Beating inflation key to recovery
From Professor F. A. Hayek, FBA
Sir, It should surprise no one that the lost generation of British economists who had succumbed to the teaching of Lord Keynes should form a panicky mob when a reversal of the policies they had inspired reveals the damage they have done. They significantly can only refer to, but cannot specify, the "other methods" by which their professed aim can be achieved. [Letter from 364 economists to Mrs Thatcher.]
Following their advice has induced a structure of employment that can be maintained only by accelerating inflation but will collapse only when it becomes a gallop and destroys any possibility of a rational use of resources. Nobody has ever claimed that so long as it is necessary to reduce inflation to get out of this vicious circle the effect can be anything 'but to destroy the particular employments created by past inflation.
Only after inflation has been brought to a full stop can the market be expected to guide workers to jobs which can be maintained without accelerating inflation. All those who plead for "mild" inflation and oppose "too much" inflation are merely preparing the ground for a later depression.
If the present Government, I don't believe its head, can be blamed for anything it is for going too slowly about the job. As I have stressed more than once in these pages, even a very high unemployment will be borne for a short period if it leads in a few months to a condition of monetary stability in which a new recovery can start, in the course of which workers are drawn into employment that will continue without new inflation. All employment which can be maintained only by (even moderate) inflation is a waste of resources for which we shall have topay later by renewed growth of unemployment.
Lest the readers be unduly impressed by the sheer numbers of the signers of the statement I may perhaps add that, so far as I can see, less than a quarter of the economists who are Fellows of the British Academy have signed that statement.
F. A HAYEK