Letter: Manifesto for recovery: Gatt, housing market, monetary policy

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The Independent Online
Sir: I have two quibbles with your 'manifesto' (22 October). First, you overdo the importance of free trade. Free trade does increase output per head and living standards; it does not raise employment. Indeed, as Paul Ormerod points out (Letters, 22 October) economic recovery in the Thirties was effected alongside deliberate restrictions on free trade.

Second, the commitment to a balanced budget is unrealistic. I realise governments must make anti-inflationary noises, but the fact is that since money was invented several thousand years ago we have had inflation. Inflation reduces the real value of the money supply, the monetary base in particular, and since the latter must be maintained (and indeed expanded in real terms as the economy grows), we will in reality continue to have at least a small unfinanced budget deficit for the decades and centuries to come. A commitment to keep inflation below about 5 per cent by whatever means (which is one of the Bundesbank's main objectives) would be more realistic.

Yours faithfully,

R. S. MUSGRAVE

Durham

22 October

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