Political Commentary
Telling the truth about inflation
Patrick Cosgrave
In a democratic society it is above all difficult for a politician, even one of courage and honour, to tell the truth, especially if that society is in difficulties; and all the more so in that no politician can do more than tell the truth as he sees it. With the truth, too — it is another of the difficulties of democracy — he must be able to persuade. As I was saying last week, the persuading is often the most difficult task for, however much politicians may claim to trust the people, most of them have the profoundest distrust of the people's instinct and the profoundest disregard for the people's intelligence — else, why would they bother with simplified slogans, advertising copywriters and all the hypnotic manipulative processes made available by modern media technology? When Mr Powell most recently began to proclaim that the containment of inflation required either the cutting of public spending or increases in taxation, or both, his enemies—especially within his own party — rubbed their hands with glee at the prospect of his destroying his own popularity, for high taxation is thought to be as unpopular as high spending by governments is popular. However, the containment of inflation is now the essential task facing this country, and it is more important to tell the truth about that than about almost anything else on the political scene. So let us look at three sets of truth-tellers or, at least, tellers of truth according to their lights. (On another page Mr Charles FletcherCooke suggests that the leadership of the Conservative Party ought to be numbered among this group but I fear, alas, that until the last election manifesto has been repudiated, this is not the case.) They are the Economic Radicals (whose latest pamphlet, Dear Prime Minister, has just been published and is available for 50p including postage from 26 West Square, London SE11); Mr Ralph Harris and his Institute of Economic Affairs; and Mr Peter Tapsell, the Conservative member for Horncastle, a man whom many of my readers will be surprised to see me include in this company. I will have space to do no more than sketch the differences, and explore the possibilities of co-operation, between these three sets of opinions this week, but I hope shortly to return to the matter again.
'Hie Economic Radicals are what _is nowadays called monetarist in policy. They believe that the essential cause of inflation is the existence of too much money. Just as (this is their opening example in the new pamphlet) if there is a glut of tomatoes, the value of tomatoes declines, so, if there is a glut of money, the value of money declines. Now, in recent years the major producer of money that has not been generated through the creation of wealth has been government: ministers have again and again printed or made available-in credit more money than they raised in taxation and, unfortunately, Conservative governments have been more profligate in this respect than Labour. In this present letter to the Prime Minister the Economic Radicals caustically observe that they are not the sort of people whose general view of life leads them to the support of Labour (they are, in the main distinguished academics), but that they are forced to confess the greater irresponsibility of Mr Heath and his colleagues in what seems to them to be the crucial area. They quote, further, a reply by Mr Heath to an earlier pamphlet, Memorial to the Prime Minister, in which they had expressed their sorrow at the abandonment of the tight and honest money policies inherent in the philosophy of Selsdon Park: Mr Heath proclaimed, his own belief in the necessity of reducing the expansion of the money supply (some gesture was, in fact, made towards this last year) but insisted, as his government did throughout its life, after the first year, in emphasising a definition of money supply which most readily covered or concealed profligate spending policies. In any event, the Economic Radicals—this pamphlet, like previous productions is cogently and closely argued, and essential reading for all concerned witty modern politics — stress that inflation can be tackled only by reducing the supply of money, and thus by lowering the propaganda expectations of government.
They are thus able to emphasise two untruths or half-truths which occupied a large part of the propaganda of the last government. First, Conservative ministers, though increasingly willing — the evidence was finally irresistible — to confess that some part of inflation was due to money expansion, were, in practice, willing to do very little about it. Second, they blamed a part of inflation on world prices, whereas — as Professor Alan Walters brilliantly demonstrates in a separate paper contained in Dear Prime Minister — world prices have nothing whatever to do with inflation, which is something, indeed, that Britain exports rather than imparts. The conventional, and for all I know true, justification for the concealment by Mr Heath and his colleagues of their knowledge about the effects of an expanding money supply is that contraction would now create widespread unemployment and social and business disruption. The monetarist response, which I happen to believe is a correct one, is that the continuance of inflation at its present rate will lead to the near-total destruction of our society, and the lesser evil must therefore be preferred to the greater.
The monetarists, moreover, point to the fact that in its first year the Heath government did lower public expenditure as a proportion of gross national product, only later, when they lost their nerve, allowing it to run away to an extent permitted by no government before or since, and bringing us to the ludicrous position that any Conservative seeking a government which would curb inflation was more likely to find it in the Labour than in the Tory ranks. Here Mr Tapsell enters the list: I choose him not because I do not agree more readily with such parliamentary exponents of the monetarist case as Mr Biffen or Mr Ridley or Mr Body (who helped write Dear Prime Minister) but because he is a man of singular integrity who, reviled and ignored in the early stages of Mr Heath's government for espousing policies the Tories later adopted, nonetheless gained no preferment when Mr Heath came round to his thinking. "It is a disgrace," an acute Tory friend of mine observed of an occasion when, after the U-turns, Mr Tapsell appeared on the same (rather academic) platform with Mr Ridley. "That Peter Tapsell is not a member of this [Heath] government, though it is quite proper that Nick Ridley is not." Mr Tapsell was once a lonely supporter of incomes control among the Tories in Parlia ment, though I have heard much less fi him recently on this subject. (To monetarist: and economic libertarians, incomes policy is irrelevant and unworkable in the battle against inflation; and wage inflation is a symptom rather than a cause of general inflation.) He does not, however, agree with the account I have just given of the decline of the Heath government, and in two recent speeches (on June 7 and June 29 last, the first under-, the latter widely, reported) presented an alternative case. Essentially he believes that the two extremist poles of modern party politics are the philosophy of private enterprise and the philosophy of nationalisation; that neither will work alone; that the 1970 government was overcommitted to the first in its early period; and that the Tory way must be to work for a philosophy of a balanced mixed economy. And he has this to say of the monetarists, having observed that inflation cannot be controlled solely through the regulation of the supply of money: This is where I part company — intellectually — with his[that is, Mr Powell's] distinguished group 01 fellow-thinkers on the Tory back benches and in the press. But I fully recognise that they are the onW political group which has been making a seriou.s, consistent and relevant contribution to our economic thought. If they could be persuaded to broaden their range of weaponry, I believe we could work towards an economic philosophy on which the whole Conservative Party might unite and one which would render great service to the country.
This is a passage of considerable significance. In the June 7 Speech, it should be explained, Mr Tapsell took as a specific instance of error lo the Selsdon philosophy the Bank of England Green Paper on Credit Control and Compel' tion of May 1971. The policies of the Greer
Paper were designed to produce competition 10 banking and investment, but had disastrous effects. It is thus clear that untrammelled free enterprise, viewed as a corollary of monetarism, is not a sufficient policy. With this I do not disagree. What Conservatives have to do is make as much free enterprise as palatable as possible. This is the great importance of the Institute of Economic Affairs (which is not, of course, a political body) the director of which, Mr Ralph Harris, has recentlY extracted from Mr Healey a damaging admission of the fact that Labour's supposedlY egalitarian taxation policies are based on a considerable misunderstanding of the facts about equality and inequality in Britain. (The IEA paper which caused this exchange was discussed in one of our leading articles recent' ly.) The IEA can be trusted to provide the armoury to push the free enterprise cause as fa; as it can go, and their work should be studie.° closely by every Tory. But the coalition within the party which must be forged is between the monetarists and their answer to inflation, and the men like Mr Tapsell who accept large parts of that case, but who want to broaden the discussion. That is the way ahead.
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