BRITAIN’S ECONOMY RESULTS THAT MAY COME FROM CHURCHILL’S GOING

Press, Volume XCI, Issue 27639, 21 April 1955, Page 12

BRITAIN’S ECONOMY RESULTS THAT MAY COME FROM CHURCHILL’S GOING

(By

LYNCEUS,

of the "Economist”] TToifl

(From the Economist Intelligence Unit]

London, April 12.—After Britain’s return to the gold standard in 1925, that irreverent economist, Mr J. M. Keynes (much later to have a barony conferred upon him), wrote a devastatingly effective little booklet called “The Economic Consequences of Mr Churchill.” The title deserves resurrection now that the Grand OldJwan has departed from the scene of his labours to take the rest he deserves so To ask what has been Sir Winston Churchill’s economic contribution to the affairs of this country and what may- be the economic consequences of hfs departure may appear most inept. This is because Sir Winston Churchill s sphere of interest and activities has soared well beyond the realms of finance and economics and because his immediate interests so obviously did not lie in that particular realm. Nonetheless, the question should be put, and deserves an answer. Sir Winston Churchill may have been profoundly ignorant of economic theory. After all, ne was the son of a man who, as- Chancellor of the Exchequer, admitted that he could not master the decimal system and expressed his incomprehension of “those damn dots.” Sir Winston Churchill, in his turn, was to don the mantle of the Chancellor of the Exchequer and was at the Treasury at the time when Great Britain returned to the gold standard after the First World War — the move that called forth Keynes’s onslaught In retrospect, it was a mistaken step, at least in the manner in which it was taken. It was a decision for which Britain was to pay a grim in terms of industrial depression and unemployment. It forced on this country an effort of deflation that could not be encompassed by the rigidity of its price and cost structure. The decision to go back to gold was, however, right in every respect, except the rate of exchange that was chosen. That choice, however, seemed right to all except a very few informed people'at the time. It was part of the movement “back to normalcy” which was to be the motto of the post-war reconversion from a war to a peace economy. It seemed to bes required, not merely by the dignity of sterling, but by the demands of honesty in respect of the debts that had been created during the war.

Bank of England’s Influence Most of the advice which guided the return to the gold standard and which determined the manner in which it was to be made came from the Bank of England. For a very long time thereafter, Sir Winston Churchill did not forget how he had been misled at the time, and almost to the end of his political life, he was to entertain most serious and even unjust reservations about the advice tendered to the government by the Old Lady of Threadneedle street, forgetting that governors had come and gone since the episode of 1925. As Prime Minister of the Coalition Government* Sir Winston Churchill Was again to grapple with some of the Sroblems of economic organisation and nance during the war. He grappled with them in the kind of cosmic way in which he tackled his other problems, strategic and political. The old orthodoxy had gone. > Keynes, bis former critic, was now installed in the Treasury as the fount of inspiration of financial policy. In war, and particularly in total war, the main role of finafice is not to get in the way. This is certainly how Churchill treated it. The disregard of the role of finance and of the discipline of money in the concept of total war. is perhaps best revealed in one of his telegrams to the President of the United States, sent at a time when Britain was desperately

dependent on that country for the supply of arms and essential materials, but well before Lend-Lease had come into effect. “We shall go on paying dollars for 'as long as we can, but I should like to feel reasonably sure that when we can pay no more you will give us the stuff just the same.” He also defended the financial strength of this country when, again before Lend-Lease became a fact, the United States was pressing the United Kingdom. in order to make cash payments for its essential purchases in the United States, to divest itself of all its gold and other saleable assets. “I believe you will agree that it would be wrong in principle and mutually disadvantageous in effect if, at the height of the struggle, Great Britain were to be divested of all saleable assets, so that after the victory was won with our blood, civilisation saved and the time gained for the United States to be fully armed, we should stand stripped to the bone. Such a course would not be in the moral or the economic interests of either of our countries.”

A Difficult Journey After the war, Churchill found it difficult to make the intellectual journey back to the state of affairs where financial considerations again counted. No individual and no country can live indefinitely on the principle that “the role of finance is not to get in the way” or that “everything which is .physically possible should be financially possible.” The limitations of financial and monetary discipline tended to irk Churchill. By training, he was not the man best qualified to sense what the nation could and could not afford, what pressures would be set up in the economy by this or that course of action.

In particular, he was not one to resist the inflationary forces that tend to _• set in motion in an economy ■<-hich is fully employed, and even over-employed. When the nation was threatened by strikes as a , result of demands for higher wages in such crucial industries as the railways, his influence was always in favour of conciliation. In the last few months the advice from No. 10 Downing Street had been: “Above all, no labour troubles between now and the General Election” —an open invitation to all concerned to table their demands while the going was good. When the Lancashire cotton industry was threatened with rising unemployment early In 1952, it was an angry memorandum from him to Ministers and officials which told them that “when faced with a problem of human suffering of this kind, we cannot just stand and stare.” He did not understand that a little frictional difficulty of this kind might be the condition of shifting men from a declining industry to other avenues of employment which were aiting for them in Lancashire. Churchill was certainly no or rici'" economic purist, though it should be said thatAhe had a good appreciation of the kind of incentives that keep an economic system moving. He was onde asked t"* give a definition of money. He pondered and said: “Money—it’s the thing that makes you get up in morning—and the rest follows.” The economic consequences of his departure are not likely to be profound. The new Prime Minister. Sir Anthony Eden,, is as uninterested in economic techniques as was his predecessor. This large, and in many respects preponderant, sequent of the retiort’s affairs tend political preoccupations will be more than ever in the competent hands of the Chancellor of the Exchequer—Mi- Butler—certainly until the next General Election., and