HC Deb 28 November 1972 vol 847 cc221-3
7. Mr. Knox

asked the Chancellor of the Exchequer what he estimates the present velocity of circulation of the money supply to be; and what he estimates it will be in 12 months' time.

Mr. Nott

The velocity of circulation, expressed as the ratio of gross national product at current prices to M3, was 2.75 in the second quarter of 1972. This is the latest period for which full national income data are available. Changes in the velocity of circulation are influenced by a large number of factors and I am not prepared to predict what its level will be a year hence.

Mr. Knox

I note that my hon. Friend can give only historic information about the velocity of circulation. As it is clearly impossible to forecast the velocity of circulation and as control of the velocity of circulation is essential if we are to be able to control the supply of money, would not my hon. Friend agree that attempts to control the supply of money must be a very inadequate means of controlling the economy generally?

Mr. Nott

My hon. Friend would find, I believe, if he looked at page 39 of "Economic Trends" that the velocity of circulation of money had not varied very much since the 1950s, and I do not think that is a particular item which he should look at when studying money supply.

Mr. Brian Walden

Surely it is entirely permissible for the hon. Gentleman to consider money supply itself, though I agree with the Minister of State about the velocity of circulation. Will he now tell us exactly what is the Government's view on money supply? We have been looking at some of the Minister's previous answers and they are almost incomprehensible. We heard from the Government Front Bench earlier today that the stabilising of inflation was at the top of the Government's list of priorities. If that is so, why do they not act on the money supply—even though in our view that would have an effect on unemployment—because if inflation is top of their priorities surely they should act on money supply, whatever its effect elsewhere?

Mr. Nott

We are acting on the money supply. We are keeping it constantly under review and we have made extremely good progress in slowing down the growth of money supply from the fast rates in midsummer. The growth in M3 in the last three months has been 4¼ per cent. compared with an increase of 8 per cent. in the three months to mid-June. This trend is continuing and we are keeping it under very close review.