Incomes and money

This book is primarily a criticism of British monetary policy since 1945. along with an application of the criticism to questions of future policy. The aims of policy were indicated to the Radcliffe Committee in

1957 in a paper on Monetary Policy and the Control of Economic Conditions (Treasury Memorandum, No. 6, sec. 10): 'the primary object of policy has been to combine a high and stable level of employ ment with a satisfactory state of the balance of payments'. When Sir Robert Hall was giving oral evidence on behalf of the Treasury (17 Oct. 1957), Lord Radcliffe asked (Qn 1360), 'Where does sound money as an objective stand?' The reply was that there may well be a conflict between the objective of high employment and the objective of sound money', a dilemma which the Treasury did not claim to have solved (1363).

Sound money here meant price stability, and Sir Robert admitted

that 'there has been a practically continuous rise in the price level'. The

rise in prices of manufactures since 1949 had in fact been 40 per cent. The wage level had risen 70 per cent. Government pronouncements ever since 1944 had repeatedly insisted that wages ought not to rise more than in proportion to productivity. This formula, meaning in effect a stable price level of home production, embodies the incomes policy which is now professed by all parties.

But it has never been enforced through monetary policy. It has only

been enjoined by exhortation and persuasion. Incomes policy and monetary policy cannot be separated. Monetary policy includes all those measures by which the flow of money can be accelerated or retarded, and it is by them that the money value of a given structure of incomes is determined. If monetary policy is directed by some other criterion than the desired incomes policy, the incomes policy gives way to the other criterion. In particular, if monetary policy is directed to maintaining the money unit at a prescribed exchange parity, the level of incomes will adapt itself to this parity and not to the desired policy.