PRICES UP OR DOWN ?
THIS is the season of the year at which the convention —always a little difficult to sustain—that economics is the exclusive business of professional economists patently breaks down. Family budgets reveal in hard figures the exact magnitude of the permanent problem of making ends meet. January income tax payments, for those who have to cope with them as well as with the regular - deductions under P.A.Y.E., are an additional reminder of the fantastic demands of the Exchequer—still averaging approximately eight shillings out of every pound of the national income. And both together demonstrate the impossibility of saving for all but the shifting and accidental minority which finds itself with a few pounds to spare, more by luck than by personal judgement or- national financial policy. At such times the instinct to look forward to that most striking of all annual demonstrations of the reality and immediacy of economics, the Budget, becomes irresistible. But all attempts to forecast its detailed provisions are simul- taneously frustrated by a seasonal intensification of the secrecy with which the Chancellor of the Exchequer surrounds his intentions. It is therefore necessary to fall back on opinions about what the Chancellor ought to do, in default of know- ledge of what he will do, and without doubt the best informed, most expert and most responsible of the opinions now available are contained in the speeches of the bank chairmen, published in advance of their annual general meetings. .
The most striking single feature of these speeches is their unanimity in the conclusion first that the menace of inflation is not yet under complete control and second that in this country its persistence is now mainly due not to private spend- ing but Government spending. This conclusion, or at any rate the first part of it, is primarily important in view of the fact that most economists are still waiting to see which way the cat will jump. They present a spectacle which is not edifying. The object of economics as a practical study is to make fore- casts. The crucial forecast at this moment concerns the general level of prices—will it turn up or turn down ? Or, to state the same question with the precision which is not readily attainable without the use of jargon, has the policy of disinflation gone far enough ? Most of the experts haver and hedge—but not the bankers. They say no, it has not gone quite far enough. They have obviously not leapt rashly to this conclusion. There are, of course, some signs of a fall in demand. Neither new nor second-hand cars are selling as readily as they were a few months ago, and the demand for clothing is only just working out of a quiet period. Consumers generally show signs of increased caution. The possibility of a slight trade recession-in the United States cannot be ruled out, and everybody knows that a cool breeze from the American market can become an icy blast by the time it has crossed the Atlantic. But when all that is said, the bankers still think that inflation and rising prices are, for the present, a greater danger than deflation and falling prices. They say it with varying degrees of emphasis and they are no doubt influenced by the normal caution of bankers regard- ing the expenditure of their clients, but there is no doubt as to which side of the fence they are on.
It is not difficult to find reasons for this belief in the persis- tence of inflationary tendencies. Anyone who feels that they are waning would be well advised, before acting on that feeling, to observe the continued upward gyration of the price-and- wage spiral, particularly in the nationalised industries of coal and transport. At the moment these two key contributors to rising prices are at different stages, with the miners asking for more wages, which the Coal Board may in due course recover in higher prices from the consumers, and the railways asking for higher fares, with which to meet the last increase in coal and labour costs and prepare for the next. But neither the manner of the unions nor the behaviour of their employers gives any firm assurance that the whole process is coming to an end, and last year both wages and prices rose by six per cent. As to the consumers, who foot all bills, they have not yet reached that point of adamant resistance to rising prices which Lord Aldenham, of the Westminster Bank, so sternly recommends. Nor is there any sign of a revival of savings by either individuals or firms—and that is a telling point indeed, for to say that we are not saving enough is only another way of saying that we are spending too much, and too much spend- ing equals inflation.
It is still just possible for those who believe that the long run of inflation is nearly over (and it must always be remembered that the Chancellor of the Exchequer and his Treasury advisers are quite possibly numbered among them) to argue that all these factors—the firmness of wage demands, the softness of consumers and the insufficiency of savings— are partly psychological and could be rapidly wiped out by a market shock or an appeal to reason. But even this belief runs up against the facts of the world situation, as stated by Lord Harlech, of the Midland Bank, in what was perhaps the most profound and telling of all the statements made in the course of this year's speeches. He simply_pointed to the. dual pressure which is being exerted throughout the world for higher and more stable standards of living on the one hand and for the rapid development of an unprecedented rush of scientific and technological discoveries on the other. This massive demand for both capital and consumer goods represents a strain On existing resources which must express itself as a continuous inflationary pressure which all Govern-. ments must take account of. And if Britain manages to escape it—to find some small eddy moving in the opposite direction to the main stream—she will be lucky indeed.
The Chancellor of the Exchequer is, of course, as capable of seeing the force of the arguments of the bank chairmen as anyone else who takes the trouble to read them. But this does not make his Budget two months from now much easier - to forecast. Mr. Butler has left all doors open, so that he can move quickly when the time comes. He is the living embodiment of the moral, drawn from the recent oracularly ambiguous utterances of the Organisation for European Economic Co-operation, that it is now necessary to prepare for both inflation and deflation. Against his hint, at the end of last year's Budget debate; that he was directing policy in such a way as to be prepared for the onset of deflation can be balanced—balanced is the right word—his agreement with the other Commonwealth Finance Ministers at the recent conference to pursue "internal economic policies designed to curb inflation." And by April be will have been Chancellor for eighteen months. His success so far has been sufficient to encourage him to continue in the essentially disinflationary policy he has so far followed.
The anti-inflationary measures in the last Budget were not sufficiently drastic to please everybody; but they have worked. The Chancellor has plenty of incentive to try to do it again. There is at this moment no dire emergency of the kind which led to the presentation of last year's Budget a month earlier than the usual date. The anticipatory outcry of the Opposition against the "Butler cuts which arose weeks before the cuts were actually made has no parallel this year. Instead of last year's serious threat of industrial action to force the Chancellor's hand we have a strong dislike on the part of the trade unions themselves for any such move—a dislike to which Mr. Lincoln Evans gave forceful expression last Saturday. The disturbances which it was prophesied would follow from last year's reductions in food subsidies have not materialised. There was never, indeed, any good reason to believe they would, since they were accompanied by increases in.family and other allowances specifically designed to soften the blow for those who needed protection. Quite a number of small economies in Government expenditure have been announced in antici- pation of the Budget. The loosening of the controls of eggs and cereals and the removal of tea rationing are cases in point. The rise in the rate of arms expenditure has been curbed. In fact the way is beingopened for the kind of Budget which could accomplish the further retrenchment in Government expendi- ture which is still so obviously necessary, lift some of the weight of taxation, and clear the road to new enterprise and more efficient production. Mr. Butler's financial policy has already shown a certain dogged soundness. He now has an oppor- tunity for greatness.
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