Orders of the Day — Financial and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 31st January 1952.

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Photo of Mr Anthony Crosland Mr Anthony Crosland , Gloucestershire South 12:00 am, 31st January 1952

The House has just listened with great interest and enjoyment to a maiden speech by the hon. Member for Norfolk, South-West (Mr. Bullard), and it falls to me, although myself very little more experienced than he is, to congratulate him on behalf of the whole House.

The hon. Member spoke on a subject of great importance to the country and one which he evidently knew himself in great detail. For that reason he was listened to with equally great attention from both sides of the House. If he goes on making speeches of so much greater relevance than those of his own Front Bench it is safe to say that, if merit gets anything in this world, he will move rapidly down from the back to the Front Bench. But whether he next speaks from the back benches or from the Front Bench, I can assure him that both sides will listen with the greatest interest to what he says.

We have had a very wide ranging debate today, but I want to come back to the central problem of the present balance of payments crisis, and to discuss some of the causes, and the remedies suggested by the Government. I think that the end of January is always a bad season in which to discuss any economic problem because it is just the time when we have those interminable statements from bank chairmen, what Lord Keynes once called the fashion parade put out by the banks. I must say, with respect, that their statements do not get better as the years go by.

My right hon. Friend the Member for Ebbw Vale (Mr. Bevan) has taken a strong dislike to economists as a class, but I should have thought they were a model of charm and common sense compared with bank chairmen. The theme which has run through all their speeches, and also through the speeches from hon. Members opposite—yesterday in particular—has been that this balance of payments crisis and all the ones we have suffered from since the war have been basically due to one cause, the effect of inflation. It has been said that we have been consistently living above our means, and that if we could get rid of inflation everything would be all right.

It seems to me that if we look at the facts and causes in detail there is no possible evidence for this supposition. After all, as the House knows, we had a balance of payments crisis for several years before the war, despite the fact that our situation was so little inflationary that we had an average of one and a half million unemployed. Therefore, we were bound to run into a serious and recurrent balance of payments crisis after the war merely by the fact of full employment. If all these people were put to work and began earning higher wages, clearly our buying from abroad was bound to grow, and, therefore, our situation was bound to become more difficult.

That being so, the mere fact of having full employment was certain to create a balance of payments crisis. If we add on top the fact that we had this crisis before the war while we still had our foreign investments intact, while the price of gold was still high, while invisible earnings were still considerable and while the terms of trade were strongly in our favour, and bearing in mind that none of these things is true today—adding these facts together, it was inevitable that we should have great balance of payment difficulties in the whole of the post-war period. Inflation or no inflation, these facts made it absolutely inevitable.

If we are going to sustain the argument that since 1945 the whole trouble in every crisis was just inflation, then we have got to show one of two things. We have got to show either that inflation has been responsible for great increases in our imports as compared with before the war; or we would have to show that it has been responsible for a great reduction in our exports as compared with before the war. If inflation were going to have an effect at all, it was bound to be from one or other of those two things.

But the plain fact is that our imports in volume are lower than they were before the war, despite the fact of full employment, and our exports are two-thirds to three-quarters higher in volume than they were before the war. If we take the fact of lower imports and higher exports, it does not begin to make sense, with all due respect to the bank chairmen, to say that our post-war difficulties are in some way due to inflation and excessive purchasing power. If hon. Members opposite—and the hon. Member for Oldham, East (Mr. Horobin), put this clearly yesterday—believe that inflation is the cause of the trouble, how far do they now intend to take deflation in order to cure the crisis? Our imports are held down by physical controls, and they will have to make people a good deal poorer to persuade them to buy only the imports that are physically controlled. They would have to make them even poorer still to persuade them to buy fewer imports than they do today.

If it is a fact that with one and a half million unemployed before the war we still had a balance of payments difficulty, how much deflation would really solve the crisis? As soon as we put it in those terms, and bearing in mind the loss of foreign investments in the war and the worsened terms of trade, we can see that if we want to cure our present crisis by deflation we will really need to have not one and a half million unemployed but three or four million unemployed. To my mind it is quite misleading to pretend that inflation is the main cause of our difficulties, or that deflation can conceivably be the main remedy. That applies as far as I can see to the whole of the post-war period, and the same is true of the present crisis.

It has been said again and again that the present crisis is due to too much purchasing power in Great Britain and only by getting rid of inflation can it be solved. But that is not true. We want to look at the changes that have taken place in the last year. It is not true that the British people consumed more in 1951 than in 1950. In the first half of that year they consumed a good deal more, but in the second part of the year they consumed a great deal less. Taking 1951 as a whole, it brought no increase in home consumption and purchasing power. It is true that there was a rise of imports in 1951 as compared with 1950, but that was almost entirely due to the replenishment of stocks by industry as a whole. The rise in imports was not due to an inflationary rise in consumption.

To say—as I sometimes hear people say—that the whole of our present crisis is due to the fact that the workers are going round with their pockets bulging with money and buying canned hams is completely ludicrous, even ignoring the question whether it is the workers who for the most part buy these hams. The increase in food imports from Europe was balanced by a sharp decrease in food imports from the whole of the rest of the world. It is not true that our food imports or imports of consumer goods as a whole have increased; nor is it true that these suddenly went up in 1951. It is, therefore, not true that inflation or excess consumption is the main cause of the present crisis.

I personally agree with my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), and my right hon. Friend the Member for Huyton (Mr. H. Wilson) that inflation was not the main cause, and that, therefore, the attempt to reduce the social services was utterly irrelevant in solving the present balance of payments crisis.

It is quite true that the former Chancellor of the Exchequer consistently said that some reduction in home consumption would be necessary, but the reductions that he thought necessary were reductions in the consumption of cars, television sets, refrigerators, washing machines and things of that sort. These are not things that are mostly bought by the people on whom these cuts are going to fall. These expensive engineering products will not be any the less bought because Health charges or education cuts are imposed. It is an extraordinary assumption, and quite impossible to sustain that, because we cut the social services, we are going to increase the export of cars, television sets, refrigerators and all the rest of it.