British Returns to Mercantilism
FEBRUARY 01, 1965 by GEORGE WINDER
Mr. Winder, formerly a Solicitor of the Supreme Court in New Zealand, is now farming in
The British government took another step back toward the ancient policy of mercantilism when last October it placed a 15 per cent surcharge upon all imported manufactured goods. This was against all modern trends and against the interests of G.A.T.T., the Common Market, the Commonwealth, and particularly damaging to the European Free Trade Association agreement to remove all tariffs against manufactured goods by 1966.
The Labour government has announced that this policy is only temporary, but no definite date is given for discarding it. There doubtless will be plenty of time to build up protected industries which soon acquire a vested interest in the tariffs that support them.
The object of this return to mercantilism is to save the pound, which the Exchange Equalization Account is sending out of the country in large quantities, thus depleting the country’s reserves.
The British government wishes to persuade foreigners to take her goods instead of her money. The only practical way of doing this is to keep the price of goods down so that others want to buy them; but the British today are unable to do this, for they are pursuing the same inflationary policy which has characterized their economy since World War II and which caused them to devalue the pound in 1949. This policy has earned for the economy the description, "stop-go."
First the Inflationary Boom, Then the Credit Squeeze
The Chancellors of the Exchequer who have presided over
The outstanding periods of depression since the war have been in 1947, 1949, 1952, 1957 (when the Bank Rate went to 7 per cent), 1961, and now when
During the summer of 1964 the pound lost more purchasing power than usual—that is to say, prices went up considerably, and in time to be noticed by the electors. At the same time, exports began to fall and imports increased. Imports always increase at this point of the cycle; an abundance of money to spend, and a fixed rate of exchange, result in a great demand for imported goods.
The extent of
The Labour government complains that the former government left a bill of £800 million to settle. This is the amount by which
Opening Pandora’s Box
In announcing this policy, the Labour government stirred up a hornets’ nest. The European Free Trade Association complained that
G.A.T.T. also complained and threatened retaliation, although a few members, notably the
Those who suffer most, however, are
Will It Solve the Problem?
But the question remains: Will this policy of taxing imported manufactured goods really work? Is it not attacking the symptom instead of getting at the cause of the trouble? Manufactured goods are themselves often the raw materials of the export industries, especially in
It looks as if the Labour government wants it both ways. It harbors the old mercantilist superstition that you can export and not import.
Inflation Must Be Curbed
The real cause of
Even if the Labour government’s policy does stop imports, the excess money will still circulate and press the price level upward. Either the Bank Rate has to be raised to bring about a credit squeeze,* or
Devaluation is an expedient the British government has avoided since 1949. It involves repudiation of many millions of pounds loaned in good faith to the government. But this is the only thing left for any government to do if it goes on inflating the currency. And a reversion to all the mercantilistic failures of the past will be of no avail against the eventual day of reckoning.
*Editor’s Note: The discount rate has been raised, of course, to 7 per cent from 5 per cent since Mr. Winder submitted his analysis.
Good as Gold
You have to choose as a voter between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And with due respect to these gentlemen I advise you… to vote for gold.
Attributed to George Bernard Shaw