The Critics of Keynesian Economics

XI

R. GORDON WASSON was born in Great Falls, Montana, in 1898. He was instructor of English at Columbia College in 1921 and 1922, a financial reporter for the New York Herald-Tribune from 1925 to 1928, and became vice-president of the banking firm of J. P. Morgan and Company in 1943. He is the author of The Hall Carbine Affair: A Study in Contemporary Folklore, 1941, a carefully documented study which refutes the allegation that the elder Morgan, founder of the banking house, sold to the government some condemned arms at a profit that would have been exorbitant for first-class weapons.

The following article appeared in the summer issue of the Harvard Business Review for 1945, pages 507-518. While it does not deal directly with Keynes, it does deal brilliantly with the “full employment policy” inspired by the Keynesian theories.

BEVERIDGE’S “FULL EMPLOYMENT IN A FREE SOCIETY”

R. GORDON WASSON

Sir William Beveridge’s new book,1 which could be accurately subtitled A Brief for a Planned Economy, captivates the reader by its kindliness and tone of sweet reasonableness. In the United States and also on the Continent controversy over the system of free enterprise slips easily into violence, verbal if not physical. Not so Beveridge. He is that winning person, a radical free of rancor. With the gentlest bedside manner, he administers strong medicine. His argument deflects the lightning of passion, insulates itself from the thunder of controversy. The reader feels that this book is the integral expression of a distinguished personality, a natural fruit of the humane aspect of the English genius.

Like Keynes, Beveridge has been an influence in Washington. What he says in England is likely to reach us here, after a sea-change, through the mouths of our own “intellectuals.” It behooves us all to know what he is saying.

FULL EMPLOYMENT

Beveridge proposes a program that he thinks will end the ravages of unemployment in Britain. When he speaks of “full employment,” he means “having always more vacant jobs than unemployed men, not slightly fewer jobs.” The market for labor is to be always—always, mind you—a seller’s market. There are to be no more cyclical fluctuations, no more periods of chronic unemployment. We are to plan “for continuous steady expansion.”

The author is eloquent in describing the blight of unemployment. He points out the moral difference between a buyer’s and a seller’s market for labor:

A person who has difficulty in buying the labor that he wants suffers inconvenience or reduction of profits. A person who cannot sell his labor is in effect told that he is of no use. The first difficulty causes annoyance or loss. The other is a personal catastrophe.

And again:

. . . the continuance of a system [of employment] which relies mainly on personal application, that is to say on the hawking of labour from door to door, is an anachronism which is socially indefensible.

The benevolence that suffuses these sentences tends to hide the fallacies in them. Of course employment offices should be available to help workers place themselves; but, as British experience in particular has shown, many workers find they can do better for themselves by hawking their labor than by relying on official employment agencies. Furthermore, the man “who cannot sell his labor” is not told that he is of no use. He may well find an outlet for his capacities in a different field. Beveridge himself shows how easily labor shifts from one occupation to another.

Let us recognize, however, the glow of high endeavor that often irradiates the author’s style, as when he says that full employment

. . . is an adventure, because it has never been accomplished in the past. It is an adventure, because the State in this field is not wholly master of events so long as it desires to preserve the freedom of individuals, and so long as it must adjust its actions to the actions of other communities. It is an adventure which must be undertaken if free society is to survive. It is an adventure which can be undertaken with confidence of ultimate success. Success, however, will come not by following any rigid formula but by adapting action to circumstances which may change continually. The adventure of full employment in a free society is not like the directed flight of an aircraft on a beam. It is a voyage among shifting and dangerous currents. All that can be done is to see that the craft is well found, and that the pilot has all the necessary controls, and instruments to guide his use of them.

ESSENTIAL LIBERTIES

Beveridge thinks his program will safeguard what he calls “the essential liberties which are more precious than full employment itself.” These liberties are: (1) freedom of worship, speech, writing, study, and teaching; (2) freedom of assembly and of association for political and other purposes, including the bringing about of a peaceful change of the governing authority; (3) freedom in choice of occupation; and (4) freedom in the management of a personal income.

Beveridge takes pains to declare that the essential liberties as he conceives them do “not include liberty of a private citizen to own means of production and to employ other citizens in operating them at a wage.” And further, “private ownership of means of production . . . must be judged as a device. It is not an essential citizen liberty in Britain, because it is not and never has been enjoyed by more than a very small proportion of the British people.”

That few achieve such ownership may be true. But what Beveridge is ready to sacrifice is far more than he admits. If private ownership of means of production ends, this will mean the end of the hope of ownership among a vast number—the hope that has inspired many men’s endeavors and added much to life’s value. And if private ownership of means of production ends, this also will mean for millions the end of the right to choose among employers. To all employees that right is above price, and a wholesome restraining influence on the arbitrary impulses of employers. The state as an employer can be as tyrannical as anyone else. Beveridge’s willingness to sacrifice the right of many workers to choose among employers illustrates how cruel a kind man can unwittingly be.

TRADE CYCLES

Much of the book deals with statistics of unemployment in Britain. Beveridge unravels this intricate evidence with masterly assurance. He traces the fluctuations of unemployment back through the decades, its distribution by industries and by areas and by age groups, and the extent to which unemployment is concentrated among persons long out of work; and he skillfully interrelates these separate chains of facts. He points up the arid data with his interpretative comments, which sometimes run counter to common belief. For example, he establishes beyond challenge, I believe, that the mobility of British labor from industry to industry has been high: “Men move freely from occupation to occupation in response to demand. They move less freely but substantially from place to place.” The high quality of these passages dealing with unemployment data is in curious contrast, as we shall see, with the faulty, yes, muddled structure of the book as a whole.

Beveridge believes that he has an important contribution to make to our knowledge of the trade cycle. He has discovered a statistical series that pushes back our record of trade cycles in Great Britain to 1785—far earlier than any previous study. And this series, he thinks, establishes “the identity of the trade cycle over all the whole period of one hundred and fifty years.” Furthermore, by an ingenious breakdown of the component parts of the trade cycle, a colleague of his seems to have discovered that the source of depressions has always lain in agricultural areas and among the primary producers. His evidence leads Beveridge to observe: “It must be taken as highly probable, though not finally established, that the trade cycle has an agricultural root.”

Now these two discoveries give rise to an extraordinary non sequitur in Beveridge’s argument, for after setting them forth he straightway says that “the trade cycle . . . is the common scourge of all advanced industrial countries with an unplanned economy.” He has just shown that the trade cycle as we know it today afflicted Britain back in the days when industry was in a foetal stage and before the “unplanned market economy” had triumphed. He has just indicated that the epicenter of the recurrent disturbance is “probably” in the farming and mining areas. How willful it is for him, then, to identify this scourge with modern industry! But by thus saddling industry with a peculiar responsibility for mass unemployment, he lays the groundwork for his plea that we modify profoundly our economic system.

GIANT EVILS

This brings us to a further non sequitur.

We must, Beveridge says, “destroy the giant social evils of Want, Disease, Squalor, and Ignorance,” and “reduce also the evil of Inequality” in the distribution of material resources. And he proceeds to give the impression that these Giant Evils are also rooted, like the trade cycle, in modern industrialism; that they are, so to speak, the pervasive occupational infirmities of our era. Yet Beveridge himself says, “There had been a rising return to labour throughout the nineteenth century and this continued [into the twentieth].” The same thought recurs elsewhere. In short, Beveridge is himself authority for the statement that the material welfare of the human species has been rising steadily in our modern industrial era, under what he calls repeatedly and critically our “unplanned market economy.” Let us now examine more closely those four Giant Evils—really three since squalor overlaps want and is redundant.

Want was worse before our “unplanned market economy” took wings into the industrial revolution. Where does one turn to find squalor at its worst? To lands like China, of course, where industry is still primitive.

As for disease, we need only recall the trend of life expectancy over the past 150 years, and the scourges like smallpox and diphtheria that have been conquered, to see that under our “unplanned market economy” we have achieved miracles in the field of disease, largely as the fruit of our scientific advances. And just as our industrial progress is still gaining momentum, so are our advances in medicine and public health. The “unplanned market economy” has yielded breath-taking dividends in health to us all.

Finally, there is “ignorance.” Now the past century and a half has seen the virtual elimination of illiteracy in every “modern industrial community.” Never was so much education available to so many as today, under our “unplanned market economy.” Perhaps we have not made the most of our opportunities, and certainly the quality of our education leaves much to be desired. Our educators may have let us down. But the fault does not lie in our “unplanned market economy.”

Beveridge mentions a fifth Evil, the unequal distribution of material goods. But if the floor of human welfare is rising constantly, what is the basis for complaint? Beveridge never meets the question whether big fortunes—which individually have no assurance of long duration—are not a price, and a cheap price, that we pay for lifting the floor of well-being for the whole population.

In short, the biggest foe of the Giant Evils is the self-same unplanned market economy that Beveridge would sweep away. It has done more to achieve Beveridge’s ends than any other economy in the history of mankind.

PLANNING

Beveridge’s prescription for Great Britain is a planned economy, and the key to full employment is spending, or “outlay” as he prefers to call it:

The first condition of full employment is that total outlay should always be high enough to set up a demand for products of industry which cannot be satisfied without using the whole manpower of the country: only so can the number of vacant jobs be always as high as or higher than the number of men looking for jobs.

And again:

It must be a function of the State in future to ensure adequate total outlay and by consequence to protect its citizens against mass unemployment, as definitely as it is now the function of the State to defend the citizens against attack from abroad and against robbery and violence at home. Acceptance of this new responsibility of the State . . . marks the line which we must cross in order to pass from the old Britain of mass unemployment and jealousy and fear to the new Britain of opportunity and service for all.

Then he points out the logical conclusion to be drawn from this premise, viz., that “the State cannot undertake the responsibility for full employment without full powers.” What are these powers and where do they lead us?

Beveridge recognizes that through the attainment, of his goal of “full employment” labor will be in a perpetual seller’s market, and its bargaining power will be vastly increased. But the state is not to invade the bargaining rights of labor. The perils of spiraling wages are to be avoided by the “sense of citizenship and responsibility” of labor, which “justify the expectation that it will evolve, in its own manner, the machinery by which a better co-ordinated wage policy can be carried through.” Even in Britain such optimism seems extreme; in the United States today it would be even less justified. To make the task easier for labor leadership, Beveridge would maintain permanent price controls.

But this is only the beginning of the story. Driven by the logic of his premise, Beveridge would have the state “plan the rate of national investment as a whole, both privately and publicly financed.” There is to be a new kind of national budget, which takes as its datum “the man-power of the country,” not money. It is, we are told, to be a “human budget.” The total outlay of the nation, public and private, is to be sufficient to give work to all. A National Investment Board is to decide on all capital expenditures, according to social priorities. Private entrepreneurs must win the approval of the National Investment Board before undertaking anything; otherwise investment might be diverted into projects low on the official list of priorities. Of the total national investment, “probably not more than 25%” would be accounted for by private manufacturing industry.

The government is to “coordinate and steady the activities of business men.” It is to control the location of industry and organize the mobility of labor—of course, all for the general welfare. With the passing of unemployment, Beveridge hoped that labor would relinquish restrictive practices.

There must be government “planned marketing and production of primary products, both agricultural and mineral,” in order to make possible a stable wage policy and reduce cyclical fluctuations. The sector of industry directly controlled by the government is to expand, but remain only a sector. (Incidentally, the commercial banks are not to be nationalized.) All movements of capital in and out of the country are to be controlled, and this means, says Beveridge, “a general system of control over all exchange transactions, though this need not involve a postal censorship.” But how could the control be effective without postal censorship?

In short, under Beveridge’s planned economy, “the allocation of resources would be in accord with the natural desires of the citizens, as interpreted by the planners.” Note the phrase: “as interpreted by the planners.” Just as in Germany the objective of a planned economy “involved some distortion of ordinary human desires,” so in Britain Beveridge wants to impose on consumers some curbing of their desires. He sees a danger that the spending power of the citizens might not be wisely directed. If left free, it might disregard the quality and location of available labor, or flow into forms of consumption “which were not most desirable,” or leave unmet certain crying needs for social improvement. For these reasons consumers will be free to spend their money as they please only after a minimum for all citizens has been provided. One gets the impression from Beveridge that his proposals would drastically reduce the citizen’s “disposable income,” i.e., what he has left after taxes; and that thus the consumer’s right to choose among goods would be only a sliver of what it is today. It is a pity that Beveridge never tells us how much “disposable income” his planners might relinquish to the population.

At no point in Beveridge’s long book does he discuss the difficulty, not to say impossibility, of finding “planners” wise enough and good enough to make the decisions that shape the destinies of the British people. Under the “unplanned market economy” of the past two centuries, men who sometimes were regarded at first by their contemporaries as crackpots have created the industries that today enrich the lives of us all. Beveridge’s planners would pass upon the merits of such proposals in the embryonic stage. Their veto power would be absolute. Of course the official planners would favor their own plans and innovations, mostly of a humanitarian bent no doubt. What sympathy would they have for the explosive dreams of industrial geniuses?

Nor does Beveridge deal with the danger to his “essential liberties” from encroachments by wicked planners, by arrogant planners, by ambitious and monstrous individuals who might by one means or another get control of the planning. Being himself humane, Beveridge overlooks the danger of tyranny.

ADVENTURE

Time and again Beveridge takes pains to explain that he does not ask for the complete abolition of private enterprise, at least at present. He is willing to give it another try, under a suspended sentence of death.

Not once in this whole book does he explore the secret of our dynamic economy; not once does he acknowledge the role played by private initiative and the profit motive in the achievements of western civilization in the last century. He dwells on the unemployment that has afflicted the industrial world, but never mentions the gifts bestowed on us by the economy of the “unplanned market.” He would launch us all on “the adventure of full employment”—an anemic sort of adventure, indeed, for a people who have led in the adventure of building an empire and the industrial world.

Beveridge’s conception of “adventure” is planning a society in which there will be no risk, no adventure. He invites us to undertake the adventure to end all adventures. His specific program of priorities may arouse fire in him and a few others, but how static and dull it will seem to venturers in the great historic line! There is to be social security, and socialized medicine, and scientific nutrition for all, and a large program of public outlay for more education, and fuel for all, and vigorous town planning, and country planning as well, and let us not forget housing and transport improvements.

But Beveridge’s imagination remains curiously unmoved by the stupendous adventure of industrial progress, with its repercussions in pure science, in multiplying life’s satisfactions, in raising our living standards, in the miracles of applied medicine, and in education. He does not argue this whole subject. He ignores it, like one who is denied the use of his senses over a wide area of experience. He does not know what makes the Western World go round.

For a man of Beveridge’s background, concerned as he has been all his life with the problem of unemployment, the culminating ambition of his personal world is naturally the permanent elimination of unemployment. There lies his heaven. In his mind’s eye he sees unemployment dissolving like mist against the background of an ever-expanding, prosperous economy, managed by all-wise, all-virtuous planners. It is a pleasant dream, in its unexciting way.

But others will be aware, as he is not, of the stirring even if disturbing appeal of another dream—a world of spiritual adventure in which economic expansion takes place according to no predictable program, as pioneering thinkers make their discoveries and practical men apply those discoveries to human problems. The work of these leaders cannot be plotted in advance, for by definition the realm for discovery is still undiscovered. The adventure of discovery is the great adventure. Its appeal is to the individual and to small teams of individuals. Most of them discover nothing for their pains, and get no reward. Yet the big rewards that go to the successful are the lure that attracts adventurous spirits into the contest.

At one point in Beveridge’s book we come across a surprising phrase in which he says that “clearly no attempt should be made to stop technical progress”—surprising because that pallid reference seems to express all of the author’s thinking on the subject. In a lengthy book advocating a new kind of economy, one looks to the author for a discussion of the bearing his program would have on industrial and scientific progress. Beveridge seems to assume that technical progress can be taken for granted, unless we deliberately arrest it. And this, he roundly says, we should not attempt!

Shortly after the Beveridge book appeared, Prime Minister Churchill gave voice to a different vision, one shot through with adventure in the high tradition of the men of his breed who risked much to win much:

Controls under the pretext of war or its aftermath which are, in fact, designed to favor the accomplishment of wayside totalitarian systems, however innocently designed, whatever guise they assume, whatever liveries they wear, whatever slogans they mouth, are a fraud which should be mercilessly exposed to the British public.

At the head of our mainmast we, like the United States, fly the flag of free enterprise. We are determined that the native genius and spirit of adventure, of risk-taking in peace as in war, shall bear our fortunes forward, finding profitable work and profitable trade for our people, and also we are determined that good and thrifty housekeeping, both national and private, shall sustain our economy.2

To thrive and thus make good its promise, private enterprise must have air to breathe and room to move in. Beveridge refrains from declaring himself a socialist, and declares repeatedly that his program by-passes the controversy between socialism and capitalism. But he consigns private enterprise to a reserved area of our economy where it will lack oxygen and water and heat and light and room, all of them. He would confine private enterprise to a cage, cut its hamstrings, and then admonish the creature to give a good performance, under threat of death. “The necessity of socialism . . . has not yet been demonstrated,” he says. Note the phrase, “not yet.” And then:

If . . . it should be shown by experience or by argument that abolition of private property in the means of production was necessary for full employment, this abolition would have to be undertaken.

Let the reader remember that “full employment,” with Beveridge, means a perpetual excess of jobs over workers in a perpetually expanding economy. One slump, and, under Beveridge, the day of “private property in the means of production” is over. And note the author’s willingness to rely, in shaping the weightiest public policies, on what is shown by experience or by argument—argument presumably unsupported by experience!

If in the reduced sector of the economy in which private business would survive there should be fluctuations in activity that cause unemployment, then instability “can be reduced by extension of the public sector of business investment.” Beveridge never asks the question whether his whole program will not, of itself, discourage or “stop technical progress.” For him, private ownership of the means of production is merely a device to be judged by its results. Apparently only once in the whole book are profits mentioned as an incentive, and then in a lukewarm, negative way by his colleague, Professor Kaldor, the author of Appendix C.

What does Beveridge think of competition in the business world? It is not to be encouraged:

As a general principle it may be laid down that business competition must be free, not forced. If in any industry a strong tendency develops towards collaboration between independent units or towards their amalgamation, the part of the State should be, not to try vainly to stop that tendency, but to bring it under control.

Beveridge claims to have devised a program assuring full employment without the sacrifice of private initiative in production. It is hard to avoid the conclusion that his program would doom private initiative to a lingering and inglorious end, at a cost to Britain in industrial leadership that Beveridge never stops to weigh.

SPENDING

Keynes’s spending thesis is the basis for Beveridge’s solution to the problem of unemployment. It is therefore the more surprising that he argues the merits of the Keynes thesis so briefly, since, if Keynes is mistaken, Beveridge collapses. The whole structure of the book depends on Keynes, and Keynes is taken for granted. Beveridge cites the appearance of Keynes’s General Theory in 1936 as marking the start of a “new era” in economic thought, summarizes it in a few paragraphs, and then, as to its chief points, asserts that “the analysis is probably now accepted by all persons qualified to judge.” This is a cavalier way of meeting disagreement on fundamentals. Beveridge goes to great pains elsewhere in the book, as we have seen, to expand the frontiers of our knowledge concerning the trade cycle, which constitutes only a part of the unemployment problem. But when he comes to the capstone of his argument, he shoves it into place with unseemly haste. Those who disagree with Keynes are ruled out of court in advance as probably “not qualified to judge.” The skeptical reader may well feel that Keynes’s theory is simply used as an indispensable rationalization for Beveridge’s whole program, and not be satisfied with the crude way it is grafted into Beveridge’s argument.

Beveridge never comes to close quarters with the relationship between spending and employment. He takes for granted that the two are intimately associated, subject to the one qualification that spending may mean higher prices rather than more employment. To avoid that danger he advocates, as we have seen, permanent price controls and other restrictions. His excellent analysis of the labor market suggests that many kinds of unemployment will not respond readily to spending; and the two parts of the book are never tied together.

The Keynes theory says in Beveridge’s words:

Employment depends on spending, which is of two kinds—for consumption and for investment; what people spend on consumption gives employment. What they save, i.e., do not spend on consumption, gives employment only if it is invested, which means not the buying of bonds or shares but expenditure in adding to capital equipment. . . .

Beveridge himself seems to admit the present inadequacy of certain data needed to establish the Keynes hypothesis. We must still depend in part on “general impressions”!

Nowhere in the book does Beveridge discuss Keynes’s concept of the “multiplier,” or the acceleration principle. He does not face the experience of our federal deficits in the 1930’s, which suggested that the “multiplier” can be less than 1, when a government expenditure discourages a greater expenditure by private spenders.

The Minister of National Finance in Beveridge’s vision of the future has to make each year one cardinal decision: after estimating how much, with full employment assumed and under the taxation that he proposes, private citizens may be expected to lay out on consumption and private investment, he must propose for that year public outlay sufficient, with this estimated private outlay, to employ the whole manpower of the country. We must abandon once and for all, he says, the old-fashioned goal of keeping down government expenses to a minimum and of balancing the budget.

Beveridge deals with none of the ticklish difficulties that his Minister of National Finance would face in practice. Figures for consumption and investment in the immediate past are only estimates with a wide margin of uncertainty; those for the short-term future would be guesses. Day-to-day developments affect individual action in these matters, and events which cannot be calculated in advance, such as the stock market collapse of 1929 and 1937, would upset the forecasts completely from one day to another. Furthermore, Beveridge fails to deal with the influence, favorable or unfavorable, on private consumption and investment of the government’s intended outlays.

Under the new system there are to be three rules of national finance: (1) total outlay at all times must be sufficient for full employment; (2) outlay should be directed by regard to social priorities ordained for the welfare of the people by the planners; and (3) it is better to provide the means for outlay by taxing than by borrowing; but Beveridge adds that this third rule “is of an altogether minor order of importance.” Beveridge goes on to say:

The State in matters of finance is in a different position from any private citizen or association of private citizens; it is able to control money in place of being controlled by it. Many of the mistakes of the past have arisen through failure to make this fundamental distinction.

A continuous expansion of the national debt on a large scale over the coming decades can be viewed with equanimity, says Beveridge, and he quotes with approval certain calculations of Professor Kaldor, leading to this conclusion:

. . . taking into account prospective changes in population, in productivity, and in working hours, as well as foreseeable changes of Government expenditure on pensions, education, etc., and assuming an average rate of interest of 2 per cent, the National Debt could be expanded at the rate of not less than £775 millions a year from 1948 (taken as the beginning of the reconstruction period) to 1970, without involving on that account any increase of tax rates to meet the additional charge for interest. This is a rate of borrowing far in excess of anything that would be needed to sustain full employment in peace time. A policy of continuous borrowing, on a more reasonable scale adequate for all possible requirements, is consistent with a steady reduction of the burden of the debt on the taxpayer.

The principal reason for raising funds by taxation rather than borrowing, says Beveridge, is to avoid increasing the number and wealth of rentiers. We ought to levy taxes as high as possible without stifling “desirable” enterprise and also to reduce the rate of interest “continually” until the “euthanasia of the rentier” is accomplished. (This last phrase is Keynes’s, quoted by Beveridge.) Another argument for taxation, it seems, is that borrowing too freely would encourage “general political bribery.” Taxation in the future is to be looked upon as a means of reducing private expenditure on consumption, and to be considered generally for its bearing on “priorities,” that is to say, on social and economic policy.

Why should the government issue interest-bearing debt rather than print paper money to meet its outlays? In a passage that reveals with notable candor his ways of thinking, Beveridge discusses this issue. It is worth quoting in full:

It might well be asked why the Government should not decide right away that the best rate of interest is a zero rate and proceed to finance all its deficits by the “creation” of new cash or bank money through “Ways and Means Advances.” This question is a pertinent one. It does not raise, as many of the so-called monetary reformers seem to think it raises, an issue of principle. The difference between printing paper which is a claim to cash in ten years and carries an appreciable rate of interest and printing paper which is a claim to cash on demand and carries an insignificant rate of interest is merely a difference of degree, not one of substance. Equally, there is no difference of substance between “creating” cash and printing, say, short-term bills carrying 1 per cent interest. If it is demanded, therefore, that the Government should cease to borrow at interest and simply cover its deficits by creating cash, this, in effect, amounts to demanding that governmental monetary policy should reduce the basic rate of interest, that is, the rate on paper, which carries no private risk, not gradually, but suddenly and to zero. It would have to be shown that a sudden reduction is preferable to a gradual one. Can this be shown?

There are at least two objections against it. First, a sudden reduction in the rate of interest produces a sudden appreciation in the capital value of all outstanding long-term money claims and all durable capital assets, such as land, houses, industrial property and so forth. An appreciation of these values—particularly a sudden one—which means windfall profits to their owners, may induce them to increase their luxury expenditure on an appreciable scale. While this, of course, would create additional employment, it would do so for purposes of small social value and might create social tensions that are wholly undesirable. Second, there are innumerable financial and other institutions, whose activities depend upon their being able to convert cash into interest-bearing paper that carries no appreciable private risk. If there is no further supply of gilt-edged Government paper, an important foundation of their activity crumbles away, and special arrangements are necessary to maintain them in being. This applies not only to insurance companies and banks, but also to pension funds, charitable organizations, research endowments, and so forth. These two objections lose their force when applied to a gradual and long-term policy of reducing the rate of interest; but they would appear to have considerable weight against a policy of sudden changes.

A policy of gradual reduction gives time for adjustment. The speed with which it proceeds can be adjusted to circumstances. If the long-term rate of interest is reduced by one-tenth of 1 per cent every two years, a total reduction from the present level of 3 per cent to a new level of 2 per cent is effected in twenty years. This rate of reduction may be considered too slow; it can hardly be considered too fast. If through conversions of the existing national debt, it could be spread over the total of that debt, it would allow the annual amount of interest payable on the national debt to remain stationary in spite of an annual budget deficit of £400 millions. This calculation alone should dispose of the argument of those who claim that annual budget deficits would impose an unmanageable “transfer burden” upon society.

The method that might be applied for the gradual reduction in the rate of interest on long-term bonds is the following: The length of the bonds offered “on tap” is increased every month at a stable rate of interest. After a while, the length of the bond is reduced, and the rate of interest offered on the shorter bond is also reduced. This can be repeated over and over again, giving a perfectly smooth transition. As long as the method of issuing bills and bonds “on tap” is maintained, the rate of interest is controllable without any difficulty whatever.

One cannot lay at Beveridge’s door any cheap-jack “semantic” evasions. This high-minded man is here proposing, without a trace of self-consciousness, a program and technique by which the state would gradually cheat its creditors. As with the sharpster’s thimble trick, one gasps with admiration at the smoothness of it all. If the managers of a private enterprise engaged in such plottings, imagine the outcry from “liberals”! In private business, schemings against creditors of this kind might bring a man into court, and one recalls with uneasiness that sentence of Beveridge’s, already quoted, in which he says that “the State in matters of finance is in a different position from any private citizen.” It is disturbing to see a liberal expounding the philosophy of a double moral standard for the state.

UNITED STATES

Beveridge describes his book as “first and foremost a Report for Britain,” and says expressly that the details for a full employment policy in the United States might be different. Then he adds:

But the principle of the proposals is applicable to the United States as to Britain, that it must become the responsibility of the supreme organ of the community, the National Government, to ensure at all times outlay adequate for full employment. This is consistent with leaving the actual conduct of production and the giving of employment mainly or wholly to private enterprise, that is to say in the hands of undertakings working for profit, and tested by their success in yielding profit.

And again:

Full employment . . . can be attained while leaving the actual conduct of industry in private hands, if that course commends itself. Full employment, finally, is attainable by several different routes. The route suggested for Britain in this Report is not likely to be that which would best suit the United States, with her sparser population, her higher standard of capital equipment, and her different structure of Government.

Moreover, while disclaiming any specific intention to recommend a program for the United States, Beveridge is nevertheless outspoken in expressing his misgivings about our future. We have the “strongest and most productive national economy in the world,” but also “the least stable.” Listen to this:

So far as the United States is concerned, there is no reason for confidence or even for hope that the economic system which produced this depression, if left to itself, will fail to reproduce similar depressions in the future.

That the ideas in the Beveridge book already have some advocates in the United States is evident. President Roosevelt’s last Budget Message, submitted on January 9, 1945, included figures estimating “the Nation’s Budget” along the lines of the new comprehensive kind of national budget that Beveridge describes. But the fullest expression of Beveridge’s philosophy is incorporated in Senate Bill 380, introduced by Senator Murray, and known as the Murray Full Employment Bill. Not only does it provide for the regular preparation of a “National Budget” of the kind envisaged by Beveridge; following his views, it would clothe our government with responsibility for full employment.

The Murray Bill, however, parts company with Beveridge in the emphasis it places on private initiative. It starts by declaring:

It is the policy of the United States to foster free competitive enterprise and the investment of private capital in trade and commerce and in the development of the natural resources of the United States.

It goes on to say that

. . . it is the responsibility of the Federal Government to pursue such consistent and openly arrived at economic policies and programs as will stimulate and encourage the highest feasible levels of employment opportunities through private and other non-Federal investment and expenditures.

Furthermore, any deficiency in private expenditures that the government makes up in order to assure employment is to be designed “to stimulate increased employment opportunities by private enterprise.”

The Murray Bill in reality consists, first, of a declaration of policy and, secondly, of a mechanism for generating the new kind of budget.

That policy means the assumption by the Federal Government of responsibility for maintaining full employment. But already the government, if it so chooses, can take responsibility for employment without being formally committed by legislative declaration to do so. Faced with unemployment it can recommend the steps that in its wisdom are best aimed at meeting the problem. The formal declaration by Congress of responsibility for eliminating unemployment might carry with it a compulsion to spend, at the first appearance of abnormal unemployment, that in practice would forestall the other more wholesome alternative solutions. And hasty and ill-considered spending could easily make the patient worse, aggravating the illness while providing purely symptomatic relief. In the light of our conspicuous political weaknesses, such a declaration of policy might make our government “trigger-happy” when it comes to spending. If men with no understanding of, or sympathy with, free enterprise were seeking to graft the Beveridge program on our economy, what strategy could be simpler than to permeate their bill with professions of allegiance to private initiative, at the same time setting up the mechanism that would insure its failure?

The mechanism, the elaborate statistical apparatus, could be created also without legislation—and its practicality tested, before being put to use, by trial and error against actualities. The inability of the United States Treasury to predict its own revenues and expenditures for a year in advance has been notorious. How calculations infinitely more abstruse, involving far greater, and more important, unknown quantities, can be made with sufficient accuracy to be useful is hard to see.

The community must do all it can to avoid unemployment and to alleviate its hardships. Let us not forget that there are limits to human wisdom for which statutory declarations are not a substitute. As long as the world is convulsed by recurring wars and as long as the fiscal authorities commit blunders (however unintentional these may be), the economic repercussions will surely include employment dislocations. Furthermore, let us always keep in mind that the unemployment problem has been a major preoccupation of the modern industrial world only in recent times. For upwards of a century mankind has been reaping fabulous rewards from industrial progress wherever the competitive, profit economy has been functioning. If we lift our eyes from our immediate concern with unemployment and view our situation in the perspective of a longer past, how foolish becomes the proposal that we scrap the competitive, profit economy because, forsooth, we do not yet find ourselves in Elysian meadows blooming with asphodel.

1 Full Employment in a Free Society (New York, W. W. Norton & Company, Inc., 1945).

2 Address before the annual conference of the Conservative party, March 15, 1945; text from The Times (London), March 16, 1945.