MONEY The inflation disease
NICHOLAS DAVENPORT
The wage-cost inflation is still galloping away. No doubt it would have galloped away much faster if the Government had not applied with such dogged persistence its de-escalation policy in the public sector. But looking back over Mr Heath's first year as head of the Whitehall school it may be said that the British rate of price inflation has galloped up to around 10 per cent per annum. This was not his fault — it was due to his predecessor's rule — but at this compound rate of interest the price level will double in just over seven years. That great pillar of the Establishment, Lord Robbins, has told the readers of the Financial Times that there is still so much in the wage pipeline that even if all cost increases were to stop from now on the inflation would still continue at an alarming rate for months ahead. This will be much appreciated by the trade unions who are now preparing the autumn list of wage rounds. They will insist on getting as a minimum not less than 13 per cent, that is 10 per cent for the inflation and 3 per cent for the increase in living standards which they call the increase in productivity. As it is customary to ask for double when one approaches the bargaining table we mast expect wage claims this autumn for 26 per cent to 30 per cent as the norn. Of course, if you are a militant trade Union intent on destroying the capitalist system, you will ask for 50 per cent. Did not Lenin say that the quickest way to destroy the capitalist system was by debauching the currency?
, Inflation is a social disease endemic in the western industrial democracies and in spite of the multiplicity of fiscal and monetary medicines which have been ‘ipplied no government has yet found a cere. Only the Friedmanites claim that they have a cure. They would cut off the money supply, so that companies would not be able to meet inflationary wage Olaims but go bust. This would be just as silly as the proposal that Lord Robbins makes, albeit with some diffidence, in the Financial Times, namely, that the increases in wages and salaries made by companies "in excess of the rate of increase of productivity" should be disallowed either in full or in part as costs for tax purposes. Either proposal would lead to universal bankruptcies and would precipitate such a slump — with unemployment soaring to the two million heights of the 'thirties — that the revolutionaries would then take control of the unions, seize the factories, march on Whitehall and force the government to resign. It would be useless to appeal to the forces of law and order because public opinion would then be on the side of the strikers, which it is not today.
The reason why the application of monetary and fiscal medicines by the state doctor has not cured the inflation but only provided temporary reliefs is that this disease is mental. The political and economic treatment they have prescribed has made the disease worse. It is equivalent to whipping the lunatics who have become violent in an asylum. In a • book called The Split Society which I wrote in 1964, I tried to show that the application of harsh monetary and fiscal measures in defence of sterling by the then moneyed ruling clique over a long period —from 1920 onwards—had brought about the alienation of the British working class. It was the workers who suffered by being thrown out of work during the deflationary periods and it was the employing moneyed class who profited most from the ensuing boom by the appreciation of their assets on .the Stock Exchange or in the property market. I came to the conclusion that the working class could no longer feel that they were part of British society under an inhumane stop-go system. I was not surprised to read the other week a trade union leader declaring that there was not one nation today but two nations. It is the truth.
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