FACTOR OF VALUE

Evening Post, Volume CXVIII, Issue 118, 15 November 1934, Page 11

FACTOR OF VALUE

>VHO KNOWS BEST?

THE MARKET—OR THE PLAN ?

; ECONOMIC WISDOM

Who knows best what anything is worth? Tho markets or the planners! This question is raised in Sir Pcicy G. Mackinnon's presidential address to >ji* Insurance Institute of London. ISiO 'Markets are impersonal but ever <Jtv^,*nd their moving prices are continually cancelling certain branches of industry', and creating or promoting others; both capitalists and workmen Tise or fall by this process. The markets . force a farmer to change from wheat to something else, or force ' a manufacturer to change from boots'to shoes; the alternative (failure) is enforced ruthlessly, yet planf ully. 'The personal planning reverses the impersonal planning of the 'markets. When the world's harvests give us too much wheat and tho price collapses, a central authority steps in and says: I "This is the wrong price for'wheat; I fix it at another price." And to do this he buys tho surplus wheat to hold it against better conditions, not merely keepirfg the grower solvent, but pre venting* the grower from giving up the cultivation'of wheat in favour of some other'activity." A kindness that is, in the long run, cruel. i THE MARKETS KNOW BETTER. "I do not'believe that there is anywhere, either in a man or a committee, such foresight and wisdom as will enable them, without the help of a free market, to steer industry along the light course and decide the price at which the products.ibf.andustryj:ought to be bought and sold. Let the committees' calculations be never so elaborate; let them have^iall the experts in the world,'to,draw up tables.-and.equatio-ns and reports, I ,do* "not'b'eliey^that they can''even begin;,to do>;theywbrk that is done by free!men working^ina ±ree market, bargaining and concentrating on; costs (f and;; ,< prices. . \The theoretical conclusions\ of '■'. the central authority are not in, the same;class as the market issuing f rom the collective wisdom, error,1 judgment,.and mistakes of an activejinarket.'^jy.;.^;; Planning and central :'^onMol; areCbad because they substitut,e'rigidity foi elasticity—a- rigidity planri^d.-b^anv.autho-rity who can nevcr*2kiipw>~what'■■■ttV markets, know, nor niove'asfthe marketg move:' Tlanning ten^Stpi^bilSevdtself: on the leait efficient^producer.: ItValsp tend 3to base itself\on;the'iexcWision of foreign produets^ai4^thn» : '..'bocomes' economic nationalism.^ ■>!'!, i r ? 'In yiew'of-.the TCcert^jUnited:States elections strengthening.; the handy? of •President Boosevelt "and in,view of Mr; Cordell Hull's still more 'rebent: intimation that, the United States^ tariff should bo reduced, additional' interest?^Attaches to Sir Percy :>l3ckinnon'sstate r ment that "it ia as;!certainras possible that the planned'Statermeans; ;ecb^pni]« nationalism." . 'tiP-^^W^r^? Sir Percy Mackinnon finds a parallel in medicine. , "There';is^ sb Ta* told, an illness known, toldoctbrs as ;<sinphysema. It is a disease of ; the; lungs and it" affects themrin; this way. \Vhen the patient is; inflating, the lungs work; but when he'calls^on them for the reverse process sand asks them to contract in order, to! dispel the waste air from the.body,;they jib ; ;and refuse. The elasticity^ of \the;lungs lias gone. What tlie; world is; suffering from today is economic; emphysema; and the more the central; .authority, plans prices, the worse^this emphysema; will become.,', According',J6:fmy'jirtPiß,rj ■ mation,, emphysema, ; when ~ acutejf ia fatal. ' Q;-^\::< V-■:■)% • UNPLANNED INSXTBANOE./ ;}?<: "You may perhaps ieisayirigW yourself that this has littlefori rtothing to do with insurance', .whichj"; so^' far,;-has not come within tho range : ;of-iplanned economy. 'Well, it is true;tha)t planned; economy", in this countryjatVany, rate,has not had very mueh'jfco' say;to insur-. anco, and we as insurance ;anen.:bngh,t, I tfiink. 'to regard ourselves/jasitfprtu-; nate that we are not'iengaged invan] industry/that needs to; be stored upland; underpinned by any ; central; planning authority." . • . Economic^national-, X ism cuts at the root b* ihsuranceyW ;i; need not, lam surej repeWb> to yop the. old, unanswered argument-that the. eir; senc^'of insurance i» the spreading of lisks and that it is.iojl^v^; turn the national frontier into a; barrier, outside which the nation's risk must not r be; carried. vvf;'^,-...':;;.^;;^.;;;7- .:<■'-■: "Insurance, which; startedan international tTade, and has;grown with inter-; national trade, depends :f orbits ;;efflciency and for the service it: rendersvto the world, to'the continuance; of.j, that trade. In a world of iplanned States there will doubtless -be; some kind,^ of machinery for insurance; but it .will'be a poor thing and will givetpthe world a service very different Ifrom^ the "service i a h«althy, international> insurance market has ,hithertb, provided,;^ ;: j vv:.' "The mention of service reminds ;me of some remarkable; figures which , I saw a few months ago in. the: Insurance Supplement of 'The Economist.'- Z^Thc Economist' took the results' in .the" fire-? accident, and departments; ".of twenty-two British offices, and; showed that in the five years between.. 1929 aad 1933, the.net, trading .surplus)had varied from 1.2 per . cent.; of the pre-. mium income''to 2.4 per. centi:of> the premium'income^ 'so thatJV^ith a margin of never more than;2J per cent.J and never less than 1 per; cent^, these twdnty-two offices ha!d:*given' to the world the service of r their'great-insur-ance - organisation, i; They ■ yrere! not easy years. Th*y were years of crisis and collapse in currencies;-in; which, new problems'and unforeseen situations aroiie'and had .to be; tackled '/almbst Aaily bjr the 'commercial community.; v. '(That-was, I think/a remarkable ipShievement, and on;it."the : paper"made ♦wo comments. ItVpointed; outiithat ftie achievement went, to the'scredit'of 91 industry that enjoys nb: ; tnbnbpoiy: Which relies for its revenue solely? bni the good-will of its customers; that it 4p subject, day in and day;put^ to the pressure of rcompe.titibn;; and' has to make its profits out of the hazards and uncertainties, whicji;'"fJthe] .. ;;ordinHry trader dare not carry' for himself .The second' comment which! struck ihe> iwas that the steadiness of' tho resnlts; and the se'rvico l given td;i the %prld' were made possible, not by'thehelp-of ■ some' superior planning authority y but by the ; skill and experience of the insurance managers and officials on which the reputation of British.■^insurance"ultimately rests." :-::/<