STRIKING A BALANCE
IN raising the Bank Rate to 41 per cent., the highest figure it has reached since 1932, and in restoring the restrictions on hire-purchase, the Government, so we have been re- peatedly told, is concerned to revive 'confidence.' This is another instance of how confusing to the layman the language of finance can be; for the immediate political effect of these measures is assuredly to give the public the impression that we are back again in the era of periodic economic crises, back in the days when grave pronouncements from the Treasury turned up with the inexorable regularity of bank statements, and with much the same distressing effects on morale. The whole burden of Tory propaganda has been that we are out of the wood—as shown by the ill-timed flood of posters about Tory freedom working—and the Chancellor still main- tains that the economy is fundamentally sound. Inevitably, the effect of last week's news is to give the impression that opti- mism has, to say the least, gone a degree too far. Inevitably, the present crisis (and the Opposition will have no difficulty in demonstrating that it is 'a crisis) will challenge comparison with its predecessors, and particularly with the desperate state of the nation's affairs which Sir Winston and his colleagues inherited in 1951, and which they have professed, albeit with qualifying clauses, to have 'redressed since.
* * t Exact comparison is extremely difficult. In the course of 1951 the gold and dollar reserve declined by 965 million dollars; in the course of 1954 it increased by 244 million dql- lars. It seems incredible to the lay mind that two months should have so drastically changed the picture. Those two months have seen, in January, an increase of only a million dollars in the reserve and, in February, a decrease of 82 million dollars. The gold and dollar reserve, however, is subject to seasonal fluctuation, and in the first half of the year it ought normally to increase steeply. The best convenient gauge of the crisis is the fact that in January and February, 1954, the reserve in- . creased by 25 million and 40 million dollars respectively. A difference between an increase of 40 million dollars and a decrease of 82 million dollars is enough to suggest a formid- able setback. The moral is simple and timely : we may have a fundamentally souncreconomy, but fin these matters the differ- ence between a healthy man and a corpse is what the econo- mists call 'extremely marginal.' We are still living on a razor edge as a country wfiich has sacrificed its overseas investments in a great war must. No government could have, hoped to bring about recovery in the time Sir Winston has been in office.
What the Government can claim is to have met his setback with a vigour, and promptness which contrasts admirably with the way in which the Labour Party coped with a similar and far more serious trend in 1951; their method was to do nothing until disaster was in sight, and then to retire from office. This is not to say, however, that what the Government has now done will produce immediate and drastic results. The truth is that manipulations in the Bank Rate; far from being proven scientific expedients, are always to some extent leaps in the dark. Precedent offers few guides for the probable results of the present operation; nobody, to begin with, can accurately assess the various factors which have contributed to the pre- sent trouble; the fascinating underworld of finance in which, often without recourse to illegality, Arabs buy pounds for dollars from Dutchmen at a discount and proceed to sell British goods for dollars in the American market at a profit, presents almost as many mysteries to the authorities as it does to laymen, but nobody knows exactly how much damage is done by such activities. The only fact which emerges clearly is that we are once again living above our income, and that accordingly we must restrict imports, a process which is bound to take some time. Since it would be contrary, and rightly so, to Government policy to use direct economic controls in the Socialist manner for this purpose, the same end has to be pursued by a general restriction of credit. It must become harder for anybody to buy anything. This method has the immense advantage of flexibility; it has the corresponding defect of being to 'some extent unpredictable in its effects.
* * *
Mr. Butler's latest moves will not fundamentally change the position before Budget Day. Politically, it will be his interest to give some concessions to the lower-salaried groups, who are certainly morally entitled to some consideration, but such concessions would certainly cut across the policy of restraint upon which he has now embarked. If pure economics were the only guide, he might be tempted to do everything possible to encourage capital development and foster technical and managerial ability, and everything possible to restrict the innocent pleasures of the humble. But so long as full 'employ- ment continues, as it must, cosseting the worker is as much an economic necessity as encouraging the employer. Mr. Butler, in short, will have to strike a 'balance—a balance between politics and economics and a balance between one type of economic factor and another, and his task has been made infinitely more difficult by the latest developments. He ought not to produce a budget that is wholly hard or wholly soft. If he appears either as a fairy godfather or as a stern, saving messiah, he will have failed. He must emerge rather as a skilful technician commanding the public confidence for measures which the public cannot entirely comprehend. .<
Previous page
