10/13/99
11:32 PM BST

Brittan's best?

Financial Times columnist Samuel Brittan is the most prestigious economic analyst in the country. Jon Fryer thinks that bodes ill for British capitalism

'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: pure genius!

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 and idle.

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).

L-shaped slump

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 downwards.

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)

Beaker boom?

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

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