107 Albert Bridge Road, S.W.11.—Is in favour of stabilising the price level and therefore does not believe the Treasury Minute should be abrogated at present (see 1/192), as it is a defence against inflation.
(Printed letter-head of the London School of Economics, which Dalton has enclosed in square brackets.)
107 Albert Bridge Road, S.W.11.
Dear Pethick Lawrence,
I should like a talk with you sometime before the next Finance Committee meeting. I regret to find that I shall again have to leave early, as I have an engagement at 6.30 on that day to dine with Charles Latham and the London Accountants.
Shortly, my view is the following.
I am in favour of stabilising the price level now & in the near future, though, looking further ahead, I hesitate to commit myself to a definite policy. Many factors seem to me to complicate the distant view.
I am more afraid of inflation in the near future than, I think, you are. I want stabilisation as a defence against the F.B.I., no less than against the old-fashioned deflationist authorities, who are, I think, the weaker of the two possible disturbers of the price level.
I don’t, therefore, feel happy about abrogating the Treasury Minute at this stage. It is our only real defence against inflation at present.
Nor am I so certain as, I think, you are that the Minute will operate to check a healthy, as distinct from a hectic & inflationist, trade revival in the near future.
Keynes said a few months ago at a Committee, of which I am a member, that he thought there was a good deal of margin in the situation, even with the Treasury Minute unchanged. In addition to the margin in the Currency Note Issue, he attached importance to the prospect, with reviving trade, of a more rapid circulation of bank deposits. I would add another factor, pointing in the same direction, namely the prospect of an increase in trade credits (between business men,—I don’t mean bank credits), as confidence grows.
Further, our situation may be eased by a rise in American prices, sufficient to restore the pre-war parity of exchange & lead to British imports of American gold. This has been long in coming, but it may come quickly, if the Federal Reserve Board’s stabilising policy gives way before the strong forces opposed to it.
My present feeling, therefore, is to pronounce in favour of a stable price level as our immediate objective, without committing ourselves to anything very general in the way of economic principles, & not to mention explicitly the Treasury Minute. Nor would I say that a future rise in bank rate is undesirable. If prices continue to rise as they have been doing lately, it may be desirable to raise bank rate in order to secure stability. My belief, (in opposition to that of others, I hear) is that you can stabilise any level of price you choose, & that there is no causal relation between the level chosen & the volume of unemployment.
If, for the time being, we could get the Govt to agree to stabilisation of the price level as a principle, and, implicitly, to whatever measures may be required to secure it, I should feel satisfied.
But I wouldn’t meet trouble half way, or give any encouragement to profiteers, by proclaiming in advance that more money shall be printed than the Treasury Minute allows.