Part 28 - M3 The Chancellor of the Exchequer was in an anxious mood. He had been summoned next door to talk about money. No, that wasn't the problem. Chancellors talked about money all the time. Jim had been specifically asked to discuss "the meaning of money". It all sounded a bit too theological. It had been bad enough the other day when Peggy had been quoted as saying, "There is no such thing as the market-place, there is only exploitation." Was she now going to suggest that there should be no such thing as money? Of course, that would make life easier for future Chancellors. But the transition would be, as they said in the Labour party, a bugger. Ten minutes later, Jim was feeling relieved. Somewhat. Peggy wanted to give a pay rise to the coal miners. Jim couldn't see why. He'd give them nothing. The strikes in the lead up to winter. That Scargill and his 'flying pickets'. The government having to pass special legislation to preserve essential services. And all that fuss about the new batons for the police force. Peggy was obviously playing some game, combining carrot and baton, that Jim wasn't fully informed of. So much for Cabinet collegiality! Jim had been talking to Roy, they were both so heartily sick of it that they... "But Michael tells me that even giving them a 20% pay rise, it'll mostly get eaten up in inflationary expectations." Jim pricked up his ears at the mention of Foot's name. The Minister for Economic Planning was forever encroaching on the Jim's portfolio. Foot might be a nice enough old stick but he had no sense. As if Peggy hadn't clipped the wings of Treasury enough! And why was Michael having to tell Peggy this? She was a former shadow Treasury Secretary under Jim. This should be meat and drink to her. "Well, Prime Minister, this is true. The coal miners are government employees. We've budgeted for their wages already. A pay rise of this magnitude, it'd be like printing more money. More money chasing the same goods and services. There'll be price rises. Then every other poor sod thinks, 'Blimey! If the miners can get some more lolly, maybe I can too.' If they're not already forced to by their missus telling them she can't put bread on the table with the price of things these days. Before you know it every bleeder's had a 20% pay rise and prices have gone up 20% too!" Peggy frowned, "That doesn't bring about redistribution." Jim shook his head in silent agreement, wisely, as Peggy hadn't finished. "Michael also said," she continued, "that we could lower inflationary expectations by a tax increase." Jim was cross now. Tax policy was a Treasury matter - it was nothing to do with Economic Planning. Michael had no right to say that. But maintaining a genial expression he spoke, "You could at that Prime Minister. But we normally announce tax increases at budget time. To do otherwise reeks of panic. And taxes are unpopular." He'd already had this fight with Peggy before. Wealth taxes, capital gains taxes. Any new tax was unpopular and while these appeared to soak the rich, there was very little money in them compared with income tax and the VAT. Peggy said, "If only there was a way to redistribute wealth without money." She looked pointedly at Jim. This was the abolition of money thing coming up, thought Jim. He was suddenly struck by un-Callagahnic inspiration. "M3, Prime Minister." "M3?" Peggy inquired. "Yes, it's something discovered by some of the boffins The Robot brought in." Jim's predecessor as Chancellor, Sir Keith Joseph, had recruited some innovative economists to Treasury. Under the British Civil Service system, they had tenure. Jim couldn't sack them, even if he thought of it. So they had been allowed to remain and tinker while they looked for more useful work elsewhere. Jim was now warming to his explanation, "You know what money is, PM?" "Yes. Notes and coins?" "Do you always use notes and coins?" "No, sometimes I use cheques." "So money in your check account is also money. But do you always have enough money in your cheque account, Prime Minister?" Peggy's eyes flashed at the impertinent question. "I have an understanding with my bank. If there is enough money in our savings account, they honour my cheques." Jim smiled, "There you are. Notes and coins, cheque accounts and saving accounts. M3. Money." Peggy fixed Jim with a please explain stare. Jim smiled further. "Suppose you gave a dollar to a worker. Does he spend it or save it?" "If he's on the breadline, spend it I suppose. It's hard to save when you're scrimping." "All right, he buys something needful from a bloated capitalist. Does said capitalist need to go out and buy things?" "No," said Peggy, "He can bank it. Thus the rich get richer and..." "Exactly, Prime Minister. So the bank... "If you'll just let me continue. And the poor get poorer." "Good point, PM. So the bank has got a dollar that they can lend out again. Only they don't lend out the whole thing, because they need cash on hand if depositors need their money bank. SRDs or something, I think they're called[1]. So the bank keeps 20 cents in their vaults and lends out the remaining 80. The borrower spends the money, it eventually falls into the hands of another bloated capitalist..." "Or the same capitalist if there's a monopoly," Peggy observed. "The same capitalist if there's a monopoly, good point PM. Using the SRDs the bank sends 16 cents down to the vault and can lend other 64." Jim was glad Britain had switched to decimal currency. This explanation would have been more difficult in pounds, shillings and cents. Peggy summed the infinite series in her head. It was a trick she had learned at Saffron Walden Girl's Grammar. "So eventually, in addition to the one dollar first deposited at the bank, the bank accumulates additional deposits of four dollars." "Exactly, PM. Of course there's more than one bank but that's the model." "So one dollar, turned into five dollars. That's very inflationary!" "Not quite PM. This has been going on for all the time. There's always been more money, more M3, than there's been notes and coins. What would be inflationary would be if we changed the SRDs so the banks could lend out 90 cents in the dollar." "That would double the money supply!" "Perhaps, Prime Minister." The boffin who had earlier explained this to Jim had got a bit convoluted at this stage of the lecture. "But it would definitely be a bad thing. The point is, you can do it the other way. You can change the SRDs so the banks only lend out 75 cents in the dollar and that cuts down M3, it reduces the money supply." "So I could give the miners their 20%, you could change the SRDs and there needn't be any inflation." Peggy paused. "Are there any disadvantages to reducing the money supply? Or does it just effect capitalists?" "Pretty much, I think," said Jim, "The boffins impressed upon me that controlling the money supply is a consummation devoutly to be desired."

Monday, 8 December, 1969 Dear Diary, This is the last week of the parliamentary sittings for the year. The Tube is getting more crowded too, with lots of Christmas shoppers. Clearly consumer confidence is at an all time high, despite the Cassandras of the Tory press. Speaking of the press, I found myself sitting on the tube next to a working-class comrade. Well, I say comrade, he said he was a Communist but he was a thorough-going pleasant person. A compositor, works for the Guardian. He asked me if I'd seen the Saturday's edition. I said I had, very worthy paper but the misprints on the front page - I'd assumed from the context that the words were supposed to be shire, feckless and cents - had been rather unfortunate. He smiled broadly and said that was him. I was surprised, I'd always assumed that the typographical errors had been accidents, as a result of a choice by the Guardian to favour employing reporters over sub-editors. Why would anyone want to make mistakes deliberately? "Smash the system from within, guv," he explained. So at least he was well-meaning. I had been afraid he might have been a wrecker. He turned out to be an extremely thoughtful thinker, too, as so many workers from the working-class are. His particular interest was foreign affairs which, by a happy coincidence is mine, too. Before long were talking about the Soviet Union. "The USSR is falling behind America," he said dolefully. This jerked me up to full attention. That's just what Sir Denis is always saying. But he's a senior civil servant, another one of these Cassandras. I wouldn't have expected a CPGB member in good standing to say this. What about Sputnik, I asked? He reeled off the facts, "Yes, Sputnik. And Soviet Union had the first dog in space, And the first man in space. But United States had the first men on moon. They build better cars, better televisions, better aircraft carriers. Every year they outstrip us." I wouldn't have said "us" myself but he raised a good point. But I wasn't so sure of his next point when he asked me how, as a Briton, I could fail to support the underdog. How was the USSR with the biggest army in the world an underdog? Second biggest, he noted, as China's army is slightly larger. A shame that two socialist countries should stand ready to strike each other but there you are. I had to point out that the bulk of the Soviet Army is in Europe. It is a host which, without the British Army of the Rhine, would dwarf the remaining NATO forces. This is why Britain must continue to subscribe to the North Atlantic Treaty to maintain the balance of power. Our compositing comrade was not satisfied. Would we forget our old comrades who fought beside us in the Second World War well before the Americans entered? It was time to recall that quote that Sir Denis Greenhill is always using, "We have no eternal allies and no permanent enemies. Our interests are eternal." I was then asked whether it was not in the British interest to maintain the balance of power? I explained that along with peace, prosperity and justice for all the nations of the Earth, yes. That is why we remain in NATO, albeit with some misgivings. But doesn't Britain's membership of that alliance of capitalist states and dictatorships, I was asked, further tip the balance away from the peace-loving peoples of the world? It didn't seem, for all the comrade's apparent intelligence, that he had been following. Hadn't we established the Warsaw Pact armies were bigger? "Bigger in number. But numbers aren't everything. The Soviet Union lost 10 million soldiers during the Great Patriotic War, more than the entire number of Fascists fielded against them. The USSR make what savings she can - conscripts, low pay, cheap equipment. But if you measure the forces in dollars, not men, the Yankee-led coalition is the strongest. By strengthening the United States side, you might even lead towards a world where there is no Soviet Union, no force that can stand up to and moderate American hegemony. Britain, if she really wants to maintain the balance of power, should join her fellow socialists, her traditional allies." This ran deep. I was resolved to speak to Sir Denis about this later that morning.

Iain Macleod was barely three months into his new job as Leader of the Conservative and Unionist Party but the honeymoon was clearly over. The trouble was his other job - Leader of Her Majesty's Loyal Opposition. The Conservatives were unused to opposition. Most had joined the parliament during the Party's eighteen years of office. The unreconstructed Powellites were the worst. It wasn't helped by the fact their namesake was um-ing and ah-ing about making the move from the Animals to the Vegetables.[2] The Powellites insisted that it was the job of the Opposition to oppose. They failed to see that after eighteen years of one side being in power, the public had a pent-up desire for change. And while Iain was willing to oppose some of the Red Lady's more lunatic schemes, he could hardly block her manifesto programs. Give them enough rope, he told his colleagues, they'll hang themselves eventually. Extremists always do. And something was happening. The Labour moderates were visibly frustrated. You could see it by the leaks in the press. You could see it by their faces in parliament when the Red Lady spoke. Which made the Chancellor's invitation to a private meeting all the more intriguing.

Roy made his apologies to Jim, "Something wather uwgent has come up. Twanspowt mattew, wailways, dawe not let wun on ow things will weally go wong. But take my pawlimentawy undew-secwetawy, David, he's a weliable chap." Reliable he might be but Jim did not immediately warm to David, "call me Dr Owen." Thinks he's so smart but his suit is all crumpled, the Chancellor said to himself. The meeting was a pub near Westminster. It should be poorly populated this time of day which was good, the idea was to avoid too many prying eyes. Peggy needed to be brought down a peg. She was by-passing Cabinet, making too many decisions with her inner circle. A defeat on the floor of the House should give her pause. Not a confidence motion. But her pet trades union bill. Trouble was, the Tories were as likely to vote for it. Hence the need for the meeting with Macleod, to ensure the blow struck home. By the time the two arrived at the pub, Macleod was already there with one of his lieutenants, Peter Walker, at a table in the corner. The two Tories stood up and hand-shakes were exchanged. Jim quickly outlined the plot. Macleod and Walker were quick on the uptake. Another round of hand-shaking. Macleod offered to buy drinks. Three halves of bitter and a G&T for Dr Owen. Macleod had walked halfway to the bar when he collapsed. The other three ran over. Dr Owen bent down to feel the Leader's pulse. "What is it?" asked the Chancellor, "A heart attack?" "It's worse than that. He's dead, Jim."

Deep gloom and sorrow passed across Ted's mind when he heard of his Leader's death. Then brief puzzlement, what were Callaghan and woss-name doing there?. The third and enduring emotion Ted felt was elation. Surely now was his hour, when he would be chosen as the senior and experienced man to lead the Party. There was no alternative. [If you'll just let me continue.]

[1] That nice Mr Callaghan is presumably thinking of statutory deposit ratios or SDRs. [2] The Commons to the House of Lords.