It is a principle well established in my Wealth of Nations that the rate at which money is lent within a commercial nation bears upon every transaction in that nation’s life — upon the merchant fitting out his vessel, the manufacturer extending his works, and the labouring poor whose wages follow, at some distance, the general motion of trade. When the sovereign’s appointed guardian of that rate declares that he is in no particular hurry to alter it, the declaration is not a small one, however quietly it may be made.
Mr. Andrew Bailey, governor of the Bank of England, has offered precisely such a declaration. Speaking with the measured reserve that his office demands, he has indicated that the present condition of warfare between nations in the Persian quarter of the globe — a conflict whose dimensions and duration remain, as yet, imperfectly understood — counsels against any rapid movement in the price of borrowing. To this geopolitical consideration he has joined a domestic one: that the rate of growth in the British economy is, by the reckoning of those who measure such things, weak. Two arguments for stillness, then, where a single argument might have sufficed.
The reasoning is not without foundation. In my Theory of Moral Sentiments I observed that the wise and virtuous man does not hastily commit himself to a course from which retreat may prove difficult. A central bank that raises the price of money whilst commerce is already labouring under the disruption of distant hostilities risks compounding one injury with another. The merchant who cannot know what his next cargo will cost him in insurance, in passage, and in the altered prices of Eastern commodities, is ill-served by the additional uncertainty of dearer credit imposed from Threadneedle Street.
And yet patience is not without its own hazards. The rate at which the Bank presently lends to the commercial system — and the rate at which the general price of provisions continues to press upon the household of the labouring poor — exist in a tension that stillness does not dissolve. To defer a decision is itself a decision, with consequences as material as any more visible act of policy.
What the governor has given the publick, in short, is candour about uncertainty — which is perhaps the most honest gift a man in his position can presently offer.