The origins of the ‘household analogy’

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On the recommendation of blog-reader Nigel Mace I acquired a copy of this book recently:

The book was published in 1935 to justify the actions of the then National Government whose policies had in fact delivered the Great Depression and the disaster of both disarmament and appeasement.

There is though, from a current perspective, something deeply significant about the book. This is the author's preface:

Note the reference to the term ‘household'. Its relevance to the argument within the book is elaborated in the first chapter, from which I exert as follows (I can find no evidence that the book is still in copyright now):

The idea is quite specifically proposed that the government is akin to a household and must budget its affairs in a similar fashion. It should balance its books, and not borrow. That is the message.

And to some extent this was right at the time: the choice to be on the gold standard (because from 1925 until 1931 that was the choice made by successive Chancellors from Winston Churchill onwards) did mean that the UK government did have to constrain its spending to that which gold reserves permitted. And those gold reserves could be depleted by deficits.

But what is not said is that the imposition of this constraint was quite explicitly why use of the gold standard was chosen by those who wanted to limit the scope of government intervention in the economy or, alternatively, by those lacking the courage to be rid of it (which was the case with the failed Labour government to which the author refers). The change in the fortunes of the UK after 1931 was partly due to the abandonment of this constraint.

The book does not make this point. Its whole purpose is to reinforce the idea that government is a user of money, just like a household.

This need not have been true in 1931. It is emphatically untrue now. Our government is now the sole creator of sterling, albeit it licences private banks to share in that activity.

Despite this fact (for fact it is), both the Tories and Labour still promote economic policy as if the money supply is a matter over which they have no control. It is their suggestion that they must still run the economy as if it is that of a household when the reality is that it is their job to run the economy as if it is that of a country.

This book was promoted to promulgate what was already a lie at the time it was written - as the wartime economy that followed it so soon afterwards proved.

That lie is still being promulgated now by politicians from both Labour and the Tories who see it as their job when in office to reduce the impact and power of the state to undertake action on behalf of the people who elected them and the country who put them in office so that the people of this country are worse off than they need to be. And that is very depressing.

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