In May 1979 when Mrs Thatcher came to power, there were 132,000 people unemployed in Greater London.footnote In September 1982 there were 390,107. This amounts to a trebling of those without a job. For London as a whole, when allowance is made for unregistered women and for commuters, approximately one-eighth of London’s workforce is now unemployed. In Inner London, the figure is one in six; in Stepney it is one in three. These figures amount to nothing less than an economic scandal.

This collapse of employment has taken place against the background of a world economic recession which struck all industrial countries severely in the mid-1970s and re-emerged in late 1979. But what figures from the oecd clearly show is that the British slump has been much more severe than those of the non-monetarist industrial countries. Faced with slow economic growth, Mrs Thatcher’s response has been to engineer the deepest economic crisis that Britain has known since the 1930s. She succeeded in actually cutting national wealth by 7% by the end of 1982, and, at the very moment when this wealth was declining, consciously favoured the financier against the industrialist, the employer against labour, and the rich against the poor. In just over three years since she came to power unemployment has increased by over two million, from 5.4% to 14.6%. If we add in the estimates for the unemployed who are not registered (mainly women), total unemployment is now over four million people. In this project her charts have been made out by a coherent economic theory, prepared over 25 years and multinational in its scope and organization. Its first trial run at a national level was in Chile from 1973 under the guidance of General Pinochet. Not until 1979 did monetarism—for that was the theory in question—sit at the cabinet table of an advanced industrial country.

In Britain, the monetarists had made London their main bridgehead. In the mid-1960s Milton Friedman’s Chicago school took over the master’s economic course at the London School of Economics, whose graduates were to staff many of the country’s university and polytechnic economics departments. London’s financial journalists followed a few years later, together with an increasing number of city financial advisers. It was the crisis of 1974 and 1975, and the clear uncertainties of orthodox Keynesian economic policies which gave monetarism its major political opportunity. The propositions of the monetarists are simply stated: (1) That inflation is a purely monetary phenomenon and can be cured by restricting the supply of money in the economy. In practice this means raising interest rates (which reduces the demand for money) and cutting state spending to try to lower the Public Sector Borrowing Requirement (psbr). (2) That poor economic performance is the result of imperfections in the markets for ‘real’ products, and can be cured by removing monopolies and restrictions. The three main restrictions were held to be the unions, the state and international protectionism. Hence the attempts to weaken union power, cut and privatize state activity and remove exchange controls, the protections of a low exchange rate, and preferences for national purchasing by state bodies.

What this amounted to was an attempt to restore the value of money at the expense of wage labour. This was made explicit in the approach of the London Business School, one of whose leading monetarists became Mrs Thatcher’s chief economic adviser. If inflation was a major problem then the answer was to cut state spending and the social wage. If unemployment was the issue then the way to solve it was to cut the money wage. The proposed mechanism was the following. First interest rates were to be raised. This would attract in international money which would force up the exchange rate. A high exchange rate would make exporting more difficult and attract imports. This would put pressure on firms, further squeeze their profits and make it impossible for them to agree to increases in money wages. In the corporate world, the weaker would be expected to go under, leaving the fittest to survive. The increase in unemployment would put further pressure on labour to accept lower wages and abandon improvements in working conditions which had been gained over the previous decades. Cheaper labour and higher productivity would help restore the profit rate and economic activity.

This was the essence of Mrs Thatcher’s monetarism for the private sector. It was spelled out before the election, and on many occasions since. It has also been followed in practice. The 11% interest rate which held at the time of the Geoffrey Howe’s first budget rose to 17% within a year. The exchange rate which had been at less than 1.60 dollars to the pound in late 1976, and at 2.07 at the time of the election, had risen to around 2.40 dollars to the pound by late 1980. The severe reduction in internal demand together with the adverse exchange rates squeezed all the producers of traded goods, particularly in manufacturing. Industrial output fell by 12% between 1979 and 1981. Manufacturing profits from a 1978 level of 6.8% fell to 2.1% in 1981. Unemployment rose from 1.3 million at the time of the election to 2.5 million in mid-1981 and now 3.3 million in September 1982.