Speeches, Interviews & Other Statements

Margaret Thatcher

Speech at Roosevelt University ("Walter Heller International Finance Lecture")

Document type: Speeches, interviews, etc.
Venue: Chicago
Source: (1) Thatcher Archive: CCOPR 789/75 (2) The Times, 24 September 1975
Journalist: (2) Fred Emery, The Times, reporting
Editorial comments: MT spoke after lunch. Embargoed until 1700 UK time.
Importance ranking: Major
Word count: 4567
Themes: Conservatism, Economy (general discussions), Monetary policy, Energy, Public spending & borrowing, Trade, Foreign policy (general discussions), Foreign policy (development, aid, etc), Foreign policy (International organizations), Foreign policy (Western Europe - non-EU)
(1) Thatcher Archive: CCOPR 789/75


I must first thank you for doing me the singular honour of inviting me to give this lecture.

I do so with some diffidence, as I am not by training an expert on international finance. I am first and foremost a politician (although I have a certain knowledge of science and the law).

I shall not therefore enter the more abstruse realms of international finance, but will talk about three things. First, the relationship between politics and economics, Second, inflation and third, the interdependence of nations.

I am very much aware, that the United States is in the process of celebrating the bicentenary of one of those events which changed the course of history—the signing of the Declaration of Independence in 1776.

This is not the place, and I'm not the person, to expound to this audience the events that led to the Declaration being drawn up.

Be that as it may, I would like to draw to your attention another bicentennial which will be commemorated in 1976, namely the publication of Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith. [end p1]

This remarkable Scottish philosopher set out in over a thousand pages the first systematic description of the economic process. It was widely acclaimed and read throughout the literate world. Its influence was profound.

Just as the seeds of one of the great political experiments were being sown on this side of the Atlantic, seeds of a great economic revolution were being sown on our side. Adam Smith in fact heralded the end of the strait-jacket of feudalism and released all the innate energy of private initiative and enterprise which enabled wealth to be created on a scale never before contemplated.

It may not be know to everyone in this audience but the Chairs of Economics at the Scottish universities are still known as Chairs of Political Economy.

Political Economy not Economics.

I think this significant. Much of the economic teaching in the Western world has become divorced from practical politics. As a result, much economic writing, though academically respectable, seems to the politician to have little relevance to the problems he has to solve. Economic dissertations have become more and more theoretical, more and more mathematical, and to the politician less and less human. As a result, the politician himself has failed to take into account the underlying realities of economics.

I know my comments on economists will not be taken amiss in this particular city. It deservedly has a world-wide reputation for a school of economic thought which has consistently been realistic and thorough, though not always very popular.

Furthermore, this University bears the name of a Franklin Rooseveltpolitician whose courage in grappling with the frightening economic problems of the United States in the 1930's helped to bring the politics back to economics.

Many have since attempted to implement politics which they believed to be in the long-term interests of their people and have had only varying degress of success. [end p2]

This lecture, in memory of one of this City's most distinguished and generous businessmen, Walter E. Heller, gives me the opportunity to explore some of the difficult problems faced by politicians as they grapple with the very complex problems in the realms of national and international financial and economic policy.

These problems tend to be associated with ironing out the extremes of the business cycle. Politicians would dearly like there to be a steady upward sloping line of economic activity.

But attempts to intervene in the cycle to smooth out the peaks and troughs have not been very successful. Between them politicians seem to have a propensity for getting the timing wrong, and sometimes reinforce the trend they are trying to eliminate!

The temptation then is to try to control more and more of the economic system—what has been called the “commanding heights” . This merely leads to a reduction in the efficiency of the system and eventually to the corporate state with all its attendant evils, such as absence of choice and lack of any effective alternative.

The politician is therefore in a dilemma because he has not wholly taken into account economic cause and effect, and has therefore unwittingly ignored economic reality.

On the other hand, some economists have shown similar lack of understanding of politics, by suggesting that they (the economists) know all the answers, implying that it is the incompetence of politicians which produces the problems. But we must always consider the political consequences of proposed economic solutions.

This is not just an academic point—it is one that is at the heart of political economy today. In the economic sphere it has resulted in growing frustrations for both the people (because of the disincentives to be enterprising and responsible) and politicians (because their efforts have not borne the results they expected).

There are I believe some economic, physical, and also moral laws which just cannot be repealed even by the most authoritarian regimes. The Declaration of Independence enshrines some of these and Adam Smith, as a Professor of Moral Philosophy, understood them clearly. [end p3]


We politicians find ourselves making value judgments about priorities all the time. Is the stable value of our currency more important than high employment levels, however you define them?

Is a balance on overseas payments account more important than an increase in our Gross National Product? Does the growth in output come before our reserves of gold and convertible currency? I could go on.

We rely on experts to help us work our these issues.

Since the late 1930s, we in the Western World have relied on one great economist—Lord Keynes—for his insights into economic affairs to guide on policy matters, particularly in regard to high levels of unemployment.

He did his main thinking in the 1930s when the depression in North America and Europe was at its height. To some extent the General Theory published in 1936 reflects this situation. Certainly it answered the critics of the day who saw the demise of capitalism as certain.

The question is sometimes asked—what would Keynes have advised concerning the control of inflation if he had been alive today? I venture to suggest the answer is not what some of his latter-day disciples are advising.

A look at his writings other than the General Theory gives us some clues to what he might have suggested.

Certainly his advice would have been to balance budgets over longer time periods than one year, but balance them is the key phrase. I do not believe he would have advocated running a continuous and growing borrowing requirement year in, year out.

He recognised that a stable value of currency was as essential to the survival of capitalism as oxygen is to life. [end p4]

Perhaps one quotation from his early writings (The Economic Consequences of the Peace) will show you what I mean:

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose” .

The Nobel Laureate, Frederick Hayek, wrote recently: “I have good reason to believe that he (Keynes) would have disapproved of what his followers did in the post-war period. If he had not died so soon, he would have become one of the leaders in the fight against inflation” .

Mr. Chairman, you in the United States have succeeded in bringing your inflation rate down to levels which might be described as tolerable. You have done this at some cost, but nevertheless you have done it.

In the United Kingdom we have not yet been able to do this. The reasons are complex; but it has taken us a long time to come to realise as a nation that unless we elevate the reduction of inflation to a first priority in policy, moral values, our social and political institutions and the very fabric of our society will fall apart.

Meanwhile, we have a rate of inflation (25%; per annum) which has become quite intolerable to live with for ordinary decent people to whom thrift and hard work are virtues.

We also have an official unemployment rate which, for us is high: one and a quarter million, or 4%; of the work force, is unemployed. [end p5]

At the same time, we have no real growth. Yet what do we find? We have already primed the pump! The economy is bearing its maximum degree of public expenditure consistent with a democratic way of life. The percentage of our Gross National Product being absorbed by the public sector is between 50%; and 60%;.

It is not surprising therefore that I find people saying ‘Get Government out of our hair’. They complain that Government takes too much of their incomes for what is now called the ‘Social Wage’.

This is the estimated annual value of the services provided out of public funds for each individual. They would rather have a little less public service and more freedom of choice on how they spend the money they earn. Perhaps universal subsidies are the best example of something many would prefer to do without. Selective Subsidies would be less costly and better.

I have a lot of sympathy with them, because the public sector is not known for its efficiency in producing goods and services.

Absence of growth, rising unemployment and a rapid inflation are the outward signs of our malaise. Inwardly we have the doubt and uncertainty they cause.

Inflation is a pernicious evil capable of destroying any society built on a value system where freedom is paramount.

No democracy has survived a rate of inflation consistently higher than 20 per cent. When money can no longer be counted on to act as a store of value, savings and investment are undermined, the basis of contracts is distorted and the professional and middle class citizen, the backbone of all societies, is disaffected. [end p6]

We saw the result of this process in Germany in the interwar period and indeed see it in some Latin American republics today.

We must never let inflation get out of hand again, yet the prospect of world economic recovery brings with it the possibility of increasing inflation.

Some have warned that next time it will be extremely difficult to control and the Western World may well experience super inflation unless we are single minded about its control.

Now is the time, not only to take action to contain this threat, but to warn the man in the street what may happen next time around. We are trying to do both of these things in Britain now.

Yet it is now clear to me that none of the tools for fighting it which economists offer us can work unless there is the political will to do so, and public opinion understands what is at stake if we fail.

Even the most dedicated interventionist admits that control of inflation has something to do with the money supply, although a lot of other things have to be done as well as getting the money supply broadly right. We know a substantial time lag operates between a monetary policy being implemented and its results. Yet a nation pursuing an anti-inflationary policy may have its objective frustrated by the activities of other countries.

Professor Robert Triffen has pointed out recently one way in which this can operate: “A large part of monetary credit expansion escapes ‘national sovereignty’ controls. In the eight European countries reporting external liabilities and assets of banks in domestic and foreign currencies, ‘controlled’ domestic money supply rose by about two-thirds in the short space of four years (1970–1973) but Euro-currencies liabilities tripled, and the combined total nearly doubled.” [end p7]

Psychologists tell us that inflation is partly (some say wholly) a question of social psychology. They argue that if we can contain expectations concerning income and living standards the problem will be overcome. But in the past these expectations have been fostered by politicans and transmitted by the mass media all over the world. And people have come to believe that things will go on getting better without any extra effort on their part. But it is this self-same approach that has led to increasing inflation. [end p8]

What is clear is that we live in a growingly interdependent world, whether for the solution of our problems of inflation or of other vital matters which concern us all.

What happens in Western Europe, Russia or the Middle East affects life in the United States, just as what happens here affects us in the United Kingdom.


For instance, a poor harvest in Soviet Russia directly affects demand for, and the price of, grain in the United States and Canada. A sharp frost in Brazil in August destroys most of the coffee crop and results in sharp price increases in the price of a cup of coffee in Europe.

I would suggest that the time has come to consider whether we have the institutions with the right terms of reference and structures to take us into the age of interdependence.

Take for instance the post-war monetary structure set up at the Bretton Woods in the late 1940s. This worked well until the end of the 1960s. However, its structure and procedures could not survive the strains imposed by persistent payments surplus or deficits of some countries. Incidentally, Lord Keynes predicted its demise in 1946 on the basis of lack of discipline in this very respect.

Discussions on a new agreement have been postponed as new challenges to the system have arisen. This has resulted in a number of ad hoc arrangements which so far, at any rate, have kept the system going.

If, as I believe, new threats are on the horizon, reform cannot be long delayed.

Take the position of some developing countries with chronic balance of payments deficits. [end p9]

How do we help them?

A system of loans and grants through the IMF has been suggested in the special session of the United Nations General Assembly earlier this month.

This will buy time, but will not solve their problem in the long term.

We need some new thinking on this whole subject of surpluses and deficits in international financial relations.

Patching up the old clothes may not be sufficient—a new suit is probably required.

What is true of international financial affairs is also true of trading relations.

In the course of a quarter of a century, a number of weaknesses, or inadequacies, have been exposed in the present system of trade and payments.

But it is the only system we have. Its principal instruments, the General Agreement on Tariffs and Trade (GATT) and the International Monetary Fund (IMF) do need to be overhauled and brought up to date.

Governments have not been entirely oblivious to the need for reform.

The Tokyo round of multilateral trade negotiations, unlike the six previous GATT rounds, are not only concerned with the further liberalisation of international trade within an accepted framework of rules. They are concerned with the rules as well.

Again, I wonder if GATT and the institutions associated with trading systems are flexible enough to deal with the problems which are inevitable as the world grows more interdependent. [end p10]

Many international negotiations are now in progress aimed at changing this or that in the system. Let me remind you just how long the list is. Besides the GATT negotiations in Geneva and the IMF discussions on monetary reform, there are the discussions in Paris, under the auspices of the International Energy Agency, on a comprehensive programme of co-operation on energy policies.

Also under the IEA, preparations have been proceeding for a selection of the industrial, oil-exporting and developing countries to discuss in three commissions the problems of energy, raw materials and related financial issues.

In the World Bank, discussions are taking place on what is to be done to alleviate the difficulties of the developing countries most seriously affected by the rise in oil prices and by inflation and the recessson. Following the World Food Conference in Rome last November, preparations are proceeding in London, under the aegis of the International Wheat Council, for negotiations on a new international grains agreement, including the possibility of an international system of nationally-held grain reserves.

There are negotiations on new long-term problems, such as those of property rights and obligations towards resources formerly deemed to be free: the atmosphere. Waters shared by different countries. Minerals in the seabed. Here I am thinking of the United Nations Environmental Programme, such water authorities as the Rhine Commission, and the Law of the Sea Conference.

A number of permanent negotiations have to be mentioned. Those on financial and technical assistance to developing countries in the World Bank group and in the various regional development banks. And those on trade with centrally-planned economies in the OECD and the GATT. At present Governments are negotiating in the OECD to limit the extent to which they compete with one another in the credit terms they offer to centrally-planned economies. [end p11]

Nearly all countries are involved, to varying degrees, in regional negotiations of a continuous nature. In addition to the European Community and EFTA, there is the Andean group, the Caribbean Community, the New Zealand-Australia Free Trade Agreement and a host of other arrangements.

I will forbear from mentioning all, save one, of the discussions that have been initiated from time to time in agencies of the United Nations.

The latest discussions to be initiated are those in the Special Session of the UN on the Third World's demands for a “new international economic order” involving negotiations on an international system of buffer stocks for a wide range of commodities, a structure of commodity prices related to the price of manufactures, a common financial fund, a network of supply and purchase commitments, arrangements for compensatory financing of short-falls in export earnings and a new breakthrough for the processing of primary products by developing countries.

How can governments really co-ordinate all this activity?

We are in danger of losing sight of the basic principles and perhaps a restatement of these is now overdue.

If the last two hundred years have been marked by declarations of independence, I suggest that the next will have to be marked by declarations of interdependence.

Of course the age of declaring independence is not yet entirely over. New nations emerge each year and apply to join the United Nations.

What I propose is that a Declaration of Interdependence be drawn up in which certain self-evident truths are incorporated. World economic relations would then be conducted on this basis. The States which signed the Declaration of Independence in 1776 have all made great progress; I believe we can do the same. [end p12]

We should not be too sceptical about this concept of interdependence. It is not all that new. Our mutual defence system based on the North Atlantic Alliance is a living example of it. International trade theory is based on it. World trade on its present scale is a tribute to its virtue. The reaction of people to natural disasters all over the world with their spontaneous response offering help and goodwill is a testimony of its value.

There are however forces at work which snatch at every opportunity to stress the virtues of self sufficiency and isolationism.

The nature of these forces is such that calls for isolationist policies appear as a natural first reaction to any crisis. An even more natural second reaction sets in when generosity and unselfishness is followed by rebuffs. But at best an isolationist policy has only short-term political and economic advantages.

Let me make it clear that I am not questioning patriotism On the contrary, it is one of the strong and important emotions which must be cultivated. There is however a world of difference between patriotism and nationalism. [end p13]

During the Second World War, patriotism was channelled into constructive use and the interdependenc of the allies was self-evident.

During that period the convoy was a feature of our daily lives in Europe and it seems to me to provide an excellent illustration of interdependence in practice.

Each individual ship has a purpose—to get to its destination—which it can best achieve only in concerted action. Yet each ship can only play its part if it is in good working order and keeping a certain distance from its neighbour. This is the strength of the convoy.

Nowhere is this concept more important today than in the realm of international financial and economic relations. During the last two years it would have been easy for a number of nations to have resorted to beggar-my-neighbour policies in order to defend their reserve positions following the four-fold rise in oil prices.

The Governor of the Bank of England, speaking just under a year ago, commented that the vast capital flows being generated by the oil price rise would alter the whole manner in which the international monetary system operates.

He went on to warn that for the United Kingdom and other countries it would ‘make it increasingly subject to hazard’ and ‘inevitably constrain our policies’.

His conclusion, with which I concur, was that there will be need for ‘continuous and intense co-operation abroad’.

The temptation was to try to intrude upon the market system and its silent way of sorting things out. Many voices were raised suggesting that Adam Smith had been dead for two hundred years and intervention in the system was the only appropriate action.

What happened? [end p14]

Firstly, forces of the market place operated BY THEMSELVES to bring about natural re-adjustments. For instance, oversupply of liquid capital placed by OPEC countries in the world banking system contributed to the decline of short-term interest rates, thus encouraging OPEC investment into longer-term assets. Market forces helped to stabilise oil prices and furthermore, they have stimulated a serious search for alternative energy sources and for more efficient use of present energy supplies.

Secondly, the principle of international co-operation—interdependence—was adhered to. Governments of deficit and surplus countries set up special facilities to recycle oil revenues.

Members of the major international financial institutions—IMF, OECD and the Common Market—all agreed to mutual support systems.

At the same time, OPEC countries and the developed nations demonstrated their interdependence with the developing countries, particularly the most seriously affected, by making grants or loans.

As I have stated earlier, I see further economic problems emerging in the forseeable future.

A serious politician must be as preoccupied with these questions as he or she is with the day to day issues.

It does not take profound understanding to realise that many if not all of them, have an international dimension.

Oil revenues in the OPEC countries, although being absorbed in the form of goods and services far quicker than at first forecast, will continue to be potentially disruptive to world monetary stability.

The dollar overhang as it was called in the early 1970s has re-emerged on a larger scale and in other hands.

This means that in the next decade there must be a transfer of real resources—goods and services—from oil importing countries to oil exporting countries. [end p15]

At present this is providing a stimulus to our economies at precisely the right time. But what will happen when the forecast surge in economic activity in the western nations materialises?

The growing demand for goods from the Middle East and other countries rich in energy will be superimposed on rising domestic demand. Thus, all the ingredients of a further bout of inflation will be present.

A Declaration of Interdependence would enable both the new and the older nation states to set out some basic principles which will form the basis for solving international economic problems.

Such a declaration should include statements that:

(1) Nations have an obligation to help each other when there are adverse effects from the cycle of economic life, or from crop failure or natural disaster.

(2) Trade between nations should be as liberal as possible and based on the principle of fair competition.

(3) Any system of financial relations between countries should encourage flow of economic resources—not restrict it.

(4) Nations should cultivate the habit of consultations before taking actions which can have a far reaching effect on the lives and well-being of other people.

(5) International law and other obligations be respected as the basis for international economic and political relations.

A Declaration of Interdependence incorporating such principles would help to do two things:

(1) Consolidate the gains the world has achieved since World War II in the process of economic liberalisation and economic welfare. [end p16]

(2) Help to resolve the growing conflict that governments find between their external obligations and their internal ones—a conflict that is very real, and on which we often have to reach an acceptable compromise.

I suggest it will help to produce a just and enforceable international economic order. We need this if we are to pass on to our children and grandchildren a world which offers security and a way of life which is rich in variety and based on principles of obligation and responsibility.

Mr. Chairman, I see our future as one of progress through inderdependence. And I believe this can be achieved if we, who are politicians, and you who are economists work with the grain of the wood rather than against it. Self-interest is not enough. We must work together. [end p17]

(2) The Times, 24 September 1975

Mrs Thatcher's surprise praise for Herr Schmidt

It was Conservative Opposition day here today, as Mrs Margaret Thatcher, for Britain, lunched with Mr Robert Stanfield, Canada's Leader of the Opposition, and members of his shadow cabinet.

Mr Stanfield, a Nova Scotian, leads the PC—the Progressive Conservatives—progressive being an attribute that Mrs Thatcher always attaches to the Tories at home when she faces the recurrent question over here about how such old fogies could elect a woman leader.

Among those present was Miss Flora MacDonald, a shadow cabinet member and a striking redhead, who many here think will try emulating Mrs Thatcher. She is expected to be a candidate for the succession to Mr Stanfield next February.

The Conservative Party, Mrs Thatcher told students yesterday, “in a curious way survived always by adapting its fundamental beliefs to the need of the times but never departing from those fundamental beliefs” .

The leaves are turning red here, and Ottawa seems gentler after the tumult, size and wealth of Chicago where Mrs Thatcher yesterday apparently captivated much of the business community and their wives. From Mayor Daley to the presidents of great corporations attending her rather pompously billed “international finance lecture” , the word rang out that they were “absolutely thrilled” by her.

Some of her listeners confided they were astonished—and delighted—to hear her make common cause with Herr Helmut Schmidt, the Social Democrat Chancellor of West Germany, who had spoken last year from the same university podium.

Mrs Thatcher has on occasion praised Herr Schmidt and his way with German unions. But yesterday she went much farther, commending the Chancellor's policies to the British Chancellor of the Exchequer.

She said: “In theory Helmut Schmidta socialist, and in theory I am a conservative. Ironically enough we find our views on inflation almost identical; we find our views on how to run the economic system almost identical—and I wish sometimes I could sell them to the political opponents of mine and my country.

“They are quite simply: that you must have good profits today if you are to have investment tomorrow; you must have investment tomorrow if you are to have jobs the next day; and you must have jobs the next day if you are to have a rising standard of living next week, next month and next year.”