To listen to the plaudits from the Conservative press after the death of Nigel Lawson at 91 last week one could be forgiven for wondering how many of the eulogists were aware that the great man’s chancellorship – from 1983 to 1989 – had ended in tears. Believe it or not, despite many differences on economic policy, which I voiced in my columns, Lord Lawson and I were good friends. His was certainly a historic chancellorship and he left his mark on the Conservative party and the country. But in 1989 he was widely criticised for steering the economy into a phase of boom and bust. This led to a loss of control over inflation and the second worst recession since the second world war. There was also the little matter of his damaging fallout with Margaret Thatcher over the disruption caused by her chief economic adviser, Alan Walters. Lawson resented the way Walters was encouraging Thatcher to resist his advocacy of Britain’s membership of the European exchange rate mechanism (ERM). Lawson was an enthusiast, constantly searching for the economic philosopher’s stone. His championship of the pound’s entry into the ERM followed his recognition of the failure of such putative panaceas as control of the money supply to cure Britain’s endemic inflation problem. He was impressed by Germany’s counterinflationary record and thought that membership of the ERM – which was dominated by the deutschmark – would tie the pound into a low-inflation mechanism. As a prelude, early in 1987 he instructed the Bank of England to intervene in the foreign exchange market to keep the pound’s value close to that of the German currency. This became known as “shadowing the D-mark”. When Thatcher found out, she was furious and never really forgave him. Oddly enough, she could have discovered what he was up to a year earlier, from a report in this newspaper, but she was evidently not an Observer reader. When she finally rumbled him, she famously said: “There is no way in which one can buck the market.” Lawson’s explosive differences with Thatcher and Walters provoked his resignation. Ironically, we did join the ERM in 1990 during John Major’s brief chancellorship and, even more ironically, Thatcher became keen to join for counter-inflationary reasons. But Britain’s membership proved singularly ill-timed. While German unification was welcomed, the inflationary consequences of West Germany’s absorption of the East German economy meant it was the wrong time to tie the pound to the mark. I have dwelt on the furore over using the exchange rate to curb inflation because it became a Lawsonian obsession. Unfortunately, he thwarted his own attempt to control inflation by stoking a boom with two tax-cutting budgets in 1987 and 1988. Here we come to the way he made a permanent mark on British politics. He was lauded last week by Rishi Sunak and the Tory press as the tax-cutting chancellor. That those cuts wrecked his counter-inflation strategy is neither here nor there. His most important legacy is to have put the fear of god in the Labour party, whose leaders have been terrified to commit to the kind of tax increases necessary to finance the greater public spending they would ideally like to authorise. When I put it to Lawson in 2007 that Labour had not dared to reverse his 1988 budget tax cuts (top rate down from 60% to 40% and basic rate to 25%), quick as a flash he quipped: “Not yet, they haven’t.” Labour is still in obeisance to Lawson’s tax changes, but under the Tories who worship him there has been some sleight of hand, with the withdrawal of personal allowances leading to a disguised 60% rate. Much has been made of Lawson’s intellectual brilliance and his championship of privatisation and deregulation. Although considered heroic by Conservative commentators, a fair verdict is surely that the record of his efforts in this regard is decidedly mixed. He was particularly proud of his Mais Lecture of 1984 in which he decreed that monetary and fiscal policy should be concerned with inflation, not growth, which should be left to supply-side policies. This was something with which I took issue – as did, er, his Treasury permanent secretary, Douglas Wass. The fact of the matter is that all arms of economic policy affect growth. Also, my old friend – always a refreshingly straight talker – confessed that there was, alas, a consequential link between extensive deregulation and the banking crisis of 2007-08. Which brings me to something that has baffled some Observer readers: how could Lawson and I be friends when we had serious disagreements over his economic policies and his espousal of Brexit, to say nothing of climate change? Well, there are people one disagrees with on big issues but with whom one gets on; and people with whom one agrees but whose company one does not particularly enjoy. Lawson and I got on famously, partly because we were members of an unofficial freemasonry: old boys of the Financial Times under the editorship of Gordon Newton. We just hit it off, but this understandably upset some whose businesses or personal lives had suffered under what I termed the “sado-monetarism” Lawson espoused in the early days of Thatcherism. There were times when some Observer directors were trying to sack me for opposing Thatcherism and on one occasion Lawson came to lunch at the paper and was asked by one of my detractors: “Chancellor, we are always criticising you: what changes would you like to see here?” Lawson, a retired journalist, said he wished I would abandon my “prejudices” but would not be without my column. A true friend! He was replete with paradoxes: a “European” who lived in retirement in la France profonde, but campaigned – albeit all too successfully – for Britain to leave the European Union. How about this: when I was staying with him and his second wife, Thérèse, in their fine former armagnac domaine in Gascony, I asked one of the most prominent Thatcherites of all what particularly attracted him to France: “The old-fashioned way of life and the health service.” William Keegan is the Observer’s senior economics commentator