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Thatcher's Monetarism

Outlook dry but stormy

Towards the end of April 1945, as the Russian armies closed in on Berlin, Hitler returned to the city and with a band of unrepentant Nazis took refuge in the bunker beneath the Reich Chancellery, in a sort of collective madness. At his daily briefing sessions, he deployed armies that had ceased to exist. He married Eva Braun shortly after having had her brother-in-law put to death. Under the ruins of Berlin there was endless reminiscing about the Nazis' rise to power, nobody dare suggest that there might have been mistakes, that the Nazis were less than historically perfect or that their hands bore any unjustified blood. Whenever he confronted the failure of the Third Reich to last a thousand years Hitler fumed against treachery among his generals, armed forces, the German people.

Well it has not yet come to quite that with the Thatcher government, although there are whispers that Keith Joseph is not entirely in touch with reality, that he is cracking up under the strain of trying to convince everyone that he is absolutely right in everything he does. And as their problems multiply the government is beginning to be seized by something akin to the bunker mentality. Thatcher’s rigid obstinacy shows no sign of weakening and the Tory line seems to be that they can fail in their historic mission to revive British capitalism only if their policies are enfeebled by treachery in their own ranks. They have coined a ready name for the traitors within, who are called the Wets, which adequately expresses the hardliners’ impatience and contempt for them.

Thatcher took over at Number Ten on the policy of monetarism (although not all monetarists would agree that the Tory policy justifies the name). It was, they said, all quite simple. The market mechanism has an inbuilt logic, a sort of economic Darwinism by which the best — the most useful, the most adaptable — must always survive because only the best is profitable. Anything other than the best in a free market economy must go to the wall. It follows from this that a government must allow the market to run its course. In no circumstances should a government underwrite wage settlements or try to revitalise bankrupt firms with an injection of state money. In disputes between unions and employers both sides should be left to argue it out with the market deciding, to everyone’s benefit, who wins. As government operations were to be reduced state expenditure would be cut back, which would mean lower taxes, which would give everyone a lot more money to spend as they wanted, without the government forcing them to pay for state health services, education and so on.

But it has not turned out to be as simple as that. To begin with, there must be some confusion in the Conservative Party about the path they are supposed to be travelling with such grim purpose and which the Wets are trying to divert them from. Are they following the policies laid down in their election manifesto:

    "To restore the health of our economic and social life, by controlling inflation . . . ”

    “. . . the creation of conditions in which new, more modern, more secure, better paid jobs come into existence."

    "Mortgage rates have risen steeply because of the (Labour) Government’s financial mismanagement. Our plans for cutting government spending and borrowing will lower them.”

Or are they following the policy of actual events: inflation continuing at a high level, unemployment rising above 1½ million, mortgage rates at an all-time high? None of these aspects of capitalism pleases the working class and all too soon they are showing their restlessness in their votes.

To make matters worse, ministers seem unable to agree about when we can expect to be enveloped by Tory prosperity. Thatcher guesses that we must wait about eighteen months; Geoffrey Howe recently mentioned ten years. John Biffen. who is said to be one of the sterner-monetarists in the government, has thrown doubt on the whole thing by wondering aloud whether there is any demonstrable link between government expenditure and inflation. But they are all agreed on one thing: for the working class, who voted them into power, worse is to come.


There might be an argument that, for anyone who supports capitalism and who accepts the system’s anti-human features of private ownership of the means of production and profit motivation, monetarism is a more likely policy than what might be called interventionism. Given a society of commodity production, is it not more logical to allow free rein to the market instead of launching doomed efforts to control—or rather distort—it through government action? This argument ignores two facts. Firstly, the theories of people like Keynes, on which much government policy—Tory as well as Labour—has been based since the war, did not come out of thin air. They were a response to the failure of free market monetarism to control capitalism and to have the very effects that are now being claimed for them. This is not surprising (and this is our second point) since no theory for controlling or even regulating capitalism so that it works to the benefit of the majority of its people can succeed. One after another, they have all failed and will continue to fail.

Let us look at just one of these problems. Last October, the Low Pay Unit estimated that 87,000 families are caught in the "poverty trap’’—that is to say, although they exist on desperately low incomes they gain nothing from the average wage rise. These are the sort of people who suffer acutely another problem; Shelter is now forecasting that the 1980s will see a new (!) housing crisis. At the other end of the scale there are people who will not be described as being caught in the "opulence trap”; about ten per cent of the population, they own nearly 61 per cent of the total personal wealth in this country. This social class is not affected by a housing crisis or by the price of essential goods in the shops. It is the owning, privileged class in capitalism and it is in its interests that governments administer the system. The problem of poverty on one hand and riches on the other is an enduring feature of capitalism, it is not susceptible to any remedy other than a social revolution.

It follows from this that Thatcher's monetarism will fail. Those who are waiting for her government to change course have some confidence from history being on their side. In 1970 Heath's government set out with some of the same policies: reduced government expenditure, a refusal to bail out bankrupt firms or to intervene in industrial disputes. As the realities of capitalism came home to them, Heath was forced into what were called U-turns, reversing many of the policies on which he had been elected. Most post-war governments, on coming to power, have declared against imposing wage controls but, with the exception up to now of Thatcher’s, they have all imposed those very controls. How long, then, will Thatcher last? Will the Wets finally succeed in reducing the Tory strong-men to a soggy, feeble pulp?

Common ground

If they do, many Tories may protest that their party is being corrupted into a pale version of the Labour Party. In fact, the opposite process has been taking place, so that on the issue of monetarism there is little to choose between the two. Well before Thatcher's victory at the polls, Keynesian theories had been discredited and monetarism was returning to favour. The last Labour government was no enemy to it: “Mr. Healey”, wrote Maurice Green in the Dally Telegraph (19/9/79) “was a good practical monetarist, even if mounting public expenditure was making restraint difficult towards the end of his tenure”. And both Labour and Tory ministers applied the same, monetarist analysis to the supposed effects of trade union action:

    “We must go on down this painfully difficult road of getting people to understand that their responsibility towards pay bargaining means their prosperity, their jobs . . . failure will mean higher interest rates and taxes and lower public expenditure." Geoffrey Howe, Chancellor of the Exchequer, ITV, 25/11/79.)

    “Trade union leaders . . . accused me often enough of using cash limits as a means of making cuts to which they strongly objected... That charge should he levelled at those responsible for breaching the cash limits by high pay settlements." (Joel Barnett, Labour’s former Chief Secretary to the Treasury, the Guardian 19/6/79.)

It is no coincidence that there should he this common purpose, since both parties aim to run capitalism. As each of them fails, as each policy is exposed as an impotent sham they turn out another, to dupe the working class into voting for yet another spell of capitalist servitude. The Tory Wets are arguing for their party to adopt a more flexible style of duping the workers and for policies that can be less embarrassingly adapted in reaction to capitalism's crises and to the frustrated responses of the voters. They see Thatcher as trying to mug the working class, when they argue that a gentler picking of the pocket will lose less votes. Perhaps this will turn out to be the more attractive idea to workers who support their own wage slavery, since flexible policies may be politically more profitable in a society that is out of control. Both sides of the Commons agree on this anarchy of capitalism:

    “ . . . no government of human beings can ever be completely master of its situation; world trade, foreign relationships. international loan constraints. industrial disputes, productive efficiency, and much else that is transient and unpredictable always influence and sometimes govern its actions." (Labour MP Arthur Palmer, in a letter to the Guardian 13/3/80.)

    “We would all do a great deal better to pay less attention to the economic fortune tellers . . . Economics is not primarily about forecasting, it is above all about markets which by their nature can neither be reliably predicted nor fine tuned". (Nigel Lawson, Financial Secretary to the Treasury', the Guardian 30/4/80.)

Yet governments win power precisely on their competing claims to be able to forecast and control capitalism’s economy. How many votes would they get if they produced a manifesto that did no more than confess to their impotence? Both Thatcher and the Tory’ Wets are playing the same, familiar game of insisting that, when a few temporary’ problems have been got out of the way, capitalism can be fashioned into a benign, abundant society. They do this in open contempt of the workers, in the assumption that the working class has a limitless appetite for being duped and despised. And so far, they have been given plenty of reason to he complacent. Will this Tory government, will capitalism itself, last another thousand years? How long before the working class wake up to the madness of it all?