After ten days holiday with Margaret at Brighton I have returned for a fortnight’s work with the Economic Section. There has been much activity with the Economic Plan, in particular with the problem of investment. We have in fact succeeded in selling the idea to the Treasury that there should be a departmental value allocation for investment expenditure so long as the need is to restrict investment, i.e. that there should be some decision as to what, in view of the available resources and the other demands on resources, is the total value of investment which can be permitted for the forthcoming period and that departments should put in global value requirements covering all investment sponsored by each department and that those departmental requirements should then be centrally pruned until they are reduced to the total permissible sum. The main question has been how these departmental allocations should be carried out with the existing mechanism of controls. The relevant controls are (i) those over building and (ii) those over machinery. But as for (i) the actual allocation of resources to departments and its policing are carried out in terms of allocations of building labour and the differences in total value produced per head of building labour vary so greatly according to the different uses of building labour (e.g. for new housing where much equipment goes into the house the gross value for building labour employed is much higher than for minor repairs) that it is impossible to translate a building labour allocation into a building investment value within the degree of fineness required to work departmental value investment allocations even for building alone with any degree of accuracy. As for (ii) at present the machinery control has been so relaxed that all that happens now is that the producers (not the users) of machinery are given general freedom to produce machinery provided a certain proportion goes to export. This means that there is no control over machinery purchases by users except in so far as it is necessary to obtain a licence to install the machinery. There have been meetings of Gilbert’s Investment Working Party to discuss these issues and I have held a number of meetings in the Section with Sayers, Tress, Shackle and Stafford to discuss the issues. The outcome has been a report by the Investment Working Party to Bridges’ Steering Committee which has taken the following line:- (a) the present stringency is not likely to last very long so that we should not consider a total overhaul of the
control machinery but should do our best over the next year or so to implement a departmental investment ration by means of the existing control over building and (b) as for the degree of cut required in investment as a whole for 1946/47 Ministers should await the revised Survey for 1946/ 47 (which the Economic Survey Working Party - alias the Economic Section and the Central Statistical Office - is under an obligation to produce by the end of the month) in order to see just what percentage cut on existing departmental investment programmes is required.1 On this the Section have expressed hesitations. As to (a) we should not be too sure that excess investment pressure will not last for a very considerable time. If the Government in fact carries out a very big housing programme and sees that by hook or by crook there are very big programmes of capital re equipment in, say, iron and steel, railways, gas, electricity, coal, cotton, etc., the pressure may last a long time. If we do not deal with this by a rise in the rate of interest, we may need negative restrictive controls for a number of years, and in this case there would be a case for a revision of the existing method of control which really is a very inadequate makeshift. As to (b) it would be giving Ministers a totally false impression if they thought that the instrument of control at present available for use could be employed with a degree of fineness to which the revision of the Survey would have anything to contribute, i.e. the idea that it is worth waiting to see whether investment demand should be cut by, say, IV2 per cent instead of by 10 per cent is ridiculous when you only have a blind instru ment of control the effect of which you cannot estimate within, say, 20 per cent.