POLITICS
The heresy of inflation is preached once more
FERDINAND MOUNT In the better sort of religious novel there is often a passage in which the hero, on the surface a decent, ordinary sort of chap, is listening to some modern-minded people saying that hellfire is old hat and how utterly absurd it is to think of God as an old man in the sky with a long white beard. Suddenly our hero realises that he alone still experiences that dread of eternal torment and believes in the reality of God's vengeance. That night, he lies shivering in his narrow truckle bed, listening to the rain beating on the tin roof of the bungalow. A touch of malaria? We know better.
That is rather how I feel about inflation. Bright young Treasury Jesuits tell us not to worry, that all those boring old statistics no longer matter — `M3 is just another motorway' — and that it was always absurd to place too much reliance on a single monetary indicator. Did not the Holy Father promise at Bournemouth that `we will not engage in an irresponsible spend- ing spree, we will keep borrowing firmly under control, we will never take risks with inflation'? It is not for us to question the Church on matters of doctrine; the Church's teaching evolves over time, while of course being at the same time eternal and unchanging.
And yet whenever I hear that, in some air-conditioned City cell, the Old Monetar- ism is still being celebrated by some obscure friar — grubby-cassocked, excom- municate, quite unworldly — the child- hood terrors reawaken. Father Congdon, the Savonarola of Messels, warns us that at this rate inflation will be up to ten per cent by 1988. Mr Sam Brittan says that 'there is a sterling crisis as severe as most we have had'. The Chancellor was strangely silent about interest rates. The falling pound was pushing up the cost of imports. All last week, I had a sinking feeling that it was not going to be all right on the night.
Mr Lawson had a considerable success at the Conservative Party Conference. He demonstrated, like Harold Wilson and many another before him, that public speaking is an art that can be learnt by almost anyone who bothers to take the trouble. And yet there were some among his audience who longed for a more daring approach. How tremendous it would have been if he had said instead: 'this Govern- ment has never lacked the courage to take the right action at the right time. The speculators are deluding themselves if they think the pound is a pushover. This is a strong government and a strong economy, and I have not the slightest hesitation in putting up interest rates this morning in order to make sure that it stays that way' (loud and prolonged applause, cries of 'Good old Nigel' and 'Lawson for PM'). Mr Lawson's argument for waiting until now was that in the turbulent markets of the preceding fortnight he would have had to make a two per cent increase whereas now he can get away with one per cent.
There also remains a respectable argu- ment for not putting up interest rates at all and letting the pound drift still lower, so as to price British goods back into world markets. It may be fashionable to say that the level of interest rates matters less these days, because borrowers are so credit- hungry (look at the usurious rates they are prepared to pay on their credit cards). All the same, it is still the high street banks who do most of the foreclosing on overdraft-ridden farmers, shopkeepers and other small businesses. There is something to be said for taking a few risks to edge interest rates down to the sort of levels which usually obtain in other industrial countries, or at least for waiting as long as possible to raise them by as little as possible.
In that case, though, Mr Lawson ought to make up for monetary reluctance by showing a corresponding eagerness to be tough on public expenditure. The unfor- tunate impression has been gaining ground that he is on the slack side all round, a Chancellor temperamentally disinclined to severity, especially when an election is in the offing. No doubt Sir Geoffrey Howe did relax a little at a similar stage in the last Parliament. But he lifted the hush puppy from the brake pedal in the discreetest possible fashion. Mr Lawson's manner is somewhat more unbuttoned, verging on the Macmillanesque.
True, Macmillan did not do too badly in 1959. The promoters of the Treasury's equivalent of the Alternative Service Book assert, besides, that money does not flow round the system like it used to when that system was more restricted. Borrowers who use their mortgages to buy cars and yachts are 'simply making a once-for-all adjustment to new credit conditions' — a line I recommend to all those engaged in acrimonious correspondence with their bank managers. The British, we are told, are at last learning to borrow as respect- able American families always have. That is why household debt in Britain has risen from less than half of total household income to nearly three-quarters.
But he that filches from Mrs Thatcher her good name for thrift makes her poor indeed. She is not entered in the same event as Lord Stockton. It is all very well to tell the Conference, as Mr Lawson did, that 'our ultimate object is to eliminate inflation altogether'. If the Government's intermediate achievement is for prices to be gently rising, ultimate objects appear a trifle •irrelevant. The revised version mer- chants argue that inflation is not much of an issue at the moment; voters' eyes are said to glaze over when Tory canvassers boast of what the Government has done. The new rubric accordingly permits a little bit of extra inflation in the interests of reducing unemployment and winning the election.
Will this really wash? A little bit of inflation has an unnerving habit of turning into a lot. In any case, the defeat of inflation is the moral foundation of the whole enterprise. As is the way of founda- tions, it may be mostly out of sight, below the surface of day-to-day politics. But the moment that this foundation becomes shaky, the whole edifice will look shaky, very visibly and very quickly.
There may be nothing wrong with Mr Lawson which a one per cent rise in interest rates followed by a fierce public expenditure round over the next few weeks cannot put right. One must not be too apocalyptic. In his latest volume of memoirs, Lord Wilson tells the story of Attlee chairing a meeting of Labour MPs after the first American thermo-nuclear bomb had been exploded in the Pacific. One impassioned MP after another rose to warn of the appalling dangers of fall-out over thousands of miles, the risk to future generations, and the possible end of the world. Finally, Attlee picked up his papers and closed the meeting with the words: 'Agree. We've got to watch it.'
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