downloadFrom now on we hope to run regular views of books of some political significance. Some of these will be right-wing books that have had an impact or express views which have ‘taken off’ in the capitalist class; others will be books from left-wing writers and activists; others again will be important Marxist texts. We also hope to have more book – and film – reviews in general. If you would like to write a book or film review contact us at

We’re opening with a review written about 25 years ago by one of the friends of this blog; although the ideas and authors of this book have become somewhat passe, it is still a book that presents ideas the left needs to know and be able to imagescritique. It’s also interesting to think abut how monetarist theory worked out in practice rather than merely in the heads of the Friedmans. Hardly glowingly!

Milton and Rose Friedman, Free to Choose, Secker & Warburg, 1980. Reviewed by Tony Norfield.

Ever since the Tory government came to power a year ago, ‘monetarism’ has been all the rage. Thatcher is for it: she proclaims that Britain must have ‘sound money’. During the election campaign of 1979 she took to tearing up pound notes in front of television cameras to show the value of money had halved under Labour. Now he’s back in opposition, former Labour chancellor Denis Healey is against the monetarist doctrine. In a parliamentary debate on the steel strike, he berated industry minister Keith Joseph’s rigid cash limits on BSC as ‘punk monetarism’.

A comprehensive statement of the monetarists’ economic and political views by Chicago professor Milton Friedman and his wife gives us the opportunity to assess the Tory government’s ‘monetarist’ policies.

Crisp as a ten bob note

With all the fuss about Friedman – he had a peak time series on television to propagate his views – you might think he’s saying something new. But Free to Choose – a ‘personal statement’ – is only a codification of the arguments he’s been turning out for years.

What is new is that the international bourgeoisie now needs Friedman’s theories. Cast out by Keynesian economists in the ‘cheap money’ years of the post-war boom, Friedman has at last won fame – and fortune – in the ‘tight money’ years of the recession. In 1976 his efforts were rewarded with the Nobel Prize for Economics.

Monetarist theory brings together all of the reactionary and idiotic notions of the ruling class. The monetarists’ central tenet is that a capitalist economy in which free competition rules can provide full employment and rising living standards. They cntrast an idealised view of capitalism in its progressive phase with today’s stagnant, state-assisted economies.

For monetarists, the whole problem is that the state plays too large a part in the economy. State expenditure and taxation, borrowing and lax monetary policies are their explanations for unemployment, inflation and capitalism’s slide into ruin. If the state would only cut taxation, slash expenditure and gain control of the money supply, everything would be alright.

‘Greedy’ unions would find that, when firms cannot find the money to pay, ‘excessive’ wage demands price workers out of a job. Capitaists, liberated from the burden of taxation, would have their incentive to invest rekindled. Consumers would be able to exercise the ‘freedom to choose’ in the market once nationalised industries give way to private capitalist firms.

All very simple. But monetarists get reality back to front. State spending, ‘excessive’ taxation, borrowing and inflation are symptoms of the crisis not its cause. Government intervention in the economy has increased steadily over the years in response to the problems of private capital. The state nationalised industries capitalists could no longer run themselves; it boosted expenditure and provided subsidies and cheap credit. During the post-war period state intervention staved off the risk of recession. However by the ‘seventies these ‘Keynesian’ policies were no longer working.

The state was confronted with the collapse of profitability. The real rate of profit in British industry fell from more than 12% in the early ‘sixties to 3.5% in 1975 (Bank of England Quarterly Bulletin, June 1979). Private capital was in no position to respond to the government’s Keynesian policies. It simply used ready credit and government-stimulated demand to raise prices, in a desperate attempt to restore profitability. Inflation got worse and unemployment rose.

State intervention postponed the crisis: accumulation continued – but profitability fell further. By the mid ‘seventies the state that had been trying to bale the capitalists out increasingly seemed to be the cause of all their problems. Inflation and unemployment, all the economic woes of bankrupt capitalism, were put down to government policies. The government sought new inspiration: Keynes gave way to Friedman.

It’s only money

How are monetarists going to solve the crisis? Nobody takes seriously Friedman’s adulation of Meiji Japan, the eighteenth century England of Adam Smith, the USA of Thomas Jefferson or contemporary Hong Kong as examples of flourishing capitalism which should be copied today. Even Keith Jospeh, who shares Friedman’s hankering after a lost capitalist golden age, realises that the state must play a substantial role in the economy.

What the bourgeoisie takes seriously about monetarism is its role in restoring ‘economic discipline’. If the government can succeed in tightly controlling the supply of money and credit, it can force down living standards. Monetarist policies mean more public spending cuts and encourage employers to resist wage demands. Tight money helps to rationalise industry. Weaker firms, hit by falling demand and unable to pay their overheads, go bankrupt; the rest are obliged to cut back production and push through redundancies. Money is what’s needed to make British capitalism profitable.

Enter Denis the monetarist

Monetarism made its debut under the last Labour government. It was Healy who implemented the most savage public spending cuts of the post-war period, who first introduced cash limits and targets for the growth of the money supply and the Public Sector Borrowing Requirement. Under Labour, the PSBR became a government fetish and a term familiar to the public.

Labour’s policies were successful for the bourgeoisie thanks to the collaboration of the trade union bureaucracy in the Social Contract. By 1978 inflation had been brought down and wages and living standards had been reduced with minimal opposition. Public spending and the burden of taxes on the bourgeoisie had been curbed. Labour created a temporary respite for British capitalism – but it did not solve the crisis. Industrial employment continued to fall and investment did not recover. Profitability was still too low, and the improved fortunes of the economy rested on North Sea oil reserves and a slight upturn in world trade.

Labour was not monetarist enough. The worsened climate for capital accumulation in 1979, and Labour’s failure to hold workers to its five percent wage limit, meant that more drastic measures were required.

Over to you, Geoffrey

So in came the Tories – in the middle of the worst crisis since 1975. In the first nine months of the Thatcher regime 500,000 redundancies were announced in industry (Investors Chronicle, Feb 22, 1980). Since September last year, unemployment has risen to record levels. The Department of Industry expects manufacturing investment to fall by up to 10 percent this year, and the Confederation of British Industry (CBI) predicts an all-time low for industrial profitability.

But the Tories are under no illusion that monetarism alone – even with record interest rates and drastic public spending cuts – is going to solve their problems. Thatcher’s “first priority is to restore sound money and conquer inflation” because the competitiveness of British industry has declined by 60 percent since 1976. However, she adds, “we do not pretend that this alone will be sufficient to revive our economy, but we know that it is the essential precondition” (the Guardian, Feb 29, 1980). Workers at British Steel and British Leyland know that other preconditions are productivity deals, mass redundancies, cuts in real wages and attacks on trade union rights.

But it’s not easy being a Friedmanite in a world recession. Howe’s monetarist incantations since taking office could not prevent the money supply growing faster than planned and the PSBR exxpanding out of control. Private companies, hit by falling profitability, rushed to the banks for money to pay their bills. The Minimum Lending Rate of 17 percent had barely any effect in cutting their demand for bank loans (Financial Times, April 18, 1980). Public sector borrowing shot up to around ₤9 billion in 1980, reflecting the effects of inflation and higher interest rates.

The Tories have already been forced to make a U-turn. And they have made it over monetary policy. The Bank of England released special deposits to the clearing banks in January and has since doled out ₤1 billion to ease their cash shortage. The government dared not go too far in pulling away the prop of credit that supports crisis-ridden capitalist industry. The CBI has already forecast that companies outside the North Sea oil sector will need to borrow ₤7 billion to stay in business this year.

The monetarist fad reveals the crisis facing the ruling class today. It presides over an economy which it can neither understand nor control. But this doesn’t weaken the bourgeoisie’s instinctive response: to attack the working class. If it is to restore profitability to British capitalism, the bourgeoisie has no choice but to reduce social security benefits and public sector jobs, to implement redundancies and cut wages.

The monetary crisis is simply the outward manifestation of of the crisis of capitalist production. Friedman’s claptrap is the packaging for a bourgeois offensive on the working class. Behind all his childish and backward-looking rambings about the freedom of the individual and the evils of state intervention lies the imperative of solving the crisis at workers’ expense.

Tony’s article first appeared in the June/July 1980 of the British Marxist review the next step.

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