Involuntary Employment

My theory:

• is moderately conservative.
• indicates the vital importance of establishing central controls in matters which nowadays are left to individual initiative

The State will have to guide the propensity to consume:

• partly through its scheme of taxation
• partly by fixing the interest rate
• partly in other ways.

The influence of banking policy on the interest rate can by itself to determine an optimum rate of investment.

A comprehensive socialisation of investment is the only way to secure full employment.

• This need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative.

But beyond this, no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community.

It is not the ownership of the instruments of production which it is important for the State to assume.

If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary.

Moreover, the necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society.

Our criticism of the classical theory is in pointing out that its tacit assumptions are seldom or never satisfied.

• This makes it unable to solve actual economic problems*.

*Superphysics Note: Classical Economics was overshadowed by the Marginal Revolution which enshrined profit maximization. It is this profit maximization that causes the problems. Keynesian economics keeps profit maximization and so it also is unable to solve problems, as seen from the 1970s up to today.

But if our central controls can establish full employment, then classical theory comes into its own again from this point onwards.

If we suppose the volume of output to be given, i.e. to be determined by forces outside the classical scheme of thought, then there is no objection to be raised against the classical analysis of the manner in which private self-interest will determine what in particular is produced, in what proportions the factors of production will be combined to produce it, and how the value of the final product will be distributed between them.

Again, if we have dealt otherwise with the problem of thrift, there is no objection to be raised against the modern classical theory as to the degree of consilience between private and public advantage in conditions of perfect and imperfect competition respectively.

Thus, apart from the necessity of central controls to bring about an adjustment between the propensity to consume and the inducement to invest, there is no more reason to socialise economic life than there was before. To put the point concretely, I see no reason to suppose that the existing system seriously misemploys the factors of production which are in use.

There are, of course, errors of foresight; but these would not be avoided by centralising decisions. When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men.

It is in determining the volume, not the direction, of actual employment that the existing system has broken down. I agree with Gesell that the result of filling in the gaps in the classical theory is not to dispose of the ‘Manchester System’, but to indicate the nature of the environment which the free play of economic forces requires if it is to realise the full potentialities of production.

The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government.

The modern classical theory called attention to various conditions where the free play of economic forces may need to be curbed or guided.

But there will still remain a wide field for the exercise of private initiative and responsibility.

Within this field, the traditional advantages of individualism will still hold good:

• efficiency
• decentralisation
• the play of self-interest.

The advantage to efficiency of the decentralisation of decisions and of individual responsibility is even greater, perhaps, than the nineteenth century supposed.

The reaction against the appeal to self-interest may have gone too far.

But, above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice.

It is also the best safeguard of the variety of life, which emerges precisely from this extended field of personal choice, and the loss of which is the greatest of all the losses of the homogeneous or totalitarian state.

For this variety preserves the traditions which embody the most secure and successful choices of former generations; it colours the present with the diversification of its fancy; and, being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future.

The enlargement of government is for adjusting the propensity to consume and the inducement to invest. It would seem to a contemporary American financier to be a terrific encroachment on individualism.

But it is the only practicable means of avoiding the entire destruction of existing economies and individual initiative. If effective demand is deficient then:

• the public scandal of wasted resources will be intolerable
• the individual enterpriser who seeks to bring these resources into action is operating with the odds loaded against him.

The game of hazard which he plays is furnished with many zeros, so that the players as a whole will lose if they have the energy and hope to deal all the cards. Hitherto the increment of the world’s wealth has fallen short of the aggregate of positive individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough. The authoritarian state systems of today seem to solve the problem of unemployment at the expense of efficiency and of freedom.

The world will not much longer tolerate the unemployment which, apart from brief intervals of excitement, is associated and in my opinion, inevitably associated with present-day capitalistic individualism.

But it may be possible by a right analysis of the problem to cure the disease whilst preserving efficiency and freedom. IV I have mentioned in passing that the new system might be more favourable to peace than the old has been.

It is worth while to repeat and emphasise that aspect. War has several causes. Dictators and others such, to whom war offers, in expectation at least, a pleasurable excitement, find it easy to work on the natural bellicosity of their peoples. But, over and above this, facilitating their task of fanning the popular flame, are the economic causes of war, namely, the pressure of population and the competitive struggle for markets.

It is the second factor, which probably played a predominant part in the nineteenth century, and might again, that is germane to this discussion. I have pointed out in the preceding chapter that, under the system of domestic laissez-faire and an international gold standard such as was orthodox in the latter half of the nineteenth century, there was no means open to a government whereby to mitigate economic distress at home except through the competitive struggle for markets. For all measures helpful to a state of chronic or intermittent under-employment were ruled out, except measures to improve the balance of trade on income account.

Thus, whilst economists were accustomed to applaud the prevailing international system as furnishing the fruits of the international division of labour and harmonising at the same time the interests of different nations, there lay concealed a less benign influence; and those statesmen were moved by common sense and a correct apprehension of the true course of events, who believed that if a rich, old country were to neglect the struggle for markets its prosperity would droop and fail. But if nations can learn to provide themselves with full employment by their domestic policy (and, we must add, if they can also attain equilibrium in the trend of their population), there need be no important economic forces calculated to set the interest of one country against that of its neighbours.

There would still be room for the international division of labour and for international lending in appropriate conditions. But there would no longer be a pressing motive why one country need force its wares on another or repulse the offerings of its neighbour, not because this was necessary to enable it to pay for what it wished to purchase, but with the express object of upsetting the equilibrium of payments so as to develop a balance of trade in its own favour.

International trade would cease to be what it is, namely, a desperate expedient to maintain employment at home by forcing sales on foreign markets and restricting purchases, which, if successful, will merely shift the problem of unemployment to the neighbour which is worsted in the struggle, but a willing and unimpeded exchange of goods and services in conditions of mutual advantage. V Is the fulfilment of these ideas a visionary hope?

Have they insufficient roots in the motives which govern the evolution of political society? Are the interests which they will thwart stronger and more obvious than those which they will serve? I do not attempt an answer in this place.

It would need a volume of a different character from this one to indicate even in outline the practical measures in which they might be gradually clothed. But if the ideas are correct — an hypothesis on which the author himself must necessarily base what he writes — it would be a mistake, I predict, to dispute their potency over a period of time. At the present moment people are unusually expectant of a more fundamental diagnosis; more particularly ready to receive it; eager to try it out, if it should be even plausible. But apart from this contemporary mood, the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.

The world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

The power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.

Not immediately, but after a certain interval.

Few people are influenced by new economic or political theories after they are 25 or 35 years old. The ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest.

But, soon or later, it is ideas, not vested interests, which are dangerous for good or evil.