The following quote was drawn to my attention this morning. It's by Keynes and is from a pamphlet written to support Lloyd George in the 1929 general election. It's as relevant today:
“The Conservative belief that there is some law of nature which prevents men from being employed, that it is “rash” to employ men, and that it is financially ‘sound' to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable — the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years… Our main task, therefore, will be to confirm the reader's instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like — a bogy.”
Hat tip: Sue Davies and alittleecon. It's also referred to here.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
This is for real? – I agree in the context of the time it was a valid argument (1929), but fail to see what resonance it has here – the folly of purely creating employment for its own sake, with no reference to consumer demand was surely shown by the swift collapse of the COMECON economies following the dissolution of the USSR in the early 1990s. Are you really using that as a model, seriously?
If you cannot see that there is no link between this and communist bloc countries then your powers of analysis are in deep trouble
@ Van_Patten
First of all, as regards Keynes’s aphorism about how we are all governed by the ideas of long-dead economists – well, here’s one long-dead economist whose ideas I am MORE than happy to be governed by, given the aptness and resonance of this to 2013.
For, second, contrary to your views, what Keynes says here has a great deal of resonance, because 1929 and 2008-13 bear close comparison, with the hegemony of casino economics and feckless “feral” banking (and bankers?) on the one hand, versus mass unemployment and underemployment on the other, owing to “wealth creation” being focused on, and directed towards, casino type winnings rather than true wealth creation, which ONLY comes from the proper, humane deployment of human capital.
As to your comment about COMECON and the “invention” of employment, well, fatuous is the word that springs to mind. Prior to the Second World War, FDR was on the way to creating full employment in the USA by peaceful means – a model that the rest of the world could, and should, have copied, Instead, it took the war to bring about full employment in the rest of the world, when there was suddenly enough, and more than enough, work to do.
COMECON, and the Soviet model, picked up the worse of the above solutions, and pursued a “war” economy, in which people were “fighting” the enemy with Cold War means – snooping, opening letters, eavesdropping on phone calls, informing on each other, manning the bureaucracy for running the whole agit-prop apparatus. My wife’s Czech, and was 7 when the Communists took over, living there till 1969, so I know, through her, what I’m talking about.
I remember Michael Frayn regaling us with a hilarious (and tragic story) about what looked like a bog in the wall – a wooden door, in the wall of a building, opening up into a cramped lavatory size cupboard, looking up, through a hole in the wooden door, up to Thunovksa Street, and the entrance to the British Embassy. In this “coffin” sat – all day, for hours on end – some poor informer wretch, or lowly minion of the Security Service, whose sole job was to watch and see who went in and out of the British Embassy!
When you can “invent” jobs like that, of course you can have full employment! What really did for COMECON was that when everything began to unravel, they suddenly had to find REAL jobs – not easy in their “command and control” dirigiste economy.
By contrast, we in the UK DO have work that needs to be done – on the Green Agenda, on renewables, on our infrastructure (especially our aging sewage system – Bazalgette is long dead, and we’re still using his engineering wonders), in the care and community development sectors, in capacity building and real community regeneration – in SO many sectors that create REAL wealth, and that are not to do with shuffling around electronic data that only ends up producing money for card-sharps, which would seem to be the main focus and modus operandi of our so-called “wealth creators”.
We’ve seen their like in Oxford Street, though there they usually use three shells or three cards, and are only in the business of wealth removal! Can we not fit those who need work to the work that is really needed?
Bohemia offers an example again: in Prague there’s a mediaeval wall climbing up Petrsin Hill, called “The Hunger Wall”, which Charles IV, King of Bohemian and Holy Roman Emperor (1346-78), ordered built, to give work to unemployed people, a policy which succeeded, giving employment to the poor, and enhanced security to Prague. There are certainly equivalent projects and tasks needing to be done on modern Britain.
Thanks Andrew
@AndrewDickie
Thanks for your reply, which was indeed far more comprehensive than the one provided in the context of the Original post, and makes a quite cogent argument for the need for increased Public expenditure in the current climate.However, I am not convinced, for reasons which I will try to elaborate.
‘what Keynes says here has a great deal of resonance, because 1929 and 2008-13 bear close comparison, with the hegemony of casino economics and feckless “feral” banking (and bankers?) on the one hand, versus mass unemployment and underemployment on the other’
There are obvious similarities between the contemporary financial crisis and the current one. However, what neither you nor Mr.Murphy care to mention is that Public expenditure was in that time (the 1920s and early 1930s) far lower, and even with an Empire still spanning a third of the globe, the number of Public employees also far lower than it is today. That context is noticeably wholly absent from anything I have seen on this blog. If you’re advocating a return to the efficiency and relatively light manpower of Public administration in the immediate Pre-War period, then of course that’s different. Somehow, I don’t think that’s what you nor the blog writer have in mind?
‘As to your comment about COMECON and the “invention” of employment, well, fatuous is the word that springs to mind.’
You then deploy the argument that we should adopt the model used by Roosevelt – I’d be quite happy to see an element of this, especially regarding construction. The problem is, we don’t have the skills to accomplish it, and much of the workforce in the contemporary UK in a field like construction is drawn from Eastern Europe and other parts of the world rather than the indigenous Labour force. If your plan is to use Public expenditure to indirectly subsidize housebuilding in Klaipeda and Rzeszow then that’s great, but at least have the nous to realize that’s what you are doing. Strangely you then point out that the COMECON countries did exactly what you seem to be proposing (and indeed what was done on a huge scale between 1997 and 2010 in the UK) – creating jobs for which there was almost zero Private demand and then watching the whole thing unravel – perhaps the COMECON comparison was less fatuous than you seem to think?
‘By contrast, we in the UK DO have work that needs to be done — on the Green Agenda, on renewables, on our infrastructure (especially our aging sewage system — Bazalgette is long dead, and we’re still using his engineering wonders), in the care and community development sectors, in capacity building and real community regeneration — in SO many sectors that create REAL wealth,’
Contrary to the author’s assumption, I hold no brief for the Financial Sector and I think this government buffoonish for kowtowing to it in such a scandalous fashion. Nevertheless, had a degree of market hazard been applied in 2008, then this issue would not still be occurring and indeed I doubt even the most hidebound banker would have the temerity to be demanding a bonus had the economic system crumbled then.
I’d happily commit huge resources towards infrastructure if Public expenditure wasn’t at 600 Billion pounds and rising – even factoring in Population difference and relative inflation rates over time, the UK is in a far worse position than any modern industrial country (maybe barring Japan and Greece) and certainly comparatively worse off (in terms of Debt) than the USA was in 1929. I agree that unemployment carries a terrible human cost, but simply throwing money at the problem without some detail as to what we are spending it on is a surefire road to ruin. You mention the sewage works and drainage infrastructure of London as in need of serious upgrades. How many sewage plant workers and engineers are likely to be found in the mass ranks of Public Sector jobs created between 1997 and 2010? How many people are merely engaged in projects which involve pushing paper around? Furthermore, what is the logic of allowing 150,000 people a year to settle in an area that is already one of Europe’s most densely populated?
I don’t expect an answer here, or indeed this comment to even be published but suffice it to say, I enjoy (and still do) Keynes as an economist – ‘The Economic Consequences of the Peace’ is still a work that justifies the title ‘devastating’. However, he would turn in his grave to see the self-justification issuing forth from bloated, inefficient Public Sector enterprises that when countless hundreds of millions have been squandered, yet more good money should be thrown after bad.
This analysis is ludicrous
You think there is an absolute proportion of income to be used for public goods and yet you ignore the fact that the increased supply of public goods has fuelled an absolute increase in income available to purchase other goods
Failure to take this dynamic into account undermines all your supposed logic, not that I can see much of that
The upshot of your analysis (you appear to be suggesting there need be no limit on Public expenditure at all) would suggest thus that you see the Soviet Union as some kind of paradigm thus- with 90% of National income going on ‘Public Goods’ – that you cannot see that country as many have said, is actually the closest thing to a ‘Courageous State’ yet seen in reality suggests yours is the analysis lacking in logic, as well as historical awareness. Evidently your reading of Keynes is a selective one. I do thank you for publishing the comments, however. It’s important to have a civil debate and thrash these issues out.
As ever you argue in absurdum
Of course there is a restraint
It’s called the ballot box
Some of us are democrats
Why aren’t you?
As for my reading of Keynes – I read it from a left wing perspective, and you from a libertarian one. I’m more likely to discern what Keynes meant. I’m closer to his spirit
Ah, I see- so your comments about the Republicans self- evidently ‘buying the electorate’ to get their share of the vote was a Freundian slip?
I assume thus you have no issue with a democratically elected government setting its own tax rates, as they have in Luxembourg and Ireland, then, even if it apparently ‘undermines’ democracy in other states?
I’m afraid I can’t channel the spirit of the great man himself to know which if us is closer to his original spirit – I’ll leave that to posterity to judge. I do know that based on this exchange, you seem impervious to historical analysis and possessed of quite a narrow understanding of Libertarian thought, but a number of my co-correspondents have discerned that already. I do, as I say, appreciate the forum you provide, nevertheless.
Every UK government since the mid 1970s (regardless of which party/parties are in power) has followed the doctrine first stated by Milton Friedman in 1968, namely that we have to maintain unemployment at or above a level known as the “natural rate of unemployment”. Nowadays this is more often known by the clumsy term the “Non-Accelerating Inflation Rate of Unemployment” or NAIRU for short.
During the last boom the ruling class became very nervous about falling unemployment – a Financial Times editorial published on September 11, 1998 told its readers that unemployment would have to rise, “perhaps by 500,000”! Three months earlier the Bank of England`s Monetary Policy Committee (MPC) had raised interest rates to 7.5% after concluding that “it was probable that unemployment would have to rise to hit the inflation target”.
http://www.bankofengland.co.uk/publications/minutes/Documents/mpc/pdf/1998/Mpc9806.pdf
Higher interest rates are used to increase unemployment during booms by reducing consumption and new investment.
The economists on the MPC not only want “enough” unemployment, they also want the “right type” of unemployment. Six months after Chancellor Gordon Brown created the MPC, in its December 1997 meeting the Committee asked itself “did short-term unemployment exert more downward pressure on earnings than long-term unemployment?”. They concluded that “short-term unemployment was more important”, on the grounds that “when the proportion of long-term jobless was high…..workers would probably realise that they could not be replaced so easily, and hence that their bargaining strength was higher”.
http://www.bankofengland.co.uk/publications/minutes/Documents/mpc/pdf/1997/mpc9712.pdf
The think-tank the “Resolution Foundation” produced a report in September entitled “The chilling impact of unemployment on real wages”
http://www.resolutionfoundation.org/media/media/downloads/What_a_drag_1.pdf
which shows how quickly wages are being pushed down by mass unemployment.
And if you also push the unemployment benefits down, and limit their rise to below inflation, you then create even more fear of being unemployed. That has the benefit of subservient workforce creation. Those working are also suffering through reduction of working benefits…it will be interesting to see whether those working, and with lower income, take on more debt. That seems, to me, to be the interesting question. And it also seems to be the intent, at least in part.
Those hourly-paid workers who are not seeing a fall in their hourly rate are seeing a fall in the overtime rate.
What a strange way to run a country in the 21st century: With early 20th century economics.
Oh, and if you want to run a barter economy, I know a taxman who is prepared for that !