Thatcherism: What went wrong?
‘“Economics is the method; the object is to change the soul,” Margaret Thatcher declared in 1981, revealing the way in which Thatcherism for her was always about transforming values rather than simply GDP,’ writes Eliza Filby in the Guardian. Filby has also recently published a book about Mrs T., called “God & Mrs Thatcher – The Battle for Britain’s Soul”.
It is clear that in this goal of “changing the soul”, the former prime minister failed (which she herself admitted, apparently: “I cut taxes and I thought we would get a giving society, and we haven’t”). However, her basic idea was not completely off the mark, for the conflict between individual freedom and serfdom is pre-eminently a religious one.
I haven’t read Filby’s book, and if her article is anything to go by, I probably won’t. Filby is not an economist but an historian with a degree from Durham. Predictably, she flunks on the economic causes of Thatcher’s failure.
‘Thatcherism laid the foundations for a culture in which individualism and self-reliance could thrive, but ultimately it created a culture in which only selfishness and excess were rewarded. Thatcher liked to quote John Wesley’s mantra, “Earn all you can, save all you can and give all you can,” and yet it was only ever the first instruction that was sufficiently encouraged.’
Yes Eliza, but why? Why was ‘saving’ not encouraged? And why not ‘giving’ either?
Filby suggests: “Thatcher’s naivety was perhaps her greatest flaw: her understanding of capitalism for example was more a provincial than global one; Alf Roberts behind the counter of his grocery shop rather than the yuppie on the trading floor was the image of market transaction in her mind. It is little wonder then that she could not understand the world she had created, where the nation’s homes and household budgets were entwined with a global financial services sector that made up an ever-growing percentage of Britain’s GDP, largely internationally owned and in the hands of speculators concerned with short-term gain and distant from the deals and lives they were gambling on. In private Thatcher used to rage against bankers and their bonuses. Why did they not follow the example of those in the army she would cry, which in her view was the model demonstration of responsibility to one’s fellow man.”
Laws of economics do not differ with the size of the economy. 1 + 1 = 2 whether you are adding units, hundreds, thousands or quadrillions (as we soon will be). At a lower price, demand rises, whatever the numbers. So Filby’s wrong here. But what was the problem? Why did Thatcher’s ‘attempt to change the soul’ fail? Why did Thatcherism create an ‘earn all you can’ culture without nurturing a ‘save all you can, give all you can’ culture? It’s important to know, because that would have indeed resulted in a society in dynamic balance, withering away the nanny-police-state. It’s not that the soul (or, if you prefer, the mind) can’t be changed. The left-wing neo-puritan PC-Frankfurt-School crowd have been doing this to a great many people for the past 50 years or so.
It mostly comes down to monetary policy. (I’ll briefly mention the other causes further below.) Thatcher believed in monetarism. Like most monetarists, she thought this was the antithesis and antidote to Keynesianism, which they (correctly) saw as a half way house and slippery slope towards socialism. However, they overlooked that monetarism, just as Keynesianism, is a variant of government intervention. Only they thought it was ‘better’ government intervention. Keynesianism says: when the economy is flagging, pump (new) money into demand – e.g. welfare (to work) programs. Then, demand will create supply. Monetarism says: When the economy is flagging, pump (new) money into supply. Then, supply will create demand. So, both have very similar prescriptions: shovel money around the whole economy, take it away from A and give it to B, and add new dough when the old proves too sticky. There are only two significant differences between the two: One is the direction of the shovelling. The other is that monetarism warns that the amount of new money must not exceed the growth of production in an economy, otherwise inflation will result.
In itself, this last monetarist recommendation is as correct as it is useless: If the nominal amount of new money added into a system is greater than the real value that was added in the same time frame, the monetary price of everything has to rise eventually – OK. However, when trying to put this into practice, an unsolvable problem arises: At some point the decision will have to be made how much more money to produce (or rather, how much the commercial banks will be allowed to expand credit). At any such given point it is sheer impossible to measure with sufficient exactitude how much more value actually has been added to the economy. It’s hubris to presume this could be done.
Another, more fundamental contention against monetarism (let alone Keynesianism) is this: If the economy were allowed to add real value WITHOUT an accompanying artificial money production, the price level will necessarily fall. If nominal incomes remain unchanged, real incomes then rise. Wouldn’t that be great? This is what happened, more or less, during most of 19th century Europe and North America, after Waterloo. A real peace dividend. The gold standard (not perfect, but miles better than the no-standard we’ve got today) limited the ability of governments and their cronies to produce money out of nothing. Real productivity outpaced nominal money making. (The US civil war was an exception to the rule.) Monetarists counter with the spectre of deflation. This is another kettle of fish which I won’t go into today. But they’re wrong. “Austrian” economics shows the way: if the economy flags, leave it alone, allow the bad investments to be liquidated and allow the good investments to pick up the slack. Then downturns may be sharp, but will be short. Like the one in the US 1921, which no one remembers.
Thatcherism went wrong mainly because it ignored Austrianism and chose to keep in place a basic flaw of monetary policy: A policy of managing, or centrally planning, the money supply. Central command knows best. Thatcherism was supposed to be all about market forces. Liberating them. But money, the circulating life blood of the economy, was to be kept “ring fenced” out of the market – a massive contradiction which would soon bear evil fruit.
It is easy to see why this happened. Huge, monstrously strong vested interests would not have allowed anything other. Had Thatcher seriously attempted – assuming she even understood the relevance – to open up a market of private currencies as F.A. Hayek suggested, she would have been gone before you could say Malvinas, let alone Jack Robinson. The sad truth is that by the late 1970s Britain had long become a US satrapy and was no longer sovereign, although Thatcher long pretended that it was (maybe even to herself). And that is why ‘the yuppie on the trading floor’ thrived so much more under her government than the grocery shops. As opposed to the common-or-garden lefty I have nothing against ‘yuppies on the trading floor’ and ‘speculators’ as such. They have an indispensible role to play in the (re-)evaluation and (re-)allocation of resources. But they were the beneficiaries of an unbalanced economy, because they were closer to the source of the new money than most other people. In previous decades, other special interest groups were the beneficiaries of a differently unbalanced economy: trade unions and thuggish bureaucrats. The latter are still very much in the money, by the way.
There were two other major areas where Thatcher failed tragically to make an impact: education and culture. Ever since the socialists finally lost the rational argument against free marketers, ca. 1890 that is, they concentrated their efforts on bending our minds (or, if you want, ‘souls’). One way to do that was to capture our emotions via the media. Songs, plays, novels, films, radio and then the jackpot: television. The baddy is always the capitalist. The other way was the systematic erosion of our ability to think, by a) forcing everyone into school when they could have already been productive and learning something useful on the job, working themselves up, and b) then forcing the captive impressionable audience to memorise more and more useless or even damaging stuff. Now we are all bleating: Four legs good, two legs bad. State good, business bad. State-reliance good, self-reliance stupid.
Back to monetary policy. Monetarism, like Keynesianism, does nothing to encourage ‘saving’ and (private charitable) ‘giving’. In fact, they discourage it. Because under centrally managed monetary policy of any flavour, money will inevitably seem to be growing on trees. There for the picking. All you need to do is vote for, or better still, know personally, the ‘right’ people. There is an eminently Christian argument against central banking. “Austrian” economist Guido Hülsmann has written extensively about this in his book “The Ethics of Money Production”. Central banking, in combination with unbacked fractional reserve banking, is institutionalised counterfeiting. This runs counter to the Eighth Commandment: ‘You shall not bear false witness against your neighbour’. Hülsmann also points to various other places in the Old Testament (e.g. Leviticus, Deuteronomy and Proverbs) and which specifically forbid falsifying ‘measures of length and weight’ which of course includes money.
Thatcher saw the tenet of Christianity as being not “love”, but “choice”. This fits in with what Gary North teaches about the “three basic religions”: Dominion religion (accepting the creator as ruler of the world, adhering to his rules, as deviating from them has, over time, negative consequences, and keeping to them leads, over time, to blessings for individuals, families and nations); power religion (some powerful people create arbitrary laws that suit them, enforce them in a way that suits them, and allow a system of worship to emerge with themselves and their heirs at the top of the hierarchy – a ruling class); thirdly escapist religion which accepts neither another man nor a supernatural creator as Lord, which in other words does not want to choose between the other two but ends up following the currently more dominant one of those, whichever it is.
It seems that Thatcher understood the religious nature of the life-and-death conflict with socialism (the current form of power religion) we are in – at least, basically. She failed because she didn’t, or couldn’t, apply this creed with the necessary consistency in monetary, educational and cultural policy. But leftists, in love as they are with power, i.e. worshippers of the power religion, will not even begin to look at this cause. Instead, they want to say: ‘Look, Thatcher tried to create a “giving society” by cutting taxes. She failed. Therefore it is wrong to cut taxes. And it is right to leave the “giving” to the state. “Saving”? What’s that?’ That seems to be the essence of Eliza Filby’s article.
Thatcher was right to want to ‘change the soul’. She was right to think that economics is the proper vehicle. But it is not the only one, and even it will get you nowhere if you read the wrong instructions.