SIR,—Mr. Hobson's criticism of the modern lolly of regarding a
guaran- teed income from interest as socially more desirable than profits is as timely as it is important But, being mainly concerned with the financial aspects ot a policy inspired by this ideal, he does not sufficiently stress another and perhapr more serious consequence that would follow from it. If the Government explicitly or implicitly guarantees a certain return to the bondholders, its whole economic policy will be directed to secure that the concerns earn the sums required. The danger is not so much that, as Mr. Hobson fears, the corporations may make losses for which they are ill prepared, but that they will not be allowed to make losses when they ought to Whenever an investment in a public corpora- tion should retrospectively prove to have been a mistake, as in an ever- changing world it often will, measures of restriction and compulsion will be resorted to to secure it its " legitimate " return. The public will be forced to be content with some inferior service or article because only in this way can the corporation be made to earn what it expected. Are we to be bound forever to use railways or gas, coal or beet-sugar, to the present extent, and to be denied the use of better things by which they might be superseded, because the Government has promised an " ade- quate " return to those who have provided the capital? Are we legally to create vested interests which sooner ot later are bound to come into conflict with the public interests .and whose claims cannot be set aside like the shareholders' expectation of profits? British transport policy during the last 25 years should serve as a sufficient warning how the guarantee of a certain income to railway bondholders has affected public policy in a much wider field, which it ought never have been allowed to affect.
The whole idea is, of course, based on the silly belief that al business out to make profit achieves this end. Nothing could be further from the truth. To curtail or abolish the profits of those who succeed in serving the public in order to guarantee the income of those who do not is a policy which may appeal to some of our more timid capitalists; but the rest of us would only suffer from its consequences.—Yours, &c.,
The Old Oast House, Molting Lane, Cambridge. F. A. HAYEK.
Previous page
