ADVISERS ASTRAY

Press, Volume CIII, Issue 30348, 25 January 1964, Page 3

ADVISERS ASTRAY

[Reviewed by M FXI.P.I Sunshades fh October. By Norman Macrae. Allen and Unwin. 179 pp. This short book by an assistant-editor of the ‘Economist” will be unpalatable for most economists and likewise politicians. At the head of Chapter I is an anecdote told by a former Director of the International Monetary Fund. He said that in Siam they once had an Economic Adviser to the Government called Prince Dam Rong. He added that he tried always to remember this.

The message of the book briefly is that for years advisers to the British Government have given wrong advice. In the thirties, they advanced policies which would have been useful in the early twenties; in the immediate post-war period, policies which would have been right for the thirties and in the late fities, those which might have served in the immediate post-war period. Their mistakes, to which the average economist has subscribed, have been most glaring in the late 1950’5. Erroneous policies have been based on the assumption that a restraint on domestic demand must always serve in some measure to ease the problems of securing sufficient exports and restraining cost inflation. Macrae says, however, that in recent years there has been a fundamental change in the British economy (which through proper understanding of economic analysis would have been properly interpreted) which arises from the fact that the marginal demand industries (the modern or growth industries) when operating in an advancing economy now often have a very significantly higher marginal productivity per factor employed than the average of other industries when operating in a more stagnant economy. Therefore, it is now economically profitable to inflate marginal demand up to a distinctly higher point than it used to be.

This new situation arising from the mid-twentieth technological and solid revolution has not been understood and policy makers who knew that sunshades were a protection in July recommended to Britain’s disadvantage that they must be right for October. The result of this lack of understanding has meant that when the Chancellor squeezed demand, the squeeze led not only to the cut in de-

mand which be sought but sometimes to a switch of resources into a less productive pattern of factor employment than would otherwise have been obtained. In those circumstances, restrictive measures had precisely the reverse effects on costs per unit of i output and on export compe- | Utiveness from what had been Costs rose. Exports went down. I Macrae gives evidence from | a memorandum submitted by I the Trades Union Congress : before the 1962 budget. This ■ shows that in the years 195658 when restrictive policies limited the rise in industrial production to a little over 1 per cent more than was achieved in 1955, home costs a unit of output rose by 16 per cent and the volume of exports by only 4 per cent Against this, in 1959-60, when the economy was allowed to expand more rapidly and industrial production rose by 13 per cent home costs a unit of output rose by only 4 per cent and exports increased 9 per cent The Federation of British Industries joined the T.U.C. in attacking action taken by the Government on the familiar lines of protecting the £ by measures designed to restrict internal investment and consumption. Macrae’s book is an urgent plea for the reconsideration of policies so that they will match the realities. The author believes that not only Britain and the United States have been victims of wrong advice but that the continent of Europe is confronted with a similar fate. He concludes that economics have got to be pulled round into a stance where they can fight against today’s danger, not against yesterday’s ones. In Lowell’s words: “New occasions teach new duties: time makes ancient good uncouth; they must upward still and onward who would keep abreast of Truth.” The economic lessons of the last decade, says Macrae, have to be learned not only by the followers of the classical economists, but by those who have been brought up on Keynes’s General Theory.