THE CONSEQUENCES OF MR KEYNES.pdf - Institute of Economic ...

comprises spending on private goods in an economic sense,
where the more appropriate method of control is the machinery
of the market—pricing. 1
The PESC attempt at controlling the bias towards increasing
government spending failed for these various reasons, and
indeed contributed to that bias in Britain's Keynesian fiscal
constitution. In the 1970s, the out-turn of government expenditure
has persistently exceeded the intended total. One
inquiry revealed a discrepancy of £5.8 billion between the outturn
for 1974-75 and that forecast in 1971. 2 The Select Committee
on Expenditure found that 70 per cent of this discrepancy,
equal to some 5 per cent of gross domestic product,
could not be accounted for by announced policy changes!
The crisis measures of 1976
The Keynesian fiscal constitution reached a critical stage by
1976. Government expenditure had grown by some 20 per cent
in real terms over the preceding three years, and had come to
account for some 60 per cent of domestic output. 3 The public
sector borrowing requirement in 1975 had accounted for some
n-J- per cent of total output. The total of new government
borrowing since 1971 was now reaching over £31 billion. The
PESC system had 'moved into deep crisis', 4 and appeared to be
contributing to, rather than checking, a runaway movement
in government expenditure and borrowing. All this was set
against a background of double-digit inflation, the highest
amount of unemployment since before World War II (over 5
per cent of the labour force), stagnant industrial production,
and a massive annual deficit of close to £i\ billion on the
current account of the balance of payments. Clearly, this situation
did not correspond very closely to Keynes's vision of the
post-war managed economy as an era of'joy through statistics'. 5
The Keynesian daydream had turned into a nightmare.
1 This critique is developed at length in Arthur Seldon, Charge, Temple Smith,
1977.
2 W. Godley, Evidence to the Select Committee on Expenditure, 1st Report,
1975-76: TTie Financing qf Public Expenditure, Vol. 2, HC 69-11, pp. 212-3.
3 On the basis of the 'old' Treasury definition of government expenditure (Table
II); the 'new' definition shows a lower figure (below, pp. 68-9).
* M. Wright, 'Public Expenditure in Britain: The Crisis of Control', Public
Administration, Summer 1977, p. 143.
5 Quoted in D. E. Moggridge, op. cit., p. 127.
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