§ We have already shown that we are not afraid to take action, however unpalatable, to keep the medium-term financial strategy on course in an unpredictable and uncertain world. That strategy was first launched five years ago next week. Our commitment to it remains as firm today as it was then. It was designed to bring down the rate of inflation and to ensure a reasonable growth of demand in money terms, and it has succeeded on both counts.
We are determined to maintain steady downward pressure on inflation. It is not in the gift of any Government to eliminate short-term fluctuations along the way, but the underlying direction has to be downwards. It is this objective which governs the desirable growth of total spending power in the economy, as measured by money GDP.
The Government's economic strategy has two key components: a monetary policy designed to bring down inflation and a supply side policy designed to improve the competitive performance of the economy.
The supply side policy is rooted in a profound conviction, born of practical experience both at home and overseas, that the way to improve economic performance and create more jobs is to encourage enterprise, efficiency and flexibility; to promote competition, deregulation and free markets; to press ahead with privatisation and to improve incentives.
The argument over which will have a bigger impact on demand—increased public expenditure or lower taxation — completely misses the point. The case for lower 785 taxation rests on supply side policy: lower taxes will help to enhance incentives, eliminate distortions, improve the use of resources and heighten the spirit of enterprise.
The great mistake of post-war demand management, which still has some devotees today, was to react to rising unemployment by injecting more money into the system, whether through the Budget or through the banks. So far from halting the upward trend of unemployment, this simply generated runaway inflation. That course we will not follow.
A policy for demand expressed unambiguously in terms of money provides a further important advantage, for it ensures that wage restraint will provide more jobs. I repeat today the undertaking I gave the National Economic Development Council last month: the medium-term financial strategy is as firm a guarantee against inadequate money demand as it is against excessive money demand.