wage-induced business costs. The second effect of forcing the bank rate rise to 17 per cent on November 15, 1979 was that it dramatically raised the value of sterling, on occasion to as much as 2.4 dollars to the pound — some 21 per cent above its purchasing power parity. This was disastrous for exporters.

As co-founder of the Centre for Policy Studies (CPS) with Sir Keith Joseph, I could ensure he was aware of this problem. As an active member of the CBI council, I had been talking to many other concerned industrialists. Sir Emmanuel Kaye, managing director of Lansing Bagnall, a big manufacturer of forklift trucks, asked me if I could arrange a meeting with Keith. The rise in sterling was making it impossible for him to export. It had put up his costs by more than 20 per cent, making his company hugely uncompetitive. Others, like Richard Butler, chairman of the National Farmers Union, were also deeply worried.

I arranged the meeting,  showing with a plethora of charts how the overvalued pound was making large sections of British industry uncompetitive. Keith was impressed but told me there was nothing he could do, that we were also a petro-currency and Howe was the man to see. Rising interest rates, he added, were part of his policy of bringing inflation under control.

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