In the City
Twenty five years
Nicholas Davenport
While no one has accused me of being as old as the Spectator I have been observed as celebrating a jubilee. Astonishing to find that I have been writing a financial column in the Spectator for twenty-five years! If I had known the ghastly financial messes and the horrific economic crises which were to follow I would never have begun.
When I started twenty-five years ago the Tories were back in office and the City was booming. A bull market in equity shares had developed in June 1952 and went on for three years to July 1955. It was capped by a property boom. The government had announced in November 1954 that building licences were to be dropped, so that the bombed building sites in the City quad rupled in value over-night. A hundred new property millionaires were created in no time at all. There was then no capital-gain tax on shares which scored an advance of 120 per cent before the boom ended (dou ble that for property shares). And after the Eden-Suez madness a second bull market actually developed under Macmillan and lasted nearly two years, scoring an advance of 123 per cent. Certainly the City 'never had it so good'.
This was the time when I began to get very worried about the sociological con sequences of Tory financial and economic policy. When they had got back into office they had begun to use Bank rate whenever they thought it necessary to damp down the economy and prevent a wage-cost inflation. A monetary deflation, they thought, if applied firmly enough on right occasions, that is, when wage demands had become excessive, could teach the trade unions a useful lesson by throwing men out of work. This was the start of the 'Stop-Go-Stop' policy which drove business men as well as the trade unions mad with rage and frustration. It was hardly fair to the wretched men thrown out-of-work who obviously suffered most.
After the first 'stop' under Rab Butler, Chancellor Thorneycroft became a hard money fanatic — and raised Bank rates to 7 per cent in September 1957, telling the prime minister that as Chancellor he must have the last word on government expen diture. He was sharply rebuffed and in January 1958 he resigned — the first minis ter ever to resign on a point of principle. He had carried deflation too far and too long. He was followed by the easy going Amory who allowed a consumer boom to develop.
So fifteen months later the engines had to be reversed again and Selwyn Lloyd applied the worst 'stop' of all. Confronted with a flight of foreign money from London he borrowed heavily from the IMF 'on terms' and actually froze wages. He also added 10 per cent to the purchase and excise taxes. Growth in the economy stopped; industrial investment came to a standstill; Selwyn Lloyd justified the wage freeze because he said wages had gone up 50 per cent more than output (j ust like today). But Selwyn Lloyd was sacked when the Tories ran into political trouble. Macmillan also sacked six other close friend N from his cabinet. I said that he chose July for his night of 'the long knives' because Hitler had done it in June. I wrote in my column a very cynical open letter from Macmillan to Reginald Maudling on how to win votes. Maudling was told to reflate and ended with a deficit of £700 million on the balance of payments.
What worried me about the Tory policy was that it was really class-divisive. It meant that if the pound was in trouble and the economy over-heated the Tories would throw the burden of correction on the working-class through unemployment. It was making for a split society the end of which would be the complete alienation of the working class from any sense of belonging to British society. I was grateful to the Spectator for this opportunity to criticise Tory policy. Here I must add that every editor of the Spectator has allowed me complete liberty of criticism and has never attempted to change my words or influence my column. I was particularly beholden to the then editor lain Hamilton who agreed to take four lengthy extracts from the book I was writing on 'The Split Society'. They appeared in November 1963 with a clever cartoon of a split head on the cover. They created a bit of a stir, for the book was prophetic. The constant wild-cat strokes showed that part of the working class did in the end feel alienated from our society.
The advent of a Labour government in 1964 did not remove the alienation but made it worse. The workers expected an end to deflation and wage control but the four crises of sterling forced the Wilson government to take up the Tory stop-go dear money policy, with Bank rate rising from 5 per cent to 8 per cent by November 1967. Devaluation of the pound followed with the departure of Chancellor Callaghan to the Home Office. In the end the Wilson government was beaten from within, for Mr Callaghan opposed Mrs Castle's famous White Paper on the control of trade union power which I called 'In Chase of Strife'.
I was a constant critic of the Wilson government's monetary policy because I felt that one cannot control an economy by the use of Bank rate and exhortation. More direct controls are required. This was brought home to every one when the succeeding Heath government poured out money from the banks — his instant monetary reflation was over £3000 million — and allowed the greatest property and financial speculation to break out which the City has ever seen. These were the days of Stater Walker take-overs, property loan build-ups and the craziest of fringe bank lending. Even the largest of the hire purchase finance companies got into trouble. The sleepy old Bank of England was forced to call on the joint stock banks to put up billions to prevent the whole financial structure of the City collapsing. It was called the life-boat operation. One commentator wrote: 'Why was nothing done to warn the politicians and the public of the deathwatch beetles in the City woodwork?' The City column of the Spectator did its best to sound the alarm.
When Harold Wilson returned to power he allowed the Marxist elements in his party to take over policy direction. There was to be more nationalisation, more bureaucracy, more socialism. This caused me to take an anti-socialist stance, for I could see it all ending in the destruction of the mixed economy, the death of private enterprise and the abolition of private property. In other words, the death of freedom and our happy native independent way of life. I therefore began a constant advocacy in my column of the only alternative to communism, which is a mixed capitalism shared between managers and workers. To avoid the perpetual wage rounds which cause in-built wage-cost inflation, the workers must be given a slice of the equity, so that they can build up an alternative income from wages, that is, a dividend income from shares. This can be gradually secured through employee shares in individual companies but the quickest and easiest way is to float a gigantic public unit trust, holding shares in every industry, including the nationalised industries, and giving the workers 25 per cent of the units. It could be set up in the City almost over-night; it could also be used as an instrument for company finance and investment. For the time we are dependent for investment on the great life and pension institutions the ebb and flow of whose funds create the bull and bear markets whose tops and bottoms I try to pinpoint in my column. But how long, oh Lord, how long before the Establishment sees the
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