Half a prescription
WHAT is the cure for a contraction of credit? Bagehot's prescription has stood the test of time: dear money, but plenty of it. What mattered, he said, was not that credit should be cheap but that it should be available — on tram-tickets if need be. The central bankers and finance ministers gathered here have unfortunately read only half of Bagehot's prescription, the dear money half. They are trying to cure oil shock. They say: in the 1970s we treated it by encouraging sufferers to borrow their way out, but that was a mistake, and in the 1980s we told them to sweat it out, and that worked better, so in the 1990s what don't we do? We don't 'accommodate' the shock, we just go on using dear money to control our inflation. The Americans go along with this, though they don't really believe it. As for the British, they have not, this week, had all that much choice.
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