My right bon'. Friend is absolutely right. Indeed, as he knows, I am developing one of the themes that he developed, as did my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore). We are right to concentrate on this aspect of the debate, because it contains very important lessons for the future.
Since 1979 successive Conservative Governments have gone for broke on monetarism, and the country has gone broke too. Yet the theory and practice now stand wholly discredited. In the book "The Origins of Monetarist Fallacy—The Legacy of Gold", Roger Bootle just three weeks ago told us that;
The concept of money supply is a meaningless anachronism.
Is Roger Bootle some kind of radical Socialist preaching anti-monetarist doctrines? Not exactly. He is the chief economist of Capel-Cure Myers. He went on to say;
No one is able satisfactorily to define the concept of 'the money supply', let alone identify it in practice".
He blames, and he is partly right, the legacy of gold and the confusion between commodity money and money as credit for some of the confusion that has arisen. He sensibly argues that policy should focus on price variables—interest rates, the structure of interest rates and exchange rates—and not on monetary aggregates.
I wish to develop this theme and argue that monetary aggregates must be seen, not as a cause of inflation, but as the result of a variety of financial processes and institutional and structural factors. Anyone who doubts that monetarist theory is anything other than arithmetic nonsense should look at the work of Mr. Christopher Johnson. Is he a radical Socialist projecting anti-monetarist theories? Not exactly. He is the group economic adviser of Lloyds bank. In his document "The Failure of Monetarism" he shows that the arithmetic of monetarist theory will not stand up in any respect.
Anyone who doubts that both the theory and practice of monetarism are sadly at fault should read the document to which my right hon. Friend the Member for Bethnal Green and Stepney referred—the report of the panel of Bank of England advisers which met on 28 October last year. That panel was attended by Sir Terence Burns, the chief economic adviser to the Chancellor. Sir Terence Burns had to listen to an economic drubbing of the theory that he supports and the misery that he has imposed on the country. Professor Arthur Brown, Professor Hendry and Mr. Ericcson of Nuffield college showed that not only is the monetarist doctrine threadbare, but that it is part of an economic confidence trick.
Professor Brown, after a fairly orthodox statisitical economic analysis, finally asked himself whether Friedman had made out a case which supports a simple quantity theory with money supply controlling prices. He replied, "In a word, no." Hendry and Ericcson went on to analyse all the factors set out in the book by Friedman and Schwartz entitled "Monetary Trends in the United Kingdom". They showed that every major assertion in that book was false. They showed that there was no empirical evidence to support monetarism and that the assertions of Friedman and Schwartz, far from supporting monetarist theory, could be used to discredit it. In fact, they concluded that the time had come to take "con" out of economics. In effect, it is now official from the Bank of England that in strict economic terms the Chancellor is a con man.
What about poor Professor Matthews from Clare college, Cambridge, who that day summed up the debate attended by the principal economists in the land who discussed the theory by which the country has been and will be governed? He had to ask, "Have we now reached the stage where we can be sure that monetarism is wrong?" He coughed and coughed and said, "It is not quite like that, it is just that we can now be sure that there is no empirical evidence to support monetarism."
That tempts me to wind up with an analogy. Let us suppose that next time the oil runs out there is an international economic crisis and I come along and say, "I can solve this crisis because I have discovered a new causal relationship. I have discovered that the level of economic activity is linked to the velocity of circulation of seven-sided 20p coins." If I understand correctly what happened when monetarism took hold, those Conservative Members who are absent today would rush over to me and say, "That is brilliant, marvellous and incredible, Sedgemore. How do you do it?" But surely there would come a time when some awkward so-and-so on the Conservative Benches—some wet—was prepared to speak out and ask "Where is your evidence?" When I replied, "I am awfully sorry, there is no evidence. Indeed, such evidence as I have disproves my theory," those Conservative Members would say, "What a twit" and they would be right.
The economic historians of the future will conclude that that is the only appropriate view of the irresponsible fiscal and monetary policies that the Chancellor has set out in this Budget. He has refused to deal with the real economy—with output, income and employment—and, because of that, we shall vote against the Government tonight.