Source: The American Conservative
From its conception, the American System was defined by what it stood against as much as what it called for. American School thinkers targeted the British System of free trade and free markets that prospered under the Victorian Liberals who dominated British politics for much of the nineteenth century. Even most Victorian Conservatives eventually came to accept the economic orthodoxy of the age. But the British System would not endure. It gave way under the pressure of imperial decline following the First World War, leading to a new embrace of state interventionism.
The conflict that ushered in the age of industrialized warfare led many long-held assumptions to be challenged by younger generations, including those who had fought on the Western Front. This extended from religion to art to economics. The British System had already come under strain with the introduction of historic welfare reforms under the pre-war Liberal government. Central planning and tariffs played a critical role in the British war effort and post-war recovery plans. This left many younger politicians hungry for greater economic radicalism and a departure from Victorian political economy, including among Conservatives.
One of the most significant and vocal Conservative advocates for a modern political economy was Harold Macmillan, the half-American son of a prominent publisher, who would later become prime minister from 1957 to 1963. As a product of Eton College and Oxford University, heir to the Macmillan publishing house and later married into the illustrious and aristocratic Cavendish family, Macmillan enjoyed thorough establishment credentials, but his politics were unconventional. Wounded three times on the Western Front, affecting his gait and right hand for life, Macmillan’s worldview was shaped by the horrors of war and the experience of serving alongside a broad cross-section of British society.
Upon entering Parliament as MP for Stockton-on-Tees in 1924, after narrowly losing the seat the previous year, Macmillan formed a lifelong affection for the northeast industrial town he represented. Drawing upon his business background, Macmillan made it his mission to promote new ways of thinking about political economy for the benefit of his working-class constituents. With like-minded young Conservative MPs, Macmillan made the argument for a course between individualism and socialism, becoming a parliamentary rebel and achieving only some modest success in lobbying the Conservative government to enact social reform. It was during the 1930s that Macmillan would achieve his first real political breakthroughs.
John Maynard Keynes’s The General Theory of Employment, Interest and Money (1936) was a devastating intellectual blow against Victorian political economy, galvanizing critics of laissez-faire across the political spectrum. It was also published by the Macmillan publishing house, and Macmillan himself gathered a network of Keynesians in Parliament. But where Keynes provided theory, Macmillan proposed a plan. In The Middle Way (1938), building on his previous pamphlets on economics, Macmillan made a powerful case for industrial policy. It was during this time that Macmillan saw the full scale of the damage from mass unemployment on his working-class constituents, pushing him to do everything in his power to modernize Conservative economic thinking.
These strident efforts to promote economic radicalism made Macmillan an oddity within his own party, which was largely dominated by pro-business interests, but it was a sign of where the Conservatives would be heading in the future. Few other Conservative leaders have thought or written so deeply and extensively about political economy. Macmillan believed that a strong state was required to intervene in the economy to manage the relations between capital and labor—the goal being to reverse the nation’s economic decline and to prevent the outbreak of revolution, which appeared to be spreading across interwar Europe.
What allowed Macmillan to become a power player within the Conservative party was not just his economic ideas, but the stance he adopted toward the rise of Nazi Germany. Allied with Winston Churchill, then a backbench MP in his “wilderness years,” and Anthony Eden, the Foreign Secretary from 1935 to 1938, Macmillan put his talents towards the anti-appeasement campaign. He wrote The Price of Peace (1939) and Economic Aspects of Defence (1939) to help build the public case for stopping German aggression. Macmillan also helped Jewish refugees from Germany and Czechoslovakia, hosting them at his country home.
The outbreak of the Second World War and Churchill’s accession to prime minister put Macmillan at the heart of government (though his economic ideas would have to wait). Churchill appointed Macmillan in 1942 as minister resident in Northwest Africa, advising the Supreme Allied Commander General Dwight D. Eisenhower and liaising between French and American generals across the Mediterranean. This also led to close contact and cooperation with General Charles de Gaulle, leader of the Free French forces. This gave Macmillan a prestigious and vital role in the allied war effort, invaluable experience of executive power, and a network of partnerships that would serve him well for the rest of his career.
After Victory in Europe Day on May 8, 1945, Labour leader Clement Attlee withdrew from Churchill’s coalition government and a general election was called, resulting in the first majority Labour government in British history. By the end of Attlee’s tenure in 1951, Victorian political economy was very much dead and buried, with major industries nationalized, centralized economic controls introduced, and the welfare state and the National Health Service built. It was a rapid expansion of state power that was unimaginable prior to the Second World War and exceeded even what Macmillan had called for as a backbench rebel.
In the face of almost certain defeat, Macmillan insisted on fighting for his Stockton-on-Tees seat again. When he lost, the safe Conservative constituency of Bromley was found for Macmillan later that year. A middle-class suburban London area, Bromley was a world away from his old constituency. Macmillan never formed the same emotional relationship he had enjoyed with the people of Stockton. When Macmillan was raised to the House of Lords in 1984, he chose to become the Earl of Stockton in recognition of his loyalty to the town. Although the new constituency consolidated his image as a traditional Tory gentleman, it did not dampen his zeal for economic modernization.
As leader of the opposition, Churchill gave Macmillan an important role in remodeling the Conservatives’ economic message after their 1945 defeat. Macmillan was instrumental in producing the Industrial Charter (1947), resembling much of his interwar thinking, in which the Conservatives made their peace with centralized controls and the nationalization of the coal industry and the railways. Macmillan was not uncritical in his acceptance of nationalization—he believed that Labour had wasted an opportunity to reshape management practices and that the state had taken on too much power—but, by and large, the new post-war consensus delivered much of what Macmillan proposed in his middle way.
It would not be long before Macmillan returned to government. Churchill won a close victory in the 1951 general election and appointed Macmillan as minister of housing and local government. This made Macmillan directly responsible for fulfilling the party’s campaign pledge to build 300,000 houses a year. Restraints on the public finances from defense spending, scarcity of building materials, and concerns about inflation could have stopped Macmillan before he even started. Instead, he pushed ahead with determination and reached the target by December 1953. Regional housing boards, the increased building and sale of public housing, and the new Town and Country Planning Act 1954 delivered one of the most stunning successes of state activism in midcentury Britain.
Climbing the government ladder, Macmillan eventually became chancellor—under Eden as prime minister—in 1955, gaining responsibility for managing the British economy. It was to be a short and undistinguished tenure. Colonel Nasser’s decision to nationalize the Suez Canal in 1956 precipitated a crisis that engulfed Eden’s premiership and left Britain diminished and humiliated on the world stage. A currency crisis and lack of support from President Eisenhower forced Britain and France to abandon their attempt to reclaim the Suez Canal, a policy reversal in which Macmillan was closely implicated.
After Eden resigned for health reasons, the Conservatives rallied behind Macmillan to succeed him and set a new direction for the party. Macmillan pessimistically informed the Queen that the government was not likely to survive longer than six weeks.
Restoring Anglo-American relations and reorienting British foreign and colonial policy would be Macmillan’s most immediate challenges, but economic management would also be critical. Encouraged by his Keynesian economic advisor, Sir Roy Harrod, Macmillan was keen to pursue a policy of economic expansionism. This led to a confrontation with his chancellor, Sir Peter Thorneycroft, who wanted to make significant cuts to public spending to help stabilize the currency even if it came at the cost of full employment. Thorneycroft and his junior Treasury ministers eventually resigned in 1958. Macmillan famously referred to the ministerial resignations as a “little local difficulty” as he set off on a tour of the Commonwealth.
Macmillan became a symbol of midcentury prosperity, fueling his popularity and renewing the government’s authority. Unemployment was low, living standards were rising, and the economy was booming. At a Conservative rally in 1957, Macmillan declared “most of our people have never had it so good.” A left-wing cartoonist caricatured him as “Supermac,” which ironically helped to enhance Macmillan’s public image. Riding high in the polls, Macmillan won the 1959 general election with an increased majority. Affluency among working-class voters and the benefits of the consumer society had won their support.
But as Britain entered the 1960s, the task of managing the country’s relative economic and political decline became all-consuming for Macmillan. With unemployment still creeping up, the government appeared to be losing its focus. Macmillan sought a dramatic course correction in 1962 when he sacked his chancellor and six cabinet ministers in what the press called “the night of the long knives.” Instead of renewed confidence, panic was setting in among Conservative MPs. Compounded by rising anti-establishment sentiment and ministerial sex scandals, Macmillan’s stock was falling drastically, leading to his decision to resign in 1963 after a health scare.
In the decades that followed, the post-war consensus disintegrated, culminating in Margaret Thatcher’s 1979 election victory. Macmillan provided constructive advice to his successor, such as during the Falklands War, but he started to revert to his origins as a Tory rebel. After entering the House of Lords, Macmillan would be critical of Thatcher’s monetarist policies. He also lamented the breakdown in labor relations following the 1984 Miners’ Strike, saying:
Although at my age I cannot interfere or do anything about it, it breaks my heart to see what is happening in our country today. A terrible strike is being carried on by the best men in the world. They beat the Kaiser’s army and they beat Hitler’s army. They never gave in. The strike is pointless and endless. We cannot afford action of this kind. Then there is the growing division, which the noble Lord who has just spoken mentioned, in our comparatively prosperous society between the South and the North and Midlands, which are ailing. This cannot be allowed to continue.
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Even in the face of the Thatcher revolution, Macmillan remained a believer in the state’s capacity to promote the common good, speaking up for the interests of the working-class communities to which he had formed such a close attachment during his years of service in the First World War and as MP for Stockton-on-Tees.
The economic reforms of the 1980s, and the market consensus that followed, are now collapsing in turn. Conservatives find themselves questioning how prudent it is to embrace the market and trust it to resolve today’s problems. Macmillan believed in putting the prosperity and influence of his country first, adopting a radical pragmatism that focused on what would work in practice rather than theory. Underneath the carefully curated Edwardian persona, Macmillan helped his country to reject economic orthodoxy and embrace state interventionism. It is for modern conservatives to follow his example and to rebel against the status quo.
This article is part of the American System series edited by David A. Cowan and supported by the Common Good Economics Grant Program. The contents of this publication are solely the responsibility of the authors.