How Important is it to Defeat Inflation? The Evidence

Abstract

We all know that the fundamental aim of Mrs Thatcher’s Government is to defeat inflation. The importance of this aim has been reiterated time and again by Government spokesmen, and was recently reaffirmed at the Conservative Party Conference in October. Moreover, it is clear that the pursuit of this end subordinates all others, including not only the traditional policy objective of ‘full’ employment, but also the particularly Conservative objective of reducing taxation. The overwhelming importance accredited to this aim derives from the belief that persistent inflation has lain at the root of Britain’s economic malaise, and that its defeat is a prerequisite for the achievement and maintenance of higher rates of real economic growth. Yet although the debate has raged about how best to defeat inflation, the basic premise has gone largely unchallenged.² Why should the defeat of inflation be so important? What is wrong with inflation anyway?

The Three Banks’ Review (1981), pp. 23–47.

The author gratefully acknowledges comments on an earlier draft of the paper from the editors of this review, and also from Michael Jankowski, Stephen Lofthouse, John McGregor, Professor Brian Reddaway and Tim Sweet. The article nevertheless, expresses a personal view and neither they, nor Capel-Cure Myers, are necessarily in agreement with it. The responsibility for any errors or omissions rests with the author.