ECONOMISTS SOUND A NOTE OF PESSIMISM

Press, Volume XC, Issue 27307, 25 March 1954, Page 10

ECONOMISTS SOUND A NOTE OF PESSIMISM

THE DISMAL SCIENCE

[By “LYNCEUS” of the “Economist”] [From the “Economist” Intelligence Unit]

Economists are making a bold bid to regain and consolidate their claim as dispensers of the “dismal science.’’ At a time when Wall Street is again booming and reflecting anticipated belief in the recovery of American business we are still getting warnings from American economists to take cover from the imminent collapse. Although sterling is strong and gold continues to flow into the reserves, the very eminent and witty professor oi political economy at Cambridge takes this opportunity to dip his toes very gingerly in the bracing pool of convertibility and utters wise warnings about the discomforts of taking the plunge. „ _ Although month after month Britain maintains its share of world trade ana balances its overseas accounts with a fair margin to spare, Professor Austin Robinson, also of Cambridge, is telling us that Britain’s great good luck in paving its way with the rest of the world will not last and that imports will have to be planned and cut in the foreseeable future. Finally, Professor R. G. Hawtrey has just published a book in which, awakening, like some Rip van Winkle, in what he deems to be an intensely inflationary age, he recommends all the remedies appropriate to such a condition including dearer money, higher taxes and even an up-valuation of sterling (to protect ourselves from inflation in the United States). Here is an astonishing medley oi economic views, the various ingredients in which have one common feature: pessimism. The American economists we can ignore for the time being. The voices of gloom coming over the Atlantic are about matched by those of the optimists. There is a striking feature about these varying prophecies about America; the line of demarcation between them is almost invariably drawn by the political allegiance ot the prophets. The Democrats believe in and almost hope for a deepening of the recession because the business and employment situation promises to be the major issue in the November elections. For the same reason the Republicans urge that the only depression from which the United States can suffer this year is one into which the American people may “talk themselves.” At the moment the economic gods appear to be fighting on the Republican side. Mutual Trade Professor Sir Denis Robertson of Cambridge is a man who finds it very hard to be a pessimist. His faith in sterling and in the capacity of Britain to stand up to the tests of that open competition symbolised by the word “convertibility” is not very robust. But he is glad that this faith is to be found and he goes out of his way to welcome such “gad-flies” as Dr. Erhard of Germany and Dr. Jacobsson of Sweden, who “keep reminding the countries of Europe and ‘Sterling Area’ that mutual trade is not the be-all and end-all of their existence, and that they must carry on faithfully < with the good work, which most of them have taken in hand during the last few years, of bracing themselves to earn their living in the outside world.” But the very collective name “gad-flies’’ which he gives them indicates that he has no wish to be numbered among them. He harbours grave doubts about the readiness of the United States to pursue the kind of “good creditor” economic policy which offers the only framework within which the picture of convertibility could be securely hung: but even assuming the United States provide all the right answers, he would retain his doubts and suggests that “questions could continue to arise as to the exact degree of convertibility at which it would be reasonable for the rest of the world to aim.” All

these reservations are expounded • “Optima,” the quarterly review Duff lished by Anglo-American CorooraE of South Africa. nation Professor Austin Robinson’s mism is of a deeper hue. With a wealth of ingenious statistics, he “proves” that Britain cannot maintain the current level of imports. “I doubt.” he write, in the March issue of the “Three Bark! Review,” “whether the abundant fortune of 1953 is here to stay 8 u seems to me much more likely that we must plan our imports within a total nearer to that of 1952”; i.e th! total drastically cut down after the balance of payments crisis which ctil minated towards the end of 1951 Professor Hawtrey’s theme can be summed up in a few sentences Dis regarding all the recent evidence from the economic front, he claims that the twofold troubles of the present time are inflation and an adverse balance of payments and that both are attri. butable to excessive spending. The adverse balance of payments, he argues, is due to over-employment of the export industries and the diversion of their resources to supplying "the home market. There is too much spending power which should be cut down by financial measures, including “an adequate tax revenue”; and by monetary measures, including “a credit policy which deters traders from resorting too freely to the holding of stocks of goods with borrowed money* Much of this is outdated by recent developments—and yet the introduction to the book was dated January 1954, and the book itself has only just appeared. Cancelling Out

Some of these professorial views cancel each other out. It used to be said that “where four economists are gathered together there are five opinions, two of them being Keynes’s.” But Keynes, at least, had the merit of looking on the bright side of things. Even if his focus occasionally threw up two pictures of the situation at which he was looking, they were pictures of which the average, if it erred at all, erred on the side of optimism. In the last period of his life he was, in fact, urging Britain to take greater risks than the comtemporary position justified. Were he alive today he would probably intone the same theme —and today with far more warrant than at the end of 1945. At the end of the Anglo-American financial negotiations in which he had been engaged in the autumn and winter of 1945 Lord Keynes was asked whether Great Britain could and would honour all the external debts it had incurred as a result of the war. He replied “Of course we can and shall. I have donned the mantle of the prophet for more than 25 years and if that long experience has taught me one thing it is that we always underestimate our powers and capacities. We always tend to judge the future by the criteria of the present. We never make sufficient allowance for the inventive genius of man, for the advance of science and technology.” Looking back over the decades and centuries we know that this is surely the voice not only of optimism but of realism. Despite the follies and interruptions of war, mankind has achieved miracles of progress. There is no reason to believe that the era of expansion lies behind us; though one would be prone to believe it if one took the croakings of so many economists at their face value. There will be setbacks and oscillations in the curve of human progress; but the secular trend, is unmistakeably upward. Unfortunately, progress can be slowed down by the voice of poltroons and in the crucial period that lies immediately ahead the men of little faith could do much negative damage.