I do not know why financial crises so often occur in September. It used to be explained by the need to make cash payments for the harvest, but that can hardly explain Northern Rock. However, the tradition of a September panic goes back a long way.

In September, 1720, the South Sea Bubble year, George I was on the throne, Lord Sunderland was his leading minister – the office of Prime Minister did not yet exist - and Robert Walpole was Paymaster General outside the Cabinet. Walpole, who had opposed the South Sea scheme, was enjoying his summer holiday in Norfolk, occupied with building plans for his palatial country house at Houghton.

The price of South Sea Company stock began to fall; Walpole had already sold his private holdings at the top of the market. He was called up to London to “advise” the Bank of England and negotiated the “Bank Contract”, a scheme to bail out the South Sea Company at the Bank of England’s expense.

That is only one of the occasions on which the combination of a market panic with government pressure had overruled the independence of the Bank of England. Northern Rock is not an exceptional event, but a common place example of what happens when government intervention is caused by a panic. In the railway speculation of 1847 Lord Russell, the Prime Minister, wrote a letter to the governor of the Bank, which spelt out his orders in detail: “Her Majesty’s Government recommend to the Directors of the Bank of England, in the present emergency, to enlarge the amount of their discounts and advances upon approved security.” So much for the principle of bank independence in the Victorian age.

From the foundation of the Bank of England in 1694 to the Attlee Government’s nationalisation of it in 1946, the Bank was organised as a private company, with private shareholders. At the time of nationalisation Hugh Dalton, the Chancellor of the Exchequer, emphasised that the Bank had to obey his instructions or those of the Treasury. “The Bank of England is my creature,” he said. They were determined the Bank should not be independent.

In 1997 Gordon Brown became Chancellor of the Exchequer. His first big decision was to give the Bank of England “operational independence”. In practise that meant delegating the power to set bank interest rates. That policy has been a success. In a favourable period, when the world had been enjoying a long boom in trade and relatively stable prices, the British economy has prospered, though debt has risen sharply and may yet cause further problems.

It is not surprising that the Bank of England, like other central banks, should perform well in setting interest rates. The Bank either has the expertise or can call on outside experts. Any government will be more exposed to political pressures.

The Bank has to deal with the fluctuations of the financial markets, but it can measure success in terms of stable prices, not of election victories.

At the same time as he gave the Bank operational independence on interest rates, Mr Brown removed the Bank’s responsibility for the supervision of the banking system itself, and gave that job to the Financial Services Authority. That removed one of the traditional functions of the Bank of England and certainly weakened its influence. The Bank was not supervising Northern Rock; that had become the FSA’s job.

As has happened many times before, a financial panic has demonstrated the limitations of the independence of the Bank. In the most important decisions there has always been a danger that the Bank would have to take its instructions from the politicians who are legally and practically its masters. We may not know for 30 years exactly who was present at the crucial meetings which decided on the Bank and the Government’s response to the Northern Rock panic.

In 1931, when Britain took the historic decision to leave the gold standard, we know that the key decisions were taken in Downing Street, with the Prime Minister, Ramsay MacDonald, in the chair; the Bank was represented by the deputy governor and the Treasury by Sir Warren Fisher, the Permanent Secretary, who provided the decisive advice.

This is not 1931, but it would be surprising if the key decisions this month had not again been taken by the Prime Minister of the day. I do not believe that Alistair Darling overruled Mervyn King, the Governor of the Bank, on his own; I think it is much more likely that the Chancellor had agreed the policy with Mr Brown, and that the governor was left with no choice but to accept it.

Mr King has throughout been mainly concerned with the threat of inflation. That is, indeed, his job. He exists to defend the price stability of the UK economy. The Federal Reserve and the European Central Bank have taken a different view, as did the British Government. They were all principally worried by the threat of a deflationary credit crunch, a threat that still exists. There was also public pressure from the queues of Northern Rock clients waiting in the streets for their money. The Bank’s position could not be sustained against these pressures. As in 1720, faced with the realities of political life, it had to adjust its policies. Britain has edged nearer inflation, if Mr King’s judgment proves correct. We shall see.

The Bank of England should be given a new statutory basis, in which its legal independence is at least as well guaranteed as that of the European Central Bank or the Federal Reserve Board. That would need a new Bank Act. Panics and prime ministers will always happen, but the Bank should at least be given enough independence to fight its own corner.

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