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ness to save. The full effect of continually rising, prices on savings is unpredictable; but it is clear that they age progressively undermine the whole relationship between borrower and lender and thus the accepted structure of savings. That structure rests, to a considerable extent, on the willingness of the lender to hold, for long periods, titles to fixed sums-in the form of Savings Certificates, Government securities, insurance policies, Debenture stock, and so forth. This willingness itself derives from a basic confidence that money will broadly retain its value. In so far, as rising prices impair this confidence and thereby reduce people's willingness to save, the financing of investment becomes more difficult and more expensive, industrial development is retarded, and the pressure on prices is accentuated.
24. But the effects of a rising price level have a much more direct and more immediately personal impact. Continually rising prices are an obvious social evil. For many people this evil is obscured by the fact that they either are, or believe themselves to be, able to secure increases in their incomes to offset the rise in prices; and although their pressure for higher incomes itself adds to the pressure on prices and they do not in fact, gain very much from the rise in incomes, at least they do not lose very much from the rise in prices. Even so, the spiral of rising incomes and prices is a cause of considerable personal anxiety and of an acute sense of social unfairness. The difficulties and hardships inherent in such a situation bear most heavily on those dependent on fixed incomes, who are in continual danger of having their standard of living progressively reduced. The longer this process continues, the more arbitrary its effects appear, and the more sharply the sense of injustice is felt.
VI.-The Conditions of Price Stability
25. The Government is pledged to foster conditions in which the nation can, if it so wills, realise its full potentialities for growth in terms of production and living standards. But the Government must no less seek to ensure that the pressure of domestic demand does not reach a level at which it threatens price stability and endangers the balance of payments. To maintain full employment without inflation necessarily involves continual adjustments. At times the pressure of demand will grow too strong and will need curbing: at other times this pressure will be weak, and the economy will need a stimulus. It is the Government's job to keep the pressure right, and adjust- ments will have to be made from time to time in fiscal, monetary and social policies in order to achieve this result. But the ultimate aim will always remain essentially the same the encouragement, by all the means which the Government commands, of the general climate most favourable to the maximum development of a balanced economy.
26. One of the essential conditions of full employment is the maintenance of a high and steadily rising level of demand. It is in such circumstances that the pressure of incomes on costs and prices is likely to grow most rapidly and to meet with least resistance. Price stability, in so far as it is determined by factors under our own control, is therefore largely a function of productivity and self-discipline; and full employment will only be accompanied by price stability if both sides of industry play their part.
27. The achievement of a sustained increase in productivity calls for contributions from both management and labour. Management must strive to ensure the maximum expansion of output by progressive investment in the most efficient capital assets, by the introduction of the most modern industrial techniques and by the elimination of all restrictive practices which inhibit the Page 111 of 321
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economic growth of production. The contribution of labour lies in co- operating top the full in the adoption of new methods of working and in setting aside albpractices which, however much they may have been justified in the past as means of safeguarding status, conditions of work, or the security of employment itself, are not appropriate in conditions of full employment..
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28. The healthy functioning of the economy and the progressive growth of its output depend also on co-operation within industry in maintaining an efficient and enlightened system of industrial relations. The relationship between management and workers which this implies is a vital but intangible factor which only they can create by common effort. It demands a full and frank exchange of opinion and information at all levels between representatives who have confidence in each other's competence and integrity. If this confidence is achieved and maintained, the gain, in terms both of physical output and of human relations, can be incalculable. If not, the resulting discontent and friction will impede production and hamper exports, thereby discrediting British industry abroad as well as at home.
29. Efficient methods of work and sound industrial relations should result in a sustained growth of productivity, yielding economic production and competitive prices. How well off we are as a nation depends not on the money incomes we earn, but on the goods and services we produce; and as individuals it is what we can buy with our pay rather than the pay itself which determines our standard of living. Price reductions can therefore contribute to raising our standard of living just as much as increases in money incomes, and so far as practicable it is through price reductions that we should aim to enjoy the benefits of higher productivity. If we all press constantly for more money, regardless of how much we produce to spend it on, prices are bound to go on rising. But if we concentrate on increasing productivity, and on keeping costs down, price stability can be achieved along with full employment and a rising standard of living.
30. From the point of view of industry and trade this means that firms should try, wherever possible, to pass on gains from higher productivity in lower prices and to expand their profits not by the maintenance of high profit margins, but by the expansion of turnover. This will be easier to achieve in some sectors of the economy than in others, since the scope for increasing productivity will vary-not because of better or harder work, but because of differences in the amount of capital employed, varying rates of technical progress, changes in the pattern of demand, greater opportunities for securing economies from increased output and so forth. If general price stability is to be maintained, it is essential that there should be a positive reduction of prices in those sectors in which productivity inevitably rises more rapidly than the average. Enterprises which can achieve an increase of output and sales by a reduction of costs, including profit margins, will be making a real contribution to the maintenance of price stability and to the whole process of balanced economic growth.
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31. The counterpart of realism in relation to costs is realism in relation to personal incomes. The Government of this country does not attempt to tell the people what income each one of them ought to be receiving at any given moment. Wages are fixed by free negotiation between employers and workpeople, within a system of collective bargaining which has been built up over a long period of years. By equally well established practice, the level of dividend declared by a company is a matter for recommendation by the directors and confirmation by the shareholders. But the satisfactory operation of this whole system depends upon the extent to which the parties
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