NOT YET PASSED

Evening Star, Issue 21934, 22 January 1935, Page 11

NOT YET PASSED

AGE DF SCARCITY PROFESSOR'S VIEWS STATE INTERVENTION The opinion that the age of scarcity has not yet passed and that even the maximum utilisation of the world’s productive equipment would still leave the people badly off was expressed by Prolessor Lionel Robbins, ol the London University, during the course of a broadcast address in England: — 1 want to start by saying something about the title of this series of talks. 1 cannot help thinking that even now it may be misleading to some of you. Our problem is to .explain why the economic machine sometimes produces so much less than it could produce, in spite of the fact that so many people consume so much less than _they_ could consume. To make this vivid it has been thought proper to describe this as the problem of poverty in the midst of plenty. And when we think of the characteristic symptoms of a slump in trade—the granaries full of coni which remains unsold, the factories closed, and the great ships lying idle —when we think of these the title seems apt enough. PRODUCTIVE RESOURCES.

But all the same, if it leads you to suppose that if the slump were over and the machine once more running at a normal pace, the problem of poverty would have been solved, it will foster a very grave delusion, i know that it is often said that the technical advances of recent years have solved the problem of production—that the age of scarcity is past and that all w.e have to do is to organise the distribution of plenty. Unfortunately this is not a view which bears examination. The best statistics point in the other direction. There is no reason to suppose that in the days before the slump the capacity of industry as a whole to turn out an increased volume of production was very great. Here and there the slack may have been conspicuous. But in the mass it was not so. And this means that the problem of production was not solved and that the age of scarcity was not past, if you took the aggregate production of the world before the slump, increased it by. say. 20 per cent., which is probably far and away beyond what was practicable, and divided it equally among the adult inhabitants of the world—if you did this Ido not suppose that there is one of you in these islands who would not be poorer. For yon must remember that the lowest paid worker in this country enjoys an income probably considerably above the average of Europe ns a whole, and certainly much greater than the average of those great poverty-stricken areas where the bulk of the world’s population is situated— Russia. China, India. So that when wo talk of poverty in the midst of plenty we must always remember that we piean relative plenty. Absolutely the maximum utilisation of the world’s productive equipment would still leave us, on the average, very badly off. COMPETITIVE MARKET NOT TO BLAME. But why is it that we do not attain oven this wretched standard? Why is it that, when the needs of consumption are so great, our capacity to produce is not fully utilised? That is the problem we have to discuss in this symposium.

Now there arc some people who think that the trouble is due to the absence of centralised control of production. In the absence of central control the responsibility for organising production rests with private enterprise guided by anticipation of markets—both the markets for the things it sells and the markets for the raw materials and the services of capital and labour that it buys. There are some who think that such a system is bound to lead to perpetual dislocation and chaos. They say, indeed. that our present difficulties are the result of the breakdown of capitalism.

But the more you look into the matter, either historically or theoretically, the less plausible the view becomes. Historically, as I shall be arguing later, there are all sorts of explanations which are more plausible than this. Theoretically, the argument fails to carry conviction. Production guided by the market is production organised to satisfy market demand. If mistakes are made, it is the people who make the mistakes who suffer first and suffer most heavily, and the market mechanism if left to itself compels the necessary adjustment. Surely there is nothing in all this which is conducive to dislocation. Someone must organise production. There must be some means of measuring what consumers want and how far the want can be satisfied—some guide to the relative desirability of producing sugar beet or bicycles. After all the talk Hint we have beard in recent years about planning, it is now becoming perfectly clear that, if planned production is to be successful. it must find some means of reproducing just this play of market forces which arises spontaneously under free capitalism. There are many features of our modern economic organisation which arc indeed open to grave criticism. But the guidance of produc-

tion by competitive markets and the assessment of profit and loss is not one of them. It is an indispensable feature of any successful organisation of production.

EFFECTS OF EASY MONEY. But if this is so, if there is nothing in the market and competitive production, as such, which should lead us to expect a periodic tendency to slump and widespread depression, where, then, are we to look ? How are we to explain the widespread and persistent maladjustments which actually do take place? The way I have put the problem should suggest the clue we are looking for. The fact that the maladjustments are widespread suggests that they spring from some factors operating in more than one market. But what is it which is common to the markets for coal and for houses, for rubber and for pig iron? Not the commodities supplied, surely, but that which is given in exchange—money. And that, I believe, is one-half the solution to our problem. The maladjustments between demand and supply which appear in a slump are the product of errors fostered by misleading fluctuations of demand expressed in terms of money. In detail this theory is very complex, and it would require a very long time for me to make plain to yon the various ways in which modern economists have explained it. But in broad outline it is really very simple. If for some reason there is more money than usual available and business conditions look favourable, it is surely not difficult to see that investors and business men may be led to make mistakes —to launch out undertakings which can only be carried on satisfactorily if these easy-money conditions are going to last. And if they do not last—and you can see that once people have been seized with the speculative mania it would take a continuously increasing inflation to keep them going—then these mistakes are revealed. The lines of industry concerned with launching new enterprise—the socalled heavy industries and the industries producing raw materials—experience a falling off of demand. For the time being business is stagnant. There is unemployment and unused capacity. CAUSES OF DEFLATION. That, 1 say, is the first half of the explanation. A slump, such as you often had during the years before the war, is the result of the mistakes brought about by the boom which preceded it. Till things are straightened out there is dislocation and slack business. Now suppose that on top of a depression of this kind there come political troubles—international tension, internal revolution. Suppose, too, that Governments, instead of realising that at such times it is their business to secure the maximum freedom of markets begin to block up the channels of trade with all sorts of obstructions and petty limitations. Suppose, too, that because of financial catastrophe and the fear of imbalanced Budgets people do not know from day to day what is going to happen to their money, and that in their dealings with foreign parts they are hampered by fluctuations of the exchanges. Will not all these he additional causes of depression—influences tending to make people refrain still further from active investment, tending to make them leave their money lying idle at the banks, or even invested for greater safety in gold coins or gold bars? And if this takes place is it not clear that there will be new disparities between demand and supply, a new shrinkage of markets and renewed deflation? CAUSES OF GREAT DEPRESSION. But what is all this but a description in abstract terms of the dismal history of onr own times. As 1 see things, the trouble really started soon after the slump of 1921-22, when the gold that had flowed to America began to generate there a great expansion of credit. This expansion gradually spread to other parts of the world, particularly Germany and the raw material producing countries. (In its later stages, it was distorted and made more damaging in its effects by the monetary muddles which had been caused by our return to the gold standard at too high a parity). From 1925 to 1929 were boom years outside Great Britain. Production went ahead by leaps and bounds. international investment revived on a large scale, and, under the stimulus of the easy money conditions and the reckless spirit bred by the extraordinary gains that were being made, all sorts of hopelessly bad investments took place. Then costs began to rise. It became harder and harder to borrow. In 1929 the bubble burst. The boom was at an end, and all the mistakes and maladjustments to which it had' given rise stood revealed.

So far 1 have relied on my first explanation. The slump was the aftermath of the collapse or a boom, like so many slumps of the past. It had its peculiarities, no doubt, but the main features were not dissimilar. But, unlike the slumps of the past, it lias been an abnormally long time, disappearing, and its devastation lias been more widespread than anything known to history. That is where the second hail ot my explanation comes in. file slump took place in conditions pecu-

liarly conducive to the propagation and multiplication of shocks. Political conditions were bad for business confidence. The structure of business in the post-war period has been much less flexible than the structure of pre-war times—often as a direct result of Government support and intervention. International finance was complicated by the existence of a vast system of Government borrowing and debts. The result of all this was that the depression deepened into a colossal financial crisis. In 1931 the international monetary system broke in pieces—easing the position for some, but making it much worse for others, and adding to all the other uncertainties x)f business the terrible uncertainty of exchange instability. Is it to be wondered at that investment has hung fire, that money has been idle, and that in industry generally there has been unused capacity and unemployment? On top of all this there can be no doubt to my mind that the policies pursued by Governments have enormously intensified these difficulties. I am glad to see that the various speakers who have addressed you already have nearly all emphasised the fact that policies which restrict supply and limit trade are not conducive to long-run prosperity. On that point apparently we are all agreed. Only the special interests which benefit by restriction maintain the contrary. But I want to go beyond that. I want to urge that these policies are not only bad for long-run prosperity, but that they are also bad so far as the prospects of immediate revival are concerned. I want to urge that it is limitations of this sort which deprive the system of free enterprise of its recuperative powers and give rise to the delusion that it is the system itself which is defective. LIMITATIONS ON FREE ENTERPRISE. Consider for a moment the effect of quota restriction on imports—orders prohibiting the import of more than a certain amount of some commodity from abroad wherever that is. Clearly the consumer suffers; he has to pay more. Clearly some producers protected by the quota make higher profits. These things are obvious. But think for a moment of the producer whose produce is excluded. He has capital locked up in his business. Suddenly he finds that his market is curtailed. What can he do? Throw the surplus on to other markets at a price lower than before, and try to sa\c something from the wreckage? But this causes further disturbance. iNew restrictions are enacted elsewhere, and So the vicious circle goes on. Or think for a moment of the effect of those regulations which in most countries of the world to-day are being imposed to prevent road vehicles carrying people any cheaper than the rail- " doubt a little of this sort of thing does comparatively little damage. For the greater part of modern motoring protective tariffs have made the world poorer than it would have been otherwise without choking trade altogether. But when it is multiplied indefinitely when on all sides you see the multiplication of restrictions on trade and investment, the erection of State-aided monopolies, and the limitation of fiee enterprise—then I submit you do not need to ask further why the phenomenon of poverty in the midst of plenty persists, or why, on any clear view of the future, it is likely to continue to persist. But notice—and this brings me to the point from which I started —it is not the system of private enterprise and free markets which is responsible for this phenomenon; it is the suspension of that system. It is not capitalism; it is interventionism and monetary uncertainty which are responsible tor the persistence of the slump.