With our first incoming Tory administration since 1979 I didn't think it altogether pointless to re-read William Keegan's entertaining and enlightening account of the economic policies perpetrated the last time the Tories took power after a period in opposition, that of Mrs Thatcher's 1979-83 administration.
Keegan, who tells the story in a wonderfully wry prose reminiscent of J.K.Galbraith, begins with an account of the post-war consensus, in particular those whom he calls the pre-Thatcherites, namely the Tories who governed between Churchill's return to power in 1951 and Heaths fall from power in 1974. This is juxtaposed with an account of those he calls evangelists, the nascent neo-Liberals who were at the margins of the party and included Enoch Powell (occasionally), Ralph Harris of the Institute of Economic Affairs, one time Marxist now "free" market fundamentalist Alfred Sherman, and the "Mad Monk" himself, Keith Joseph. These evangelists were impressed by the memory of nineteenth century Liberalism, especially as manifested in the writings of General Pinochet's favourite guru Milton Friedman. His particular contribution to the canon of economic dogma was monetarism: the idea that inflation could be predicted by the growth in the money supply, and conversely that inflation could be restricted by restricting the growth in money supply, primarily by increasing interest rates, and reducing public borrowing.
In the post Bretton Woods era, with its oil shortages and high inflation, the ideas of this group including that of monetarism, came into favour and not just within sections of the Tory party. Increasing numbers of the great and the good including Jim Callaghan's nephew and economics editor of the Times Peter Jay, and the Financial Times Samuel Brittan became converts. So did one of the leadership candidates in the contest to replace Heath after he lost not one but two elections in 1974. She was Margaret Thatcher, she won the leadership, and she went on to win the next general election in 1979, and the rest (including a large part of the industrial sector) is history.
The main part of "Mrs Thatcher's Economic Experiment" covers her first term in office, the - as he sees it - disastrous first budget that was blatantly inflationary and was accompanied by the implementation of a monetarist economic policy that included the raising of interest rates and the cutting of public spending at a rate that has not been seen in Britain since the Geddes axe fell just after the Great War, and wont be seen again until . . . well, probably next month. Keegan is excellent on the personalities, especially Thatcher's stubbornness regardless of events, as well as the evolutions of policy, and their effects on Britains economy: the loss of 20% of manufacturing, the wild swings in the exchange rate, debilitating interest rate rises, and the inexorable rise of unemployment until it reached well over three million. The book ends with a chapter simply called "Why?" which tries to explain why Thatcher got away with it.
This is an erudite, readable account of the era and its economics, and one that grips the reader on a number of levels, including the political with it's personalities, the evolution of economic ideas, how they translate into policies, and how the policies effect reality. Written in 1984, it is not the last word on Thatcher as it evolved in her second and third terms before culminating in the poll tax fiasco, but it does make an interesting read as an interim report on the Thatcher phenomena, especially as it related to economic policy. And given the current lot of Tories in power, and their evangelistic attitude to economic policy, though this time to deficit reduction no matter what, it is perhaps also useful as a cautionary tale, at least for the general population of the country, one suspects that those in power know damn well what they are up to.
