THE EFFECTIVENESS OF DIRECT CONTROLS IN THE BRITISH ECONOMY, 1946–1950
| DOI | http://doi.org/10.1111/j.1467-9485.1963.tb00334.x |
| Date | 01 June 1963 |
| Published date | 01 June 1963 |
| Author | Derek H. Allxroft |
THE EFFECTIVENESS OF DIRECT CONTROLS
IN
THE
BRITISH ECONOMY,
1946-1
950
DEREK
H.
ALLXROFT*
I
Introduction
A
LARGE
part of the framework of economic control which was built
up in Great Britain during the war (1939-45) was retained for
a
number of years after
1945.
The economic conditions
of
the country
at the end of the war precluded any possibility of a rapid abandon-
ment of physical controls similar to that which had occurred after
World War
I.
A condition of sheer shortage-of a marked excess of
claims over resources-persisted over a wide sector
of
the economy.
The nation was short of food, raw materials, consumer goods and,
above all, foreign exchange. The shortage
of
foreign currency was
probably the most acute problem.
In
1945,
for example, it was
estimated that Great Britain would require a volume
of
exports
of
nearly
75
per cent. in excess of the pre-war level
in
order to restore the
economy to a reliable equilibrium which could persist without measures
of
restriction,
or
other defensive weapons of a type with which it was
hoped to dispense.'
In
addition, there was
an
enormous programme
of
physical reconstruction awaiting completion at a time when the dis-
tribution of the factors
of
production throughout the economy was
in
no way commensurate with such a task. Take manpower
as
a case in
point. By the middle of
1945
nearly one half the total labour force
was either in the Armed Forces
or
engaged in some kind of war pro-
duction. Only
2
per cent. of the labour force was producing exports
and less than
8
per cent. was producing and maintaining capital equip-
ment. In building and civil engineering the labour force was less than
half what it was before the war.? Perhaps worst of all the war had
caused a large accumulation of purchasing power in the hands of
*I
should like
10
thank
Mr.
J.
C.
R.
Dow of the National Institute
of
Economic and Social Research for reading and commenting on an earlier draft
of
this article and for allowing me to read
a
chapter from his forthcoming
book provisionally entitled
The Behaviour of
the
Britidi
Economy.
I
am
also
grateful
for
the assistance given to me
by
a
number of government officials who
were concerned with the post-war administration of controls.
1
Statistical Material presented during the Washington Conference,
Cmd.
6707.
1945,
p.
5.
See
Ministry
of
Labour Gazette,
Aug.
1945,
p. 127.
226
DIRECT CONTROLS IN THE BRITISH ECONOMY
227
consumers (both
at
home and abroad) with unsatisfied wants. Poten-
tially demand was far in excess of supply at current prices; indeed it
has been estimated that the excess demand at the end of the war was at
least
25
per cent.3 It
is
not surprising that in these highly abnormal
conditions controls were retained if for no other purpose than to ease
the transition from
a
war- to
a
peace-time economy.
As
one investigator
has observed recently:
'
(The) huge inflationary potential constituted
the basic rationale for continuation
of
some kind
of
economic controls
into the post-war period
'.4
Whatever criteria are adopted for assessing the effectiveness
of
direct economic controls on the British economy in the years 1946-50,
it is clear that they achieved only a moderate degree of success. In
retaining the network of controls the policy-makers had two objectives
in mind: to avoid the chaos which occurred after the 1914-18 war and
to use physical controls as economic regulators. The first objective was
achieved with a greater degree of success than the second. The rapid
abandonment of direct controls after 1945 would undoubtedly have
produced disastrous results since it would have left the economy at the
mercy of market forces. Under these conditions the expansion of
exports would have been inhibited by increases in home demand whilst
factors of production would have been employed in the most profitable
rather than the most essential activities. On the other hand, though
controls moderated the rate of demand and inflation, effected
a
more
rational allocation of resources and provided temporary palliatives for
balance of payments difficulties, they did not operate with the same
degree of effectiveness as in war-time. Direct controls never eliminated
inflation, they only suppressed it, though by
so
doing they allowed the
United Kingdom to increase exports and moderate the flow of imports.
In the short run it was possible
to
moderate the rise
in
prices and to
iron out certain fluctuations, but in the long run the Government was
totally incapable of preventing the upward pressure of international
prices from breaking through the control barrier. Similarly it could
hardly be said that raw material allocation
or
manpower controls
always achieved the most desirable results. In fact few controls
achieved exactly what they were designed to achieve, and, indeed, it
would have been rather surprising if they had done
so.
J.
C.
R.
Dow in memorandum
to
the Radcliffe Committee on the
Working
of
the
Monetary System,
Memoranda
of
Evidence,
yo].
3
(1960),
p.
95,
para.
128; also
J.
C.
R.
Dow and
L.
A.
Dicks-Mireaux, The Pxcess Demand
for
Labour:
A
Study
of
Conditions
in
Great Britain, 1946-56
,
Oxford
Economic
Papers.
Feb. 1958,
p.
20,
note
1.
N.
Rosenberg,
Economic
Planning
in
the
British
Building Industry,
1945-49
(1960),
p.
15.
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