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Making Economic Sense
by Murray Rothbard
(Contents by Publication Date)

Chapter 63
Exit The Iron Lady

Mrs. Thatcher's departure from British rule befitted her entire reign: blustering in rhetoric ("the Iron Lady will never quit") accompanied by very little concrete action (as the Iron Lady quickly departed).

Her rhetoric did bring free-market ideas back to respectability in Britain for the first time in a half-century, and it is certainly gratifying to see the estimable people at the Institute of Economic Affairs in London become Britain's most reputable think-tank. It is also largely to the credit of the Thatcher Era that the Labour Party has moved rightward, and largely abandoned its loony left-wing views, and that the British have decisively abandoned their post-Depression psychosis about unemployment rates ever being higher than 1%.

The Thatcher accomplishments, however, are a very different story, and very much of a mixed-bag. On the positive side, there was a considerable amount of denationalization and privatization, including the sale of public housing units to the tenants, thereby converting former Labour voters to staunchly Conservative property owners. Another of her successes was breaking the massive power of the British trade unions.

Unfortunately, the pluses of the Thatcher economic record are more than offset by the stark fact that the State ends the Thatcher era more of a parasitic burden on the British economy and society than it was when she took office. For example, she never dared touch the sacred cow of socialized medicine, the National Health Service. For that and many other reasons, British government spending and revenues are more generous than ever.

Furthermore, despite Mrs. Thatcher's lip-service to monetarism, her early successes against inflation have been reversed, and monetary expansion, inflation, government deficits, and accompanying unemployment are higher than ever. Mrs. Thatcher left office, after eleven years, in the midst of a disgraceful inflationary recession: with inflation at 11%, and unemployment at 9%. In short, Mrs. Thatcher's macroeconomic record was abysmal.

To top it off, her decisive blunder was the replacement of local property taxes by an equal tax per person (a "poll tax"). In England, in contrast to the United States, the central government has control over the local governments, many of which are ruled by wild-spending left Labourites. The equal tax was designed to curb the free-spending local governments.

Instead, what should have been predictable happened. The local governments generally increased their spending and taxes, the higher equal tax biting fiercely upon the poor and middle-class, and then effectively placed the blame for the higher taxes upon the Thatcher regime. Moreover, in all this maneuvering, the Thatcherites forgot that the great point about an equal tax is precisely that taxes have to be drastically lowered so that the poorest can pay them; to raise equal tax rates above the old property tax, or to allow them to be raised, is a species of economic and political insanity, and Mrs. Thatcher reaped the proper punishment for egregious error.

Why then didn't the Thatcher government, upon installing the equal tax for local governments, directly decree drastically lower tax rates for each locale? Then the British masses would have welcomed instead of combatted the poll tax. The Thatcherite answer is that the central government would have had to assume funding of such local government activities as education, which would have raised either central taxes or the central government deficit.

But that only pushed the analysis one step further: why wasn't the Thatcher government prepared to slash such spending, which is almost as bloated as in the U.S.? Clearly the answer is either that the Thatcherites did not truly believe their own rhetoric or that they didn't have the guts to raise the issue. In either case, Mrs. Thatcher deserved her eventual fate.

In one area of the macro-economy we must regret the exit of Mrs. Thatcher: hers was the only voice raising a cry against the creation of the European Central Bank, issuing a new European currency unit. Unfortunately, and especially since the firing of her monetarist economic adviser, Sir Alan Walters, Mrs. Thatcher failed to make a convincing case for her opposition to this coming new order, putting it solely in cranky, hectoring terms of British national glory as against subordination to "Europe." She therefore came off as a narrow anti-European obstructionist as against a seemingly enlightened and beneficent "united Europe."

The problem in almost all analyses of the new European Community is the usual conflation of State and society. Socially and economically, to the extent that the new Europe will be a vast free-trade and free-capital-investment area, this new order will be all to the good: expanding the division of labor, the productivity, and the living standards of all the participating nations. Unfortunately, the essence of the new Europe will not be its free-trade area, but a giant new State bureaucracy, headquartered in Strasbourg and Brussels, controlling, regulating, and "equalizing" tax rates everywhere by coercing the raising of taxes in low-tax countries.

And the worst aspect of this united Europe is precisely the area that Mrs. Thatcher zeroed in on: money and banking. While the monetarists are dead wrong in preferring a Europe (or a world) of nationally fragmented fiat monies to an international gold money, they are right in warning of the dangers of the new scheme. For the problem is that the new currency will of course not be gold, a market-produced money, but a fiat paper issued in new currency units. So that the result of this neo-Keynesian scheme will be inflationary fiat money, the issue of which is controlled by the regional Central Bank, i.e., by the new regional government.

This collaboration will then make it much easier for the Central Banks of the U.S., Britain, and Japan, to collaborate with the new European Central Bank, and thereby to move rapidly toward the old Keynesian dream: a World Central Bank issuing a new world paper currency unit. And then, we would be truly off to the races, with the world's Money and macro-economy totally at the mercy of a world-wide inflation, centrally controlled by self-proclaimed all-wise Keynesian masters. It is unfortunate that Mrs. Thatcher would not articulate her opposition to the new monetary Europe in such terms. 

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