Confessions of an Economic Heretic/Chapter 11

by John Atkinson Hobson

CHAPTER XI

POST-WAR ECONOMICS

So much for the war-havoc in party politics. Let me now turn to a topic more germane to the general purpose of this book, viz. the influence of the War and post-War events in this and other countries upon the “science” of economics. (May I note in passing the significant avoidance of the older term “Political Economy” at a time when political forces and actions influence economic thought and policy more than ever before?)

We saw that before the War “Economics” in this and other countries was moving in two opposite directions, towards a purely and exactly quantitative study of measured facts and tendencies, on the one hand, towards a “humanist” interpretation of these facts and tendencies, upon the other. This divergence had been greatly enlarged and accelerated by the War and its sequelae. The former tendency has been fed from two widely different sources. The prominence given to monetary changes and their visible reactions upon industry and commerce has pushed “the measuring rod” into the forefront of economic thought, and monetary-minded economists have been greatly encouraged in their insistence that supply and demand, and the “costs” and “utilities” which these terms serve, can only be usefully studied as statistical facts and forces. The natural predilection for exactitude which, as has already been pointed out, is part of the mental equipment of scientific students, has thus been strengthened by the instability of money, credit, prices, and exchange in the post-War world.

Mr. R. G. Hawtrey is the most authoritative exponent of purely monetary explanations of our economic troubles.

“The real answer to all the non-monetary explanations of the depression is that they are merely particular cases of the monetary explanation. If they do not explain the shrinkage of demand, they do not explain the depression. And the shrinkage of demand is simply a shrinkage of the flow of money.”^[1]

It is, of course, true that in every depression there is a “shrinkage of demand” and “a shrinkage of the flow of money.” This last Mr. Hawtrey attributes to something he calls “the inherent instability of credit” without explaining why this instability is “inherent.” For why does the flow of money, i.e. credit, shrink at certain places in the trade cycle? Apart from “shrinkage of demand” in general, there may occur misapplications of demand. If, as I contend, such misapplication occurs in normal periods of production by an excessive demand for capital-goods and a defective demand for consumption-goods, would this be rightly termed “a monetary explanation”? If credit shrinks because of a discovered excess in the demand for plant and other capital goods, owing to maldistribution of income, this cannot be regarded as a monetary explanation. The second source of this mathematical trend is, I frankly admit, more disputable. It is related to a half-conscious desire, both among academic and business “economists,” to defend the current capitalist system against the new serious assaults to which it is exposed by Socialism, Communism, and Trade Unionism seeking to use political power and ethical appeals for the furtherance of “revolutionary” aims. This can best be done, this order of economist believes, by an intellectual insistence upon the isolation of economics from other “social” activities and interests, and its presentation in “laws,” “principles,” and “tendencies” that are purely objective and quantitatively presentable. This is partly a survival, partly an extension of the Iaisser-faire competitive individualism of the Ricardian economics, Its leading exponents are genuinely afraid of the incursion of “humanism” into their science, from sentimental and idealistic sources. They realize how woefully defective the reasoning of Marxist and other full-fledged Socialists can be, how selfishly narrow many of the trade union tactics are, and they recognize themselves as “defenders of the faith.” What they fail to recognize is that they are turning themselves into the mercenary or volunteer protectors of a capitalism which has outlived the period of its utility, and of a profiteering system no longer serviceable even in the interests of maximum productivity. This blindness has subtle psychological implications. In America, Veblen and others have pointed out with irrefutable arguments the part played in the economics of the colleges by the selection of “safe” teachers and methods of study, warranted not to offend the well-to-do benefactors and trustees. In England this aspect of the issue has not the same prominence. The defence of capitalism, the repudiation of dangerous doctrines, is not a direct conscious motive in the mind of our economists. It proceeds, partly from a genuine belief in the rightness of the established system and of the “economics” which expand and justify intellectually this system, partly from a sincere rejection of the Socialist case, as expounded by its literature. But it is none the less closely associated with a strong class feeling for friends and associates whose interests lie in the preservation of the capitalist system. It is not possible to escape the power of early associations and the social standards of education, manners, and ways of living of those with whom we have been thrown. Equality of educational opportunities has not yet gone nearly far enough to break these bonds, and they continue to restrict the minds of those who are called upon to formulate and expound the political, social, and, above all, the economic principles of the world around them. Though it is not possible to give any exact account of an academic atmosphere, purposely kept vague, it is certain that its canons of respectability and its sympathy with the culture of the upper classes predispose it to the intellectual support of the current social-economic system. While this disposition does not imply any lack of philanthropy, it has been distinctly favourable to an economics that prides itself on detachment from sentimental values.

But the main bent of post-War economics, as science and art, has been in the direction of a conscious definite abandonment of Iaisser-faire individualism, the “free” competition upon which it relied, and a purely quantitative estimate of economic costs and utilities. Everywhere governments have been compelled “by force of circumstances” to intervene in the operation of economic processes and to protect producers and consumers from the cruel consequences of commercial and industrial disasters attributable, not to the folly and incapacity of the sufferers, but to circumstances for which nobody in particular appeared to be responsible. Though these disturbances are by no means new, the magnitude of the irrationality, injustice, and inhumanity which they display has led most thoughtful men and women to abandon the notion that economic processes can best be left to work out their own salvation or damnation, and that periods of prosperity and adversity are necessary incidents of a general economic progress. Though, as we have seen, in the generation before the War a beginning had been made in the pensions, subsidies, and other “social services” for the relief of poverty and other personal disabilities, and for the provision of improved education and amenities for the “lower” classes, as well as for the better regulation of hours, wages, and other working conditions, these fragments of “Socialism” and “Communism” carried little consciousness of an organic change of policy in the relations between economics and politics. Now such organic change is clearly discernible in every civilized country, irrespective of its form of government. Dictatorships of the right or left, in Germany, Italy, Russia, and elsewhere, are busily attempting to introduce planned national unity of purpose from the political into the economic field. Its normal procedure may contain little “humanity” or equity; it is rather directed against the wastes of competitive capitalism and for a rigorous control of industry and income for military and other political ends. Its net effect may be to depress wages and to spread poverty, but security of elementary needs and of employment is an essential factor of this policy. To this extent it carries a correction of the waste of individualism and substitutes a conscious for an unconscious use of productive forces. In these States the science and the art of economics are definitely subjected to political ends.

The situation is different in countries which retain the forms and substance of political democracy, like Britain, France, America, Scandinavia. Here the lessons of post-War economic disturbance take shape in political measures of a socialistic or communistic kind designed chiefly to “humanize” industry by protecting the workers against the injuries and dangers of an economic system no longer regarded as safe, reasonable, and fair in its distribution of work and income. In fact “humanism” is coming to be regarded as the guiding principle for industry alike on its productive and consumptive side. The recognition that it is a function of the State to establish minimum wages and maximum hours is the most definite application of this principle, more “revolutionary” in its nature than any of the fragmentary nationalization of industry which is everywhere proceeding. For this public guarantee of wages and leisure strikes at the very roots of profiteering capitalism. Carried far enough, indeed, it is certain to show the general incompatibility between profiteering and humanity. For, as already appears in France and elsewhere, the attempts to recover from the consumer in higher prices the increased costs of production due to the wage and hour regulations, oblige the Government to attempt the more difficult and in many cases impossible task of regulating the selling prices. For wage-rises and increased leisure that lead to higher prices are no gain to the workers. Though experience in this country of wage-boards in “sweated” industries shows that improved wages and other conditions of labour may induce employers to make such improvements in their methods of production as to meet the higher labour costs without a loss, this experience cannot have a general application. A policy of State-enforced humanization of private enterprises must in many cases prove impossible for the employer who is called upon to raise substantially his labour costs without the liberty to raise his selling prices. Indeed, when an industry operates largely in the world market, it is easy to perceive that any purely national policy of “humanization” along these lines is impracticable. It is the recognition of this truth that underlies the efforts of the International Labour Office to get the nations competing in world trade to agree upon simultaneous measures for shortening hours. The difficulties confronting such a “humanist” policy at present appear unsurmountable, for nations which go further than others in this direction seem likely to suffer in their export trade at a time when increases of export trade are held to be essential to recovery and progress. It is true that this may be a short-sighted view. For any damage to export trade due to rising costs of home production will to some extent be compensated out of the higher wage-incomes of the workers and the increased employment which shorter hours may bring in the essential industries. But certain British export trades would stand to suffer if their costs were raised without a similar rise of costs in their national competitors. An instance is the Lancashire cotton trade, competing over a section of its market with countries like Japan and India where labour costs are much lower. The main body of our export trade in textiles, machinery, chemicals, and coal would come under this same disability, until a reliable international co-operation, which at present seems impossible, were attained. But by many governments the substitution of a fuller intra-national trade for foreign trade is not deemed feasible. For certain foreign foods and raw materials are essential either for the maintenance of the population and its manufacturing industries, or, still more urgently at the present time, for war-materials to which all other economic considerations must be sacrificed. The new competition in armaments thus strangely interferes with the economic self-sufficiency which is a professed ideal of nationalism. Indeed, a definite clash is seen in several countries between this genuinely humanist policy and the growing demands of the “defence” services upon the national exchequer and the employment of labour. Where dictatorships or oligarchies are in control, the tendency of competitors in armaments is to absorb an increasing share of productivity, and to keep down both wages and social services to the lowest level consistent with military efficiency and popular subservience. The success which has attended the attempts to stamp out political and economic democracy in Germany, Italy, Japan, and certain other countries where it appeared to be advancing, has cast doubt upon the reality of popular power alike in the political and economic fields. In the struggle between humanism and organized force can we rely upon the victory of the former? Leaving in doubt the lasting strength of dictatorship in countries which have only tasted democracy, we may better test the issue in those countries which have had long experience of popular self-government. Here the humanist advances of the past few generations are visibly imperilled by the demands of armed defence and the sympathies for Fascism manifested by large sections of the upper classes, who prefer to undergo the expenses of armaments with the risks of war to the encroachments of a Labour or Socialist Party upon their profits and the management of industry. What I here term “humanism” appears an invasion of the rights of property to the “rentiers,” the directors, the city men, the army, and the highly placed officials who see their incomes, social status, and power over their followers threatened by a “revolutionary” movement.

Whether a Fascist reaction is likely in England, France, or America turns in large measure upon the discretion of the organized democratic forces. It is not so much a matter of power as of method. This question of method applies to the ways of furthering the humanist advance successfully. Here the improvement of labour conditions goes hand in hand with the expansion and improvement of the “social services,” both those which are directed to strengthening working-class family life and those which are more widely communist in character. It must, I think, be pretty clear that public aids in “social services,” for education, recreation, health, and pensions, once established, cannot be withdrawn, though their enlargement and improvement may be checked.

The humanist movement in economics thus interpreted fulfils two vital purposes. As a rectification of the disordered balance between production and consumption it makes for a fuller utilization of the productive resources of a nation and reduces that pressure for external markets, alike for trade and investment, which is seen to be a main stimulus to imperialism and international competition. A better and more equitable use of the national income is thus the most valuable of peace policies. Humanism within the nation makes for humanism in the world. While it is possible that this humanism in the economic sphere may be checked in a democratic country by a war emergency and a Fascist government, nothing short of a complete defeat and subjection to a foreign Power could prevent its revival and development. Thus we see that the old economic order of virtually free private enterprise has passed away. Alike in an oligarchy and a democracy the State’s relation with business has ceased to be the interference of an Page:Confessions of an Economic Heretic.djvu/143 Page:Confessions of an Economic Heretic.djvu/144 “planning” of productive activities, it safeguards the conditions of personal enjoyment and progress from the tyranny of bureaucrats or dictators. How far, how fast, and in what precise directions State Socialism with its control of key industries and its policy of “social services” shall go, will vary in each nation with the structure of its economic system, its natural and human resources, and its traditional psychology. It may well be the case that in some countries, owing to racial unity, slightness of class differences, and habits of co-operation, the sense of “fraternity” is stronger than that of individual liberty and inspires citizens to work consciously for the common good. In other countries, where class differences are strong and individual striving for personal gains and power is dominant, the domain of Socialism and State planning will be more limited and the distribution according to “needs” will be restricted in accordance with the current sentiment of “humanity.” But everywhere to an increasing extent the art of economics will go more closely hand in hand with the art of politics and both will be animated more largely by a sense of the public good, whether that “good” be visualized in terms of community welfare and security, or wholly in terms of individual liberty and welfare. And with this closer conscious nexus of economic and political arts must come a corresponding nexus of their theories, as sciences. Though specialists will continue to pursue in graphs and tables the measurable facts of economic processes, the laws and theories which these measurements are designed to serve will be more and more affected by political considerations, and their right to regulate conduct in the field of industry correspondingly restricted. This signifies a radical difference between the physical and the human sciences. Whereas the former can be studied in terms of measurable facts and forces, without the intrusion of human changing thoughts and feelings, the latter cannot. No purely objective exact science of economics, politics, or ethics, is possible, and to pretend that it can be is a species of intellectual self-deceit. Whether “the good” be visualized in terms of utility, happiness, or any other form of welfare, its value is qualitative as well as quantitative, and the qualitative estimate is continually changing alike for the community and the individual. These changes, of course, are not matters of chance, the regularities or laws of this change are right objects of scientific study and of conscious direction. This is where science and art come together in the “social services.” Such considerations ought to keep social students in a constant state of watchful timidity, aware that their studies can never yield “laws” on the same level of validity as the natural sciences, and that their art of prophecy must be correspondingly confined.

To argue that modern economics is moving definitely on to a welfare basis of values, alike on its cost and its utility side, that it thus seeks a reconciliation between Socialism and individualism which will avoid the disastrous wastes and perils of class conflict and international strife that proceed from unregulated capitalism, may appear to denote a personal craving on my part for a justification of my economic heresies. How far such a criticism is justified I cannot, of course, be entitled to decide, having due regard to the psychological blindness which I attribute to every owner of an intellectual property. If there be such a definite movement, as I appear to find, towards the adoption of my most cherished theses, removing them from the category of heresies, I should naturally feel some exultation, or even exaltation. It is, therefore, inherently likely that I may be mistaken in my appraisal of the new trend in economics, But I think it likely that many will admit the disappearance of the competitive capitalism which prevailed throughout most of the nineteenth century, or will think unlikely a restoration of the private profiteering enterprise in industry and commerce which formed the basis of the economic science of that epoch.

Notes

1. Trade Depression, p. 100.