SECOND THOUGHTS ON THE SECOND REPORT
By NICHOLAS DAVENPORT
NOT being a trade Unionist I had to sit down and think why I
found the second report of the Cohen Council on prices, produc- tivity and incomes as disagreeable as the first. It was certainly not because I object to the idea of economic lessons being taught to ignorant labour leaders by elderly
professional gentlemen of 'the Establishment.' The spread of knowledge is always desirable, although it becomes very difficult when the pupils
refuse to co-operate with the masters and walk out of the class-rooms. I found on re-reading the second report that it was the depressing Kafka-like
nature of the lessons that made me irritated. Any virile young working man, if he managed to read be far as the chapter on 'the longer view,' would be so overcome by the hopelessness of it all that he would emigrate at the first opportunity. Consider this passage: `To maintain high and stable em- ployment while avoiding inflation, if it is possible at all [my italics], will certainly call for a rather delicate regulation of the general level of activity. h is far from certain that our present understand- ing of the working of economic forces is sufficient for such a purpose.' And this leads up to: 'It can hardly be expected that the average level of un- employment over a period of years will be quite so low as in the last decade.' And finally: 'Next year, such wage increases as are granted should be lower than this year's. For annual increases in wages of 31 per cent, are not merely higher than the present rate of productivity increase : they are higher than any rate of productivity increase Which can reasonably be foremast over any period of future years [my italics].' If we must stop be- lieving in British science, British technology, British enterprise, British workmanship, we had better shut up shop.
All this comes about because the Cohen Council have accepted for reasons which they gave in their first report a rigid price stability as the first objec- tive of British economic policy. It is extremely doubtful whether this objective can be secured and held in our country except at the cost of economic stagnation and dangerously dear money. A dynamic economy is a high investment economy and to keep industrial investment grow- ing the rate of profit for the industrialist must exceed the long-term rate of interest by a hand- some margin. No one knows what that margin should be but suppose the gross national product in money terms has been growing at the rate of 6 per cent. per annum derived from a 3 per cent. annual rise in production and a 3 per cent. annual rise in prices. if a government followed the Cohen Council's advice and stopped the rise in prices altogether the average rate of profit on investment Would be cut by half. In other words, investment would be unprofitable unless the long-term rate of interest fell to a nominal fraction. Today we have a stable price level but the industrial rate of bor- rowing remains at the high rate of 6 per cent. It is not surprising that the Cohen Council antici- pates a further decline in private fixed investment.
Of course, any Government has to take decisive action to stop a runaway rise in prices, especially when its currency is being 'beared' by foreign speculators. But the last Chancellor, with his
7 per cent. Bank rate and ruthless insistence on any sacrifice to attain hard money—one felt that he would not have blinked at 10 per cent. and massive unemployment—was taking very great
risks with the British economy. Fortunately Mr. Amory has a more flexible approach, but he is still blind to the urgent need of stimulating invest- ment through a lift in consumer demand, which he could set in motion tomorrow without infla- tionary effects if he cut purchase taxes and relaxed hire-purchase control. Why must the Cohen Coun- cil always urge him to proceed with such pedestrian and unimaginative caution? Why did they not think of the banks' personal loans schemes, which are a second-best stimulus to con- sumer demand, but by no means to be despised?
The more I read the Cohen Council the angrier I become at their complacent acceptance of stagna- tion and high unemployment as a fair price to pay for price stability. Could not their distinguished economic member have pointed out to them the ill effects of stable or falling prices on the rate of profit and consequently on the rate of investment? In his earlier days, as Mr. Nicholas Kaldor pointed out in a letter to The Times, he wrote a book on Money (1922) in which he discoursed on the case for 'a gently rising price level,' which gave, he said, a 'fillip to production.' He contrasted
this with a price level continually falling which 'would prove deficient in those stimuli upon which modern society, Whether wisely or not, has hitherto chiefly relied for keeping its members in full employment and getting its work done.' Sir Dennis Robertson is surely entitled to change his views, but I prefer the wisdom of his youth to the despair of his old age.
It seems to me that we ought not to have fixed objectives in our economic policy. At one time we ought to be stopping a price rise : at another we ought to be letting a gentle rise permeate through the economic system. The truth is that an economy has to be a strong, rapidly growing one to afford the banking luxury of a rigidly stable or falling price level. For the danger of a stable price level in our country is that it may entail a high rate of interest and a low rate of profit, which must end in a declining rate of investment. We pay our way in the world by selling our goods at competitive prices in the world's markets and that needs an increasing investment and a high rate of increase in productivity—greater, as the Cohen Council says, than the rate of increase in wages. We can- not live by banking alone, although that makes a useful contribution to our balance of payments. And we certainly cannot live by stagnating on the Cohen-Robertson level.
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