The Ideas That Shaped Post-War Britain. Anthony Seldon

was ready in principle to use monetary policy in support of budgetary policy – a case which his revisionist supporter Crosland was to elaborate in The Future of Socialism (1956).⁴⁵

      It was in the New Fabian Essays (1952) that Crosland broached his fairly complacent assessment of the post-capitalist nature of contemporary Britain:

      The trend of employment is towards a high level, and a recurrence of chronic mass unemployment is most unlikely. The Keynesian techniques are now well understood, and there is no reason to fear a repetition of the New Deal experience of a government with the will to spend its way out of a recession, but frustrated in doing so by faulty knowledge. The political pressure for full employment is stronger than ever before; the experience of the inter-war years bit so deeply into the political psychology of the nation that full employment, if threatened, would always constitute the dominant issue at any election, and no right-wing party could now survive a year in office if it permitted the figures of unemployment which were previously quite normal.⁴⁶

      Such confidence – hubris is another word – had not grown overnight. At the end of the war there had been a general expectation that the post-1945 experience would parallel that of post-1918: a couple of years inflationary boom, with a slump around the corner. This fear was implicit in the 1944 White Paper. It was a prospect which, as John Parker reported, ‘most British socialists believe to be inevitable, although they are not agreed on the date when the slump is likely to arrive, nor what course it is likely to follow.’⁴⁷ True, Dalton’s Budget speech in April 1947 said that inflation rather than deflation was now the immediate danger. Yet Meade, writing in 1948, when inflation was already at the front of his own mind, prefaced his arguments with the comment: ‘We are all agreed that measures must be taken to stimulate total monetary demand and to prevent it from falling below the level necessary to sustain a high output and high employment when the time next comes – as sooner or later it assuredly will come – when a deficient total demand threatens to engulf us in a major depression.’⁴⁸

      It was only from 1951 that a wholly different assumption about the nature of the economic problem supplied a new context for all these arguments. This occurred initially in the context of a rearmament programme which injected a huge boost of demand into the economy; as a proportion of GNP, defence spending rose by 3.5 per cent in three years while the budget surplus was cut by nearly 5 per cent between 1951–4.⁴⁹ Little wonder that economists – a fortiori the Keynesian revisionists represented in New Fabian Essays – stopped worrying about a slump. Even so, Strachey still qualified his judgement that, in most major respects, ‘our economy is exhibiting behaviour quite different from that which it exhibited during the whole of the inter-war period’ with the proviso that ‘it may be argued that it is as yet too early to claim that we have succeeded in eliminating trade depressions’.⁵⁰ But although it may have been judged premature to dismiss any possibility of a slump, fear of a slump had nonetheless disappeared because the weapons now existed to fight it – even if there should prove to be insufficient cleverness in anticipating and obviating it. The old-fashioned capitalist misery had been abolished, perhaps capitalism too. ‘It is now quite clear that capitalism has not the strength to resist the process of metamorphosis into a qualitatively different kind of society’ was how Crosland put it, and a further conclusion naturally followed: ‘Such an economy is far more likely to give rise to chronic inflation than chronic deflation.’⁵¹

      Out of the frying pan into the fire? Not a bit of it! Strachey peremptorily refused to admit that ‘the unmistakable fact that a full employment economy generates powerful inflationary forces is a fatal defect: it is a bias in the new system which must be identified and vigorously counteracted. But granted that it is done, there is nothing fatal about it.’⁵² If the great locomotive of economic expansion had exceeded expectations about the horsepower it was capable of sustaining, this was simply a condition to which its suitably skilled driver would have to adapt: ‘The habitual posture of the Chancellor of the Exchequer in a full employment economy will be that of a man pulling and hauling with might and main at the brake levers of the economy. It will not be a very popular or comfortable posture. But what of it? It is his job!’⁵³

      The steam-Keynesianism of the Labour revisionists was superseded by a fittingly privatised image from the impresario of Conservative Keynesianism in the 1950s, Harold Macmillan: ‘The real truth is that both a brake and an accelerator are essential for a motor car; their use is a matter of judgement but their purpose must remain essentially the same – to go forward safely; or, in economic terms, expansion in a balanced economy.’⁵⁴ The main difference in demand management under the Conservatives was the reinforcement of fiscal fine tuning with a monetary policy that now used interest-rate changes to the same ends. Here was the optimistic vision of progress in controlling and regulating the macroeconomic forces which could maintain full employment while keeping inflation in check. Stop-go, of course, was one name for this kind of economic policy; and ‘Butskellism’ for the political consensus which underpinned it. Samuel Brittan offered this summary in 1964:

      It was an interesting mixture of planning and freedom, based on the economic teachings of Lord Keynes. Planning during this period was concerned with one global total – the amount the nation was spending on goods and services – the ‘level of demand’ in economists’ language. If production sagged, or unemployment looked like creeping up, extra purchasing power was pumped into the system through the Budget, the banks, or the hire-purchase houses. If employment was a bit too full or the pound came under strain, demand was withdrawn through these same channels.⁵⁵