Identifying and Measuring Financial Repression : The British Case in the Mid-20th Century

A disagreement has emerged over whether advanced countries such as Britain engaged in financial repression following the Second World War. A review of the historical and archival evidence identifies eleven pieces of British legislation and sixteen directives that supported financial repression and played a role in sustaining post-war Britain's record-setting levels of public debt. This paper presents an overview of British financial repression, which included interest rate policy, capital controls, directed lending, and the conscription of the British banking system. An examination of two leading methods for measuring financial repression identifies shortcomings and the need for enhanced measurement techniques. Free market bond yield data are used to calculate British government savings attributable to financial repression of over 8% of GDP in 1948, which is more than double previous estimates for Britain and significantly greater than estimates for developing countries during the 1970s-80s