‘Managed’ England

September 28, 1959

LONDON—The coming election may be crucial for the British economy. If the Conservatives win, as they are widely expected to, the issue of nationalization will be dead; if the Laborites win, attempts at denationalization will be doomed—and it is by no means certain that further nationalization will be attempted.

But though England seems fed up with traditional socialism, both major parties accept the controls and other implications of the welfare state. Looking at the situation from the perspective of New York, it had seemed that with the imposition of a 7 percent Bank Rate in September 1957, followed last year by the convertibility of sterling and the active efforts toward a free-trade area, England was making rapid strides in the direction of a free economy. But action, it is now clear, was moving faster than ideology.

To see how much England is still ruled by a controllist philosophy, it is merely necessary to look at the Conservative Party’s manifesto. The party promises to “double the British standard of living in this generation”; to “rehouse at least another million people from the slums” by 1965; to “take no further action to decontrol rents” in the next Parliament; to provide a road program over the next five years “twice as big as over the last five years”; and to “remodel and strengthen our powers for coping with local unemployment.” This last policy could involve the most detailed government intervention, for example, by “offering capital grants to encourage the building of new factories where they are most needed, as an addition to subsidizing the rent of government-built factories.” One can imagine the political pressures and economic distortions arising from such a program.

MONEY AND CREDIT

Not less significant of the trend of British thinking is the recent Radcliffe Committee report. In May of 1957, the then Chancellor of the Exchequer, Peter Thorneycroft, appointed a committee, headed by Lord Radcliffe, “to inquire into the working of the monetary and credit system, and to make recommendations.” The report, consisting of 375 closely printed pages, was published on Aug. 19. It is based throughout on the assumption not only that managed money is here to stay, but that management of money is not enough. According to the committee, it is only part of a general economic policy which must have complex aims.

Further, not only does the committee fail to insist on the independence of the Bank of England in monetary policy, as we do on the independence of the Federal Reserve, but it declares, in effect, that monetary and credit policy decisions are and ought to be political. “In our view the true responsibility for decision [on the Bank Rate] lies today with the Chancellor of the Exchequer, not with the Bank; and it would be better that this should be made explicit.” Long experience not only in England, but in nearly every country in the modern world, shows that political control of money and credit policy leads either to continuous inflation, or at best to a bumpy economy of inflation followed by jolts of deflation or stabilization crises.

NAÏVETÉ OF GOLD

The committee’s report takes permanent monetary management for granted. It treats the old international gold standard as naïve and hopelessly outmoded. “Before 1914,” it says with a patronizing smile, “the maintenance of convertibility at a fixed gold value of the pound was sufficient definition of the duty of the Bank of England.” It now assumes that the economy has become too complicated for producers and consumers, but can be easily managed by bureaucrats who will know just what strings to pull and which buttons to press. It regards the national debt as “an integral part, even an indispensable part of the web of claims and counterclaims that gives strength to the structure of financial institutions”—a statement that moved George Schwartz of The London Sunday Times to give ironic thanks to Hitler. Finally, the report assumes that economic salvation is to be achieved through government manipulation of interest rates, without explicitly recognizing what this will do to inflate the money supply, what political pressures it will generate, and why it must eventually break down.