Combatmg mflation
Sir: Anthony Gibbs's comment (June 22) on Nicholas Ridley's article is fair. If we had to wait until his preliminaries had been put into effect before inflation could be eliminated, it would also be until the cows came home. Fortunately, many countries have achieved stabilisation at various times since World War I almost as quickly as a flick of the wrist, after suffering inflation far worse than has so far been experienced in the UK. This has always been possible when the inflation has become so intolerable to everyone that the country concerned could rely on its people to change the metaphor accepting the necessary surgery.
The most dramatic of all such feats of legerdermain was that of Dr Schacht in 1923/4, when he gave Germany the Rentenmark after the worst hyper-inflation in history. But Germany's subse quent economic development was a sorry affair. In common with most other countries except the UK, she enjoyed boom conditions between 1924 and 1929 but they were marred by steadily growing unemployment an average in crease of 300,000 a year caused by trade union pressure to increase albeit very low wages. In Weimar Germany's in dustrial courts the awards made were invariably more generous than was warranted by labour productivity, and just before the Wall Street crash there were already nearly 1.5 million unemployed. But after hyper-inflation and before Keynes became fashionable there was no question of inflating the economy out of unemployment.
The moral is that once the wrist has been flicked there should be no starting the trouble over again, as took place in Germany between the wars and has happened in the UK ever since 1945.
This is not a humanly impossible re quirement. Once people begin to learn from painful experience a few of the facts of economic life it is remarkable what they will accept. I was a close spectator at the inauguration of the voluntary Prices and Wages Agree ments which have been fundamental to the burgeoning of the Austrian econ omy ever since 1947. The country had known hyper-inflation in the early 1920s, serious inflation under Hitler and two painful currency reforms in 1945 and 1947. After the second of these, production and living standards were still pitifully low, and the trade unions were understandably pressing so hard for wage increases with one union leap frogging the other as in the UK today, that the new currency was in grave jeopardy. Unable to sustain a third bout of serious inflation within less than thirty years, the Austrian trade unions and employers' organisations whose 'people, only thirteen years earlier, had been on opposite sides in a civil war, entered into their first Prices and Wages Agreement and UK readers please note honoured it.
Artificially stimulated and excessive wage and salary growth may not directly cause inflation, but they do bring the threat of unemployment unless counteracted by the government expansion of spending power. The Austrians, Germans and most other continentals know this. It may not necessarily be long before the lesson penetrates British skulls.
K. I. Wiggs
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