November 2019 newsletter – Walter Eltis

Walter Eltis: A Creative Economist of Genuine Originality

Walter studied economics at University of Cambridge when the Keynesian revolution was at its peak.  He was taught to combine rigour in argument in explanations which were put in the simplest possible way.  His tutor, Joan Robinson observed that Walter had an original and fertile mind, an insight which was to be amply confirmed by his subsequent career. In 1956 he was awarded a First in part II of the Economic Tripos and became a graduate student at Nuffield college Oxford. He studied macroeconomics under the supervision of Roy Harrod who was one of the pioneers of the theory of economic growth.

Walter’s work on theory of capital and growth was highly original and Harrod encouraged him to write a very successful textbook on economic growth.  Walter published his first paper in 1963 and became a Fellow of Exeter College Oxford. The paper attracted the attention of Sir Robert Shone the Director of NEDO (NEDO was established in 1962 to introduce a measure of indicative planning to promote British economic growth, which was falling behind other European countries such as France and Germany). It was Walter’s first official appointment where he contributed to a series of seminars at NEDO, but the organisation suffered a setback when it was largely displaced by the Department of Economic Affairs (DEA) set up by the Labour government in 1964.

Walter noted a discrepancy over the measurement of public expenditure in the National Plan produced by the DEA, which was to have an important influence on his later work. Walter pointed out that with productivity rising in the private sector but not in the public sector, there would be a massive transfer of labour to the public sector, which was happening in the 1960s British economy.

On his return to Oxford, Walter published his work on capital theory,“Capital and Distribution” in 1974, which extended the work of Arrow and Kaldor. Walter felt that the reception of the book was polite rather than enthusiastic. He was invited by Professor Thomas Wilson of Glasgow University to contribute to a volume celebrating the bi-centenary of Adam Smith’s “Wealth of Nations”, where he wrote a highly original essay on Smith’s theory of economic growth. 

Walter extended his work on Classical Economics and became interested in the work of the French physiocrat Francois Quesnay, who emphasised the contribution of agriculture to French economic growth in the 18th century. According to Quesnay, economic growth in France was threatened by the burden of taxes imposed on agriculture by Colbert, who was seeking to promote French industry.  Walter drew on his study of classical economic thought in analysing the British economy in 1960s and 1970s. He argued that the burden of taxation on the British private sector, in lieu of Quesnay’s agriculture, was too high and resulted from excessive public expenditure. This necessitated a high level of taxation and the subsidising of inefficient state-run industries. Walter was invited to develop his ideas at length in a series articles for The Sunday Times. These articles had a major impact on official thinking and received wide publicity.  His application of the ideas of 18th century economists to the problems of the British economy in the late 20th century was highly original and persuasively argued. These articles appeared in The Sunday Times in November 1975 and were written jointly with Dr Robert Bacon, Fellow of Lincoln College Oxford and were followed by a book “Too Few Producers” which set out the argument at greater length.

The arguments of Bacon and Eltis affected the thinking of both the major political parties and prepared the ground for major cuts in public expenditure, combined with reductions in taxation. Mrs Thatcher, who was impressed by the statement that “Oxfordshire County Council employs more workers in Oxfordshire that British Leyland” and Walter’s observation that workers on average earnings were subject to taxes of up to 30% on their pay packets, admitted the impact of their arguments on her thinking.

“Too Few Producers” made a major contribution to the debate on Britain’s economic problems. The advocacy of severe reductions in public expenditure was a departure from the previous Keynesian orthodoxy, but received the approval of the IMF in its recommendations for dealing with the financial crisis of 1976. Walter set out his doubts about the Keynesian approach to economic policy in an article in the Lloyds Bank review. This stirred up controversy among economists and prompted a reply from Professor Richard Kahn, Keynes’s leading collaborator.

On a visit to America, Walter was introduced to the Laffer Curve which related tax receipts to tax rates. He set out the relationship more formally and persuaded Conservative Chancellors that a reduction in Britain’s high rates of tax on higher incomes could raise tax receipts, but this did not apply to reductions in the standard rate of income tax. The impact of varying higher rates of tax on tax receipts remains a topical issue, which Walter introduced to public debate in this country.

In the recession of the early 1980, Walter turned his attention to the problem of financing budget deficits and made contributions to the debates on economic policy in these countries. He was concerned that instability could arise if the real rate of interest was higher than the rate of growth of the economy which would result in continuing growth in the ratio of the public debt to national income. This problem was particularly relevant to Italy and other counties such as Poland which faced similar problems.

Walter was a careful and thorough editor, based on long experience gained from his editorship of Oxford Economic Papers, he was also active in organising conferences and in editing the proceedings for publication. The most influential conference was held in 1981 at a time of general concern over the high level of sterling. The papers submitted to the Conference were published as “The Money supply and the Exchange Rate” which Walter edited with Peter Sinclair.

His active contribution to the debates on British economic policy led to his being appointed to be Economic Director of National Economic Development Office (NEDO), where he was particularly concerned about the need to reduce the rate of inflation. He argued that the nominal rate of interest was important because of the burden which it placed on the cash flow of firms. Walter therefore argued for a reduction in the rate of inflation and the adoption of an inflation target of zero. His article on “How inflation undermines economic performance” received widespread attention.

Walter did much to encourage discussion of economic policy issues among economists.  His last appointment was as economic adviser to Michael Heseltine where he continued to give advice on economic policy.

Walter will be greatly missed by his friends and family.


Nicolas Dimsdale, University of Oxford