In Place of Fear, a book of reflections by Aneurin Bevan, has often been overlooked for what it really is, i.e. a handbook for running a social democracy. Most people seem to assume mistakenly that the title refers just to the NHS, whereas the chapter ‘A Free Health Service’ is just 24 pages in a 203-page book. The rest of the book is a deeply insightful analysis of the post-World War II world and a prescription for Britain’s recovery by instituting social democratic practices in the UK.
Bevan’s grasp of the economics of a social democracy was profound. He accepted the reality of a mixed economy, stating that that is what the people in the West would prefer, but nevertheless was clear that the conflicting social forces were poverty, property and democracy: “Among them no rest is possible”. The balancing of these is a dilemma that remains today. This, Bevan writes, is the responsibility of the legislature, by efficacious state action and judicious collective policies.
In possibly the most important chapters on macroeconomics (chapters 2 and 4) Bevan shows his scorn for British businessmen in times of crisis. He compares them unfavourably with those in the USA:
“In Britain the businessman is mobilised. In the States he mobilises.”
The impact of nationalisation
If the Labour government had not nationalised some key industries, then the continuing insufficient investment would have damaged even more an already unproductive industrial sector, e.g. railways and steel. Labour revived them and invested in the infrastructure needed, and production began to rise steeply. For instance, in 1952 steel production had risen by 50% and oil production by 16 million tons more than in 1939. In 1950, Britain stood third out of the Western Europeans in industrial production and first in agricultural production and had doubled her exports.
All this went on while Britain was broke. The USA had suddenly terminated the lend-lease agreement in 1945 that the country had relied on to keep its military and its empire afloat. Keynes had to negotiate a $4bn loan from the USA, but there were conditions: US loans became conditional upon progress towards sterling becoming fully convertible into US dollars, thereby aiding US trade. The $2.7bn Marshall Plan contribution, again largely went to propping up its “world power” role in 1948, and to the housing programme, as opposed to renewing the public infrastructure.
The global player funding was a mistake, as Keynes pointed out. In July 1949 the pound fell from $4.03 to the dollar to $2.80. This (and paying for the Korean War) incurred public spending cuts, including in the NHS, e.g. charging for prescriptions, dental services and spectacles. Aneurin Bevan resigned over the charges. Nevertheless, the NHS and National Insurance continued to be implemented, as did the social housing programme.
The Keynesian model
This all took place largely under Keynesian economic thinking, where demand was the driver, not money supply. This was part of the post-war consensus, which accepted some degree of nationalisation, promoted strong trade unions, regulation, high graduated taxes and a generous welfare state.
What Bevan was unaware of when his book was first published in 1952 was that the economic system of that time underpinned the socially progressive policies that informed the post-war consensus. They were in sync; in other words, there was no major political argument against the principles in the Beveridge Report. Hence, the succeeding Conservative government kept the housing programme going, supported the NHS and did not quibble over institutions like British Rail.
What a different world!
‘A fairer, more just society’
When I first arrived in Britain from Africa in 1965 people complained about, but accepted, high taxes, moderate wages for managers and workers, unemployment benefits, the trade unions’ role and comprehensive schooling – not least because of low unemployment. I remember my director at Butterworth Publishers proudly showing us his first new car – a Mini. Nowadays it would be a Bentley.
If we wish to get back to that world, then we need to unpack the economic thinking that is creating the conditions for inequality and low productivity today (just as the Labour chancellor should be doing) and identify and implement those conditions that must prevail to deliver a fairer, more just society (just as the chancellor is not doing). It is very important that we do not make this a discussion between the left and the right. This always obscures the debate.
Universal Basic Income (UBI) is a term now familiar to most people thanks to the Covid-19 pandemic: but it is only the tip of an iceberg that is the new economics, the system that is required today. After all, the Tory party mooted it as part of a strategy to mollify critics of pay inequality. So, what is the economic thinking that we need Labour to promote? Modern monetary theory is a good place to start.
What is modern monetary theory (MMT)?
MMT has as one its foundations the notion that the government is not a currency user, but a currency issuer. It creates money to finance public spending. The austerity regime conceptualised the government as a currency user, financing its spending by taxation, by borrowing (debt issuance) or ‘printing money’.
This modus operandi creates constraints to public spending, e.g. spending can’t happen because it requires more taxation, borrowing which may lead to increased interest rates, possible inflation, etc. All of these beliefs have been debunked by the Covid crisis, where governments miraculously found hundreds of billions to fund the losses in commerce and industry and wages.
To quote the authority on this topic, Professor Michael Hudson: after being attacked by monetarists and others for many decades, MMT and the idea that running government budget deficit is stabilizing instead of destabilizing are suddenly gaining applause from the parts of the political spectrum that long opposed MMT: the banking and financial sector. But what is applauded is in many ways something quite different than the leading MMT advocates have long supported.
MMT was developed to explain the logic of running government budget deficits to increase demand in the economy’s consumption and capital investment sectors to maintain full employment.
By subsidising the financial sector and its debt overhead, this policy is takes money out of, instead of supporting, the ‘real’ economy. Consequently, the ‘real’ economy of production and consumption is wrapped in a financial web of debt creation and rent increases – real estate rent, monopoly rent and financial debt creation. This reduces the real value of wages, as well as wages per se. Below is the result.
Danny Dorling first published: 5 May 2024
Recognising this breakdown is essential to distinguish between positive government getting into the kind of debt that helps maintain employment and rising living standards by investing in industry, public health, schools, social care – as opposed to austerity policies.
The voters must ensure that austerity does not happen. Enough is enough. Never has “know thy enemy” been more important. The task today is to awaken not just the left, but every concerned citizen and politician to these dangers from unreformed neoliberal polity that Rachel Reeves and Wes Streeting are adopting. The time to push back on these emerging Labour policies is now – and hard.
