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The Beveridge Program: An Unsympathetic Interpretation

Author(s): Henry C. Simons

Source: The Journal of Political Economy, Vol. 53, No. 3 (Sep., 1945), pp. 212-233
Published by: The University of Chicago Press
Stable URL: http://www.jstor.org/stable/1826930
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Journal of Political Economy.


BEVERIDGE 'S Full Employmentin a senlial liberties and with little or no in-
Free Society' is a powerful tract. crease of pre-war taxes. He also promises
Written by a nominal Liberal, England prosperity and power, without
radical-reactionary in its substantive dependence on her benighted ally across
proposals, libertarian in its rhetoric, this the sea.
second Beveridge Report may forecast or The immediate program is sum-
largely determine the course of British marized as follows (pp. 272-73):
postwar policy. It is a highly convenient Abolition of Want by Social Security and
marriage of the first Report2 and The Children's Allowances increasing and stabiliz-
Economics of Full Employment.3 Seeking ing consumption.
a national economic-financial program Collective Outlay to secure good houses,
good food, fuel and other necessaries at stable
which would accommodate his expensive prices for all, and a National Health Service
Plan, Sir William found it whole at the without a charge on treatment.
Oxford Institute, in a hyper-Keynesian Encouragement and Regulation of Private
scheme of tightly regimented economy Investment by a National Investment Board to
and extreme economic nationalism. The rejuvenate and expand the mechanical equip-
ment of the country while stabilizing the process
six studies (by Burchardt, Kalecki, of doing so.
Schumacher, Worswick, Balogh, and Extension of the Public Sector of Industry so
Mandelbaum) evidently were prepared as to increase the scope of direct stabilization of
specifically for Beveridge-as was the investment and to bring monopolies under pub-
beautiful Kaldor memorandum, which, lic control.
A National Budget based on the datum of
incorporated as an Appendix, affords the man-power and designed to ensure year by year
quantitative framework of his tract. The total outlay sufficient to set up demand for the
larger book, in what is new for Beveridge, whole productive resources of the country.
seems to be written out of Kaldor and Control of the Location of Industry with full
powers, including transport, on a national plan.
the six studies, especially those of Kalecki
Organized Mobility of Labour to prevent
and Balogh. aimless movement, the hawking of labour and
Sir William again calls Englishmen to mis-direction of juveniles, while facilitating
a crusade against Want, Disease, Squalor, movement when it is desirable.
and Ignorance. He promises an early end Controlled Marketing of Primary Products,
so as to stabilize overseas demand to the ut-
of these evils, with no sacrifice of es-
I By William H. Beveridge. New York: W. W. International Trading Arrangements based
Norton & Co., Inc., I945. Pp. 429. $3.75. on acceptance of the three fundamental condi-
2 Social Insurance and Allied Services: Report by tions of multilateral trade: full employment,
Sir William Beveridge. London: His Majesty's Sta- balancing of international accounts, and sta-
tionery Office; New York, I942. bility of economic policy.
3 Six Studies Prepared at the Oxford Institute of
Statistics. Oxford: Basil Blackwell, 1944. Pp. vii+
It is indeed a bold scheme. Domestically,
2I3. I2S. 6d. England will finance a welfare program

which seemed beyond her pre-war means. powers to central authorities. He would
Internationally, she will go her own way create control machinery which, in eco-
regardless, if not defiant, of the United nomic matters, would adequately serve
States. the most authoritarian regime. On the
What is wrong with the prescription? other hand, nothing is to be done to en-
Well-very little, if one likes the pre- force competition to facilitate new en-
war German scheme as a national way of terprise, or to diminish the artificial
life, and if England is tough and powerful (i.e., merely private) economies of mo-
enough to get away with it. Evidently nopolistic size. The cartel system is to be
the German authorities erred only in preserved and strengthened. Freedom in
aiming at war instead of at welfare. So a the management of private income is
sporting old Englishman urges England nominally preserved, but only within a
to take over the German game, not dif- framework of, first, heavy penalties (ex-
fidently as in the thirties but zealously, cises) and large premiums (subsidies) on
and to show the world how it should be the major items of consumption and,
played. England's commercial power is second, price ceilings and rationing.
to be mobilized and concentrated, to There would also be nominal freedom of
improve her terms of trade, to recruit enterprise and investment within this
satellites for a tight sterling bloc, and to uncongenial framework, but subject also
insulate herself and them from unstable, to discretionary rationing of essential
unplanned economies, i.e., from the materials, to arbitrary pricing of block
United States. imports, to subsidized, directed export,
Beveridge affects indifference to issues and to licensing by a National Invest-
of collectivism versus individualism. The ment Board with broad powers to re-
program is declared to be equally com- strict investment in particular industries
patible with socialism and with private or localities. Price ceilings and (subsi-
enterprise-which seems disingenuous. dized) governmental enterprise are rec-
Any intelligent planning or broad policy ommended, not only to curtail profits in
prescription must aim at a kind of sys- otherwise profitable industries but also
tem as well as at particularist ends. One to force "deeper investment" or cost re-
must plan for free-market controls just duction in unprosperous, decadent (ex-
as carefully as (indeed, more so than) for port?) industries. Cartels, to be sure,
socialization. One may (must) sensibly must be reasonable and co-operative;
plan for socialization, national, provin- otherwise their industries must be so-
cial, or local, in particular economic cialized. Trade-unions must not strike
areas-liquidity creation, insurance and for unduly rapid increase in wage rates;
annuities, public utilities, health, edu- otherwise wages must be fixed by the
cation, etc.-and for free markets and state.5 It is that simple.
free enterprise in others. Sir William's
4 "As a general principle it may be laid down that
planning, in all substantive aspects, is business competition must be free, not forced. If in
collectivist; his neutrality is exhibited any industry a strong tendency develops towards
only in his rhetoric, and in willingness to collaboration between independent units or towards
their amalgamation, the part of the State should be,
tolerate private enterprise if and while it not to try vainly to stop that tendency but to bring
can survive anomalously or vestigially, it under control" (p. 204).
in spite of policy. 5 "If trade unions under full employment press
He would delegate vast discretionary wage claims unreasonably, maintenance of a stable

Sir William seems tolerant of private and without substantial reliance on dis-
enterprise if it is not (save in minor in- cretionaryauthorities.
dustries) competitive, i.e., of syndicates This distinction-rules or laws versus
which serve as instrumentsof the central authorities-is the nub of the real
authorities. The "chaotic" dispersion of planning issue. It is obscured by the
power implicit in free enterpriseevident- fact that both libertarian and col-
ly must be "corrected,"if only to avoid lectivist programs call for radical fi-
"the tendency to competitive over-in- nancial reform, the formermore clearly
vestment, that will persist so long as any and more specifically than the latter.
important industry is not under unified Planners would control the price level
control." The English enterpriser,if not by promiscuous intervention, innocent
already moribund,is evidently to be ac- or plausible in detail and revolutionary
corded a quicker euthanasia than the in total. Libertarians would radically
rentier-which is a sad denouement for alter the private financial structure,
the worthy liberal programof making a economizing kinds of intervention and
risk-takerand equity-investor out of the purging the old system of anomalies in
rentier. crucial particulars. Those who would
extend and consolidate the rule of law
MONETARY-FISCAL POLICY thus may appearmore radicalthan those
Beveridge implicitly identifies mone- who would abandon it; recourse to dis-
tary stabilization with Planning-thus cretionary authorities revolutionizesour
concealing and confusing the important, political-economicsystem without seem-
controversial issue about Planning. The ing to change it at all.
"unplanned economy" of his aspersions The old monetary-fiscal-bankingsys-
is a free-market economy without any tem involved provision of indispensable
sensible monetary system, i.e., an econ- liquidity by devices which minimal
omy exposed to indefinite, cumulative standards of permissible corporation fi-
deflation and institutionally unprotected nance would'have precluded. Moreover,
against it. He thus appropriates, as a it involved relianceon precisely the kind
virtue of Planning, a kind of reform of discretionary authorities (central
which is indispensableto tolerable func- banks) which Beveridge and other Plan-
tioning of a libertarian, free-market ners would now multiply and more gen-
system-and which, unlike his program, erously empower. Gradual but radical
requires no departure from the rule of reformin fiscal practice, in banking, and
law. Monetary stabilization can and in corporate finance is, properly con-
should be achieved under definite, legis- ceived, an anticollectivist program. It
lative-constitutional rules of fiscal policy should seek (i) to concentrateissue pow-
ers and borrowing-powerswhere they
price level will become impossible; wage determina-
belong (i.e., in the government or the
tion will perforce become a function of the State. If Treasury, which alone can create genu-
the private owners of business undertakings under ine liquidity) and to focus sharply the
full employment set out to exploit consumers by or-
ganizing monopolies and price rings, or abuse their
responsibility for their exercise; (2) to
economic power for political purposes, or fail, with assuremonetary stability under definite,
all the help of the State and in an expanding econ- coherent rules of fiscal practice that will
omy, to stabilize the process of investment, the pri-
vate owners cannot for long be left in their owner-
minimize delegation of authority, mini-
ship" (p. 207). mize detailed intervention,and minimize

the monetary uncertainty afflicting pri- would use them, along with an over-
vate, competitive business; (3) to con- valued pound, to enlarge the scope for
fine private financialenterprisesto their detailed intervention by authorities or,
proper business of mobilizing and ca- as he puts it, for the imposition of social
nalizing equity investment; and thus priorities. This is standard collectivist
(4) to maximize free-market control of technique, making a peacetime virtue of
relative prices and, through prices, of wartime (alleged) necessity, i.e., of for-
relative production and consumption. eign-trade monopoly and domestic ra-
Beveridge is not interested in altering tioning, for consumer goods, industrial
the financial structure or in focusing materials, and investment permits. The
political responsibilityin the use of fiscal cause of large employment is thus made
powers; neither does he propose any to serve other ends-better terms of for-
rules for their exercise-save the rhe- eign trade (national monopoly-monop-
torical rule of full employment, which, sonyexploitation),economicimperialism,
properly, is not an instrumental end at severe sumptuary controls, and govern-
all. Full employment is a worthy pur- mental direction of new investment.
pose which, among others,instrumental The whole monetary argument is
ends, policy rules, and laws should be deeply confused by the typical Keynes-
designedto serve. To proposeit as a rule ian blurring of the difference between
is to by-pass the democraticprocess and currency issue and governmental bor-
to propose government by authorities, rowing, i.e., by a preoccupation with
which, instead of legislation, will imple- flowsthat disregardsstocks. The banking
ment the purpose. Beveridge is wisely process is simply taken for granted. The
and eloquently opposed to inflation as government, however, must absolutely
well as to deflation (p. 202); but stable determine the rate of interest, fixing it
money comes in only by the back door, against increase and, indeed, reducingit
not as a guide or proximategoal but as a graduallyby HOof i per cent each year,
wishful afterthought-or, perhaps, as an i.e., to zero in about forty years (p. 34').
excuse for direct controls. All this, and the suggestedtechniques,6
Monetary stability, says Beveridge, is 6 "It may be asked, what happens if the Govern-
inadequate-which is also a distinctive ment wishes to borrow and spend ?ioo millions and
article of a libertarian faith. What he the public is not prepared to subscribe more than
(say) ?6o millions to the long-term or short-term
means, however, is that fiscal policy issues 'on tap'? The answer, again, is simple. A
must afford, not over-all stability but deficit expenditure of ?ioo millions having been
persistentinflationpressure,in orderthat decided upon in the light of the general economic
the Government raises the balance of ?40
control by relative prices may be dis- situation,
millions through 'Ways and Means Advances' from
placed with direct, discretionarycontrol the Bank of England. As it proceeds to spend the
of relative prices and of consumption, ?ioo millions, it increases the stock of the commu-
nity's savings by ?ioo millions. These new savings
production, and investment. The Eng- will again have to be held in some form-in cash,
lish economy is to be subjected,by deficit deposits, bills, or bonds. Having spent ?40 millions
finance, to a continuous inflation pres- out of 'Ways and Means Advances' from the Bank
sure, which, in turn, will be frustrated of England, the cash basis of the banking system
has been increased by that amount. The banks will
by nonfiscal means. Liberal procedure not want to hold more than their customary ratio of
would use fiscal devices to get monetary cash against deposits. Thus they will, during the
next period, again subscribe to the
stability, and then deal with other prob- public will not wish to hold all their'tap' issues. The
new savings in
lems within that framework. Beveridge the form of cash or bank deposits (these being de-

may puzzle the reader until he appre- investment (and consumption?) and thus
hends the real trick: the English debt is to creating an apparent necessity of vast
be wholly monetized. Bonds are to be kept public outlay.
perfectly liquid at par, i.e., guaranteed Governmental borrowing, I submit, is
against even momentary depreciation. always wrong-a fiscal error or heritage
They will have the substantial attributes of error. It may be pardonable in great
of currency, plus some interest plus poli- war emergencies, when democracies seem
cy-assurance of interim appreciation. morally incapable of taxing adequately
The interest rate thus becomesa pure hoard- to their spending. Given such indulgence,
ing premtiitin and the scheme, purport- however, debt should afterward be rapid-
ing to promote private investment, is ly retired; borrowing-powers should be
admirably contrived to restrict it, by conserved for emergencies and, in war-
offering investors in government securi- time, against contingently long war.
ties a liquidity which private enterprise Otherwise, we impair our last line of de-
cannot offer, or pretend to offer, with- fense against inflation and, incidentally,
out suicidal risk. I have never liked the invite awkward leakage during depres-
Gesell-Fisher-Dahlberg schemes; if we sions. Furthermore, bonds should be
must tax hoarding, steady increase in the kept as illiquid as possible, by use of the
price level, while dangerous, is the only consol or perpetuity form, in order to
elegant means. As between taxing hoard- afford the maximum gain-and-loss lever-
ing and subsidizing it, however, the latter age for open-market operations. Instead
certainly has no merit save that it can of supplying additional bonds during de-
more easily (and more foolishly) be done. pressions, the government should take
Its only virtue is that of checking private them away as fast as possible, maximiz-
ing at such times the rate at which debt
termined by business turnover) and will also sub- is retired, i.e., monetized. For boom
scribe to 'tap' issues. The banks can subscribe to
these issues only to the extent that the public are
periods the Keynesians are perhaps right:
prepared to hold more bank deposits. If the public interest-rate (open-market) measures
refuse to hold any of their current new savings in should be minimized; increased taxation
additional bank deposits, because their demand for
cash is satiated, all the subscription to the 'tap' is-
and reduced spending should carry the
sues will come from the public and none from the load.7
banks. Bank deposits and bank assets will cease to Beveridge and his Oxford colleagues
"The essence of what has been said above is this: would evade the whole question of bonds
maintaining a stable rate of interest means, first, de- versus currency by making them identi-
ciding what the rate of interest should be and, sec- cal and by converting open-market
ond, offering the citizens exactly what, in view of the
thus determined rate, they are anxious to have. In operations into permanent bid-and-offer
practical terms, this means keeping long-term bonds at par. If bonds are undersubscribed,
and short-term paper on 'tap' and 'creating' addi- then Ways-and-Means advances are
tional cash or Central Bank money by borrowing
from the Bank of England whenever 'tap' subscrip- recommended, thus to provide redundant
tions are insufficient to cover the budget deficit. reserves which will generate the addi-
This does not mean inflation, because the very size
of the deficit is decided upon as an antidote to the 7For argument along these lines, see my "On
'deflationary gap' which would exist in the absence Debt Policy," Journal of Political Economy, LII
of deficit. If, as may well happen, 'tap' subscriptions (I944), 356-6i.
exceed the amount required by the government, this One great virtue of the consol form, by the way,
shows that the rate of interest offered is higher than is that it affords an excellent inflation. barometer; its
is necessary, and should lead the government to price changes reflect prevailing expectations as to
lower the rate" (pp. 339-40). the price level.

tional subscriptions; if bonds are over- debt policy really means ioo per cent
subscribed,then the interest rate should reserve banking, with a diminishing
be reduced!No need to worryabout the transitional subsidy, which, if not ex-
debt, for the interest rate can be re- tended to other bondholders, would
duced faster than the debt increases,and make fairly good sense'-also that his
before long to zero! debt policy is the one now followedin the
One'sfirst reactionis a picture of Eng- United States!
lishmen rushing into assets like Ger-
mans in I923-if one overlookswhat the KALDOR'S ROUTES
author and his friendshave learned from The best part of the book is Kaldor's
Germanyof the thirties. Flight into for- analysis and forecast of national income
eign currencies or securities would be and outlay (Appen. C). I cannot pretend
prevented by comprehensiveexchange-
to judge his statistical estimates for
control. Flight into domestic equities or I948; but they seem useful and plaus-
industrial properties, if not wholly dis- ible-especially if translatedinto guesses
couragedby the trade-unions,would be about the secular monetary expansion
inhibited by product-priceceilings and necessary to stabilize price levels in the
rationing, by materials allocation, etc. face of rising real income and increasing
Flight into new real investment may demand for liquidity.
similarly be frustrated, with the help of Kaldor examines three main "routes"
the Investment Board. This leaves only to full employment in I948: (I) I938
consumption and consumer-capital, taxes with enlargedpublic outlay; (II) a
where rationing would check the flight. balanced budget with (fabulous) in-
The debt policy thus amply supple- creaseof both revenuesandexpenditures;
ments budgetary policy, creating infla- (III) I938 "real"expenditureswith uni-
tion pressure via money stocks, as well form reduction of all I938 taxes, i.e.,
as via flows, and further enlarging the with tax-inducedincreasein private out-
scope for "social priorities." Flight into lay. To accommodatewartimeincreasein
assets ceases to be a freedom and be- labor costs, the price level is assumed to
comes a crime. be higher by 33 per cent in I948 than in
Since the governmentcan so easily fix I938.
"the interest rate" when it asks lenders Route I is estimated to requirea defi-
to sacrificenothing in liquidity, Bever- cit of ?230 million; Route III, a deficit
idge is at pains to explain why it should of ?340 million; Route II, an increase of
not promptlyreduceit to zero.The minor about ?i,ooo million in both revenues
reason is that it might cause windfall
gains to holdersof old securitiesand real 8 Alternatively, it may be regarded as a device

assets; the majorreason,as with Hansen, for "proving" that interest-rate policy is inherently
impotent, by contriving arrangements under which
is that private banks and insurancecom- it has no meaning, i.e., arrangements whereby open-
panies might thereby be unduly dis- market operations would have only the negligible
turbed. Thus Beveridge would proceed leverage of a call-loan rate.
It may be noted in passing that, in the United
gradually, in order to preserve the two States, as an incidental virtue of generally bad debt
forms of private business which are least policy, we are moving toward ioo per cent reserve
essential to, if not incompatible with, a banking, by making certain bond issues ineligible for
bank ownership. Shortly, we may see special bonds
free-enterprise,free-market system. On carrying, with low interest rates and high liquidity,
the other hand, it may be noted that his a "deposit-issue" privilege.

and expenditures (Tables i8 and 46). the government debt were largely in a
These estimates involve an adverse for- consol form and thus available for ex-
eign balance of ?I30 million; with im- pansionist retirement, i.e., for extra-
ports restricted and (or) exports ex- budgetary conversion from a poor money-
panded to elimate this adverse balance, substitute into the real thing.
the requisite deficits are estimated at Some readers will be amazed, if not
?ioo (instead of ?230) million for Route exasperated, by the estimates under
I, and at ?i6o (instead of ?340) million Route II, which seem merely to satirize
for Route III (Table 47)-thus high- the pay-as-you-go rule. An effort at in-
lighting the foreign-trade problem. Es- terpretation may be in order, for we are
timates are also offered for a Route 1Ha likely to see much of such statistical ex-
(tax increases confined to direct taxes) travagances in this country. What they
and for a Route I11a (tax reductions really estimate (I think) is how to main-
confined to indirect taxes). I suspect that tain the price level, as real income rises,
Kaldor exaggerates the long-term deficit without any increase in the quantity of
difference between Routes I and III money (or in the "moneyness" of debt)--
(?230-?340 million) and understates a fabulous undertaking which few budget-
that difference between Routes III and balancers would contemplate and which
lIla (?340-? 285 million); also that he past practice never involved. Govern-
overestimates corporate earnings and ments, balancing their budgets in the
the long-term increase in savings result- old days, simply left to the banking sys-
ing from secular increase in national in- tem the task of expanding secularly the
come.9 A non-Keynesian would like to money supply, first, as bank notes, later
know how much smaller the requisite mainly as bank deposits. This responsi-
deficits would be if financed by issues bility of providing additional liquidity
carrying no hoarding premium; also, how as real income rose, the banking system,
different the whole picture would be if as a matter of historical accident and
9 American extrapolators, however, should read timely proliferation, did meet after a
Kaldor, especially par. 41, p. 385: fashion, by fits and starts and with oc-
"The available evidence points to the conclusion casional collapses. It was a spurious li-
that with the long run rise in incomes, consumption
rises more or less proportionally (cf. Clark, National quidity or money that the banks pro-
Income and Outlay, ch. viii); the disproportionate vided; it was highly perverse in its short-
rise in savings following upon an increase in incomes term fluctuations; and it served long-
.... is a typically short-run phenomenon." [How-
ever, he goes on to say:] term needs poorly or accidentally.
"The most reasonable hypothesis for estimating Some of us believe that the whole de-
savings out of available income in 1948 appeared to
be to assume that for that part of the rise in real in-
velopment of private banking reflects a
come which is due to long-run factors (i.e., the rise fundamental error in governmental poli-
in productivity) savings rise in the same proportion cy and was institutionally anomalous
as real income .... ; while for that part which is
due to the elimination of unemployment, savings
from the start. The anomaly, however,
increase in a higher proportion..... This assump- becomes less glaring as the banks come
tion implies that in the long run the proportion of to hold mainly government bonds and as
income saved varies, not with the amount of real
income, but with the level of employment." their cash reserves are supplemented by
This is a clever restatement of a vulnerable obligations little different from cash. The
Keynesian assumption about the facts of life; but I old rules of sound commercial banking
see less reason for accepting it than for accepting
the cruder assumption. If it avoids danger of em- called for a credit currency resting upon
pirical attack, it is equally immune to verification. assets of minimal liquidity (for the sys-

tem) and peculiarly subject to sudden and into private banks to augment de-
and cumulative deflation. Now, however, posits.Io
even in this country, the credit currency If government bonds sold to banks
rests mainly on government bonds, were ineligible for purchase by others,
whose prices normally would rise in the the system might be intelligible, as sim-
face of depression and increased demand ply one of subsidizing the services of
for liquidity. Always dependent on the warehousing and transferring funds.
Treasury (or on central banks as virtual Actually, bonds are used both to in-
subtreasuries) for liquidity which only crease liquidity and to decrease it. They
governments can genuinely supply, are sold to banks for injecting new
banks are now essentially Treasury money and, often simultaneously, to
branches, by the nature of their assets as others for withdrawing money. Such in-
well as their liabilities. herently confusing practice facilitates
To those who like or take for granted the financial argument of books like
the banking anomaly, the issue of cur- these.
rency by the government seems itself Kaldor does not get himself much in-
anomalous, if not evidence of fiscal volved with the dubious analysis of his
depravity. The government, they imply, colleagues or with extravagant policy
should supply deflation-preventing li- proposals. One exception is noteworthy:
quidity only by loan expenditure, i.e., by In general, if considerable changes in the
expanding its debt sufficiently to induce structure of income distribution were desired,
absorption of bonds by the banks. it is better to tackle the problem directly-by
forcing producers to sell at lower prices relative-
The Keynesian arguments really pre- ly to costs-than indirectly through changes in
suppose that new issues of government taxation or some combined scheme of taxation
bonds will so be absorbed and that li- and subsidies. The main reason for this is that
quidity may be increased only in this it is extremely difficult to devise a scheme where
the consequential higher taxation on profits
way. There is thus some devious cor- would not in itself have adverse effects on incen-
rectness in their upside-down rule that tives and hence on employment [p. 348].
governments should borrow in depres-
sions and should not borrow during It is indeed a strange notion that direct,
booms. Business is, to be sure, no longer discretionary control is less injurious to
starved for capital and need not incur incentives than is (income) taxation.
the suicidal risks involved in continuous Kaldor's estimates will seem less sur-
financing through banks; and banks, in prising (to repeat) if interpreted as show-
turn, are disinclined to provide business ing the expansion of bank currency nec-
capital on terms which preclude their essary to finance secularly rising produc-
tion at a stable price level-and, for
liquidating before other and prior claim-
Route II, as showing the fabulous in-
ants can enforce their claims. The old
crease in both taxes and spending that
devices for expanding liquidity are, for-
would be necessary, with rising real in-
tunately, a thing of the past. So, if one
come, to stabilize the price level without
must rely on fractional-reserve bank ex- increasing the quantity of money. It
pansion to provide our effective money,
there is apparently no way to prevent If this is what is meant by "mature economy,"
namely, that business will no longer put its liquidity
deflation but to pour bonds into banks- increasingly under call by banks, praise God for the
into central banks to augment reserves attainment of adult discretion.

surely seems natural that people should commodate his Plan and plumps for
try to become absolutely more liquid as Route I. His objection to Routes III
they become more prosperous; to pre- and IIla is that they would leave people
vent their trying, the state would have too much freedom and preclude ade-
to take away most of their incomes. quate imposition of social priorities. This
There should be no quarrel about the may be a defensible position as regards
need for increasing liquidity in a pro- much of his Plan, especially its scheme of
gressive economy. I should like to see it medical and health services.
effected straightforwardly, by govern- Throughout the book it is asserted
mental currency issue and without mul- that any prospective deficiency in ag-
tiple bank expansion. But one need not gregate outlay should be made good by
be distressed about it in any case. It is additional public outlay, i.e., that ex-
compatible with very modest total budg- penditures rather than revenues should
ets and need proceed little or no faster be the variable factor in fiscal stabiliza-
than it has during the past century. tion."- The argument, however, relates
Such is the modicum of sense implicit in entirely to the choice among starting
loose talk about the virtues of a rising budgets, i.e., to the level of spending in
public debt: increase in real debt (con- 1948. Surely, one might accept Sir Wil-
sols) is always ominous and unfortu- liam's initial spending program and still
nate; increase in currency or liquidity, as argue that the annual adjustments
necessary to implement rules of mone- should be in revenues, not in spending.
tary stabilization, is not only innocuous Discussing public works and the White
but quite salutary. Paper, he comes close to this choice but
Kaldor also sketches a Route IV, evades the issue. On his own arguments,
combining Routes IHaand 1Ila, whereby however, one might plump for varying
some authority, presumably Kaldor, revenue, e.g., by varying the income-
would be empowered to manipulate an tax exemptions, and for stable spending.
elaborate structure of subsidies and ex- That Beveridge is more intervention-
cises, with the purpose of reducing the ist than egalitarian is suggested by his
requisite deficit (i.e., monetary ex- categorical rejection of Route I11a. One
pansion) under Route 1ila. His interest must indeed value highly the transfer
in this route is, one hopes, merely aca- expenditures of his Plan to demand them
demic; amid so much good work, he may all and severally at the price of the pre-
easily be pardoned this relapse into the war English excises, which he would re-
irresponsible cleverness of his colleagues. tain intact-not to mention the "em-
Beveridge dismisses Route IV-perhaps ployer contribution." My preferences
as a too candid description of his own would accord high priority to reduction
of duties on tea, tobacco, beer, etc.,
which make heavy inroads on the small-
THE BEVERIDGE ROUTE II "The Minister introducing the Budget, after
estimating how much private citizens may be ex-
Sir William likes the objective in pected to spend on consumption and on investment
Route II (possibly because he misun- together under a condition of full employment, must
derstands it) but not the magnitudes. propose public outlay sufficient, with the estimated
private outlay, to bring about that condition, that
He rejects Routes III and l1a for the is to say to employ the whole man-power of the coun-
obvious reason that they will not ac- try" (P. 3 ).

est incomes, and to avoidance of a tax is nothing left to sustain economic order
penalty on private employment. Much except governmental intervention, which
of what Beveridge would accomplish by must then become ubiquitous.
food and fuel subsidies, moreover, could The Investment Board is proposed as
be accomplished simply by removing in- a moderate extension of eminently sound
ordinate mass excises and educating con- urban planning and zoning. It seems a
sumers on dietary requirements, i.e., by plausible means for dealing with the
enlarging consumer freedom instead of military-strategic problem of metropoli-
extending interference and manipulation. tan London and the cancerous affliction
Temporary subsidies for critical nu- of inordinate population density. Less
trients, during an intensive program of persuasive is the argument for diverting
nutrition education, may be defended as private investment according to the lo-
a kind of infant-industry investment in cation of unemployment or according to
better dietary habits; but that is not a governmental notions of overinvested
Beveridge proposal. Central control must and underinvested industries. Still more
be a great good, if two largely offsetting questionable is the proposed protection
kinds of intervention are better than of sunk public investment in local im-
neither. provements, especially when one ap-
Like most projects for a welfare state, prehends how closely this objective will
Sir William's proposals reflect high moral coincide with that of protecting past in-
purpose and, in detail, seem eminently dustrial investment and that, in turn,
reasonable. Only by adding them up and with protecting workers in established
apprehending the total does one see centers against potential competition
what a radical-reactionary revolution is elsewhere. Besides, there are the possi-
involved. Nor is this apparent if one bilities of preventing inflationary private
accepts with each proposed intervention investment in order that inflationary
the author's wishfully low estimate of the public outlay may proceed. Such a
probable amount. In each case a worthy Board, I submit, cannot really function
end is aimed at, and only "fringe" in- without more power than any discretion-
tervention implied. The authorities may ary authority should have.
all be as popular as Lord Woolton; and Beveridge would plan for 97 per cent
co-operation may dissipate the conflicts employment, allowing a smaller margin
of interest among organized groups. But for frictional or migrational unemploy-
Beveridge, I think, deceives his reader, ment than has, to my knowledge, ever
if not himself. Every direct control will been responsibly proposed. He demands
increase the need for other controls; and a sellers' market for labor-a continuous
the aggregate of intervention is meagerly excess of vacant jobs over idle hands-
indicated by his particularist approach. which obviously invites flight into assets
Beveridge seems to promise that ration- via the labor market. Since it would
ing will be largely or usually unnecessary mean an inflationary spiral of wage-
and that the Investment Board will only rate increase even in the absence of any
deflect slightly the flow of private invest- labor organization, Beveridge is natural-
ment. Such reassurances seem unrealistic. ly solicitous lest the trade-unions make
If free-market controls through competi- demands which would frustrate efforts to
tion are devitalized or destroyed, there sustain the value of money.

Particular wage demands which exceed what with his scheme is certainly incompatible
employers are able to pay with their existing with the tolerable functioning of a free-
prices and which force a raising of prices, may
bring gains to the workers of the industry con-
enterprise system. Relative wages must
cerned, but they will do so at the expense of all be determined either by competition
other workers, whose real wages fall owing to among workers (and among employers)
the rise in prices. The other workers will nat- or by central authorities.
urally try to restore the position, by putting
forward demands of their own. There is a real FOREIGN-TRADE POLICY
danger that sectional wage bargaining, pursued
without regard to its effects upon prices, may Beveridge reserves the crucial subject
lead to a vicious spiral of inflation, with money of commercial policy for his penultimate
wages chasing prices and without any gain in chapter. Up to this point, one may sus-
real wages for the working class as a whole [p. pect that this old Liberal is deliberately
I99] .
contriving a nightmarish scheme to
To expect labor monopolies not to de- show what England may or must do if
mand monopolistic wages is, under any America repudiates its minimal respon-
circumstances, unrealistic. To ask, with sibilities for economic-financial co-opera-
Sir William, that they use their power to tion. The whole program, one hopes, is
keep wage rates below competitive levels merely a policy-construct for bargaining
is quixotic. The practical suggestions with the United States. Indeed, it does
are: (I) preaching; (2) that "the central reasonably describe what is likely to hap-
organizations of labor .... should de- pen unless we radically reduce our tariff
vote their attention to the problem of and firmly undertake, with the consulta-
achieving a unified wage policy which tion and co-operation of our friends, to
ensures that the demands of individual provide the world with the stable cur-
unions will be judged with reference to rency necessary to orderly, peaceful
the economic situation as a whole" (pp. trade.
igg f.); and (3) the fixing of wages by Chapter vi ("International Implica-
the state (p. 207). The second suggestion tions.... ") disappoints such hope.
implies that the Trades Union Congress The Keynesian rejuvenation yields only
General Council might grant or withhold apostasy-a "Baloghism" more zealous
licenses to demand wage increases- than Sir William's old free-trade inter-
which would make suggestions 2 and 3 nationalism. When one puts together the
identical, since an agency with such pow- foreign-trade proposals, filling in elo-
er would either become part of the state quent omissions, only then does one ap-
or conversely. prehend the full collectivist import of the
Hostile critics will chide Sir William whole scheme. Shorn of euphemisms, it
about his abolishing "free collective calls for pure state trading abroad, i.e.,
bargaining." National trade-unions are for governmental monopoly of foreign
obviously incompatible with stable prices trade.
under his scheme, unless they serve as During the interwar period, the Eng-
passive instruments of the governmental lish economy, weakened by overvalua-
authorities. Libertarians, however, are tion of the pound, became rapidly un-
ill advised to press this point against a competitive and syndicalist, by virtue
Planner who, in these matters, is rarely especially of the commercial policies of
candid and sensible. For what he dif- the thirties. To restore free enterprise
fidently concedes to be incompatible and competitive controls within Eng-

land, substantially free foreign trade- save labour through international trade only
i.e., trade controlled by proper exchange in order to waste labour in unemployment [p.
rates-would appear indispensable. To
collectivize foreign trade in England or The general conclusions are put as fol-
to subject it largely to the manipulation lows:
of discretionary authorities is to con- General multilateral trading .... is possible
solidate English syndicalism and, in only if three conditions, or assumptions, are ful-
turn, to socialize industry. Private en- filled: first, each of the participating nations
terprise, even some new enterprise, may must aim at full employment within its borders
and must do so without relying on export sur-
persist for a time but, in substance, sim- pluses as the principal means to full employ-
ply as a beneficiary of state orders. Lack- ment. Second, each of the participating nations
ing the autonomous discipline of compe- must be prepared to balance its accounts with
tition and facing mainly political un- the rest of the world; for that purpose any na-
certainties, private business would be tion which, for any reason, systematically sells
abroad in goods or services more than it buys
largely a contracting-out by govern- from abroad, and so has an export surplus, must
mental authorities, as it is in wartime. be prepared to grant long-term loans sufficient
Whether industries are socialized or con- to enable the rest of the world to pay for those
tinued under private enterprise, in this exports, without losing gold or other reserves
sense, is of interest only to Socialists essential for international liquidity. Third, each
of the participating nations must aim at a cer-
and is indeed, as Beveridge asserts, a
tain stability of economic behavior-continuity
matter of mere detail and expediency. in tariff, subsidy, foreign exchange and other
What I have said so far is admittedly economic policies-and must refrain from in-
an extreme interpretation of the Bever- troducing important changes in these policies
idge program. It may seem cavalierly to without prior consultation with the other par-
ticipants [p. 2i8].
reject his own interpretation at many
points and to impute meanings which he International trade can be arranged in one way
disavows. Sir William argues his case if all important industrial countries have pol-
largely in terms of the same considera- icies of full employment; it must be arranged in
another way if any important industrial coun-
tions I would invoke to support very
try does not have such a policy [p. 225].
different measures; having been carried
along quite a way, I may now misrepre- One may sympathize with the fear of
sent the substantive scheme as much in anotherAmericandeflation-although it
opposition as does Sir William in his skil- seems politically too improbable for
ful advocacy. At all events, my case serious concern. That our deflation of
rests largely on interpretation of the 1929-33 was a tragic failure to discharge
proposed commercial policy. minimal governmental responsibilities,
The introductory argument of chapter domestic and international, is beyond
v, while sound enough as economics, dispute. Along with tarifflegislation and,
gives little attention to the political worst of all, our devaluation, it was the
dangers of discriminatory practices or to cause of world economic disaster and
the economic effects of retaliation. The perhaps of the ensuing war. For the de-
following passage will indicate the gen- valuation, no plausible apology can be
eral tone: offered save blind ignorance among re-
The virtueof internationaltradeis that it saves sponsibleleaders.Oneshould distinguish,
labour;the virtue of a full employmentpolicy however,between sins of omissionand of
is that it uses labour.It wouldbe senselessto commission.Only a dictator, able to low-

er wage rates at will, could well be ac- but between a group of countries, sufficiently
cused of imposing general deflation for complementary to one another, and sufficiently
alike in their economic policies, including the
national advantage. It is one thing to pursuit of full employment, to make it easy for
stress the urgent world need for a stable them to work together..... Britain might be-
dollar-indeed, for stability in all the come the financial centre, of a sterling full em-
major currencies. It is another to recom- ployment area, as before the first World War
mend discriminatory measures against she was the financial centre of the world. This
would not, of course, prevent trade between
national deflation, which, however de- countries in different regions, but such trade
plorable, is simply an error of ignorant would take place subject to special controls.
inaction. Discrimination, whatever the A policy of regionalism applied in Europe or
excuses, must always seem a hostile or in the British Commonwealth or both together
unfriendly act. To use national sanctions should not be regarded as in any way unfriendly
to the United States or to Soviet Russia. Room
against nations for their failure to main- must be kept in the world for a variety of eco-
tain British standards of wise finance is nomic policies in different countries. Soviet
to multiply the occasions for interna- Russia will certainly continue to have a com-
tional schism and ill-will. pletely managed economy; the United States is
Conceding the worst that can be said likely to return, at any rate for some time to
come, to a large measure of freedom from Gov-
of our role in the thirties, one may also ernment action. It should be open to Britain,
question the British record. They de- and countries which like her desire to follow the
valued, to be sure, out of necessity. There middle course of full employment in a free soci-
was no necessity, however, about the ety, to do so, without being charged with pur-
earlier quixotic overvaluation of the suing selfish or national aims.
It is difficult to believe-in truth it is incred-
pound or about their persisting in error ible-that, if a general multilateral system
to the end, i.e., until it had to be correc- could not be established throughout the world,
ted at, for the world, the worst possible Britain would fail to find other countries, suffi-
time. Until these things are forgotten and cient with her to make up a region of stable
until England is prepared to eschew prosperity, ensuring to her the essential im-
ports in return for her exports, ensuring to them
overvaluation, her spokesmen might markets and capital. But if for any reason this
more humbly pursue international mone- could not or could not immediately be secured,
tary co-operation and not assume that there remains the last certain recourse of bilat-
English finance, past and future, affords eralism. This for Britain would mean the mak-
a norm by which other nations may be ing of specific bargains with individual coun-
tries to ensure the supply of imports of food and
judged as eligible for, or exempt from, of raw materials indispensable for British in-
quarantine. dustry, including in such bargains provisions as
The policy choice, says Beveridge, is to means of payment and the exchange between
between (i) general multilateral trading, their respective currencies.
(2) regional multilateral trading, and The first of the three alternatives is, as has
been emphasized before, the most desirable in
(3) bilateralism (p. 239). In spite of much itself and most in accord with Britain's role and
talk about the virtues of No. i, it soon traditions in the past. To realize it Britain
appears that he is counting on Nos. 2 and should do everything possible, except [sic] sur-
3. Moreover, unless I misread him, he re- render the right to fall back on the other al-
fuses to consider nondiscrimination or ternatives, if the first one could not be attained
in full and satisfactory measure. It is better to
equality of treatment on any terms. secure multilateral trading in a limited region
The second of the three alternatives for in- where it has good prospects of success and can
ternational trade is regionalism. This means be made the basis of wider trading later, than
multilateral trading not throughout the world to aim at multilateral trading in the world at

large, without effective agreement on its funda- powers not used before the first World War, in-
mental conditions. cluding:
That it would be possible either under the
second or under the third alternative to ensure a) Control of capital movements. This appears
the imports required for our prosperity, if we to involve control of all exchanges.
are prepared to take the necessary steps, is not b) Making of long-term contracts for the pur-
open to reasonable doubt. Nor is it doubtful chase of essential raw materials and food.
that strong central planning of Britain's in- c) Making of long-term contracts for the
ternal affairs will make her more, not less, use- planned supply of exports to develop back-
ful as a partner in world affairs. International ward areas [p. 2391.
trade, bothfor imports andfor exports,will on the
whole have to come under public management,in The remark under point a is at least
candid, by contrast with most current
place of being left to marketforces eithercompeti-
tive or monopolistic.The organs which serve for talk about "limited" exchange control.
planning at home will serve also for planning in That Sir William means every word of it
a wider sphere [pp. 239-4I].I2
is indicated by his approving quotation
. ... while hoping for the best, that is success from the British Treasury Memorandum
in our efforts for world-wide economic order, we of April, I943.
must be prepared for failure and must retain for
that event all necessary powers to ensure the "Thereis no country which can, in future,
second or third best [p. 24I]. safely allow the flight.of funds for political rea-
sons or to evade domestic taxation or in antici-
Is he not here urging England to seek pation of the owner turning refugee. Equally,
at once the best of every possible world there is no country that can safely receive fugi-
tive funds, which constitute an unwanted im-
and to risk no commitments on behalf of port of capital, yet cannot safely be used for
better or best? fixed investment. For these reasons it is widely
Most significant is Sir William's con- held that control of capital movements, both
ception of the best arrangement-what inward and outward, should be a permanent fea-
he means by general multilateral trading ture of the post-war system" [p. 2371.
for Britain and what he would offer in Note the word "permanent."Exclusive
return for our fullest co-operation. governmental lending abroad is not an
On the assumption of the Atlantic Charter, unreasonableinference and, like govern-
that all the larger countries will announce and mental trading, is certainly not calcu-
adopt a policy for maintaining employment at lated to minimize friction among the
home, international trade can be based on the
most desirable of the three alternatives. That is
powers! Capital flight in the thirties,
to say, the first aim should be a world-wide trad- with its unprecedented demands on
ing and clearing system, with international ar- liquidity, was largely an incident of Nazi
rangements providing adequate lasting liquid- persecution and aggression. What pro-
ity for multilateral trading, without requiring spective cause of wild propertymigration
individual countries to subordinate domestic
economic policy to international exigencies.
calls for permanent restrictions in post-
Subject to the adoption by all countries of suit- transition England? Is such restriction
able economic policies, such a system could have appropriateto an orderly world or com-
been developed out of the first British proposals patible with the desired large interna-
for international clearing by adding thereto tional flow of investment funds? Does
machinery for directed international invest-
ment. It could be developed out of the recent
Beveridgewant exchange control merely
joint proposals for an International Monetary to prevent capital flight or for other pur-
Fund. But, even under such a system, Britain, poses too?
with other countries, must retain and exercise It is implied under point b, and else-
1"Reviewer's italics. where assumed, that "an increasingpro-

portion of British imports, mainly food foreign balance, we must export much more
and raw materials, will come under col- than we did before the war." Is this certain?
Thereis the alternativeof cuttingdownimports
lective management" (p. 235)-in other and becomingmore independent;the figures
words, block purchasing and government given recently by the Ministerof Production
import monopoly. To ask us and others show how great are the possibilitiesof self-de-
to co-operate, on these terms, toward pendence,even for Britain [p. 2671.
freer and more stable trade, is disin- Sir William is also adamant against
genuous. Englishmen may expect the living off capital abroad, i.e., against
central purchasing authority to eschew borrowing or further repatriation of
monopsony practices, to avoid ancillary English investments. Kaldor contem-
bargains, to purchase always in the plates, with at least statistical equanimi-
cheapest market, and never to use pur- ty, an adverse foreign balance of ?I30
chasing for political-diplomatic purposes. million-which seems not extravagant
Other nations, however, will surely dis- for a time, if one shares their concern
count or ignore promises of such ad- about the technical condition of British
ministration; England could expect no industry, especially in the export trades.
one abroad to acknowledge the fact if, It is not clear whether the opposition to
miraculously, such promises were carried capital import reflects mainly imperialist
out. Block purchase, by a great trading zeal or reluctance to risk borrowing
nation, must be regarded as inherently from America or recognition that the
discriminatory. Freer trade and reason- total scheme would preclude-either bor-
able equality of treatment are, for Eng- rowing or voluntary capital repatriation.
land, not compatible with the prohibi- Incidentally, the quantitative discussion
tion of private trade. appears to assume that the vast blocked
If one combines points b and c-and balances now due to other countries will
separation is fanciful-one gets pure be funded into low-rate sterling bonds-
bilateralism. Here, perhaps, is the mean- which is unlikely to produce highly satis-
ing of "retain all necessary powers." fied creditors or willing adherents to a
Beveridge's terms for eschewing bilateral- sterling bloc.
ism are, it seems, carte blanche to prac- That Beveridge would offer little for
tice it. "General multilateral trading" American co-operation is clear from his
thus appears to mean only that the Brit- remarks about cartels:
ish trading authority would entertain In the fourth place, a problemarises from
bids and offers from many countries' the fact that the courseof internationaltrade
The author's restrictionist predilection in a numberof articlesis now determinedor in-
is evident at many points. fluenced by internationalcartel agreements.
Such cartelsmay serve a good purposein sta-
If, further,Britainseeksfull employmentin the bilizingtradeand production.The wholetrend
first instance less by increasing free purchasing of the argumentof this Part of the Report is
power, which consumers might use for imports, towardsa managementof internationaltrade,in
than by physical improvements at home, she place of leavingit to unregulatedcompetition.
may avoid much of the rise of imports that That is to say, it is towardsthat for whichthe
would follow otherwise through full employment cartels stand. To attempt to destroy or stop
itself [p. 2I4]. cartellizationwould,therefore,be a contradic-
tion of policy..... What is wanted is that
.... the White Paper concentrates too much thosewhohave the responsibilityof conducting
on increasing exports and not sufficiently on great and highly organizedindustriesshould
stabilizing them. "To avoid an unfavourlable come to regardthemselvesas the agents of a

widerpolicy than that of their business.Just vention at home and only provisional,
underwhatformsand by what institutionsthis temporary departure from decent com-
can best be accomplishedcan probably be
learnedonly by experience[p. 238]. mercial policy. However, everything in
the program implies determination to
Unlike many American economists, keep the pound at its present dollar price
Beveridge is at least consistent in his or as high as may be necessary to afford
attitude toward cartels and commodity large scope for discriminating controls.
agreements. The case for points b and c is This is the obvious means to better terms
argued in terms of the need for stabilizing of trade-and for propping up real in-
overseas demand-admittedly a pre- come; and it is the natural inference from
sumptuous enterprise for Britain, to be discussion which is everywhere preoc-
pursued on behalf of favored areas. Here cupied with leakages and only vague and
the author reveals a preoccupation with wishful about the volume of exports.
fluctuations in raw-materials prices as Given a radically overvalued pound,
causal prices in "the cycle"-a thesis block exporting is specified by implication.
stressed at many points. This notion of Importation would be nominally very
causality is perhaps an unavoidable in- profitable-for the government; export
cident of long study of time series. The would be nominally unprofitable-and
argument makes some sense as support of thus dependent on subsidy. Whether Sir
a commodity-reserve currency but is, I William intends it so is not clear. He
think, simply spurious as exculpation mentions the possible necessity of gov-
of cartels or as commendation of ernmental enterprise in export produc-
output-restricting, relative-price-raising tion'4 and of subsidies for cost-reducing
schemes.'3 investment in the export trades. One of
The most ominous feature of the Bev- his arguments against Route III is that
eridge program is an omission. The post- it might unduly increase consumption at
war dollar-sterling rate is, I believe, not the expense of necessary investment-
once mentioned in the book! It may be which, unless he means governmental
unfair to put the worst construction on investment, sounds strange in a Keynes-
ambiguities and on a chapter which, ian context. However, if my interpre-
while pleading for American co-opera- tations are ungenerous, it would be
tion, lays down impossible British terms. more ungenerous to suppose that Bev-
In any case, one may be pardoned for eridge did not understand his own scheme
filling in an exchange-rate policy as best or could not, if he chose to do so, fill in
one can-and for resting one's case the omissions.
against the program largely on so crucial England, to be sure, will find it hard
an omission. to maintain her standard of living or her
Given a not overvalued pound, the position as a great power. Collectivist
Beveridge program, if not simply in- trading abroad may permit betterment
operable, might belie my interpretations. of her terms of trade-in the absence of
It might involve only moderate inter- effective retaliation. But it invites a kind
3 See, for argument on these points, my "Eco- 'o "If buoyancy of the home market should cause
nomic Stability and Antitrust Policy," University of British industrialists to neglect the foreign market,
ChicagoLaw Review,XI (I944.), 338-48; also a re- it would be necessary for the Government either to
view of Benjamin Graham, World Commodities and create sufficient inducements for private traders to
World Currency, in Journal of Political Economy, export or itself to take a hand in the export busi-
this issue, pp. 279-81. ness" (p. 211).

of economic warfare which England can and the policy prescriptions, like the
initiate only at grave risk to her own discussion, are comprehensive and in-
security and to peace for the world. What tegrated.
alarms me, as an ardent Anglophile, is The best of the text, of course, is the
that such English policy is incompatible section on "The Facts of Unemploy-
with Anglo-American solidarity; indeed, ment" (pp. 50-90), an admirable sum-
it promises sharply to divide those solidly mary of the author's earlier work. Few
democratic nations whose close collabora- will question his argument for organized
tion seems indispensable to a good peace. mobility of labor, i.e., for an integrated
Espousing governmental trading, Eng- system of employment exchanges, to-
land may force such trading on neigh- ward which England has made only some
boring countries whom we also cherish as headway and the United States really
close friends and allies. She may create none.
an awful problem for the Dominions- On many important issues, the policy
and perhaps a struggle for their eco- judgments and supporting arguments
nomic allegiance. Besides, she may ag- are unsurpassed, e.g., on the case for a
gravate indefinitely the international stable price level.
problem of colonies and mandates-dis- .... adoption by the State of a definite policy
qualifying herself, at least in our eyes, in regard to prices, becomes an almost inevit-
for the wide trusteeship which an open- able accompaniment of a policy of maintaining
door policy commended and justified. employment, in a progressive society. This is an
issue which, though certainly not absent from
Does Beveridge intend to propose that J. M. Kennes' m nd, is not treated by him at
we establish federal monopoly of foreign any length [p. ioi].
trade as a condition of English collabora-
tion, and, alternatively, that the two na- In the prospective circumstances of Britain, the
tions divide the Western world into ingenious arguments which have been advanced
in the past, on the one hand for a policy of gent-
separate and rivalrous trading systems, ly falling prices and on the other hand for a
one moving close to Russia, the other policy of gently rising prices, lose their validity.
thereby pushed further away? This I can A falling price level increases the share of the
hardly believe. So I am driven back to total income going to rentiers. This, in view of
my first hunch: it is all a nightmarish the inevitably large national debt, is a grave
disadvantage. But it does not justify the oppo-
construct, designed to overcome our site suggestion that the right policy is one of
lethargy and intransigence. But is it? rising prices, so that the claims of rentiers are
I simply do not know. It is either a cut down automatically. In future, with the
devilish fine piece of English diplomacy vastly increased proportion of aged persons in
or a brilliant plan for a free society to the total population, the numerically most im-
portant class of rentiers will be old-age pension-
end free societies. ers. If it is desired to cut down the gains of
Trying to interpret and criticize the rentiers, or any particular class of them, that
Beveridge program, I have certainly should be done directly through taxation-by
not done justice to the book. It is ex- death duties, by differentiation between earned
cellently organized, well written, abun- and unearned incomes, and in other ways. Let-
ting the price level rise is a clumsy form of taxa-
dantly informative, and rich in statistical tion [p. 202].
data. The style and pace reveal the hand
of an experienced journalist. Few major With these persuasions, Beveridge might
policy problems are left aside; a fine bal- have advocated, as a monetary-fiscal
ance in relative emphasis is achieved; program, the most expansive budgetary

arrangements consistent with price-level partly on a capital theory for the firm
stability-which would open, instead of (increasing risk) which strikes me as
close, the way to international (Anglo- merely misleading-implying or assum-
American) co-operation. ing that new investment must come from
Fle is wisely critical of schemes (the old firms, that prosperous firms will find
Lever Brothers pamphlet and the White it increasingly hard to attract new capital
Paper) for stabilizing either total in- as they prosper, and that large firms can
vestment or total outlay by variable out- acquire new capital only on less favorable
lay for public works (pp. I8o-84, 26I-- terms (including higher flotation costs!)
63). He firmly rejects the use of variable than small ones. (Being distressed about
social-insurance contributions with, merely private economies of monopolis-
among others, one argument which tic size, I wish the latter implications
should settle that issue for good: ". . .. if were realistic.) I can likewise find little
it is good for social insurance contribu- sense in his discussion of the widening
tions it is even better for general taxa- and deepening of capital-although the
tion" (p. 264). Even those who will have argument that deepening requires direct
none of his centralized, discretionary governmental action may accurately re-
control (Investment Board) will like the flect the degree of competition and en-
discussion of industry location, as a terprise recently prevalent in England.
problem of urban and regional planning, Kalecki proposes to measure rise in labor
and feel obliged to study other control productivity as though it were inde-
devices less incompatible with the rule of pendent of capital increase and then to
law. Account must be taken of his (and determine how much additional capital
Worswick's) point that labor is far more is needed to equip for sustained full em-
mobile among industries or occupations ployment. Evidently the capital-labor
than among localities. proportions are fixed, save for technical
In short, this second Beveridge Report, innovations; deepening depends ex-
like the first, richly rewards the reading, clusively on such innovations; and they,
especially for those who dislike its pro- in turn, are rare or discontinuous if not
gram. revolutionary. If this is the new capital
theory, The Nature and Necessity of In-
terestis indeed a great book. Incidentally,
Systematic comment on the Oxford Kalecki's general argument, like that of
studies is not appropriate here, for the his colleagues (save Kaldor) implicitly
central ideas and proposals are incorpo- does violence to the facts of life, especial-
rated in the Beveridge book. Several of ly as regards the quantitative possibili-
the essays, moreover, are very repetitious. ties of raising consumption by leveling
The most exasperating is Schumacher's. the income distribution.
But those of Kalecki and Balogh are Kalecki is more engaging and more
more stimulating and analytical and
academic in his practical proposals than
deserve attention.
in his general theory. His interest-rate,
KALECKI debt-policy scheme, adopted by Bever-
Kalecki presents an admirable, concise idge, is mentioned above (pp. 2I4ff.).
statement of hyper-Keynesian doctrines. He is less worried than Beveridge about
His general position is familiar. It rests too rapid increase of wage rates; for it

need not, he says, cause increase of But, to repeat, the essay as a whole de-
prices; it can be offset by subsidies, fi- serves attention as a brilliant summary
nanced by additional taxes on the up- statement which reveals clearly the vir-
per incomes! Moreover, this would re- tues and the faults of the new economics.
duce deficits; for the taxes, coming part-
ly from savings, would have to yield far BALOGH AND FOREIGN-TRADE POLICY

more than the subsidy outlays. Some of Balogh presents a sophisticated at-
Kaldor's arithmetic would be useful at tack on classicaldoctrines,showingwhat
this point ! Incidentally, this scheme, the new economics contributes to for-
starting with a general excise on all em- eign-trade theory. His central proposi-
ployment ("employers' contribution"), tions may perhaps be stated as follows:
would add a general subsidy for all con- (I) direct, discriminating controls per-
sumer-goods production-all summing mit a nation, after disturbanceof its in-
up to a differential penalty on capital- ternational position, to readjust with
goods production or real investment! better results all around than would be
The increaseof income tax, he admits, possible by adherenceto classical, over-
might impair incentives to invest. But all devices (deflation or devaluation);
that is easy. Just "modify" the income (2) stable trade within a discriminating
tax, so that the added rate would apply bloc of nations co-operating in full-
to income calculated before depreciation employment programs (monetary stabi-
but with deduction for new real invest- lization?) may be more advantageousfor
ment! The base for the added rate would all members than unstable, undiscrimi-
thus be consumptionplus hoarding.His nating trade on a wider or global scale;
colleagues (but not Beveridge) take this (2a) backward nations may be more
scheme very seriously-as will, perhaps, prosperous and progressive, without
Professor Fisher and as anyone familiar capital imports, as members of such a
with tax procedure or accounting will sterling bloc than they would be, with
not. A new enterprise, with large cur- American loans, as participants in a
rent investment and little current reve- larger, unstable system of free or undis-
nue, would certainly come off badly. If criminatingtrade.
carry-forwardis contemplated, then the Under governmental trading, as un-
scheme merely denies depreciation on der collectivism in general, the most im-
past investment, while permitting it for probable results are conceivable; under
investment postdating the "modifica- free trade, enough monetary instability
tion"-and with minimum instead of can be disastrous.So I see little reasonto
maximum rates of charge! question Balogh's formal position-save
Kalecki may have more misgivings when he transcribes the "possibly may
about this "modifiedincome tax" than be" of his argument as "probably will
do his colleagues. He proposes an alter- be" in his conclusion.
native: finance the subsidies out of an The classical devices work well only
annual capital levy, i.e., with a heavy, with "highly inelastic expectations" in
flat-rate general property tax-which in the whole trading system-or, as I pre-
theory, to be sure, avoids relative penal- fer to say, only with an accepted, imple-
ty on investment by an equal tax on mented policy of monetary stabiliza-
hoards. American economists are un- tion, in the dominant nation and/or as a
likely to applaud this fiscal discovery! matter of organizedco-operationamong

the financialpowers.The old regimewas al organizationon a basis that facilitates

good only as regardsrelative prices, rel- indefinitepeaceful extension.
ative price and wage levels, and, save Certainly another kind of system,
for the gold standard, exchange rates. ruled by authorities, might be more effi-
Under the gold standard, each national cient and more progressive-if one ex-
financialstructurewas like a single bank cludes liberty as an aspect of efficiency
in a system of banks with negligible re- and capacity for freedom and responsi-
serves, no central fisc, and (hence) no bility, among individualsand among na-
central bank. Almost any national ar- tions, as a measure of progress. Discre-
rangementsmightwork better than par- tionary authorities, omniscient and be-
ticipation in such a collapsible banking nevolent, surely could in some sense do
system. Even so, Balogh's propositions better than any scheme involving demo-
have only the dubious virtue of being cratic, legislative rules and competitive
formally unassailable, like the infant- dispersionof power.After any disturbing
industry case for protection. change they could promptly effect the
Conventionalpricetheory presupposes same arrangements which competition
a fisc that sustains over-all monetary would achieve slowly or with "unneces-
stability; and it points implicitly to such sary" oscillations. Indeed, they could
an institution as indispensablefor good probably avoid all real disturbances by
functioning of a free-market economy. anticipatingthem! But some of us dislike
The old foreign-tradedoctrines implicit- government by authorities, partly be-
ly involved some correspondingassump- cause we think they would not be wise
tion-anomalously, to be sure, since a and good and partly because we would
powerful international fisc is almost in- still dislike it if they were.
conceivable.In this way, however, they, The case for a libertariansystem with-
too, indicated sound policy objectives, in advanced nations is, I think, very
i.e., co-operativestabilization of a domi- strong: competitive dispersion of power
nant currency and/or internal stabiliza- is preferableto syndicalist civil war and
tion of particular currencies with flex- to collectivist power concentration.Even
ible, free-marketexchange rates. stronger is the case for libertariantrad-
ing among all the more democratic na-
The old economics is commended by tions. If some nations or blocs might
its normative implications, by its defi- gain by governmental trading, it offers
nite first-approximationsof policy goals. no promising basis for international or-
It stands or falls less as an analysis of an ganization-only prospect of organized
institutional system than as a device for rivalry, which would divide the democ-
diagnosing its faults and for describing, racies into mutually hostile camps and
in important aspects, a good system thus create disorder,insecurity, and ag-
which the actual one approximatesand, gression throughoutthe world.
with proper measures, can approximate The old monetary-commercial sys-
more closely. Its strength is in its im- tem, with all its faults, did involve a
plied political philosophy. Its wisdom is substantial measureof real international
that of seeking solutions which are with- organization.This organization was im-
in the rule of law, compatiblewith great plicit in subtle restraints or self-denying
dispersion or deconcentrationof power, ordinances as to national foreign-trade
and conducive to extensive supranation- practices. How substantial and precious

it was became apparent only as it was ahead on his policy road. That European
lost during the thirties. The loss may be bilateralism is defensible as a reaction to
charged mainly to America. But a first American deflation certainly does not
step toward a good peace is the rebuild- commend either as an element in an in-
ing of what was so recently destroyed, ternational postwar program-and the
i.e., restoring minimal standards of in- same must, of course, be said of our bi-
ternational decency in national commer- lateral foreign lending, i.e., of "tied"
cial practices. We must, of course, go loans.
much further, not only with positive Balogh's essay, properly construed, is
monetary collaboration but also in trans- an argument for Anglo-American co-
lating the formality of nondiscrimination operation in monetary-fiscal stabiliza-
into greater reality and substance-not tion. The argument is a closely reasoned
to mention "level of treatment" and amalgam of Keynesian and classical
freer trade. But it is reckless to dismiss economics and is perhaps meticulously
as unimportant the old formal equality correct. The conclusions, however, are
of treatment-as it is to impugn "mere- extremist and belligerent, calling his
ly" formal equality of persons before the adopted country, her friends, and all
law. available recruits to economic organiza-
Realistic policy will seek to recapture tion against the United States. Their
what little international organization we general tone may be indicated by two sec-
had achieved, as a step toward the much tions of his summary.
more that is requisite for peace. Formal
Small and poor countriesare likely to lose
equality, under a multitude of tariff most froma restorationof the uncontrolledac-
rates frequently altered, may seem only tion of internationalmarketforces.The highly
nominally different from discriminating imperfectcharacterof the internationalmar-
control-and, of course, might be more kets for manufacturedgoods,the high risk and
harmful all around. In fact, however, if the automaticacquisitionof sellingpowerin the
lands of large economicareas will tend to sta-
not inherently less discriminatory and bilize their existent inferiority.Their internal
less restrictive (as I believe), it is investment,and hencetheireconomicprogress,
less likely to induce hostile retaliation wouldbe restricted,and theiremploymentpol-
or cumulative counterrestriction. More- icy imperilled .... [OxfordStudies, p. '79].
over, while it may, as with us, involve The advantageswhicha poorercountryjoin-
ing sucha regionalblockwouldderive,in secur-
awful legislative abuse and corruption, ity of employment,highproductivityand rapid
it is still legislative-another formal economicprogressthroughplannedredistribu-
matter not to be lightly dismissed. tion of industrialresourcesand skill, shouldse-
If what Balogh really means is that, as cure the adherenceof most countries, even
international traders in the thirties, againstthe blandishmentsof foreignloansfrom
European nations behaved as well as or tries [ibid., p. i8o].
better than the United States, let him
have it so. He makes a strong case for Balogh and Beveridge would complete
bilateralism as a European reaction to a destruction of international political-
our awful behavior-and for our talking economic organization which the thirties
softly about foreign evils in commercial began-perhaps because it is a kind of
policy. His prescriptions for the future, organization that requires American
however, are made of recriminations leadership or participation. This might
about the past. There is no world order be a proper penalty for our past sins. It

might, as a long-odds venture, increase central-government authority; it cuts

England's relative power and eventuate away economic freedom as a bulwark of
in a powerful sterling empire. It certain- other liberties and makes an end of the
ly is not compatible with much liberty modern separation of economic and po-
within nations or with much peace litical; trustful of government and au-
among them. Moreover, it would leave us thorities, it is distrustful of society and of
in much the kind of world that we Ameri- responsibly free citizens; it would end the
can interventionists and Anglophiles rule of law by the delegation of powers.
portrayed as the likely outcome of ir- Some such distortion or disordering of
responsible isolationism, i.e. of a Ger- values is perhaps an inescapable conse-
man victory. quence of the great depression and the
The important criticisms of the Bev- war. The craving for proximate security,
eridge-Oxford program have to do with national and individual, has become a
political philosophy more than with eco- dangerous obsession--dangerous not on-
nomics. A libertarian indictment of the ly to other values but especially, if one
program might run somewhat as follows: sees beyond tomorrow, to security it-
it largely ignores all the hard problems self. Real security requires organization
of "freedom versus organization"; it for progressive dispersion of power, with-
would singlemindedly pursue certain in nations and among them. The plan-
narrowly economic ends at frightful cost ning of Beveridge and his colleagues of-
or risk in terms of other values; it con- fers only extreme national concentration
templates a kind of national economy -which at best can only impose peace
that precludes effective international or- within nations while precluding peace
ganization or minimal solidarity among among them.
the Western democracies; it repudiates These two books afford eloquent testi-
the democratic process of rule-making mony on one obvious point: there will
in favor of "democratic" empowering of be no good peace unless the United States
authorities, i.e., in favor of "plebicitary boldly leads the way toward freer trade
democracy"; it rejects democratic dis-
and monetary stability in the Western
persion of power, decentralization and
federalism in government, and the in-
strumental state, in favor of dominant UNIVERSITY OF CHICAGO