The Vanishing Goat REFLECTIONS ON AN INFLATION DEBATE

Press, Volume XCVI, Issue 28447, 29 November 1957, Page 14

The Vanishing Goat REFLECTIONS ON AN INFLATION DEBATE

[Bi/

GEORGE SCHWARTZ

in the “Sunday Timet"}

(Reprinted by Arrangement)

As far as the official parties are concerned inflation, whether brought about deliberately or inadvertently, is finished for practical politics, and they know it. The credit lies not with them but with the British people, who have made it plain that they are not prepared to furnish a supply of sacrificial goats adequate to keep an inflation going. Nevertheless, there are still some people who hanker after the advantages of inflation, and delude themselves that they can still be preserved without any of the attendant disadvantages. They have an idea that you can cut the throat of the goat and then sew up itp windpipe. Thus Mr Alan Day, academically inferring that electorates probably show sound common sense in being much more fearful of heavy unemployment than steady inflation, argues that inflation, While irritating and frequently unjust, need not cause undue inefficiency once financial and other institutional arrangements have been adapted to it. A little more temporary unemployment and a slower rate of inflation would probably be a good thing—at least in Britain. Slow Erosion The word irritating suggests that the victims of inflation might find some consolation in scratching themselves. I pass over that, but what I would like to know is what Mr Day has in mind when he talks about financial and other institutions adapting themselves to inflation. This is worth investigating. For this purpose I pass to the speech made by Mr Harold Lever, Socialist member for Cheetham, on the second day of the recent economic debate (Hansard, October 30). I found this really illuminating and I recommend a study of it in full. Mr Lever, while repudiating any notion of a runaway inflation, dismissed the fears of a slow erosion of the currency as a bogy. “I am not saying there are not many disadvantages in having persistent and sustained erosion of the value of the currency; but any claim by a Government that its continuation indefinitely threatens full employment is complete, fraudulent ‘nonsense.’*

He then argued that although this erosion had been going on since 1938, it had been a period of the greatest sustained full employment and increase in the standard of life and of production. He became almost lyrical on this theme. “I think we have to accept a certain tendency to depreciation of currency. That has gone on in this country for a long time without the country going to the dogs so badly as we were warned that it would. It has been going on with brief -interruptions since the Battle of Waterloo, and England, I am glad to say, still stands—and stands very proudly—in her place in the world. So do not let us get panicked at this obscene notion of our currency depreciating continuously.” Mr Lever rightly pointed out that for every victim of inflation there was a beneficiary, which, l! might add, is an aspect often over-1 looked by the critics of inflation.! Inflation, to his idea, is a mone«; tary reshuffle between victims and. beneficiaries. The task of the Government is therefore the relatively simple one of seeing that the automatic beneficiaries of inflation hand over something to the automatic victims. The Bluff Called That sounds very plausible. What Mr Lever does not see is that it calls the whole bluff of inflation, and what he and most other politicians do not see, although they feel it, is that we are not waiting for the Government to call his bluff. We’re doing it ourselves. Take the case of pensioners. The revision of pensions announced recently shows that pensioners are not going to be the goats of inflation, and that future time-lags in redress of pensions will have to be shorter and shorter. Governments have no choice in the matter, and again they know it.

What about the saver, the prime goat in inflation? Mr Lever was good enough to put in a word for him. “The Government could introduce stock which would maintain its value in real terms as against the present position where the man who is misguided enough to invest in War Loan with his small savings gets a terrific buffeting, aggravated by the' misguided policies of the Government with their 7 per cent Bank Rate.”

Thank you, Mr Lever, but we’re not waiting for the Government or for the Opposition. You must have observed the flight from Government bonds which intensified this year. It was heading for a debacle in Government finance, as the Chancellor has admitted. If the slow, continuous

erosion of the currency goes on a Government won’t get any money out of the people for its precious investment projects, not in the shape of bonds, savings certificates or any other fixedmoney claims. At least, it won't get it at the 3 per cent, rate the politicians are always hankering after. The Game’s Up I observe, Mr Lever, that later in your speech you declared that you never thought to see the day when the newspapers of the country would be so full of invitations to Usury, and where so much of the economy revolved around it as at the present time. But, my dear sir. that was the whole tenor of your argument. The saver is going to safeguard himself against erosion of the currency by requiring 7, 8. 9, even 10 per cent, on his money. That is what is implied in Mr Day’s talk about financial and other institutes adapting themselves to inflation.

Now, when everyone gets on an orange box to get a better view of the Lord Mayor’s Show, nobody gets a better view. If everyone is compensated for, or sets out to compensate himself for, a slow erosion of the currency there will be no advantage and no sense in eroding the currency. Take away the goat and the high priests of inflation are out of a job, and thumping good riddance to them.