by Jack Lane
Inflation is on the political agenda again.
Thatcher came to power on an anti-inflation programme with a monetarist solution that was hailed as the key to solving the problem once and for all. Cut back the money supply and all will be well. If there is no superfluous money produced then there will not be any about to mess up the economy.
Nothing could be simpler. It had all the simplicity of the appeal that the CND has for some people about nuclear war. Stop producing the weapons and there cannot be nuclear war, and other methods of war may well disappear as well.
But of course the problem is that it is simply impossible to wipe out the forces that give rise to such an endemic phenomenon as inflation. As impossible as trying to wipe out the developments that have produced nuclear weapons in the first place.
Inflation and social forces
Inflation occurs when the pressures of demand on an economy are greater than what the economy is able to produce, when consumption tends to exceed production. This is an inherent tendency in all economies, even the most primitive. In fact, there would be no economic progress without this tendency. When it gets out of hand inflation occurs, and this can occur for all sorts of reasons.
Roman emperors debased the currency to increase its supply, usually to finance a war or two.
After World War One the allies squeezed Germany like a wet rag, reduced it to a state of nature and inflation raged.
In the UK in the 1970s the unions were able to put the squeeze on the economy.
In all cases matters are put back into a balance of sorts. The Roman emperor might win his war and get enough booty to ‘balance the books’. Or he might lose it and a stringent regime would be imposed by him or his enemies. Hitler was the solution in Germany, and Thatcher in the UK.
One thing is obvious – whoever or whatever causes inflation is the most powerful element in a society. And the only element more powerful is that which conquers inflation.
It was a great compliment to the unions to be accused of causing inflation, ‘because it was an acknowledgement that they were running the country. It was a great pity that the unions and the Labour movement generally could not accept the compliment and plan to be the cure as well as the cause of inflation. That would have been a historic and unique achievement because of what it would have entailed for the movement.
Now the UK faces inflation again and nobody even contemplates the idea that it has anything to do with the unions. They obviously have enough on their plates running themselves and surviving.
But all the inflationary indicators are there – record bank lending, record mortgage lending, record consumer credit spending and record social problems that follow inevitably from all this.
The government increases interest rates to try to cool down the economy, which attracts more money from abroad, so there is even more money sloshing around trying to sell (loan) itself. The UK is a much safer bet for doing this nowadays compared to “third world” countries, which have got into the habit of giving their creditors a Harvey Smith.
In other words, Capital is causing inflation now. The Thatcherite myth of the self-interested individual economic man who can do no wrong has become a Frankenstein’s monster which is wrecking the Thatcherite economy.
The ‘logic’ is that it is a wonderful achievement to lower taxes with one hand and raise interest rates with the other. There is an attempt to prove that tax cuts are good for the country and then that it is also good for the country to have to pay more to your Bank, Building Society, creditor and/or your local friendly loan shark.
It cannot be sold as a policy that makes sense for very long.
Higher interest rates across the board are a crude and counter-productive way of tackling excessive credit, because of their effect on industrial performance. The explosion in consumer credit could be dealt with in a much more discriminating and effective way by having compulsory deposits on consumer goods. Thatcher abolished these in the early 1980s as ideologically unacceptable. After all, the individual can do no wrong with his own money.
The situation now is that there is a growing lack of awareness of the real price of consumer goods. The only consideration is their credit cost per month or per week. A deposit establishes and maintains some concept of the actual price.
The present situation is a creditor’s paradise and it is the engine of the present inflation. It is the result of the freedom of Capital that Thatcher has brought about.
We are now promised a big campaign by Thatcher on social responsibility. This is an admission that her policy in this area has been a failure. It is going to be extremely difficult even to talk about a social policy when she is failing in purely economic terms.
Even if the economy was totally successful she has an insoluble problem in dealing with social issues because her philosophy is based on the individual economic man doing his own thing. Individual economic man is an asocial entity and it is impossible to base a coherent social policy upon such a concept. It is building on sand.
The only social philosophy that is consistent with it is that expressed by Harry Enfield’s creation, Loadsamoney. He has done more to bring home to people what Thatcherism can generate in social terms than a thousand speeches by Neil Kinnock.
It is a sobering thought that it might be better for Labour if they exchanged jobs.
This article appeared in October 1988, in Issue 8 of Labour and Trade Union Review, now Labour Affairs.