Economic policy can be defined as the ability and willingness of government to influence the economy and the motivations and intentions in so doing. During the later nineteenth century a policy, usually known as laissez-faire, evolved in Britain. Government largely confined itself to basic functions including defence and the maintenance of law and order. The economy was left very largely to its own devices and operated through market mechanisms within an established legal and institutional framework which included the gold standard, rules of conduct for the financial sector and the regulation of monopolies. The interwar period can be seen as a transition period for economic policy during which there was a movement away from laissez-faire towards increased levels and more detailed government interventions (Tomlinson 1990: ch. 2). These moves were promoted by the emergence of hitherto neglected interest groups, greater demands on government and growing complexities in both internal and external economic relationships. By the mid-twentieth century government sought to influence not only the level of economic activity but also the structure and development of the economy. This escalation of intervention was not smooth. In the 1920s there was an attempt to revert to the pre-1914 system. Major events including wars and severe depression were important influences, as were changes in economic theory, but the creation of universal suffrage and the emergence of modern democratic politics were more fundamental in placing new demands on government. As a result of social and political changes, governments were obliged to find new ways of attempting to cope with rising expectations. In the 1970s with the emergence of inflation and related problems a reaction against government intervention gathered momentum and in the 1980s Margaret Thatcher presided over an
attempt to establish free market policies which, in theory at least, had something in common with nineteenth-century laissez-faire (Skidelsky 1988). Thus in the 1980s some commentators were able to suggest that British economic policy had come full circle over a hundred-year period. As we will see, the reality was rather more complex than these observations suggested.