The rigours of Sir Alec

Economic Ideas and Government Policy
October 25, 1996

This book is a collection of essays by Alec Cairncross, the distinguished economist, about mainly postwar economic history. Cairncross has given advice to more governments and international bodies than you and I have had hot dinners. He has also had a longstanding academic interest in economic history and applied macroeconomics. He was, I should add, singled out by Jack Johnston in his highly-regarded econometrics text as the source of the Cairncross test, whereby estimation results, submitted to Sir Alec, would be treated to pungent comments about their compatibility with economic sense.

This book shows the Cairncross testing machine in fine fettle. He has a knack for marshalling relevant facts and clear economic logic to deflate popular theories of the time - whether on Marshall aid or monetary policy (its absence rather) in the 1950s. I found the analyses of postwar recovery in the United Kingdom and Germany most revealing.

I also enjoyed his observations on the role of economists in government - he is a defender of our contribution as being quantitative and analytic in a world of civil servants clever enough but ill-trained in handling ever more important economic numbers. And there is much else - including a history of the manufacturing giant J. and P. Coats, as well as reflections on emerging markets and on the causes of Britain's relative decline after the war ("we chose not to change").

The Cairncross hallmark is scepticism. In the book about the only actions that get serious praise are those of the war planners (he was one in the Ministry of Aircraft Production); otherwise virtually all ideas and policies come in for a panning, or if they are lucky merely a light touch of damning irony. For example, on the Cairncross view, German postwar success was in spite of, not because of, free market policies; the ideas of Thatcherism in dealing with inflation by monetary control were flawed but then so were those (antimonetarist) ideas of the Bank of England under governors Catto and Cobbold in the 1950s.

One is left asking what are the great Cairncross recipes for economic success? Planning? No, he admits that is hopeless for a peace-time economy. Monetary control and sustainable budgets? Simplistic, it would seem. By elimination one infers that one should apply the Cairncross test: present the great man with the dossier and wait for the acerbic reply.

More seriously, though, I fear that Cairncross's implicit recommendation of discretionary and pragmatic intervention and control of the economy has been at the root of our problems. Cairncross is not critical of the Attlee programme of sharply rising public expenditure, welfare and nationalisation; instead he blames some collective choice (obscurely made) of the quiet life for our poor postwar performance relative to Germany's. Yet where the Germans, against allied wishes, freed the economy and so liberated their citizens' desire for a better life, we stifled ours under 80 per cent-plus marginal tax rates and a mass of controls.

Since 1979 we have reversed these policies to a large extent while from the early 1970s Germany reversed hers under the influence of Social Democrats later supported by Christian Democrats, much as the Tories came in behind Attlee. Interestingly the economic performance of the UK has greatly improved relatively, and on certain measures such as unemployment and industrial productivity growth has substantially surpassed Germany's in absolute terms.

To such thoughts Cairncross's mind is quite proof. His method of testing is that of the historian of episodes rather than of the economist who confronts an idea with the systematic results of several episodes (whether econometrically - something for which he seems to have little time - or informally). It is fortunate for us that the Thatcher programme was not submitted to the Cairncross Test; or indeed that Erhard and Adenauer were also oblivious of it.

One last point. Cairncross reviews in this volume two books by erstwhile Keynesians who have now come around to the primitive monetarist idea that rigorous control of monetary magnitudes is necessary for a stable low-inflation economy. Sir Alec is at least no fair weather convert; he has remained an unrepentant, unreconstructed pragmatic Keynesian throughout. But then perhaps he will surprise us with his next book.

Patrick Minford is professor of applied economics, University of Liverpool.

Economic Ideas and Government Policy: Contributions to Contemporary Economic History

Author - Alec Cairncross
ISBN - 0 415 13245 2
Publisher - Routledge
Price - £47.50
Pages - 281

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