Leaving it alone

R.G. Opie

  • Britain can work by Ian Gilmour
    Martin Robertson, 272 pp, £8.95, March 1983, ISBN 0 85520 571 7
  • The Use of Public Power by Andrew Shonfield, edited by Zuzanna Shonfield
    Oxford, 140 pp, £9.95, January 1983, ISBN 0 19 215357 9

Sir Ian Gilmour has written a splendid book about a splendid subject. The question he asks is: ‘How did Monetarism capture the Conservatives?’ It is a genuine mystery, and also a very serious issue, as more than three million Britons, including Sir Ian, know to their cost. They – and he – have lost their jobs as a result of it: they as victims of a heartless, misguided and ill-founded policy, and he as a victim of his views about it.

Perhaps his views might not have mattered so much – even in Mrs Thatcher’s Cabinet there are some unbelievers, Peter Walker is an honourable example – but his style must have been insufferable. It is not only wickedly witty – better, perhaps, even than Galbraith. From a background of Eton, Balliol, the Guards and the Spectator it is the least some might expect (one wonders what he can think of one of his later co-workers on that journal – the Mount who has come to Mahomet). Mixed in with the wit, moreover, is an immense seriousness.

All the bits and pieces of monetarist and Friedmaniac mumbo-jumbo are taken apart. First, there is the terrible trio of targets – M1, M3 and Sterling M3, each moving differently from the others and largely out of control. Then there is the Rational Expectations Hypothesis: the proposition that people are ‘normal’, that with perfect knowledge they know best how to pursue their interests, that their efficiency in the use of information is absolute and that they know the true probabilities attached to all possible outcomes. Who could possibly believe that these are the conditions under which ordinary human beings live, and behave? Then, the Natural Rate of Unemployment – that level at which inflation is steady. ‘What’s natural about that?’ you might ask. And on to the PSBR, the MTFS, PSL1 and PSL2, and on and on and on. Sir Ian’s demolition of these false gods is a delight to read.

He has to demolish them, if only because they are the modern supports for the ancient ‘quantity theory of money’ which, two centuries after it was so elegantly spelt out by David Hume and a century after it was translated into snappy but empty symbols – MV = PT – by Irving Fisher, is still the basis of so much analysis of inflation. As Sir Ian says, ‘old doctrines never die: in economics, they never even fade away.’ He spells out all the attacks that can be mounted against the Quantity Theory and its grandiose modern offspring – that ‘inflation is always and everywhere a purely monetary phenomenon’ – but rightly recognises that this is not the target to aim at: the real questions to be asked lie further back. Monetarism is not a single or discrete phenomenon: it is but one element in an overall view of what the study of economics is about, of what politics and policy are about, and therefore, and naturally from Sir Ian’s point of view, what the Conservative Party and its policies should be about.

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