Dialectical inflationism
Nicholas Davenport
The idea is around that the ordered growth of the economy is getting out of balance once again. The all-party Expenditure Committee in its fifth report published last week is disturbed by the fact that in order to make a moderate offset to the shortterm deficiency of demand the Government has made a heavy commitment to 1974-75 expenditure of E750 million. The Committee was advised that if the economy expands at a rate of 5 per cent per annum between now and 1974 the rate of growth of personal consumption will have to slow down from nearly 7 per cent during the past year to about 2i per cent per annum. This suggests that in his forthcoming Budget Mr Barber will have to be deflationary — that the current improvement in real living standards will have to be drastically cut down if sufficient resources are to be made available for the balance of payments, now running into deficit, and for the expansion of private Investment.
The National Institute of Economic and Social Research does not take so gloomy a view. In its recent Bulletin it says that the economy has begun to pick up quite strongly and that there is no reason why it should not be allowed to go on growing at the rate of 5 per cent per an num for the time being. A shift of resources into the balance of payments will have to be allowed for over the next two or three years but given the present degree of slack in the economy this requirement is not large enough When set against the total growth realisable. On this view it would expect the Budget to be neutral but it does add the caveat that one just cannot leave the floating rate of exchange to deal with the current deficit •on 'the balance of payments. The rise in the propensity to import manufactures has not been accompanied by any rise in export propensity. Some 'restrictive measures may therefore be required — import controls again? — but the Bulletin emphasises the all-importance of putting through the Government's prices and incomes policy. The rate of inflation simply must be 'brought down.
The reason why no government — Labour or Tory — has so far been able to manage the British economy with any lasting success is because the ruling Establishment has never bothered to study the science of human behaviour. Marx, by substituting dialectical materialism for the idealist dialectic of Hegel (who postulated that Mind, the Absolute Whole, thinks dialectically in terms of thesis, antithesis and synthesis) claimed that he had discovered the science of human behaviour in the perennial class war between the bourgeoisie, the beneficiaries, of capitalism, and the proletariat, the victims of capitalism. According to Marx synthesis would come when capitalism had destroyed itself through the contradictions of its own nature and revolution had established the dictatorship of the proletariat.
Human behaviour, of course, did not work out as Marx imagined. Indeed, the modern Marxist now claims — see British Capitalism, Workers and the Profits Squeeze by two Oxford economists — that capitalism is collapsing not through the increasing impoverishment of the workers 'but through their in creasing enrichment by the force of the strong-arm trade unions whose wages are now eating into profits and destroying the capacity of companies to invest and survive. Of course, the wage-cost inflation which this entails can debauch the currency and destroy bourgeois society as we know it, but Mr Heath's Phase 2 and 3 legislation is specifically designed to prevent this happening. As he must have a majority of the nation behind him — including a majority of the workers who want to see their real standard of living (already advanced above that of the middle class) preserved against a further rise in prices— I cannot believe that he will not pull it off. But he must be more flexible and see that his real enemy 'is not the dialectical materialism of the Marxist militants but the dialectical inflationism of the Tories' own monetary 'policy.
My research on this subject convinces me that it all began in 1951 when the Tories brought back the use of Bank rate to reinforce their fiscal measures for demand management. Whenever they thought a wage-cost or demand inflation was blowing up they would raise Bank rate, restrict hire purchase and put on extra taxation to damp down demand. That was their thesis. The antithesis immediately followed — a demand for extra wages from the strong unions to preserve their standard of living. " Stop-go-stop " followed; tempers flared; and with the pay freeze of Selwyn Lloyd the complete alienation of the working class was finally brought about. I well remember this dialectical inflationism because I was writing about it in this column at the time. " Don't upset the cost of living" the Tory Chancellors used to cry and with their next budget up went purchase tax on a wide range of household goods. "Keep prices stable," they thundered, and the next day up went Bank rate and another ten shillings was added to the weekly rent on a tenanted house. Of course, the wage explosion which followed Mr Wilson's surrender to the TUC made the inflation much worse but there are other factors besides wages which enter into a cost inflation.
The inflationary rise in the cost of money is the most seri ous and the one which can be and must be stopped by the Government. The joint stock banks, which have just reported a fantastic rise in profits as a result of the freedom given to them to lend as much as they like at the price they like, have now raised their base lending rates to 9i per cent. The chief executive of the National Westminster is reported as saying that they may have to raise them further. It is difficult to quantify the addition made by dear money to the cost inflation but I see that the financial editor of the Sunday Times has bravely estimated that over the past twelve months the higher cost of mortgages, hire purchase loans, personal and professional loans, and the passing on to the consumer of the higher costs of industrial and merchandising bank loans, have added El a week to the family budget, What Mr Heath must realise is that he cannot expect the co-operation of the trade unions in his counter-inflation policy if he does not pull down the cost of money which is underlying the rise in rents, At the moment of writing the local authorities are having to pay 10i per cent for day-to-day money in the "street," which can only mean eventually another increase in the rates.
The synthesis in dialectical inflationism can only come when there is a consensus between government and workers over such vital matters as the cost of money, rents, rates and taxation. .Mr Barber's budget will not win the workers' or my support if he does not deal with these factors of inflation to our satisfaction. And if 'he feels able to give away anything let him subsidise the fixing of basic food prices. With that concession he might get the TUC's support.
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