[p.372]
Chapter 24
CONCLUDING NOTES ON THE SOCIAL PHILOSOPHY TOWARDS WHICH THE
GENERAL THEORY MIGHT LEAD
I
The outstanding faults of the economic society in which we
live are its failure to provide for full employment and its
arbitrary and inequitable distribution of wealth and incomes. The
bearing of the foregoing theory on the first of these is obvious.
But there are also two important respects in which it is relevant
to the second.
Since the end of the nineteenth century significant progress
towards the removal of very great disparities of wealth and
income has been achieved through the instrument of direct
taxation¾income tax and surtax and
death duties¾especially in Great
Britain. Many people would wish to see this process carried much
further, but they are deterred by two considerations; partly by
the fear of making skilful evasions too much worth while and also
of diminishing unduly the motive towards risk-taking, but mainly,
I think, by the belief that the growth of capital depends upon
the strength of the motive towards individual saving and that for
a large proportion of this growth we are dependent on the savings
of the rich out of their superfluity. Our argument does not
affect the first of these considerations. But it may considerably
modify our attitude towards the second. For we have seen that, up
to the point where full employment prevails, the growth [p.373] of capital depends not at all on a low propensity to consume
but is, on the contrary, held back by it; and only in conditions
of full employment is a low propensity to consume conducive to
the growth of capital. Moreover, experience suggests that in
existing conditions saving by institutions and through sinking
funds is more than adequate, and that measures for the
redistribution of incomes in a way likely to raise the propensity
to consume may prove positively favourable to the growth of
capital.
The existing confusion of the public mind on the matter is
well illustrated by the very common belief that the death duties
are responsible for a reduction in the capital wealth of the
country. Assuming that the State applies the proceeds of these
duties to its ordinary outgoings so that taxes on incomes and
consumption are correspondingly reduced or avoided, it is, of
course, true that a fiscal policy of heavy death duties has the
effect of increasing the community's propensity to consume. But
inasmuch as an increase in the habitual propensity to consume
will in general (i.e. except in conditions of full employment)
serve to increase at the same time the inducement to invest, the
inference commonly drawn is the exact opposite of the truth.
Thus our argument leads towards the conclusion that in
contemporary conditions the growth of wealth, so far from being
dependent on the abstinence of the rich, as is commonly supposed,
is more likely to be impeded by it. One of the chief social
justifications of great inequality of wealth is, therefore,
removed. I am not saying that there are no other reasons,
unaffected by our theory, capable of justifying some measure of
inequality in some circumstances. But it does dispose of the most
important of the reasons why hitherto we have thought it prudent
to move carefully. This particularly affects our attitude towards
death duties: for there are certain justifications for inequality
of [p.374] incomes which do not apply equally to inequality of
inheritances.
For my own part, I believe that there is social and
psychological justification for significant inequalities of
incomes and wealth, but not for such large disparities as exist
to-day. There are valuable human activities which require the
motive of money-making and the environment of private
wealth-ownership for their full fruition. Moreover, dangerous
human proclivities can be canalised into comparatively harmless
channels by the existence of opportunities for money-making and
private wealth, which, if they cannot be satisfied in this way,
may find their outlet in cruelty, the reckless pursuit of
personal power and authority, and other forms of
self-aggrandisement. It is better that a man should tyrannise
over his bank balance than over his fellow-citizens; and whilst
the former is sometimes denounced as being but a means to the
latter, sometimes at least it is an alternative. But it is not
necessary for the stimulation of these activities and the
satisfaction of these proclivities that the game should be played
for such high stakes as at present. Much lower stakes will serve
the purpose equally well, as soon as the players are accustomed
to them. The task of transmuting human nature must not be
confused with the task of managing it. Though in the ideal
commonwealth men may have been taught or inspired or bred to take
no interest in the stakes, it may still be wise and prudent
statesmanship to allow the game to be played, subject to rules
and limitations, so long as the average man, or even a
significant section of the community, is in fact strongly
addicted to the money-making passion.
II
There is, however, a second, much more fundamental inference
from our argument which has a [p.375] bearing on the future of inequalities of wealth; namely, our
theory of the rate of interest. The justification for a
moderately high rate of interest has been found hitherto in the
necessity of providing a sufficient inducement to save. But we
have shown that the extent of effective saving is necessarily
determined by the scale of investment and that the scale of
investment is promoted by a low rate of interest, provided
that we do not attempt to stimulate it in this way beyond the
point which corresponds to full employment. Thus it is to our
best advantage to reduce the rate of interest to that point
relatively to the schedule of the marginal efficiency of capital
at which there is full employment.
There can be no doubt that this criterion will lead to a much
lower rate of interest than has ruled hitherto; and, so far as
one can guess at the schedules of the marginal efficiency of
capital corresponding to increasing amounts of capital, the rate
of interest is likely to fall steadily, if it should be
practicable to maintain conditions of more or less continuous
full employment¾unless, indeed, there
is an excessive change in the aggregate propensity to consume
(including the State).
I feel sure that the demand for capital is strictly limited in
the sense that it would not be difficult to increase the stock of
capital up to a point where its marginal efficiency had fallen to
a very low figure. This would not mean that the use of capital
instruments would cost almost nothing, but only that the return
from them would have to cover little more than their exhaustion
by wastage and obsolescence together with some margin to cover
risk and the exercise of skill and judgment. In short, the
aggregate return from durable goods in the course of their life
would, as in the case of short-lived goods, just cover their
labour-costs of production plus an allowance for risk and
the costs of skill and supervision.
Now, though this state of affairs would be quite compatible
with some measure of individualism, yet [p.376] it would mean the euthanasia of the rentier, and,
consequently, the euthanasia of the cumulative oppressive power
of the capitalist to exploit the scarcity-value of capital.
Interest to-day rewards no genuine sacrifice, any more than does
the rent of land. The owner of capital can obtain interest
because capital is scarce, just as the owner of land can obtain
rent because land is scarce. But whilst there may be intrinsic
reasons for the scarcity of land, there are no intrinsic reasons
for the scarcity of capital. An intrinsic reason for such
scarcity, in the sense of a genuine sacrifice which could only be
called forth by the offer of a reward in the shape of interest,
would not exist, in the long run, except in the event of the
individual propensity to consume proving to be of such a
character that net saving in conditions of full employment comes
to an end before capital has become sufficiently abundant. But
even so, it will still be possible for communal saving through
the agency of the State to be maintained at a level which will
allow the growth of capital up to the point where it ceases to be
scarce.
I see, therefore, the rentier aspect of capitalism as a
transitional phase which will disappear when it has done its
work. And with the disappearance of its rentier aspect much else
in it besides will suffer a sea-change. It will be, moreover, a
great advantage of the order of events which I am advocating,
that the euthanasia of the rentier, of the functionless investor,
will be nothing sudden, merely a gradual but prolonged
continuance of what we have seen recently in Great Britain, and
will need no revolution.
Thus we might aim in practice (there being nothing in this
which is unattainable) at an increase in the volume of capital
until it ceases to be scarce, so that the functionless investor
will no longer receive a bonus; and at a scheme of direct
taxation which allows the intelligence and determination and
executive skill of the financier, the entrepreneur et hoc
genus omne (who are certainly so [p.377] fond of their craft that their labour could be obtained much
cheaper than at present), to be harnessed to the service of the
community on reasonable terms of reward.
At the same time we must recognise that only experience can
show how far the common will, embodied in the policy of the
State, ought to be directed to increasing and supplementing the
inducement to invest; and how far it is safe to stimulate the
average propensity to consume, without foregoing our aim of
depriving capital of its scarcity-value within one or two
generations. It may turn out that the propensity to consume will
be so easily strengthened by the effects of a falling rate of
interest, that full employment can be reached with a rate of
accumulation little greater than at present. In this event a
scheme for the higher taxation of large incomes and inheritances
might be open to the objection that it would lead to full
employment with a rate of accumulation which was reduced
considerably below the current level. I must not be supposed to
deny the possibility, or even the probability, of this outcome.
For in such matters it is rash to predict how the average man
will react to a changed environment. If, however, it should prove
easy to secure an approximation to full employment with a rate of
accumulation not much greater than at present, an outstanding
problem will at least have been solved. And it would remain for
separate decision on what scale and by what means it is right and
reasonable to call on the living generation to restrict their
consumption, so as to establish in course of time, a state of
full investment for their successors.
III
In some other respects the foregoing theory is moderately
conservative in its implications. For whilst it indicates the
vital importance of establishing certain central controls in
matters which are now left in the [p.378] main to individual initiative, there are wide fields of
activity which are unaffected. The State will have to exercise a
guiding influence on the propensity to consume partly through its
scheme of taxation, partly by fixing the rate of interest, and
partly, perhaps, in other ways. Furthermore, it seems unlikely
that the influence of banking policy on the rate of interest will
be sufficient by itself to determine an optimum rate of
investment. I conceive, therefore, that a somewhat comprehensive
socialisation of investment will prove the only means of securing
an approximation to full employment; though 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 accepted classical theory of economics
has consisted not so much in finding logical flaws in its
analysis as in pointing out that its tacit assumptions are seldom
or never satisfied, with the result that it cannot solve the
economic problems of the actual world. But if our central
controls succeed in establishing an aggregate volume of output
corresponding to full employment as nearly as is practicable, the
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 [p.379] 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.
Thus 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.
Furthermore, the modern classical theory has itself called
attention to various conditions in which the free play of [p.380] 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.
Let us stop for a moment to remind ourselves what these
advantages are. They are partly advantages of efficiency¾the advantages of decentralisation and of
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; and
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.
Whilst, therefore, the enlargement of the functions of
government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to
a nineteenth-century publicist or to a contemporary American
financier to be a terrific encroachment on individualism, I
defend it, on the contrary, both as the only practicable means of
avoiding the destruction of existing economic forms in their
entirety and as the condition of the successful functioning of
individual initiative.
For if effective demand is deficient, not only is the [p.381] public scandal of wasted resources intolerable, but 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 to-day seem to solve the
problem of unemployment at the expense of efficiency and of
freedom. It is certain that the world will not much longer
tolerate the unemployment which, apart from brief intervals of
excitement, is associated¾and, in my
opinion, inevitably associated¾with
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 pre-[p.382]dominant 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 [p.383] 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 correct¾an
hypothesis on which the author himself must necessarily base what he writes¾it
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. Indeed 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. I am sure that the power of vested interests is
vastly exaggerated compared with the gradual encroachment of
ideas. Not, indeed, immediately, but after a certain interval;
for in the field of economic and political philosophy there are
not many who are [p.384] influenced by new theories after they are twenty-five or
thirty years of age, so that the ideas which civil servants and
politicians and even agitators apply to current events are not
likely to be the newest. But, soon or late, it is ideas, not
vested interests, which are dangerous for good or evil.
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