Prior to the Cabinet meeting on 17 June the press, TV and radio worked up a lot of sound and fury about the impending great battle between the hard-line “drys”—Thatcher’s supporters—and the soft-line “wets” seeking to force changes of policy. The media spokesmen had many explanations of what the battle was about and what the outcome would be. And when it was over they offered a wide choice of verdicts, ranging from the official one that there wasn’t any battle, to reports that the rebels had been out manoeuvred. They were all agreed that the chief leader of revolt was Peter Walker, Minister of Agriculture, who only a week later publicly voiced his criticisms. “Without sending Mrs Thatcher an advance copy of his speech. Mr. Peter Walker, one of the leading ‘wets’ in the Cabinet, yesterday argued forcefully against the Government’s rigid stand on monetarism when he addressed the British-American Chamber of Commerce in New York”. (The Times 23 June).
One interpretation is that Walker. who had backed Ted Heath against Thatcher when she was elected Tory Leader, has the ambition to take her place. In any event he never did agree with her “monetarist” policy. When, in the late seventies, the majority of Tories threw overboard the Keynesian nonsense as a cure-all for capitalism and adopted in its place the “monetarist” nonsense. Walker (like Heath and some others) remained an unrepentant follower of Keynes: it was he who described his party as the party of Keynes and Disraeli. (He shares his continued devotion to Keynesian doctrine with the various wings of the Labour Party, the Liberals and the TUC).
What brought about the conversion to “monetarism” was the course taken by unemployment. In 1944 the Tories, the Labour Party and the Liberals, all represented in the war-time coalition government, issued an agreed document based on the belief that Keynes was the answer to capitalism’s problems and in particular that such policies would guarantee “full employment”.
For a decade unemployment did remain very low, both under the Labour Government (1945-1951) and under the following Tory Government. (From 1945 to 1957 it averaged under 400,000). So it was possible for Harold Wilson to claim in 1957 that “all major parties” (Tory, Labour and Liberal) were still committed Keynesians. But since then unemployment has risen to continually higher peaks: to a million under Heath’s government (1970-1974), to over 1,600,000 under Labour (1974-1979) and now to over 2½ million. The Thatcher wing of the Tory leadership concluded that the old agreed policy was wrong and they fought, and won, the May 1979 General Election on the new “monetarist” policy.
In practice the Keynesians believe that, by increasing government expenditure, unemployment can always be kept at a low level. The new, Thatcher, policy reversed this and aimed to reduce government expenditure, government borrowing and the level of taxation, and by so doing curb inflation and reduce unemployment.
Although the Tories do not mention it, their policy is in essence the one recommended by Harold Wilson in 1957 and which he said would be adopted by a Labour government to deal with inflation.
In inflationary times . . . all are agreed in theory on the need for public saving through a large Budget surplus . . .
we should not hesitate to use monetary controls ruthlessly if necessary, as one in an armoury of weapons.
But after more than two years in office the Thatcher government has done none of the things it promised. Instead of going down government expenditure, government borrowing and the level of taxation have all gone up, one reason being the enormous cost of paying benefit to an added 1¼ million unemployed. The Tory leaders are now fearful that unemployment will go on rising and cause them to lose the next election, and the Walker rebels no doubt see the possibility that the Tories will, before then, go back to Keynes, and perhaps unseat Thatcher as party leader.
The truth is that capitalism’s periodic swings into depression and heavy unemployment take place no matter what policy the government follows. Apart from rigging the unemployment figures or subsidising employers to keep unemployed workers on the pay roll, there is almost nothing governments can do about it except wait for the depression to pass. But professional politicians, whether they believe it or not, have to pretend to the electors that their government can and will provide full employment: which means that they have to ignore the evidence.
A case in point is the claim by Foot, Healey and Bonn that Labour Government means low unemployment, indeed “jobs for all”. Here are the facts. Since June 1929 there have been four periods of Labour government, totalling nearly twenty years. In every one of those four periods unemployment has been higher when Labour left office than when it went in. In the first period (1929-1931) it went up by 1,600,000, and in the last period (1974-1979) it more than doubled, from 636,000 to nearly 1,300,000.
In the past the Tories have been luckier, with their electoral victories coming at a time when depression was passing, but they are now faced with the prospect that recovery from the present depression will not take place in time for the next election, in or before May 1984.
Another big electoral issued involved in the Thatcher adoption of monetarism is that of inflation. Unlike unemployment, about which governments can do nothing, inflation—the rise of prices caused by an excess issue of inconvertible paper money—is entirely under government control. This was shown, for example, by the Lloyd George government when, in, December 1919, it decided on a policy of deflation. By reducing the notes in circulation it not only halted the price rise but brought about a drastic fall in prices.
In May 1979 the Thatcher Government declared its intention of curbing inflation and eventually stopping it entirely by means of “monetarism”. It is worth recalling that when in 1944 the three parties adopted Keynes, they too promised “a more or less stable price level”. The reality has been that prices are now more than ten times what they were in 1945, and Thatcher’s new policy has proved just as useless to curb inflation. In her two years of office prices have gone up by 36 per cent and are still rising.
It must be emphasised that the use by the “monetarists” of the term “controlling the money supply” does not mean that they accept Marx’s explanation of inflation or are repeating the deflation policy of the 1919 government. They explicitly repudiate the theory that an excess issue of paper money raises prices, and since May 1979 the Thatcher government has increased the excess of notes in circulation by a further £1300 million. And it is a delusion that the presence or absence of inflation makes any difference to capitalism’s periodic depressions and high unemployment.
Two other issues that were alleged to have been fought over in the Tory Cabinet were the foreign exchange rate of the pound, and the grant of further large sums to the nationalised Coal Industry and British Rail. Some commentators presented these issues in terms of the supposed preference of the whole body of business men for a low pound exchange rate, and their hostility to nationalisation. This superficial view overlooks that each company is concerned with its own profits and survival, and capitalist interests accordingly are divided. Companies heavily involved with exports or which receive profits from investments abroad gain by a low pound exchange rate, while importing companies gain by a high rate. Thus companies engaged in supplying plant and machinery to the coal industry or for railway electrification, were delighted with the government decision to make further grants to the Coal Board and British Rail.
Like all Cabinets, whether Tory or Labour, occupied as they are with handling the problems capitalism continually throws up, the Thatcher Cabinet will go on being divided by the infighting of ambitious politicians promoting their careers.