Lesson from England

October 22, 1956

It would profit us as a nation (including especially the Republican leaders) to study recent economic policies and political results in Britain. When the British Labor Party came into power in 1945, it launched upon a policy of Socialism, “planning,” inflation, and “full employment.” England stumbled from crisis to crisis. The Conservatives were voted back in 1951. They held on in the new elections of May 1955. But those voters who thought the Conservatives would dismantle the Socialism and halt the inflation of the Laborites were disappointed. The Conservatives did arrest the further progress of Socialism, dropped some price-fixing, freed a few markets, and allowed interest rates to go up enough to slow down the inflation. And then the new regime lost its nerve. It lacked the conviction and the courage even to attempt to denationalize the coal mines, the railroads, gas and electricity, telephone and telegraph service, or the Bank of England. It kept all the welfare state schemes. It still keeps rent control. And it hangs on like grim death to exchange control.

‘FULL EMPLOYMENT’

An illustration of the controllist ideology that now governs even the Conservative Party was given by the speech of Harold Macmillan, Britain’s Chancellor of the Exchequer, at a meeting of the International Monetary Fund on Sept. 26. The Chancellor pays lip service to the need of each member country “to follow sound internal policies.” But, he continues: “We must remember that governments today are pledged, and rightly pledged, to policies of full employment and a high level of economic activity. They cannot, therefore, push their fiscal and monetary policies to the point of outright deflation.” Translated into more candid terms, this means that governments today dare not halt their inflationary policies if such a halt threatens to bring even some temporary unemployment.

In the last twenty years, governments have demanded more and more direct controls over their national economies to try to suppress the undesirable results of their own inflationary “full employment” policies.

Chancellor Macmillan admits that he has already been driven “to supplement general monetary and fiscal policies with more discriminating measures, notably the control of hire purchase” (installment-buying). This is only a beginning. If he insists on the continuance of inflation and exchange control, he will find himself driven to additional direct controls. He is concerned because “increased personal spending competes for the same resources as are required for exports and for capital goods.” But if monetary inflation were boldly stopped, and the pound left to find its own level in a free market, this “problem” would disappear. The market would decide, infinitely better than any bureaucrat, how much of the national resources would go into consumption and how much into investment, how much into domestic production and how much into export.

POLITICAL RESULT

Even today Britain’s Chancellor still talks of “the world dollar shortage.” A decade ago an eminent British economist, Roy Harrod, rightly called this “one of the most absurd phrases ever coined.” Though British exchange control was slapped on overnight, as a “war emergency” measure, it still exists. And we find Harold Macmillan eleven years later, still talking timorously (and unconvincingly) about taking “such steps as we can from time to time to liberalize our arrangements for trade and payments.”

Economically, exchange control is not merely futile but pernicious. And where has all this timidity in dismantling Socialistic controls got the Conservitive Party politically? A hint was given in a by-election in Tonbridge on June 8 last, when the plurality of the Conservative over the Labour candidate dropped from 10,196 in the General Election of 1955 to 1,602. This drop of 8,594 was wholly the result not of any gain in the Labour vote, but of a drop of 9,000 in the Conservative vote. The abstentions were due, as one commentator put it, “to a protest against a Conservative government which has forgotten to be conservative.” There may be still time for our own Republican high command to profit from the lesson.