Tuesday, December 09, 2008

This monetarist coil

If nothing else, William Kristol's New York Times column this week indicates that some conservatives have noticed the massive expansion in the economic power of the state under George W. Bush. Kristol argues that a conservative response to this along the lines of smaller government always being good won't cut it, because some form of careful intervention will surely be necessary. Maggie Thatcher veteran John O'Sullivan provides some interesting historical perspective, though perhaps not with the interpretation he intends --

If we were lucky, a barrier [such as against a bigger role for the state] might even gain a quasi religious status over time, as the Gold Standard did in England until the first world war, and instill in voters the fear that tampering with it would be an impious act or even simply impossible. This worked for quite a while. When the Tories floated the pound in 1931, a former Labour minister, Lord Passfield (aka Sidney of Sidney and Beatrice Webb) said: "They never told us we could do that."

Well, they know now and since 1931 the rate of inflation has perked up remarkably.

The problem is that when the Tories (or rather the Tories plus a Labour rump) devalued the pound, it was the beginning of Britain's recovery from the Depression. The USA spent two more ruinous years on the Gold Standard parity before FDR also devalued. In other words, breaking through the received wisdom worked. O'Sullivan continues --

It's nice to think, though, that Sidney Webb who was always telling the capitalists how much more rationally socialists could run the economy, was in practice hostage to an unconscious monetary conservatism—like almost the entire Labour party and intelligentsia. Those were the days, my friend.

This passage lends itself to a rephrasing. Shall we try --

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.

But that of course is John Maynard Keynes, writing in the 1930s, precisely about how an obsolete orthodoxy can impede new thinking about how to deal with an economic crisis. Orthodoxy like an obsession with small government.

There is one other irony. It's not like the 1930s Britain turned out that badly for the Tories. In fact there is renewed attention to this era as a result of Martin Pugh's We Danced All Night, which argues that 1930s Britain created a nascent property-owning democracy i.e. a proto-Thatcherite class who, just over a generation later, would put Maggie in office and so launch John O'Sullivan's career!

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