On January 11 round 25,000 British ambulance workers went on strike, their second since December, in an ongoing pay dispute with the federal government. ‘Mature’ Brits are reminded of the (in)well-known ‘Winter of Discontent’ of 1978/79 when the nation suffered a wave of strikes as unions resisted the Labour authorities’s try to restrict pay will increase to five% to combat inflation. In January 1979 Invoice Dunn of the Confederation of Well being Service Staff appeared on tv from a picket line exterior a hospital saying “if it means lives misplaced, that’s the way it have to be…we’re fed up of being Cinderellas. This time we’re going to the ball.” In May Margaret Thatcher’s Conservatives were elected with a mandate to get each inflation and the unions below management.


Unions or authorities?

Britain was suffering from excessive inflation within the Nineteen Seventies. The Retail Price Index rose from 2.5% in 1967 to 24.2% in 1975. The unions had been usually blamed. The ‘cost-push’ idea of inflation mentioned that, because the unions struck for and gained wage will increase, costs had been pushed up. Appearing on this idea, the primary device utilized by British governments to fight inflation had been incomes insurance policies, like 1976’s ‘social contract’, offers struck with unions to restrict pay will increase.

The unions discovered an unlikely defender within the economist Milton Friedman. In 1970 he had written:

Inflation is all the time and in all places a financial phenomenon within the sense that it’s and will be produced solely by a extra fast improve within the amount of cash than in output.

In his 1980 e-book Free to Select Friedman produced numerous charts supporting this, exhibiting the connection between adjustments within the money supply (as measured by the M2 amount of cash per unit of output) and adjustments within the Client Value Index (CPI) for numerous nations. These charts, Friedman argued, disproved numerous widespread explanations of inflation, together with unions:

Unions are a favourite whipping boy. They’re accused of utilizing their monopoly energy to pressure up wages, which drive up prices, which drive up costs. However then how is it that the charts for Japan, the place unions are of trivial significance, and for Brazil, the place they exist solely on the sufferance and below the shut management of the federal government, present the identical relation because the charts for the UK, the place unions are stronger than in any of the opposite nations, and for Germany and america, the place unions have appreciable power? Unions might present helpful companies for his or her members. They could additionally do an excessive amount of hurt by limiting employment alternatives for others, however they don’t produce inflation. Wage will increase in extra of will increase in productiveness are a results of inflation, quite than a trigger.

In 1976, noting the connection between “the rise in cash provide annually in extra of the rise in output with the rise in costs two years later,” an early British convert to Friedman’s ‘monetarism’, Occasions editor William Rees-Mogg, wrote:

If the Extra Cash Provide determines the speed of inflation equally intently in years topic to incomes coverage and in years with out, there appears to be no proof left that incomes coverage has any important affect on inflation.

Friedman commented that:

…the social contract, along with low financial development, will curb inflation. With fast financial development, it is going to be one other unsuccessful experiment.


Now’s the winter…

That was the story of the ‘Winter of Discontent’.

In 1976 Prime Minister James Callaghan instructed the Labour occasion’s convention:

We used to suppose that you might spend your manner out of a recession, and improve employment by chopping taxes and boosting Authorities spending. I inform you in all candour that that choice now not exists, and that in as far as it ever did exist, it solely labored on every event because the warfare by injecting a much bigger dose of infla­tion into the financial system, adopted by the next degree of unemployment as the following step. Increased inflation adopted by increased unemployment.

This financial and financial restraint introduced inflation down to eight.3% in 1978.

Then, with an election looming, Callaghan’s Chancellor, Denis Healey, introduced tax cuts of £2 billion and over £500 million of additional spending financed by financial enlargement. Inflation started accelerating (it could peak at 18.0% in 1980). Unions, not unreasonably, resisted pay agreements which the federal government would, in impact, unilaterally repudiate with inflationary insurance policies.

That is the story of the present ‘winter of discontent’. The British authorities has, as soon as once more, caused inflation by printing money to keep down the costs of vast borrowing. If it offers the unions what they need that gained’t be inflationary offered they don’t fund it by printing cash. As we as soon as discovered, it isn’t the pay will increase which are inflationary however the technique of paying for them.



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