The BBC has provided a reminder of the distant past, the early 1970s, when Ted Heath was Prime Minister and Mrs Thatcher was the Education Secretary. Despite a long feud between them after Mrs Thatcher’s rise to lead their party, Mrs Thatcher reportedly thought highly of Mr Heath.
‘…Baroness Thatcher eventually called her Tory predecessor “one of Britain’s greatest prime ministers”….’
Let’s see what the BBC has to say about that time:
Margaret Thatcher was Education Secretary in Mr Heath’s cabinet between 1970 and 1974. Although never close, they shared a commitment to free market policies.
As if. It is true that Mr Heath privatised Thomas Cook, a travel agency (it was nationalised during World War 2 after the German occupation of France as it had become French-owned by then), and some pubs in Carlisle. Yes, that’s right, the British Government had nationalised pubs around Carlisle during WW1, to ensure that munitions workers weren’t too drunk, and with the Kaiser safely in the past, the time was ripe for final privatisation of the remaining pubs came in 1971.
Perhaps every town should have a nationalised pub as a reminder of the ordeal of the drinkers of Carlisle, which effectively lasted a drinker’s lifetime. At a relatively small cost, we could have a live reminder of nationalisation in every town.
From 1972, the government began to change course.
A strike by the miners threatened coal supplies to power stations.
War in the Middle East in 1973 led to a sharp rise in oil prices, feeding inflation.
Inflation, that mysterious dragon that is scared off by high interest rates but which feeds on high oil prices, so the collapse of Bretton Woods and Nixon’s repudiation of the dollar/gold link had nothing to do with inflation, nor did wild printing of money.
Here is a pub price list from the time of decimalisation, 30th November 1970: A pint of beer in the same pub now, even with gentrification, costs not 12 new pence but something in the region of £3.60p, a 30-fold price increase in nominal terms.
However, what did Mr Heath, one-time friend of Deng and Saddam, decide to do in the face of inflation, and demands for pay rises? Reminder, a great many people worked in nationalised industries, and their pay rates were ultimately political decisions. Furthermore, going on strike (i.e. refusing to work) was often seen as the way to muscle a pay rise out of the government, rather than a route to bankruptcy.
Heath, memories of wartime comradeship still fresh, did not want a confrontation with workers, nor, having grown up during the depression of the 1930s, was he willing to see unemployment rise in order to curb inflation.
Instead, he re-introduced government control of prices and pay.
So what happens if you control prices and pay? We are not told. Is it too obvious to need to be said, or are there still people who deny that price controls can lead to distortions? Why not look at Venezuela for a grim current example? (it’s OK, he’s doing it to curb inflation).
And this ‘trade-off’ between unemployment and inflation? That other mysterious relationship that is simply assumed to exist? How about seeing if a market can clear without distortions?
And note, there was no dispute at this point between Mr Heath and Mrs Thatcher over Europe, Mrs Thatcher was completely for membership of the European Economic Community.
In some ways, we have come a long way from the absurdity of the political consensus of the 1970s, yet the State still looms large as does the passing off of old economic fallacies as realities.
And what is Mrs Thatcher reported to have said of that time?
“In the years since, he and I have not always agreed on every political thing, but I was, and I’m proud to have been, a member of his government …”
Quite how Mrs Thatcher got her reputation is a mystery to me, but not how Roy Orbison put it.
Maggie got her reputation in the 80s by not doing what the establishment (Tory and otherwise) would have done. (1) refuse to repeat economic U-turn idiocy of Heath (2) send fleet, not negotiators, to deal with Argentine invaders (3) defeat unions, especially miners.
While she was not above making politic statements at times, her real opinion of Ted – and his of her – are I think well known. Heath never forgave her for demonstrating how it should have been done.
Niall,
Yes, I see. Perhaps her determination to be unlike Heath actually made her reputation, so he inadvertently ‘made’ her by being a counter-example.
It was Admiral Sir Henry Leach, First Sea Lord who told her that the UK must send a fleet, she was certainly cautious about the Falklands War, and it was the perception of her and the UK’s weakness that led to it. The miners in many ways defeated themselves by their vicious and ludicrous tactics and timings, and getting their assets sequestrated by the courts for breaching an injunction, and taking money from people like Gaddafi and the Soviets.
Mr. Ed,
For a while it was believed there was a trade-off between inflation and unemployment.
In 1958 A.W. Phillips, an economist, published a paper. Based on a study of British inflation between 1861 and 1957, he concluded there was a trade-off between inflation and unemployment. I.e., if you were wiling to accept higher inflation, you could have lower unemployment. The theory became known as the Phillips Curve.
It was eagerly adopted by the Kennedy administration in the early 1960s and, for a while, seemed to work. However it gradually broke down as the 1960s progressed, before breaking down completely in the 1970s, a decade characterised by both high unemployment and high inflation. The reasons for the breakdown are disputed, but the most likely one is that people modified their behaviour, in anticipation of higher inflation.
Unfortunately, the Phillips Curve, thoroughly discredited as it may be, is nonetheless still locked in as official US policy thanks to the idiotic “Humphrey-Hawkins Full Employment Act” (the name alone should tell you all you need to know about its inherent economic wisdom). That is the law which gave the Federal Reserve its “dual mandate” of maximizing employment while minimizing inflation, a circle which it has yet to square. Another legacy of the disastrous Carter era (and of the fundamental irrationality of Keynesian economics).
Belgium, I think. Not France
Can you explain to me what the fractions represent in front of the beer prices?
Alasdair 2/2 is 26 old pence in shillings then pence, 1 shilling = 12 old pence or 1/20 of £1, and rounded is 12 pence in new pence i.e 12% of £1. so the price was two shillings and two old pence in the base 240 pound sterling, i.e one shilling was 1/20 of £1 (5p now but 12p then), so 2/2 is (2×12) + (2) = 26 old pence, 26/240 = 0.108333 of £1.
In pre-decimalisation money, people might say ‘two and six’ for 2/6 or 30 old pence, 30/240 = 12.5 pence in new money, but was a denomination of coin called ‘half a crown’, which would have been about the price of a pint of beer in 1970.
Wage and price controls, wild government spending, “easy money” Keynesian monetary policy, and (in the end) three-day-weeks and other rationing.
That was the “free market” Edward Heath.
The scary thing is, by the standards of the 70s, that *was* free-market.
If there is a recession sometime in the next few years, we can be assured that the finger will be pointed at Brexit. So it would be as well to dust off all those 1970s statistics about what happened when Britain went into the EEC. I looked up inflation. In the 5 years before we went into the EEC it averaged 7.0% a year. In the 5 years after we went in, it averaged 16.3%, more than doubling prices in just five years. We also dived into a stock market crash and a nasty recession.
Now some may claim that these things were not caused by the UK going into the EEC. Which is fine, just so long as they’re happy to repeat the caveat now.
@Lee Moore
> Now some may claim that these things were not caused by the UK going into the EEC. Which is fine, just so long as they’re happy to repeat the caveat now.
I think you are missing an important thing here. The purpose of government statistics is to prove the already predetermined idea, not to seek out the truth. Sheesh, it is almost as if “Yes Minister” had never been made.
On this occasion, Fraser, I’m not muttering about government statistics being made up nonsense, designed to toe the party line (though they mostly are.)
My point has to do with the propagandaspiel of correlation and cause. We know, even more certainly than night follows day, that any economic bad news in the next five years will be blamed on Brexit. I’m merely pointing out that when that happens there is a ready made rejoinder about the horrors that EEC membership brought to Britain in the 1970s. The dark side will – quite rightly – reply that correlation (an economic disaster in the 1970s) doth not causation (joining the EEC) make. And the dark side having kindly made that point, there will be nothing for the forces of light to do but smile and nod, and say “we quite agree.”
Incidentally I have always disbelieved the claims of the EU puffers that the EU is responsible for peace in Europe. Peace was really caused by the invention of xerographic copiers. This happened at about the same time as the EEC got started. Peace has reigned in Europe ever since. QED.
On govt statistics, I recollect Alec Cairncross, chief economic adviser to the British government in the 1960s, saying (many years later) apropos of the balance of payments ‘crisis’: ‘we opened a cupboard and a lot of exports fell out’. I.e. the situation wasn’t as bad as it was made out to be – and it was talked up as a matter of party politics – because the govt stats were woefully unreliable, not least because the methods of calculation had changed (the exports temporarily in the cupboard)in such a way that they delayed/underplayed actual exports. Have things improved?
Schrodinger’s Dog, Laird – They were still teaching the Phillips Curve as fact earlier this century in Australian high schools. 2 years of economics classes, and nobody ever once mentioned the name “Friedman”. “Keynes”, on the other hand…
Lee Moore – you are perhaps underestimating the ability of “the dark side” to hold two contradictory opinions at the same time.
Re: Maggie Thatcher – she was a politician, after all…
“…with the Kaiser safely in the past, the time was ripe for final privatisation of the remaining pubs came in 1971.”
Wasn’t income tax introduced to raise money to fight Napoleon? I think that a reasonable argument can be made that the problem of Napoleon is sorted now.
I think that a reasonable argument can be made that the problem of Napoleon is sorted now.
Far from it. The EU is really Napoleonism without the rather natty uniforms.
The late 1970s, whatever the reality, Britain did seem to be about to implode, strict exchange controls and holiday allowances at GBP 50.00, the USSR to take over Europe, thuggism become the norm.
Perhaps the Great British Public recognised that and voted for sanity?
It took over a decade for Thatcher to be destroyed and the Conservative Party to become the compromised left-orientated party of former years, at which time that same public voted for someone who seemed to be, in truth, more conservative, Tony Blair. Neat trick.
I guess Brexit is another sort of Thatcher moment?
I don’t think you can equate Thatcher winning the GE with Brexit, because assuming the latter actually occurs the medium- and long- term benefits aren’t in serious doubt. All the objections the Remainders came up with are of the ‘oogidy-boogidy’ kind that would be more at home in the opening 5 minutes of an episode of Scooby Doo.
But the GE in 1979 where Thatcher gained power (as I remember it) really was a matter of the UK electorate getting a ‘pig in a poke’. There was no reason at the time to anticipate that she would transform the nation in the manner and to the extent she and her administration did.
Coming from a solidly 1950’s Labour unionite family, complete with members who were officers in the POEU, I was reliably informed that at least six of the seven seals would break and the Four Riders would be saddling up and heading for London, despite Mrs. Thatcher being a relatively unknown quantity.
I think the author of the linked piece on Carlisle pubs must have a different dictionary to me, viz:
On liberty:
“[The Board] further controlled the drinking habits of individuals, without resorting to restricting personal liberty. The Board acted quickly, closing nearly 40% of public houses by 1917 and revoking all off-sales licenses. All advertising referring to alcohol was illegal and a ban was placed on the display of liquor bottles in windows.”
On Success:
“By the end of the war, the government’s national measures were proving successful. In addition to measures introduced under the Defence of the Realm Act, the government also significantly increased the level of tax on alcohol. In 1918 a bottle of whisky cost £1, five times what it had cost before the outbreak of war. This helped to more than halve the consumption of whisky during this period.”
Success if tax revenue’s the goal, not so much if reducing consumption: 400% price increase for 50% reduction?
Nemo: re “On Success“, it seems to me that this was a win on both fronts. If that 400% price increase was all due to taxes (my guess is that it wasn’t, and there was probably some element of supply/demand shifting going on due to wartime shortages, and perhaps even a little monetary inflation), even with a 50% decline in sales the government’s tax revenues more than quadrupled (do the math). And the incidence of drunkenness probably declined appreciably, surely a governmental objective at all times but especially during war. So I’d call that a win/win, wouldn’t you?
A brief google indicates that the general price level roughly doubled in Britain during WW1. So half the price increase in the water of life would have been inflation.
Later, with better technology, we learned how to double the price level in five years without the need for a world war. Elect Ted Heath.
Isn’t technology wonderful?
But your math’s not quite right, Lee. Only a quarter of the price increase would have been due to inflation. (Prices went from 20 to 100, but of that 80 increase only 20 is due to inflation.) All the rest is tax, and the government made out quite well even if total sales were cut in half.
Laird, I fully appreciate your point, which is why I didn’t ascribe the 400% price increase to tax, though the article comes pretty close to saying so. Were the inflation figures you saw tax-adjusted?
And no, I most definitely would not describe it as a win-win, primarily because I’m not an authoritarian parasite.
Nemo, I got that inflation figure from Lee Moore’s post just above my second one. Didn’t verify it or check for tax adjustment; just took it at face value.
As to your last sentence, obviously I was describing it as
“win-win” from the perspective of an authoritarian parasite. I guess it is “lose-lose” from the perspective of a miserly drunk. Want to go halves?
Halves? Are you not well?
I’m not even in Britain at the mo’, and was never a big spirits drinker anyway, though the thought of a dram of Talisker after a day’s mountaineering is making me quite nostalgic.
My inflation figures were just the RPI courtesy of this :
http://swanlowpark.co.uk/rpiannual.jsp
RPI end 1972 = 22.5
5 years later = 47.8
Price level after 5 years in EEC = 212.4% of price level immediately before joining.
Sorry, wrong question
WW1 figures were got from here
https://www.measuringworth.com/ppoweruk/
Stick in 1914 and 1919 and you get just over a doubling
Thanks for that Lee. At a cursory glance, the RPI method used appears to include taxation, thus a 400% price increase would skew the 100% inflation figure, so I think we can pretty much ignore general inflation and treat the 400% as being all tax. Thank heavens they immediately rescinded the extra tax on cessation of hostilities, and acknowledged the individual as sovereign in their own body.
Sorry, Nemo, I don’t follow you. The inflation figures are general figures for all goods and services not just whisky. A massive tax on whisky is not going to affect the general price level much – unless there’s an equally massive tax on everything else.
RPI will usually include sales taxes (though God knows what they’re using for statistics from a hundred years ago) but I seriously doubt that the doubling of the price level was explained simply by sales taxes.
Only that the 400% will affect the 100% and so there’s something of a circular argument here, if trying to account for the proportion of the 400% attributed to general inflation, though as you say the extent will depend on the relative size to the basket of goods. Nor do we know how closely the pre-tax price of whisky or its ingredients matches the RPI.
The basic point being we can’t be sure general inflation made any significant contribution to the 400% increase, so I’m going to stick with my outrageous bias and say it’s all due to our betters helping themselves – for our own good, of course!
A further little google turns this up from
National Debt in Britain 1850-1930 Volume 4 page 224
1913-14 – retail price of a bottle of spirits 4 shillings , including 1 shilling and eleven pence halfpenny of tax (say 2 bob)
1918-19 – retail price of a bottle of spirits 9 shillings , including 3 shillings and sixpence of tax
So that would equate to an ex tax price increase from 2 bob to 5 and six pence, and a tax increase from 2 bob a bottle to 3 and sixpence. So as a percentage we actually have a fall the tax rate !
Page 224 shows a rise to 10/6 retail inc 5/10 tax in 1919/20, and 12/6 retail inc 8/5 ½ tax from 1920/21 onwards.
Lee, how certain can we be though that tax is including duty?
And what’s in their spirits? 9s a bottle in 1918, when the linked blog says whisky was £1 a bottle in that year.
We can be very sure that tax includes duty as tax is my word – the word they use is duty ! I can’t think what other taxes there might have been. VAT was certainly not around and I’m not aware of any sales tax.
The reference is simply to spirits. I don’t think excise duties have ever distinguished between different types of spirits. There is only one reference to any particular spirit in that section, where they talk about whether an ordinary chap would drink enough whisky to pay an appreciable amount of duty, and conclude that he might. Whisky would obviously have been much more common than brandy, but where it would have come in the pecking order against gin I don’t know. I think we might be sceptical about the £1 a bottle figure from the blog, as the figures I’m quoting seem to come from official sources.
But if it was nine bob for a bottle of gin, and £1 for a bottle of whisky, with 3/6 duty on either, then the duty is an even smaller percentage of the cost of a bottle of whisky. But I suspect it was nine bob for a bottle of whisky.
But feel free to google the same thing and browse.