Monetary policy
Sir: As an intermittent reader of your journal over many years, I always find it a pleasure to return to find Nicholas Davenport's column still shining like a pillar of fire in the economic wilderness. In his article, "The truth about monetary policy" (June 19), he demonstrated clearly that our present inflation and recession are caused, not just by wage demands. but by high interest rates and excessive tax on earnings. I am glad that he is supported by Professor Vaizey — and myself.
The difference between growth and recession is determined, like general election results and The Spectator's circulation, by the decisions and actions of a relatively small number of people. Hence it is not too presumptuous, I hope, for me to explain how I am affected by present monetary conditions.
I am an unemployed marketing man who is finding it difficult to get a job at a time when 81 per cent of British industry, according to the CBI, is finding it difficult to get orders. Having some capital and a marketable product, one obvious solution is to start a business of my own. But I am faced with the following dilemma: (1) With corporation tax and income tax I must aim at a return of at least 15 per cent on my investment in order to achieve a nett return of about 50 per cent.
(2) to get established, and to finance expansion over the first difficult years, I shall need to borrow capital, for which I shall have to pay 10 per cent interest at the very least, placing my own investment as security.
(3) While money is short and dear, my customers will be slow in paying, so that to keep my suppliers happy I shall have to have a bank overdraft sufficient to cover two or three months peak trading.
(4) I shall therefore have to set prices so as to bring me a return of at least 30 per cent on my original investment after payment of wages and running costs.
Alternatively, I can simply put my money into a Building Society or other high yielding stock, take my 5 per cent tax paid, and sit on my bottom rather than stand on my own two feet. Boredom may induce me to take the plunge anyway, but it does seem daft that I should have to pay through the nose to risk my neck. That's not capitalism, it's capital punishment. Bertrand T. Whitehead 82 Highgate West Hill, London, N6.
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