Television
Money in the tank
Martyn Harris
The central image of last week's Pando- ra's Box (BBC 1, Thursday, 9 p.m.) was a remarkable water machine, consisting of various tanks, ducts and drains, filled with coloured liquids. It reminded me rather of the 'Hydrofun' educational toy my children used to hang on the side of their bath, but was apparently used, in all seriousness, by the Keynsians of the early 1960s as a model for the economy. If you poured red liquid (money) in the tank labelled 'demand' then the blue liquid in the 'output' tank would obediently rise, and so forth.
Like the Hydrofun, however, which regu- larly seized up on bits of soap and frag- ments of bath sponge, the machine had serious limitations. Chancellor Maudling tried pouring lots of money into the demand tank but the result was a rise in the tanks labelled 'consumption', 'imports' and 'inflation', and the arrival of a new Labour government, which did not appear on the model at all. Labour carried on pouring money into demand, but it all leaked out through a hole nobody had noticed called sterling depreciation.
By the early 1970s, the Hydrofun machine was doing something impossible: the inflation and unemployment tanks were both filling up at the same time, so the economists threw the Keynsian model away and got a new monetarist one — this time on a computer — which at least was not visibly absurd. Milton Friedman said if you took money out of this model then inflation would fall and output would go up. In fact the first result was a tripling of unemploy- ment, but output did go up eventually, even though money supply continued to rise. 'It was all a bit embarrassing,' said Charles Goodhart, adviser to the Bank of England from 1980-85, but politicians were happy to ignore the discrepancy. Milton Friedman got a Nobel prize, and the model was pro- claimed a huge success, at least until 1988, when other bits of soap got jammed in the works, and further leaks appeared, with whose consequences we are still living.
This was an excellent programme, only slightly marred by irrelevant film clips of Hughie Greene on Double Your Money, and Jack Hawkins in The League Of Gentle- men. Its argument was that the manage- ment of the British economy has been a failure for the last 30 years because of a mistaken analogy between economics and science. 'We believed in the prospect,' said one economist, 'that by fiddling with the screws and setting and instruments, you could get more out of the economy.'
But, like grammar, economics is more a descriptive than a prescriptive or predictive activity. There are rules and a logic to grammar, but no grammatical system can control the direction of a language. The faith in monetarism and free markets, as I like to point out to my right-wing friends, has many similarities to the faith of earlier generations in Marxism: the unified, and coherent-seeming explanation for hugely complicated social systems, and the offer of a correspondingly simple fix. It is no coinci- dence that many monetarists, like Alfred Sherman, were old Marxists, for like Marx- ism, it is a system which can never be applied in ideally pure circumstances, and so can never be shown to have failed, mak- ing it an ideal refuge for the sort of tidy- minded people who can never bear to be wrong.
Goodhart, in the end, was driven to state his own gloomy law for economic policy: 'If ever the government decides to rely on any particular statistical relationship as the basis for policy — then that relationship will fall apart.' More dire still was Professor Alan Budd, one-time monetarist adviser to the Treasury, who wondered aloud whether the monetarist enterprise might not have been insincere from the start. Perhaps the long-term aim was never the rejuvenation of the economy as whole — a hopeless prospect for a nation in a long historic decline — but the recreation of a supine labour market, on 19th century lines. But that is the kind of apocalyptic speculation only Marxists should go in for.
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