THE victory of the Labor Party in 1945 represented a protest by a large majority--many of them Conservative voters in earlier elections--against the unemployment and stagnation that had prevailed in the period between the two wars. Never again, it was felt, should the nation be exposed to the uncontrolled forces of markets if they worked to the detriment of the economic future of the country. It was hoped that Labor would ensure not merely full employment and social security, but also a consciously planned and accelerated development of the nation's resources. The nationalization of a number of key industries was to enable the government to establish full control over the economy and free it from the shackles of the profit motive.

To some extent these hopes were fulfilled. Social security, the welfare state, was indeed achieved by Labor. So was full employment. And there can be no doubt that technical progress and economic expansion in Britain were far swifter in the postwar years than at any period since before the turn of the century. Nevertheless the ebbing of confidence of the voters, and the hesitancy of Labor leadership after 1950, showed that the Party had exhausted its immediate program and was uncertainly (and not very successfully) groping for new inspiration. The confidence of the voters, and the Party's own confidence, in its ability and determination to shape the economic destinies of the country had been very badly shaken, first by the fuel crisis (caused by the inexplicable failure to ensure a strict allocation of coal supplies) and by three exchange crises occurring in regular two yearly intervals. The Party had been equally badly shaken in its belief in the need for and the efficacy of national ownership as a means of planning and directing investment. The Labor program of 1950 and even more of 1951 was timid and defensive. It aimed mainly at "consolidating" the gains achieved and promised further benefits to consumers without giving any real assurance of the solution of the problem of how to provide the means of fulfilling these promises by increased efficiency and output.

The election of 1951, which put the Conservative Party back into power, was fought in the midst of the third upheaval in Britain's balance of payments. The circle had come to a full turn. The Conservatives on their side declared themselves opposed to all planning, which in their view could result only in misery and muddle. They promised a dash to freedom and, much like the Republican Party in the United States in the following year, a complete break with the inflation that, in their view, was the fount of all trouble. Sound money was to be restored, together with the sovereignty of the consumers. The Labor Party, countering this appeal, warned the electors that the Conservative program could not be implemented except by severe deflation and unemployment, that the consumers' sovereignty unavoidably involved a fall in the consumption of the large majority, and that the success of the Conservative Party would involve a return to the inter-war policy of unemployment and relative stagnation.

In the next three years Conservative policies were substantially modified. At the same time the forebodings of the Opposition received a startling refutation, partly no doubt aided by a favorable turn in the world economic tide, but to a considerable extent through the evolution of a new Conservative approach to economic problems. The international economic position of the country has been consolidated. The most important social gains made since before the war have been safeguarded. In particular, full employment has been successfully maintained. The Conservatives have succeeded in performing some, if not most, of that consolidation of the welfare state which the Labor Party had lately put on their banner as their final task. The present British Government has, in short, taken the wind out of the sails of the Opposition and thus diminished their chance of electoral success.

II. THE CONSERVATIVE RECORD

Mr. Butler, the Conservative Chancellor of the Exchequer, can be satisfied with the development of Britain's internal and international position. The balance of payments has changed from a large deficit to almost as large a surplus. This consolidation was achieved despite the relaxation of controls over commodity markets and imports, and despite the ending of all rationing of consumers (which is a sort of indirect import control). Yet all of these measures were bound to increase the demand for foreign currencies. It was, last but by no means least, achieved without causing depression and unemployment. The restrictive credit policy which the Bank of England initiated at the outset of the first Conservative postwar régime was soon reversed. Mr. Butler has travelled very far from his plan to rush into convertibility-- a plan which even United States experts opposed early in 1952. He had already relaxed the budget in that year and he gave a further boost to demand in his financial proposals of 1953. Bank rate is back to 3 percent. Not since 1950, well before the last crisis, have British Government securities been at comparable high levels. The rate of interest on Consols, that bellwether of monetary policy, has fallen by almost 1 percent.

The response to these measures was instantaneous and remarkable. Industrial production had fallen by just under 3 percent between 1951 and 1952. It began to recover early in 1953, and by the summer the whole of the previous loss had been made good. At the end of 1953 production surpassed the previous high point. In the first eight months of 1954 industrial production was 6.5 percent higher than a year before and more than 10 percent than two years previously. There is, as yet, no check in sight. The fall of unemployment has also been most gratifying to the government: from a temporary peak of just under 500,000 --the highest since the war but only about half the minimum attained in the inter-war period--it has fallen continuously to 220,100 in July 1954, the lowest figure since 1951, just over 1 percent of total employment.

Retail prices, after the steep rise between 1950 and 1952, have remained practically stationary since the end of that year, though there was a slight (just over 2 percent) rise last summer, due mainly to the derationing of meat (which itself rose some 7 percent). Yet demand and consumption rose in real terms more than 4 percent last year to a new peak, about 2 percent above the previous record level in 1950, and has since continued to expand. It is now nearly 7 percent above the low point reached in 1952. Nor is this all. Investment in houses, though the size of units have been cut, has expanded by more than £ 200,000,000, owing to the rise in the numbers completed from 192,900 in 1951 to 315,223 in 1953. In the first six months of 1954 there was a further increase to 197,101. It is estimated that in 1953 total physical production at home, i.e. excluding the effect of foreign trade, was about 3.5 percent above the previous peak reached in 1951. It must now be running as much as 5-6 percent above the 1951-52 low. This means that from domestic production alone additional output worth some £600,000,000 a year at current prices has become available in the last two years. Though the rate of interest has slowed down it is still very satisfactory.

All this was accomplished in a period when controls were relaxed, and when, therefore, demand for foreign products would have increased even without the expansion of output (which itself increased demand for imports). Yet in the same period the worst that could be feared abroad also came to pass: American production abruptly fell by 10 percent and has not fully recovered. Truly Mr. Butler need not envy his German colleague, Dr. Erhard, for his economic miracle. He has a full-sized one all of his own.

How did all this come to pass? How in particular were the unfavorable consequences on the foreign balance of recent British economic policy and world developments, insistently pointed out by Labor politicians and economists (including myself), so completely avoided?

The answer is surprisingly simple. The crisis of 1951 was to some extent due to temporary circumstances: in the first place to the violent rise in the price of primary products which in 1951 worsened the British terms of trade by some 30 percent and suddenly reduced British real income. But this rise was caused, apart from the delayed effects of the devaluation of 1949, mainly by the exceptional increase in world demand following the outbreak of the Korean war. Once the urgency of stockpiling was satisfied it was bound to pass. In the second place, the sudden imposition of a very large rearmament plan on a fully employed economy disorganized production, and interfered with the parallel increase of exports. As armament plans were pared down and production increased, a better balance was bound to emerge. Moreover, the crisis of 1951 was due also to a violent increase in inventories: some £600,000,000 against a loss of gold of some £ 344,000,000. This rise also had to come to an end, and with the diminution of this strain there was automatic relief to the balance of payments. Last but not least the 1951 crisis was due to a speculative attack on the pound.

In the past years none of these things happened. The price of imports fell. There was no undue increase in inventories. The British productive machine was not overburdened. In all this the deflationary monetary policy played a rôle at the outset of the Conservative régime. The stimulus given to entrepreneurs by having a friendly government and by decontrol and tax concessions restored confidence. There was no speculative attack on the pound from inside or abroad. There was no need for devaluation or for cutting British domestic demand to restore gold reserves. The shrinking American demand could therefore be offset by the expansion of production in Britain and, indeed, in the whole of Western Europe. Thus the prices of the things the sterling area exports to the United States did not collapse despite the recession there. If anything, they slightly rose in the autumn of 1954. While American imports decreased in volume, they did not decrease as much or more in value. Confidence in the Conservative Government helped to maintain the balance of payments in Britain, just as confidence in the government in the United States maintained investment in the teeth of a stagnant demand.

For the first time since before the war, therefore, Britain was presented with a uniquely favorable combination of circumstances. The British terms of trade are now back where they were just before devaluation. In other words, Britain was enabled to save some £500-600,000,000 on her import bill: and it was this gain and the confidence of foreign owners of sterling which enabled her both to abolish controls and to increase production without causing an immediate balance of payments crisis. Though the large increases (due partly to capital movements) in reserves have not continued, the stability of the balance of payments is surprisingly satisfactory despite the increase in the commercial surplus of the United States.

The remarkable thing is that despite the depression in the United States, and the loss of income which Britain's overseas suppliers suffered through the fall in their prices, British exports did not slump: they expanded and are well above their previous peak of 1950. Partly this is due to the notable stability of U. S. export prices despite the fall in production, a fact which contrasts sharply with even 1949 (and much more with 1937 or 1930-33). It seems, moreover, that though Britain's customers lost through a decline in the prices of their exports (which was bound to cut their incomes and demand) this loss was more than made up by the increase in their productivity and output. Demand for British goods in Australia, for instance, increased despite the marked decline in wool prices.

The improvement in the terms of trade, and the rise in domestic production, which could be managed in consequence without upsetting the balance of payments, together amounted to an increase in British real income of some 1 to 1.2 billion pounds in 1953-54 as compared with two years before. In contrast to the Labor Governments, which were hard pressed by the worsening of the international trading relations, the Conservatives have been fortunate indeed.

The question might be asked, of course, whether this windfall gain was used to the full.

In a certain sense the answer is undoubtedly in the affirmative: the timely reversal of the deflationary policy, the relaxation of taxation, clearly show that Mr. Butler was able to reassess his policy: as Britain's international position improved he succeeded in increasing domestic output to the limit. In this he was more successful than his American colleagues. Yet, in another sense, the policy pursued had the result of missing an almost unique opportunity to buttress Britain's economic strength.

We have seen that consumption in Britain has substantially increased and, at current prices, must have absorbed some £600-700,000,000 of the total gain. Total final consumption moved to a new high level, 3 to 4 percent above the previous record level of 1950. Who benefited? The answer is not very difficult to find. The real wages of the better-to-do working class have not risen above 1947 though they now enjoy the boon of "free" choice. The poorest 10-20 percent of the population on the other hand must have suffered an appreciable cut in their already exiguous standards which has only recently been made good by the increase in pensions and other social benefit payments. It should not be forgotten, however, that a large part of this was financed by an increase in flat rate contribution payments, i.e. by regressive taxation falling heavily on the lowest income earners. The higher incomes have been more fortunate. While working-class prices have risen by more than a quarter since 1949, the price level for the rest of the population has risen by only just over a fifth. The better-to-do benefited by a cut in purchase tax, while the poor bore the brunt of the cut in subsidies.

There can be no doubt that the inequality of actual consumption standards in Britain has substantially increased in the past two years. It is the large total increase in consumption which explains the comparative ease with which the process of abolishing controls was accomplished despite the resulting more unequal distribution. At the same time the recovery of the standard of the better-to-do working class to its previous high level explains the remarkably wide popularity of the government despite the partial loss of the social gains of the war and postwar years.

If the increase in consumption and consumption-investment (such as housing and vehicles) was considerable, it also exhausted much the greatest part, some £700-800,000,000 or more, of the total increase in available resources. Defense absorbed an additional £ 150-200,000,000 at current prices. There was also some increase in the stocks of commodities in the productive machine, and an equal surplus on international account used for foreign investment. This means that little if anything was left over for the expansion of productive investment at home. This conclusion is confirmed by the fact that factory buildings under construction fell from £183,000,000 in the middle of 1951 to £ 155,000,000 at the beginning of 1954. Factory building is not necessarily an accurate indicator of fixed investment. But the figures of deliveries of machinery and tools for the home market confirm its portent. It is doubtful whether productive fixed investment has substantially recovered from the cut in 1951-52. This contrasts with the continuous vast increase of investment in the United States since 1949.

III. THE PROBLEM OF THE CONSERVATIVE PARTY

Yet there is no dispute about the fact that British industrial investment is insufficient to maintain Britain's relative competitive power. Investment per head in the U. S. is a multiple of the British, and even the German is far higher. This explains why both American and German production could expand so much faster: the latter reached the rate of 7 percent annually even after 1951, when the first violent phase of reconstruction had been completed. The average American rate in the same period was 6 percent as against an average of 4 percent in the best period in Britain.

Here, then, is the Achilles heel of the British recovery: the large windfall gain due to exceptional good fortune had been used to increase consumption, and to permit the worsening of its distribution without too much unpopularity for the government. Should the British terms of trade worsen, or should demand for British exports shrink as a result of increased competition, the government has few, if any, weapons left in its economic armory to parry the consequences. It could, of course, run down the external surplus. This would, however, have grave consequences on Britain's position as the banker of the sterling area and thus on the future of the sterling area itself. The balance could be adjusted also by old-fashioned deflationary action, by cutting investment and demand indiscriminately. But this would solve current difficulties only by causing unemployment and by increasing the threat to the future efficiency and the standard of life because of the enforced decline in investment. It would also be suicidal politically. The continuance of under-employment in the United States inevitably would be regarded as an acute threat in this respect. The increasing pressure of Japanese and German competition is, in the longer run, even more disquieting. The British standard of life could be safeguarded only by a sharp rise in productivity. This, however, would demand an increase in investment.

Mr. Butler is well aware of this potential threat and is also aware of his weakened powers to take avoiding action. Despite the buoyancy of the position and obvious political temptations he has not given anything away this year. Moreover, he served notice (only to be reproved by the Labor Front Bench) that the British arms burden is intolerable in the long run.

This growing awareness of a potentially dangerous threat to Britain's international position explains also Mr. Butler's increased caution on the issue of the convertibility of sterling. Having freed commodity markets, and liberalized imports, he has gone some way towards de facto convertibility. But now he must keep a way open for retreat, and a formal, legal acceptance of convertibility would make this impossible. Thus any crisis, if it occurred, would then be manifest, and would invite political disaster. No Conservative Government could afford an exchange crisis within a short period before an election: the source of its most important electoral superiority over Labor would then be jeopardized. The United States Government has shown a much greater awareness and understanding of the problems of the present British Administration than its predecessor evinced to the Labor Governments of 1949 and 1951: no pressure was exercised to enforce convertibility immediately.

Should international economic trends remain favorable, Mr. Butler's policy of liberalization could easily be vindicated. For the current year (1955) there are, however, hopes that investment will increase by £200,000,000, all but half of the expected total increase in output. Even this is still insufficient to make up leeway and it would be menaced by any change in the foreign outlook. The delay in armaments programs has resulted lately in a huge budget surplus which might be used to strengthen the basic position. If the drift towards dear money stimulated by the rampant stock exchange boom is causing misgivings, it certainly has not forced a reconsideration of the expansionist bias of policy. Personal savings have been sharply rising ever since the fall of the Labor Government--from below £ 100,000,000 before 1951 towards £900,000,000 in 1953. This increase was considerably in excess of the fall in the government Budget surplus. Now that consumption has been freed from its shackles and all pent-up demand is being met, it is conceivable that the tax concessions to entrepreneurial activity will bring about, not merely further increase in investment, but also in personal saving. The second part of the German "miracle" would then have been successfully reproduced in Britain. The transition to a "high-investment" economy would have been accomplished on a free-enterprise basis. This indeed is the portent of Mr. Butler's latest appeal to British industry to increase ploughed-back profits and equally of the appeal by enlightened Conservatives to go slow in using the budget surplus for concessions further increasing consumption. Whether the Chancellor can resist the pressure to grant such concessions in an election year remains to be seen.

Eventually, then, the supporters of the present policy might also hope that any additional pressure that might result from a formal restoration of convertibility, and the consequent unavoidable relative worsening of the terms of trade, would be offset by a spontaneous increase in British productivity. In addition, should an improvement in the American economy enable the United States Government to reduce the degree of its protection unilaterally--e.g. by a simplification of customs procedure-- convertibility need not even involve a worsening of the terms of trade. Recent political changes in the United States should make such changes easier.

All this seems conjectural, but it is certainly not impossible. Assuredly it is not inconceivable. Should it succeed, Mr. Butler would have performed an incomparable service to his party. He would have purged it of the taint, still damaging, of being the party of big business and unemployment, of growing net profits and falling purchasing power for the mass of the population. The discontent of the submerged 20 percent (as contrasted with that of the 40 percent before the war) is politically not decisive. In any case so long as the world economic position remains fair, some concessions to this relatively small minority should not prove impracticable.

The consolidation of the success of the experiment in liberalization now depends mainly on the American economic prospects. The outlook for the British Conservatives is by no means a wholly comfortable one, but it is by no means a hopeless one either.

IV. THE LABOR PROGRAM

In the face of this obvious success of the moderate wing of the Conservatives under the leadership of Mr. Butler in cutting loose from their pre-election slogans, the Labor Party has manœuvred itself into an unenviable position. After a severe internal dispute it has first of all postponed proposals for any considerable advance towards national ownership. It has reaffirmed its intention to restore and expand social services and demanded an increase in productive investment, in order to be able to carry out its other promises through an increase and redistribution of national output. Finally it has reaffirmed its belief in planning.

So far so good. Unfortunately, there is little in the Labor Party program to justify, or even raise, the hope that it could in fact be carried out without plunging the country into a crisis. In the first place, the Labor Party has not merely come out for German rearmament and the consequential severe increase of defense costs and the drain on the balance of payments but also for the maintenance of British arms. (The Germans bore some £150,000,000 of the cost of the British troops in Germany which they will no longer have to meet.) Thus the one relatively easy way by which resources could be found for its program of increased investment and higher social services has been blocked. Yet resources for both have to be found: investment must be increased if the rest of the ambitious program, which the Labor Party accepted last year, and has since reaffirmed, could be carried out.

On the other hand, it would seem impossible to postpone pledges to increase consumption and social services. Indeed, since the loss of faith in Socialism of the old-fashioned sort, i.e. in the collective ownership of the means of production, the extension of the welfare state has increased in importance in the Labor program. Yet these welfare schemes are immensely costly. Even if the former relatively low level of protective foodstuffs prices, e.g. meat or milk, is not restored (and that alone, according to Mr. Butler, would cost £ 800,000,000), an effort to assure an adequate basic diet to the families of lower paid workers would certainly involve restoration of subsidies on a substantial scale. But this is not all: housing standards are to be raised, new schools provided, and the Health Service improved and freed from charges on patients. Though there may be room for manœuvre in actual budgeting, it seems a fair inference that the party is committed, by implication, to an increase in social benefits costing at least £ 600,000,000 a year at once, with progressive additions in later years.

Cutting armament is the least difficult way of meeting the cost of an accelerated increase in investment and welfare services, but it is not the sole escape route. Theoretically, at least, it would be possible to extract from the better-to-do families, i.e. those with more than £ 700 a year, part or the whole of their windfall gains, and to use this partly to accelerate investment and partly to finance the most urgent increase in social services and benefits. In practice, however, it would be extremely difficult if not impossible to obtain these resources by way of higher taxation, i.e. by a fall in the consumption of the rich. Personal savings, as we have seen, have increased tremendously since the defeat of Labor, and unless some completely revolutionary tax reform is adopted, for which there is little chance in the short run, a renewed fall in savings is certain to counteract any new tax measure. The Labor Party, indeed, will be very lucky not to have to contend with such a fall anyhow, and a concomitant foreign exchange crisis. Unless confiscatory taxation is envisaged (which poses the same problem of confidence) no solution is attainable in this direction.

By introducing direct controls on consumption and investment the Labor Party could of course restore a better distribution of income without prejudicing capital accumulation. This escape route, however, is equally firmly bolted. Not only are rationing (or even the limitation of home supplies) and other controls extremely unpopular, but the Labor Party seems in any case to be increasingly loath in principle to reintroduce them even if this were politically possible. Yet the conception that private capital will effectively provide the sinews for an extension of the welfare state seems an illusion: unless the Labor Party is prepared to permit an actual worsening of the income distribution, it cannot even do as much as Mr. Butler in fostering investment. With the victory of Labor, the risk of capital investment would automatically increase and thus profits after tax would have to be permitted to rise to maintain even the present inadequate pace. This is, of course, in flat contradiction to the aspirations and program even of the least radical wing of the party. Nor could the effects of the increase in risk be counteracted by cheap money policy. Dr. Dalton has had ample opportunity to learn what damage cheap money can do to the foreign balance under a Labor Government. Thus even if a foreign exchange crisis does not put a quietus on Labor's electoral hopes at the moment of the election, its domestic problems seem all but insuperable without a much greater degree of direct control than has recently been envisaged by the leaders of the party, apart from Mr. Bevan.

If the price mechanism cannot be trusted under the circumstances, if Consumption Socialism and entrepreneurial freedom do not go together, then it would first of all be necessary to devise machinery and put into effect a deliberate plan of action. This has never been done for all the lip-service paid to "planning." If the price-mechanism and the profit motive cannot deliver what the Labor Program envisages, a conscious, coherent and consistent set of measures must be substituted and personnel found capable and willing to carry them out. Otherwise the Labor Party will land the country in the same mess as in 1947, 1949 and again in 1951.

In the light of the experience even of 1946-50, it is generally a dangerous illusion to suppose that inflation and monetary disasters can be avoided if the full-employment policy is not supplemented by a national wage and price policy. The present Conservative policy might lead to serious labor unrest, especially if prices rose further. But the failure to replace wage-restraint by a more permanent policy threatened stability even while the Labor Government was in office. Yet there is no sign of an official awareness even of the existence of this problem.

The third problem arises in respect to investment. Even if the government were able to determine what kinds of investment it wished to stimulate, how is it going to get it done? Why should private enterprise expand? It did not expand sufficiently in the most urgently required directions when the postwar boom was unbroken, and capital taxation did not threaten. In some sections of industry, at any rate, it accumulated and sedulously hoarded orders at the cost of some goodwill and loss of markets--preferring this to the risk of being landed with excess capacity in the future. Is it anything but fantastic to expect an accelerated expansion, when Japanese and German competition is resurgent, and when the shadow of a renewed American stagnation is beginning to strike a chill of unease in Europe? And even if private enterprise were willing to take such unusual risks, where would the capital come from? Ploughed-back profits would not be sufficient. Nationalization, which might set free a gusher of risk capital by displacing equity investment in a widening section of industry by government obligations, is ruled out for the next Labor Government. It is difficult to see how its authors envisage carrying out their program.

V. THE DILEMMA OF THE LABOR PARTY

The Labor Party could, of course, pare down this program severely to what Britain could "afford" after a Labor victory, i.e. something less than at present. Instead of launching a far-reaching plan which might capture imagination and enthusiasm, it could hope that a crisis in America or some mistake in Britain (coinciding nicely with an unavoidable election) might put the "outs" in.

It is difficult to see much future in this "consolidation" or "realism." It also presupposes that the entrepreneurial classes will show as much confidence in a Labor Government as in a Conservative administration, and this in turn demands that a Labor Government should be able to resist in the longer run most of the aspirations of its own rank and file without forfeiting their allegiance. Neither assumption seems realistic.

The next Labor Government will be much more vulnerable than its predecessor of 1951. It will not have at its fingertips those levers which it held between 1945 and 1951. It then inherited an almost intact war economy, hardly distinguishable from a fully-planned system: this legacy of existing wartime controls far offset in value the handicaps due to war damage and losses. Even so, the means which the government possessed to discipline and direct private enterprise were far from completely effective. The control over capital issues did not prevent investment from differing widely and wildly from estimates. The powers taken under the 1946 Act over the banking system proved grossly inadequate. The government's instructions to restrict credit were ineffective, and the necessary cuts in imports could not be enforced for months. Conclusive proof was given, even in 1951, that the opponents of the Labor Party held the economic power to produce a political crisis for Labor. It is now clear that the balance of payments crisis of that year was brought about largely by a spectacular flight of capital and equally tremendous speculative purchases of imported goods. Government controls even then were inadequate to forestall or prevent a lack of confidence denuding the country's reserves and leading to the fall of the government.

Since then the liberalization, begun well before 1951 by Labor itself, has proceeded apace. Control over capital issues has been virtually abandoned, control over building has been largely dismantled, rationing has been ended, and freedom of the commodity markets completely restored. Thus a recurrence of the history of 1951--impotence combined with distrust and crisis--is only too likely. A further economic failure of Labor, however, would be fatal both to its future electoral chances and probably also to its unity. Either the left wing will take power, or the disillusionment might even lead to a strengthening within the Labor Party of fellow-travelling or even Communist extremism, now happily all but nonexistent. Recently the official leadership showed some signs of awareness of the general political impasse and tried to suggest an escape-route by sponsoring the idea of greater reliance on direct controls to ensure full expansion. It does not, however, seem to realize the far-reaching consequences of such a new departure for other parts of their program. As no other new elements (e.g. in the foreign economic field) for a constructive new program alternative to Conservative policy have yet emerged it is not likely that the electorate will show more enthusiasm for this dehydrated old mixture (which led to periodic financial upsets) than before. Thus the Labor Party is in an even more difficult position and the crisis in its policy-making is far more acute than that of the ruling Conservative Cabinet.

Yet basically both parties are much lacking in firmness and ultimate realism. Faced with the seriously weakened position of Britain at the end of the war, neither was willing to enforce a drastic retrenchment of consumption to restore productivity and safeguard the future. The Conservatives, in opposition, indeed railed against even such "austerity" as was imposed. Thus a unique chance was missed of transforming Britain into a high investment country capable of providing a steady increase in the standard of life without trenching on the future, as well as genuine advantages in the long run for all its foreign-trading partners.

It is just possible that the continuance of favorable conditions abroad might even at this late stage permit a sufficient increase of personal saving, and of investment, to enable Britain to face both domestic demands for an improving standard of life and the threat of foreign industrial competition--not the least of the United States and Germany and, eventually, possibly even of the Soviet Union. But it must be admitted that such a conjuncture of favorable circumstances is at least unlikely.

There is at the moment, however, little sign that either political party is willing to envisage the rather painful measures which would be needed to ensure an increase in investment in the absence of such favorable trends--when they would be most necessary. Yet there is the tempting promise that, once the transition to higher investment had been accomplished, the quickening of technical progress would enable Britain to face her problems-- even a possible worsening of the terms of trade. Consumption Socialism and Guild Capitalism seem the only possible choices, and neither seems capable of dealing with any of Britain's basic difficulties.

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  • THOMAS BALOGH, Fellow of Balliol College and Member of the Institute of Statistics, Oxford University; author of "Studies in Financial Organization," "The Dollar Crisis, Causes and Cure" and other works
  • More By Thomas Balogh