Financial Times columnist Samuel Brittan is the most prestigious
economic analyst in the country. Jon Fryer thinks that bodes ill for British
'Too many heavyweight speeches after a good dinner', was Samuel Brittan's
verdict on last year's Lord Mayor's banquet. Amid the ornate splendour of
the City of London's medieval Guildhall sat the annual assembly of overfed
industrialists, satiated financiers and boozy bureaucrats. You can imagine
them dozing off as the monotonous heavyweights of the Bank of England and
the Treasury droned on. Such a spectacle speaks volumes about the current
state of economic thinking. 'Too many speeches', concluded Sir Samuel, 'and
not enough jokes' (Financial Times, 4 November 1991).
Samuel Brittan is supposed to be the epitome of level-headed common sense.
As the leading Financial Times columnist he inhabits a world of speculation
about the shifts in stock markets, exchange rates, trade imbalances and
budget deficits. His conclusions often turn up later in the pages of Hansard
or the speeches of UK chancellors. He is a one-man think-tank, a shining
star in the dull firmament of capitalist economics. So it is worth looking
at his view of the slump and the prospects for recovery.
Sir Samuel claims to know 'what makes economies tick'. There is a 'transmission
mech-anism from excessive or deficient growth of the money supply to inflation
or slump'. It goes like this:
'When output is above capacity, inflation rises and therefore the boom has
to be brought to an end. When output is below capacity, inflation falls
and recovery will occur, whether automatically or through deliberate policy.'
(Financial Times, 4 July 1991)
The knack of sound economic management, then, is to ensure an even rate
of monetary expansion in line with the potential growth of the economy.
The 'nominal GDP' money rule was first formulated by Brittan in his 1981
pamphlet, How to End the Monetarist Controversy, and has since found
its way into Bank of England orthodoxy.
Such monetary management techniques rest on the view that the state is able
to engineer economies up to 'potential output'. But 'potential output' or
'capacity' are meaningless expressions, since this potential changes with
time and is never a fixed and identifiable thing. Moreover 'potential output'
is defined by Brittan in an entirely circular fashion:
'The meaning of "potential" here is not the maximum of which the
economy is capable in some engineering sense. It is the maximum of which
it is capable without accelerating inflation.'
So inflation results once potential output has been reached, while potential
output is defined as a situation beyond which inflation is generated. Bravo!
Inflation results from an inflationary situation. What is an inflationary
situation? It is a situation which generates inflation. There you have it:
Sam Brittan's 'golden rule of boom and slump' rests simply on his own impressions
about capitalism's growth 'pot-ential'. And these are gloomy indeed. By
'potential output', Brittan does not mean the ultimate possible devel-opment
of the productive abilities of society ('in some engineering sense'). He
is not even talking about full employment under capitalism. For Brittan,
'potential out-put' merely includes the scanty sums of idle capacity or
unutilised capital reported in annual CBI surveys.
Even so, the notion that this meagre 'potential capacity' can be mobilised
by a growth of the money supply is a complete fiction. It is also a shabby
lie. The logic of the capitalist system is not to work towards some elusive
level of 'potential output'. It works at a far lower level of profitable
output, regardless of whether this leaves masses of spare capacity unused
Brittan holds out the promise that this 'excess capacity' could be drawn
into action by a future injection of money into the system. But for the
present he reconciles his readers to the degradation, impoverishment and
unemployment of the slump. Recessions are inexorable cycles of 'creative
destruction'. Sir Samuel's illusory economics promise greater things for
tomorrow, while celebrating the 'creativity' of the slump today.
Through 1991 Brittan stood firmly with the Norman Lamont sycophants, promising
recovery and declaring depression impossible:
'It is in fact extremely rare for market economies to spiral downwards into
a tailspin' (20 June); 'What goes down usually comes up' (4 July); 'The
vast majority of recessions do not turn into great depressions' (4 July);
'My main reason for believing recession will be succeeded by recovery is
that this is what has nearly always happened in the past' (1 August); 'Belief
that every recession is a prelude to great depression clouds judgement'
(19 December); 'It is often darkest before the dawn' (16 January).
From blasé summer confidence, Sir Samuel descended into downbeat
autumn gloom. By late November he finally announced 'the postpon-ement of
the recovery in the UK'. But even then he held out hopes for recovery based
on extrapolating grandiose conclusions from a few months' figures for output
and exports and surveys of industrialists' 'expectations' - the same facile
'teenagers' method that he has criticised for so many years.
By December, Brittan had lost hope in the recovery. No longer was the recession
a quick U-shaped downturn followed by a sharp revival. It was not even to
be a W-shaped 'double-dip' slump with a subsequent resurgence. More likely
was a drawn out L-shaped slump, with the right hand part of the L drooping
So surely now the time had come to unveil the spectacular Sam Brittan recovery
plan? Now you would expect him to resort to the stimulus of the (fraudulent)
monetary 'transmission mechanism'. But no. It never existed. So what did
Brittan come up with in the doldrums of February 1992?
'Keynes did speak of burying pound notes in the ground and leaving it to
the forces of self-interest to dig them up. Milton Friedman has spoken of
dropping dollar bills by helicopter. It is not time for these heroic devices
yet.' ('Why falling inflation is still good news', Financial Times,
13 February 1992)
Instead Brittan spent February preaching restraint, austerity and religious
faith in 'self-correcting economic forces'. Now disillusioned with the efficacy
of UK monetary machinery, Brittan the 'good European' could only promise
(pray?) that sometime in the future 'the heavy cavalry of the Bundesbank
will come up from behind' to the rescue.
Aside from this, Brittan's one idea to tap into his illusory 'potential
capacity' was a Yuletide strategy for retail-led recovery based on shops
introducing 'gift-wrapping to stimulate trade', abandoning the 'horror'
of 'loud pop music' and leading the way with new lines in beakers ('Nightmare
on Oxford Street', Financial Times, 30 December 1991). Yes, beakers.
In all seriousness: 'Coloured plastic beakers which one can use after cleaning
one's teeth or taking a drink of water.' No doubt it's just what 'one' needs
after a heavyweight dinner at the Guildhall.
Reproduced from Living Marxism issue 42, April 1992