DEAR SELWYN
DAVENPORT
By NICHOLAS
As one of , the more outspoken and persistent of your predeces-
indeed, unnecessary in a society of common- sensible people, Mr. Amory had the happy task of applying a policy of gradual relaxation. The economy responded quickly. After the years of stagnation industrial production leapt ahead and the sharp rise in productivity took care of the rise in wages. Price stability was lucky Mr. Amory's crowning glory. But the subsequent boom was too much, for, him. He became terrified of even the smallest rise in the index of the cost of living. The running down of the balance .of payments frightened- him to death. Finally the over- employment in the building and ntotor industries caused him to re-apply the general restraint of dear money and credit squeezing to the whole economy. So his reign, begun so happily, ended unhappily in a nervous restrictionism which was driving our industrialists and exporters to despair. There is no lucky star shining on you, Mr. Lloyd, as you take the reins .from Mr. Amory's fumbling fingers.
But what an opportunity to apply new thinking at No. 11, to let a wind of change sweep through the stuffy chambers of the Treasury ! The objec- tives of a strong £ and a stable price level which your civil servants will keep dinning in yotir ears must not be,allowed to deaden your awareness of the competing objective, of an expanding economy. When you have- to choose between the two objectives,-as tnay happen from time to time, remember which Of the, two is, paramonnt. The intensified cold war whiqh Mr. •Khrushchev ,is now inaugurating demands the full mobilisation of the ecOnomic strength of the free • world. Britain 'cannOt afford to tagnate while Western
Europe goes ahead. ,
The policy which your higher civil servants have been pursuing ha i been 'Slos,VIY sapping the economic strength of this country, It is the policy of trying to secure economic equilibrium [sic] by the blind use of indiscriminate monetary mea- (continue(' on pogv,226) sures. It means that they cannot ease a pressure in a particular industry or two without causing a general recession or stagnation to develop throughout the whole economy It means that they cannot cure a wage-cost inflation without cutting output and putting up all industrial costs. It may be that they would prefer to have a general stagnation rather than a weak £ or a fall in the reserves, but that is surely not the prefer- ence of your Keynesian Prime Minister, whose faithful servant you have been hitherto. Nor is it the desire of the country. Why should you allow the will of Treasury bureaucrats—for the most part untrained in economic affairs—to prevail? Lord Boothby, in the recent economic debate in the Lords, told this story of what a high Treasury official said to him when he was appointed Parlia- mentary Private Secretary to the Chancellor half a century ago: 'There is only one man who has ever been able to make the Treasury do what it did not want to do—and that was Lloyd George. I can tell you something else—there will never be another. Now is your chance to prove the story wrong. You have the backing of a very powerful Prime Minister. Impose your enlightened will on the Establishment. Be another Lloyd, Mr. Lloyd.
The lesson you must teach your higher civil servants is that their maladroit use of the monetary weapon has been working not for but against our economic health, not for but against the orderly expansion of the economy. It is a policy which creates a boom psychology when monetary controls are relaxed and a depression psychology when they are tightened up. The alternations of stimulation and restriction have, in fact, set up a new business cycle in Britain which is upsetting business planning and long- term industrial investment and causing the nation to lag behind in the international economic race. Ask your industrialists what they think when you take the chair at the next ineeting of the National Production Advisory Council. They will tell you that the Treasury policy of stop-go-stop has destroyed their initiative and undermined their confidence.
The right economic policy, of course, is to apply, when necessary, selective controls, not the general restraints of dearer money and tighter credit which can only end in another cycle of stagnation. If there is pressure in the building industry, apply a system of building licences to private enterprise and enforce stricter control of Government and local authority spending. If there is pressure in the motor industry, double the purchase tax on cars for a year until the pres- sure is eased. If there is a serious drop in the surplus on our international account, reimpose a capital issues control over foreign lending and let the reserves run down if necessary to maintain vital aid to the under-developed countries. Do not deflate the whole economy just. to hold on to your gold. America is in the same position and is at last making money cheaper in spite of a gold loss. If Germany becomes surfeited with gold it will hasten the inevitable day of a cur- rency revaluation among the members of the IMF.
I suggest, Mr. Lloyd, that you send your higher civil servants on a much-needed holiday and while they are away call in the businessmen and ask them to co-operate with you in planning industrial research and investment and expand- log production over the next five years. You will then go down to history a far greater Chancellor than your two deflationist predecessors.
CUSTOS is on holiday.
Previous page
