Those of us who are members of the Select Committee on the Treasury and Civil Service with the hon. Member for Norfolk, North (Mr. Howell) are well aware of the problems of Mr. Hamilton Lowe, who is a victim of the poverty trap. However, 1984 will be remembered not so much for Mr. Hamilton Lowe as for the year in which the monetarist theory was laid to waste, and the year in which its doctrines were upheld by no more than a few zealots and dingbats, although unfortunately for our country and our people among the idiosyncratic misfits who wish to see the monetarist theory put into practice are the Chancellor of the Exchequer and his ignorant and etiolated colleagues in the Treasury and the Cabinet.
In strict economic terms the Budget can best be described as a combination of born-again Adam Smith economics and demonic monetarism. There has been surprisingly little comment from the so-called experts about the awesome prospects for the future of our economy implicit in the medium-term financial strategy set out in the financial statement, and the ranges for monetary growth set out in table 2.2 of the statement. If we link the monetary target for 1984–85 and the monetary objectives for the years up to 1988–89 to the fiscally perverse proposal to reduce the PSBR and the Government deficit as a proportion of GDP in the years up to 1988–89, as set out in table 2.6, we have a picture, when the cyclical upturn ends, of an economy that will go into a further slump, industry that will fail to expand because of lack of demand, investment that will taper off, real incomes and take-home pay that will be lower than they should be, and unemployment that will inexorably rise.
There was a strange period during the Chancellor's Budget statement when he talked about the money supply. He referred to M3, M0 M1 PSL, M2, broad money, broad money redefined, narrow money and narrow money redefined. At that point we all thought that men in white coats were about to enter the Chamber and take him away. The last time that I witnessed a Minister going stark raving bonkers I raised the issue with my permanent secretary, Dame Evelyn Sharp, who told me, "Yes, I know that your Minister has lost a fuse, but what can we do?".
There are two reasons why the Chancellor is not now sitting on the floor alone in a room, looking at a brilliant white Dulux wall with his arms folded. The first reason is a tribute to his skill in refusing to set out wither the details or the consequences of the monetary targets in the financial statement. The second reason is a testimony to the lack of understanding or the munificent fatuity of some of the City operators on the Conservative Benches. It was extraordinary to watch, while the Budget unfolded, the reaction of those Conservative Members sitting just below the Gangway, who seem now to have disappeared. I did not blame them for dribbling out of the corners of their mouths as the Chancellor set out his proposals, then for salivating with expectant anticipation of better things to come and, finally, for slobbering uncontrollably as they began to realise that the Government were about to set at the top table fruits in such abundance that we were about to witness a positive orgy. Self-interest and malicious greed are perfectly understandable human qualities. They are the traditional Victorian virtues about which our tarnished Prime Minister speaks so often.
What worries me more is why they cheered when the Chancellor, in announcing his tax changes, made it plain to the House that he was looking to the rich and to the dead to create investment and enterprise. Students of economic history will know that neither enterprise nor investment has traditionally come from the rich, and the idea of necrophilia as a weapon in our economic salvation is entirely new to this Chancellor of the Exchequer.
My real concern today is to consider some of the origins of the monetarist fallacy, to ask what went wrong and to see whether there are any lessons for the future.
On 28 October 1983 a panel of experts assembled at the Bank of England. One participant defined monetarism as follows:
Money causes prices, money does not cause output, and nothing else causes prices or output".
However, it was a statement by Professor Milton Friedman in 1956 which excited people such as the Chancellor of the Exchequer and, I dare say, the right hon. Member for Down, South (Mr. Powell). At that time, Professor Friedman said:
there is perhaps no other empirical relation in economics that has been observed to recur so uniformly under so wide a variety of circumstances as the relation between substantial changes over short periods in the stock of money and in prices; the one is invariably linked with the other and is in the same direction; this uniformity is, I suspect, of the same order as many of the uniformities that form the basis of the physical sciences".
What an extraordinary statement, yet what impact it had!
Subsequent analysis has revealed that that statement is about as scientific as, and has a predictive value of the order of, the statement, "The ice-caps melt when the temperature falls." Yet that is the holy grail upon which successive Conservative Governments have damaged our economy, wrecked our industrial heritage and sown the seeds of permanent economic decline.
The monetarism as set out in that statement in 1956 first found attraction in the academic world, then the media picked it up, then the wider intellectual world took it over, then the policy makers came in, then the political parties, and finally Governments, until it became conventional establishment wisdom. In fact, it was as dominant as Keynes' general theory, but whereas there was massive success in that theory, calamity has occurred over the past 10 years because of the belief in that Friedman theory.
Yet I still do not believe that monetarism would ever have gained hold but for the oil crisis in 1973. Around the world we saw terrified bankers, officials and Governments stretching out desperately for something to hold on to, and the only thing that appeared to be present which they could grasp was monetarism. Even the Labour Government clutched at monetarist straws. Shortly after they did so, there was the most extraordinary version that anyone has ever heard of. A Mr. William Rees-Mogg, then editor of The Times—now Sir William and chairman of the Arts Council—produced a version of monetarism which said that inflation could be controlled by a combination of a belief in God and a return to the gold standard.
No one in this House should be surprised that that cranky, zany theory had at the time the general support of the present Chancellor of the Exchequer. I wonder whether in next year's Budget, instead of the financial statement in the Vote Office, we shall find 654 prayer books with a gold sovereign inside each.