AN OPEN LETTER TO MR. HEATHCOAT AMORY
By NICHOLAS DAVENPORT As one of the more outspoken and persistent of your predecessor's \ critics I extend an extra warm wel- .&• come to you as our new Chancellor. As the Prime Minister has singled you out among your political rivals for the most difficult and trying job the Government has to offer, the end of which, on the record of recent times, is much more likely to be death or resignation than honour and glory, he must be confident that you will not pursue 'hard money' policies as blindly and as stupidly as Mr. Thorneycroft. Indeed, Your record of high intelligence in office fills us financial critics with considerable hope. More- over, you have been described in private life as a saint, virtually sleeping on an iron bedstead and dressing in a hair shirt, devoid of all personal and Political ambition. Clearly, you might easily be- come the Conservative Cripps and succeed, where other Tory Chancellors have failed, in getting the co-operation of employers and trade unions on a Policy of dividend and wage restraint. All our good wishes go with you.
But integrity and saintliness are not enough. And austerity in monetary matters can be over- done. Brains are more essential for the Treasury Job and when you meet Mr. Frank Cousins remember that he is no fool—that he will ap- proach economics from where his revered leader, Ernest Bevin, left off—who sat on the Macmillan Committee with Maynard Keynes and learned What 'hard money' meant in terms of unemploy- ment and distress in the 1920s. When we sur- rendered, at that time, our economic sovereignty to the external forces of the gold exchange standard we ended up in a general strike. When Mr. Thorneycroft said at Atlantic City last Sep- tember : 'If people seek to take more out of the economy than they in fact put in, the resultant strain should not be placed upon the value of the currency but upon the levels of industrial activity,' Mr. Cousins and his colleagues on the Trades Union Council knew perfectly well what he implied—the deliberate creation of sufficient Unemployment to smash trade union militancy and stop the wage claims. The folly of your pre- decessor's policy was that it could not succeed in breaking the power of the trade unions without first breaking the British economy. To create unemployment we must suppress demand and that meant suppr ssing investment. To suppress Investment meant enying British industry of its efficiency and undermining its ability to compete
successfully abroad. As the strength of the pound sterling must ultimately depend upon the strength of our trading position in the world, the 'hard money' policy was all along a piece of suicidal folly. I hope, Mr. Amory, you will dismiss it economically as the Prime Minister did politically in accepting Mr. Thorneycroft's resignation with such alacrity.
* * * You may wonder, when you look into it, how such a foolish policy, which we discarded over a quarter of a century ago, came to be revived in your historic department. Your predecessor stated in evidence before the 'leak' tribunal that the technical advice he took came not from his official economic adviser but from the Governor of the Bank, from two non-official economic professors, and from Sir Oliver Franks, the chairman of Lloyds Bank. Of course he was also advised by the head of his Overseas Finance Department, but that official has a permanently vested interest, as you know, in a fixed exchange rate. I venture to suggest that you should give more power and importance to'your economic advisory depart- ment. Strengthen it, if you will, by appointing a council of economic advisers to report to you through Sir Robert Hall, but please do not act, as your predecessor did, on the esoteric opinions of outside professors or bankers who are so clearly out of tune with our social policy.
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The diagnosis of the inflation which poor Mr. Thorneycroft obtained from these unofficial economic counsellors was, as you will find out, inaccurate. We are not now suffering from a demand inflation or from an excess of money supply. British industry today is saddled in key places with an over-capacity because of in- sufficient demand. To suppress demand deliber- ately would be ludicrous. We have been suffering from a wage-cost inflation and, as I have shown, the wrong way to deal with it is by suppressing investment demand. That merely puts up our industrial costs and makes things worse, just when we ought to be trying to reduce costs and prices by raising our output and productivity. If you con- vince the trade union leaders that your new policy is one of expansion, not restriction, they would probably agree not to push up wages faster than the increase in production. In fact, as there is now a reasonable chance of retail prices being stabilised, the unions would be very foolish not to limit wage increases to the planned increase in
productivity. That should be your line with Mr. Frank Cousins and his colleagues.
The foreign capitalist is no fool and when he sees a sound expansionist economic policy being pursued by the new British Chancellor, which will improve our international trading position, he will be much more inclined to regard the pound as fairly valued at $2.80. If he does not or if he makes use of sterling simply as the medium of acquiring increasingly scarce dollars, you must not hesitate, Mr. Amory, to withdraw the support which your predecessors rashly gave to the holders of transferable sterling to acquire dollars at a discount of only 1 per cent. on the official rate. Let the transferable rate float and take the strain. If it is the beginning of a de facto devalua-
tion, do not ....id. A general strike would be much worse.
Finally, do not wait until your Budget to reduce Bank rate. End this harmful regime of dear money at once. It is costing your Budget and our balance of payments hundreds of millions of pounds for no useful gain. It is restricting sound industrial investment. Your real anti-inflation job, Mr. Amory, is to promote savings adequate to finance a forward investment policy. Make that your Budget aim.—Your well-wisher, N.D.
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