Stock Exchange speculators and the financiers who manoeuvre take-overs can, within limits, accommodate themselves to the fluctuations of markets and production but the manufacturer has them always on his mind. When demand leaps he may suffer the anguish of knowing that if he had expanded more he could sell more and make more profit; and when demand drops he may find he has stocks of unsaleable goods. The manufacturers’ dream of heaven is a market that steadily grows and never catches him unprepared.
After last year’s collapse of the motor industry this thought has recurred to the export director of the British Motor Corporation, Mr. J. F. Bramley. In an interview in the Sunday Express (12/3/61) he told how he feels about it:
People just don’t understand the problems that a sudden boom and an equally sudden slump bring to the industry. As long as the demand is there the overseas dealers keep clamouring for cars and you have to keep supplying them. At any moment there may be thousands of vehicles in ships or on railway sidings awaiting shipment and your factories are in top gear. Then overnight the market goes “soft” and the pipelines are choked with cars nobody wants any more. We would much rather see a steady demand at a gradually rising level.
The motor firms and other manufacturers may go on hoping, but there isn’t anything they can do about it, for the “trade cycle” of alternate expansion and contraction is how capitalism has always operated. Already there is talk of another set-back for motor cars later this year, and now the cotton industry is facing trouble again, as well as the furniture industry and the clothing trade.
For many years politicians and economists claimed that, with the lessons learned from the depression of the ‘thirties, governments could handle the problem, but fewer now confidently hold that view.
One popular business theory was that firms could gain stability by extending their activities into several different fields, but the experience of the oil companies shows the flaw in this remedy.
For some years now the oil companies have been hit by overproduction of oil, recently aggravated by the Russian drive to invade Western markets and by the opening of the Sahara oil fields. There have also been too many oil tankers, in spite of which the Shell Company reports that “in recent months there has been increased placing of new orders and this must inevitably tend to prolong the world tanker surplus, now in its fifth year.”
The Royal Dutch-Shell group of companies found new outlets by developing methods of producing chemicals from oil, including fertilisers, industrial chemicals, plastics and resins, which, of course, meant competition with the chemical industry.
They now report that others are moving into the chemical-from-oil activity, “strong competitors formidably equipped with capital and technological skills.” Consequently, “there is some danger of surplus manufacturing capacity being created as the result of investments based on an over-optimistic assessment of profitability.
Perhaps when there are too many chemicals the research chemists will develop another new industry, to turn the surplus chemicals back into oil.
Concentration of Ownership
Writing in the February Bulletin of the Oxford University Institute of Statistics, H. F. Lydall and D. J. Tipping publish the results of a new attempt to estimate how the wealth of the country is distributed. They write:—
In broad outline these figures suggest that total personal net capital in early 1954 was about £40,000 million. Of this, nearly £31,000 million was owned by three million persons possessing over £2,000 each; and the remaining £9,000 million was owned by the other 32 million persons aged 20 or over. In the top capital group there are 20,000 persons with more than £100,000 each and an average holding of over £250,000; in the bottom group are 16 million persons with less than £100 each and an average holding of less than £50.
So the 20,000 persons who own over £100,000 each have £5,000 million between them; while the 16 million people who have less than £100 each have a total holding of less than £800 million.
In between are nearly 19 million people whose total is about £34,000 million, which makes their average about £1,800.They warn that their figures are very rough owing to the difficulties of handling the available material. They think that there has been some redistribution during the past twenty years but have not found it possible to give even a rough estimate of its extent.
Views of Inflation
In the past, inflation had a precise meaning. Mr. Frank Bower, M.A., Lecturer on Political Economy, gave a definition in 1908 which was in harmony with that given by Marx half a century earlier. Bower wrote:
A fall in the value of. money, with a rise in the cost of living, caused by a comparatively permanent excess in the amount of money in circulation over that which is needed to perform the transactions of the community. Inflation usually means the artificially high prices caused by an over-issue of inconvertible paper money.
Marx deal with this in Capital (Vol. I, Ch. III), when he wrote: “stated simply, it is as follows: the issue of paper money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols.”
Bower and Marx were both writing when gold coins, and Bank of England notes that were convertible into gold, were circulating in this country. They were describing what would happen if an inconvertible paper currency replaced the gold and convertible notes, and if notes were issued in excessive amounts.
Later on, some economists abandoned that specific meaning of inflation and replaced it by the looser conception indicated by the definition given by Nuttall’s Dictionary in 1931: “increase of the quantity of money and/or credit relative to the volume of exchange transactions.”
Then came Keynes, who used the term to mean something different again. For him it was a question neither of currency nor credit, but of whether there are unemployed workers, idle factories, and reserves of materials. With very low unemployment and fully occupied factories he argued that increased demand could not lead to increased production but only to higher prices and wages, a condition he defined as “ true inflation.”
His biographer, Sir Roy Harrod, wrote of Keynes: “He had indeed the right to claim that his theoretical work between the wars had revolutionised the modes of thinking of economists upon inflation. They had long ceased to regard inflation primarily as an over-issue of notes or even as an over-expansion of bank credits.” This disregard of the over-issue of notes reached its culmination in the remark of the Committee on the Monetary System in 1959, that ”bank notes are in effect the small change of the monetary system,” and that the Government’s action in expanding the note issue is merely the passive one of seeing that sufficient notes are available for the practical convenience of the public.
As the total volume of production in this country is about 50 per cent. above the level of 1938, those who hold such views have yet to explain why it has been “convenient” for the government now to have in issue over four times the amount of notes then in circulation from £530 million to £2,250 million. And if the over-issue of notes has not been the main factor in causing the price level to be three or four times what it then was they might explain what the cause has been.
Which Horse Won the Race?
Early each April the financial columnists go in for the sport of guessing what sort of budget it is going to be. It is like backing horses, but with a difference; for after a race you do know which horse won. Not so with the columnists, who, when the budget comes out, can rarely agree what kind of budget it is. The reader can take his choice according to the paper he reads.
This year on the 11th April the Telegraph headed its column “Chancellor puts Checks on Inflation but the Mail found the budget “inflationary,” as also did the Express. The Financial Times hedged and would only concede that on paper it was “a substantially disinflationary budget.” The Guardian, less cautious, decided that “the total effect . . . is disinflationary”; while The Times, coming up a day later, thought it “at least mildly disinflationary.”
The confusion is partly the result of the “experts” not being able to make up their minds what effect, if any, particular governmental policies for managing production and trade will have, but it is also a by-product of conflicting views as to the meaning of the term inflation.