Abstract
The bare chronological facts leading to the adoption of cash planning have been narrated in Chapter 1. As the Treasury observed:
For the first decade or more of the survey system, working in constant prices fitted well with what was then seen as the main role of macroeconomic policy — demand management. The emphasis in the public expenditure surveys was on planning ‘real’ resources for public expenditure within the framework of real resource projections for the economy as a whole. But it became increasingly apparent that the use of constant prices also has significant disadvantages for planning and control. These disadvantages have become greater in recent years with the higher and more variable rates of inflation and with the increasing emphasis of successive Governments on the control of monetary conditions. It is the actual ‘cash spend’ by Government which must be considered in relation to, and made consistent with, the Government’s objectives for taxation, the borrowing requirement and the money supply.1
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Notes and References
HM Treasury, Economic Progress Report, no. 139, November 1981, p. 1.
The impression given by P. Mountfield, ‘Recent Developments in the Control of Public Expenditure in the United Kingdom’, Public Finance Quarterly, Fall 1983.
‘Classical’ economics, ‘classical’ model and ‘classical’ analysis are used here to refer to the pre-Keynesian state of affairs in economic understanding. The Classicists, extant in the nineteenth century, generally held that markets would prevent severe recession emerging. Some Classical economists, for example Malthus, supplemented this with an interest rate mechanism whereby investment demand was stimulated when savings increased and interest rates declined. Marshall is usually taken to be the last great Classical economist although he absorbed the newer marginalist ideas of Jevons and others.
Any standard textbook may be consulted. A clear treatment is given in D. G. Pierce and P. J. Tysome, Monetary Economics (London: Butterworths, 1985) 2nd edn. pp. 40–5.
M. Friedman, Essays in Positive Economics (The University of Chicago Press, 1953) and Milton Friedman’s Monetary Framework (The University of Chicago Press, 1976).
The foregoing has talked about ‘equilibrium’ rather than ‘full’ employment of resources. The latter is understood in the Classical system as any resources involuntarily unemployed would force down real wages until the market cleared.
A lucid exposition of the main ideas in New Classical analysis may be found in G. Davies, Governments Can Affect Employment (London: Employment Institute, 1985), Chapter 4. A more advanced treatment is C. L. F. Attfield, D. Demery and N. W. Duck Rational Expectations in Macroeconomics (Oxford: Basil Blackwell, 1985).
D. Begg, ‘The New Classical Macroeconomics’, The Economic Review May 1984, p. 28.
HM Treasury, ‘Monetary Policy and the Economy’, Economic Progress Report, no. 123, July 1980.
See also Treasury and Civil Service Committee, Session 1980/81, Monetary Policy (London: HMSO, 1981) HC 163-1, pp. xxx–xxxii. Evidence to this Committee expanded considerably on the exchange rate transmission mechanism.
Ibid, pp. xxxi–xxxii.
Had New Classical ideas been fully accepted the authorities would have engineered an immediate sharp cut in the money aggregates which, working through expectations, would have engendered (if the model was right) a rapid fall in the rate of nominal wage increases.
HM Treasury, The British Experiment Text of the Fifth Mais Lecture by the Rt. Hon. Nigel Lawson MP, Chancellor of the Exchequer, 18 June 1984. (Press Release).
See HM Treasury, Economic Progress Report, July 1980, for a discussion about the slight time trend in V.
Treasury evidence to the Treasury and Civil Service Committee, Monetary Policy, vol. II, Minutes of Evidence, p. 87, para. 10.
See HM Treasury, The Financial Statement and Budget Report 1986/87 London, 1986, HC 273, Tables 1.2 and 6.5.
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© 1987 Grahame Walshe
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Walshe, G. (1987). The Advent of Cash Planning. In: Planning Public Spending in the UK. Palgrave, London. https://doi.org/10.1007/978-1-349-18606-8_7
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