Islam's Response to Contemporary Issues — Page 181
Economic Peace 181 Among other things, the ball of inflation can be set rolling when excessive money in the hands of the buyer artificially raises demand while the supply of goods remains low. Too much money, for too few goods. There is more to buy and less to be bought. But, perhaps, in the case of the British economy, this situation did not prevail. The greater volume of money in circulation was supporting British industry to a large degree by increasing the consumption in the home market. Add to this the influence of tax cuts and moderate rates of exchange on the value of sterling in the international markets. This moderate exchange rate of sterling attracted overseas buyers to British manufactured goods to the advantage of British industry, which was already being generally helped by the expanding home market. The most logical outcome should have been a drop in the prices of manufactured goods. A rise in production should have absorbed fixed overheads leaving only marginal costs to be borne by ex-factory prices of such goods. Even a bigger profit margin should have left the manufacturers with sufficient cushion to reduce prices. The prolonged high interest rates have reversed this natural growth of the British economy with dire consequences for the future. Meanwhile, foreign markets, which slip out of their hands, will be difficult to regain. 4) The changes in Europe are transfusing more blood to the already robust economy of West Germany, or should one say Germany. The secondary negative effects enumerated earlier may augur ill for the British economy. The present government may unsuccessfully manipulate the timing of the much needed drop in interest rates, but the next government, if it is Conservative, is going to inherit colossal problems from the erstwhile government of its own party.