To the Editor
Dear Sir,—Miss Margaret Roberts, the prospective Conservative candidate for Dartford, seems unusually pleased with an economic discovery she has made—at any rate, she felt it important enough to be mentioned at the St. Alban's Ward meeting when she was elected president, as well as making it one of the main points in her speech at Bostall Heath on January 21.
What particular brand of economics do the Tories favour? Even Marshall agrees with Keynes that taxation and Government spending can “cut down” inflation. If the Government is taking 40 per cent. of earned income in taxation (Margaret Roberts' figures), how on earth does that increase inflation? Surely it is the business of a Government to produce “services” as well as goods? And if “services” only result in inflation, then one must ban all kinds of entertainment, etc., as being “inflationary material.” This taxation goes towards subsidies on food (to keep the prices down), the National Health Services, unemployment benefit, old age pensions, and many other social services, as well as towards the bulk purchase of goods and raw materials.
As an “amateur economist,” I can only see that if 40 per cent. of earned income is spent by the Government on such things it is tending to reduce inflationary tendencies rather than to increase them, because there is less money to chase the goods.
I should be grateful to Miss Roberts for a short exposition of this new form of economic theory.—Yours faithfully,
30, Abbey-road, Belvedere. [end p1] Dartford Chronide, 16 March 1951
To the Editor
Dear Sir,—Your correspondent of last week asked for a brief exposition of the views previously put forward on Government expenditure, taxation policy and inflation.
The argument that inflation can be caused by excessive taxation is not new; indeed, it has been consistently expounded for the past five years by those who hold high positions in the financial world. It is based on the following reasoning:—
There are two ways of alleviating inflationary pressure: (1) by increasing production and (2) by reducing spending power. Of these, the former is the real remedy, while the latter is only an expedient. We must consider the effect of high taxation, consequent on high Government expenditure, on both of these factors.
Firstly, with regard to increasing production, very high taxation reduces incentive to greater effort at all levels, as extra work does not seem worthwhile when the Chancellor of the Exchequer takes such a large slice of the additional earnings. Further, the taxpayer, whether he be wage-earner or salary earner, then naturally presses for an increase in his own income to make up for what he is losing to the Exchequer. The result is inflation, with rising prices and no-one better off than he was before.
Secondly, the theory that an increase in taxation of a given amount, say £200,000,000, correspondingly reduces spending power by £200,000,000—which it was designed to do—does not hold, as the experience of the past few years has shown. Rather than cut down their standard of living, people draw out their savings and inflation is doubly aggravated.
Therefore, on both these counts very high taxation produces inflation.
Your correspondent drags in Keynes' theory, but uses it wrongly. Keynes ' idea was indeed high revenue during the inflationary period of the trade cycle—though not so high as to fail to stimulate greater production. But he postulated that Government expenditure should be less than revenue so that a considerable surplus was saved. It is this saving and not the spending on the part of the Government that acts as a brake on inflation. So on this count, too, it is necessary to reduce the level of civil expenditure if the Keynes' surplus is to be large enough to be effective.
Of course, I agree with your correspondent that it is the function of the Government to provide services such as pensions, unemployment, insurance, sickness benefit and so on; in fact these things existed long before Socialism came to power. But unless the Exchequer scrutinises expenditure with a view to economy on the non-essentials such as expensive experimental excursions overseas, the resulting inflation will be so great with the new defence programme that the monetary benefits provided under these services will be halved before long. The choice is clear—either the economics are made as a deliberate and selective policy which safeguards the weak and protects the poor, or else there ensues a general inflation cutting savagely and indiscriminately, falling with greatest severity on the old folk and those least able to hear it.
We shall await the Budget on April 10 with great interest to see what policy the new Chancellor adopts.—Yours faithfully,
MARGARET H. ROBERTS,
Dartford. [end p2]
(2) Dartford Chronicle, 30 March 1951
To the Editor
Dear Sir,—Miss Margaret Roberts' letter on economics is interesting. Certainly high taxation encourages inflation, but it is not a bit of use expecting lower taxation, when the nation is committed to spend further thousands of millions on defence, as this necessarily means higher taxation, with its corollaries of higher prices, higher wages, higher profits, higher cost of production. The requirements due to general world rearmament have forced up world commodity prices, and further, there is an acute shortage of raw materials due to United States stockpiling.
While agreeing that defence expenditure at the present time is necessary, I place such expenditure to a large extent in the same economic category as digging holes and filling them up again. It is wasteful expenditure. The United States spends thousands of millions of dollars on the production of atomic bombs, but will not provide decent housing accommodation for its citizens, many of whom live in shacks which are a disgrace to civilisation. In Russia the position is identical. In Britain the number of houses and schools built is now conditioned by our requirements in men, materials, and money for defence.
In the realm of public expenditure, what are the things that pay dividends in health, efficiency and happiness? Roughly, they are the provision of houses, schools, hospitals, better educational facilities, roads, electricity, water and a hundred other things. Many of us have lived through two major wars, costing an enormous amount in lives, effort and money. Overseas investments were used to pay for raw materials and food during the last war. The lenders of money for the two wars have to be paid by this and succeeding generations. Astronomical sums now have to be provided by the taxpayer for rearmament.
We have been subsidising our railways before and since nationalisation. We also subsidise our basic foodstuffs, bread, sugar, butter, meat, etc., to the amount of £400,000,000 per year. The removal of these subsidies from food would cause further inflation. There is also a large subsidy for the development of civil aviation, which is considered important to conserve the skill of designers, technicians, and others in the industry, in view of the transferring of aircraft production to defence needs. It would be a mistake to discontinue all Colonial development expenditure. If the resources of the British Commonwealth had been properly developed when certain empirical gentlemen were in power we should not, as at the present time, have to rely on foreigners to supply us with beef and bacon at any fancy price they choose.
There is a vast expenditure on atomic experiments. Whether these will be of lasting benefit to mankind is open to question, but we do know that if the atomic bomb is used by both sides, it is likely to kill or main a thousand million people.
In relation to the conditions I have roughly sketched, I would invite Miss Roberts to be good enough to name the specific items in Government expenditure, where she would make cuts. I could suggest some economics, but the amount saved would be a mere drop in the bucket when compared with the overall budget expenditure, swollen by the enormous cost of defence.—Yours faithfully,
19, St. Martins-drive,
Eynsford. [end p3] Dartford Chronicle, 6 April 1951
To the Editor
Dear Sir,—Further to your correspondent of last week who invited me to give details of possible reductions in Government expenditure. It is not the function of the Opposition to produce a complete alternative budget, but it is their duty to point out to the Government the dangers of very high expenditure. A responsible government would then look for possible cuts itself, but this Government, in the midst of a groundnuts fiasco, a Gambia eggs fiasco (estimated cost of each egg £21!), a meat fiasco (£177 per ton from France and then large quantities had to be condemned as unfit to eat), and various other buying fiascos such as paying the Dutch to keep strawberry pulp which the Ministry of Food had already bought—in the midst of these glaring examples of extravagance and lack of business efficiency, this Government turns round helplessly and says in effect, “Well, we haven't any ideas regarding economics—have you?”
Unfortunately full details of administration and expenses are denied to the Opposition and it is therefore impossible to itemise administrative economies in full. But nearly everyone who comes in close touch with any particular branch of the organisation becomes convinced that in the words of Sir Arthur Salter, “its personnel is excessive, and the arrangement of the work extravagant; the highest officials are overburdened with essential work, the waste is elsewhere.”
Periodically some dramatic flop reveals to the public a scene of careless preparation, lack of foresight, and extraordinary extravagance. The Minister concerned, instead of honourably resigning as a failure remains complacently incompetent and is kept in office to repeat his mistake. There have been a volley of such revelations during the past year and it is reasonable to infer from what is thus disclosed, the similar character of administration elsewhere. The disturbing thing is that in spite of it all, the Government still blandly continue to waste public money, refusing to admit the possibility of economising; and of course, with their mentality and outlook, and lack of efficiency, public money will never be spent wisely. This business deficiency seems to run through every department, and it is impossible to assess the exact saving until in full possession and control of the facts.
It is, however, imperative that at this time, when we have to find another £500,000,000 for defence—half of which we trust will be accounted for by increased production—that every possible economy be made before increasing taxes, for this, as your correspondent admits, would produce more inflation. Briefly, the Government is only justified in asking the public to economise if it first sets an example in that direction.—Yours faithfully,
MARGARET H. ROBERTS.
63, Knole-road, Dartford.