ABSTRACT
In settling for a broadly pre-war conception of political economy, underpinned by free trade and sound finance, post-war governments accepted the deflation and unemployment of the post-war slump as a necessary corrective while the economy re-adjusted from war to peace. Stanley Baldwin's Conservative government was in power as rationalization moved up the political agenda. The Baldwin government did examine an indirect means of furthering rationalization, namely the use of financial carrots and sticks to try and nudge industrialists into action. Before 1914, British industry had made few demands on domestic banking institutions at least for investment purposes. Firms relied mostly on ploughed back profits and/or informal, local sources for funds. The coercive powers of the clearing banks were actually far less compelling than many politicians, civil servants and sections of the press believed.
