The Future of Public Finance
By PROFESSOR LIONEL ROBBINS
THE most conspicuous feature of the history of British Public Finance since the crisis of 1931 is the great growth of public expenditure. In 1931-2 aggregate public expenditure (excluding Post Office) was in the neighbourhood of £793 millions. By 1937-8, according to the budget estimate, it had risen to something in the neighbourhood of £868 millions. (This excludes amounts of the order of £8o millions which were to be met by borrowing.) The increase therefore was of the order of £70 millions.
But this figure, considerable as it is, really conceals the magnitude of the expansion. For during the same period the Debt service (including sinking-fund provision) fell from £322 millions to £224 millions—a diminution of £98 millions. Part of this was due to the suspension of sinking- fund payments. But part, the larger part, was due to reduc- tion of interest by conversion. In fact, therefore, expenditure, other than debt service, has increased by nearly £170 millions.
Or to put the same thing another way, the whole of the saving on conversion plus the gain from reducing sinking fund payments has been swallowed up by new expenditure and commitments to the extent of an extra £70 millions (excluding defence loans) have been undertaken.
This increase is not by any means wholly due to rearma- ment. Rearmament (excluding loans) accounts for some £90 millions. But other expenditure has also risen by some £80 millions. The civil expenditure in 1931-2 was £320 millions. The estimate for 1937-8 was £418 millions.
For 1938-9 it has risen to £428 millions. These figures somewhat overestimate the rise, owing to the change in allocating road fund expenditure. But it is clear that, for good or for bad, the rise in expenditure is general.
This movement is not likely to be reversed. Some at least of the rise in civil expenditure might be pruned away if there were any wish for economy. But such a wish is not yet apparent. And it is most improbable that our new-found understanding of the essential good-will of the dictators will be productive of fruits which will justify, even to the most gullible, any relaxation of the pressure of rearmament. Rearmament expenditure has not yet reached its peak ; and, even if from now on the increase is borne wholly by borrowing, any diminution of current expenditure is hardly to be hoped for. What then is likely to happen ? It is at least conceivable that the outcome of the present impasse in Europe will ultimately be war, inflation and repudiation of government debts. We should all agree that this was so if we were observ- ing such a situation from another planet. As it happens to be our own, we naturally prefer to examine other possibilities.
Let us assume then that this dreadful thing does not happen. Even so, the position is not one that can be regarded with equanimity.- The revenue in recent months has shown itself extraordinarily buoyant : it is likely that the present financial year will close with a substantial surplus : it is possible that the surplus will even cover current borrowing. tut, in spite of the anaesthetic optimism of persons in high places, prosperity will not last for ever. The yield of taxation ill not always rise. If there is a falling off in revenue, the )sition will not be pleasant. There will be a new cry for economy at a time when measures of economy are likely to especially disturbing. And the economies which we should i like to make, the reduction of arms expenditure, will be c\ eluded on grounds of high policy. It is often said nowadays that such difficulties can be met by an increase of Government spending. If depression comes, it is argued, then Governments must deliberately incur a deficit. In the long run, the more the Government spends at such a time, the higher will be the Government revenue.
This view seems over-simple. It is quite clear that it is desirable that Government expenditure on capital account should be planned in advance so as to be more intense when private investment is slack. This has been a matter of common agreement by all economists ever since it was suggested by Professor Bowley some years before the War. Only complete misrepresentation can suggest any disunity here: and it is greatly to be deplored that Governments pay so little attention to one of the few types of policy on which they could get unanimous expert support.
But, beyond this, difficulties arise. We may perhaps ignore the international complications which occur from unbalanced budgets. The autarkic measures which are the complement of extensively unbalanced budgets will not necessarily be unacceptable to an age which regards international contacts as, at best, a necessary evil.
But putting this on one side, it is still open to question whether even in a completely closed community, measures which at frequent intervals increase unproductive govern- ment debt are to be regarded as altogether desirable. In Great Britain, it is true, there is still a considerable margin of safety. Our credit is still strong. Given a " safe " Government we could go on borrowing for quite a long time. It is quite probable that the deficits of the next depression, if it is not great, will be met successfully in this way. But an increase, at each successive depression, of the debt service is not really a very hopeful prospect, especially in a popu- lation which is tending to decline. Only quite unworldly people can regard an indefinite increase of public debt as a satisfactory solution for anything.
This difficulty might .perhaps be partly met if the policy were adopted of accumulating surpluses during the boom to meet the deficits of the depression. An extension of the present policy of the Unemployment Insurance Statutory Committee to government finance in general might indeed provide a most valuable counter-cyclical influence—especially if the surpluses were accumulated in the form of gold or genuinely idle deposits. There would be hoarding in time of boom, spending in time of slump and the complications of debt would be avoided.
But such developments are unlikely. They demand a capacity for long-run planning and continuity of policy which hitherto no Government in history has shown itself capable of possessing. The Governments of recent years haVe indeed shown no disinclination to indulge in policies which have been called planning ; and they have brought much confusion into spheres of economic activity which might well have been left to private enterprise and created many vested interests which cause much unnecessary poverty. But their accom- plishment in the sphere where only Governments can plan has been negligible. They have piled up debt and increased public obligations. But they have not stabilised business any more than they have brought peace to the nations. And, in the present state of political power and opinion, it is extremely unlikely that they will. If relief comes at all, it is much more likely to come, not from prudence and conscious policy, but from the surrep- titious influence of a rise in the general level of prices. There is enough gold in the world now to sustain a level of prices much higher than the present : and it is not at all improbable that sooner or later this will come about. If this happens, then the burden of fixed debt will be lightened. This, of course, will be equivalent to partial repudiation and May entail considerable deprivation on the part of the owners of fixed-interest-bearing securities and fixed salaries. It may entail, moreover, considerable instability of business—bouts of speculative fever, punctuated with spasms of exaggerated apprehension, together with labour troubles and fierce political agitation against a rising cost of living. But, in a world not given to long-run views and inclined to make- believe, these will perhaps be regarded as evils preferable to the efforts of more deliberately chosen policies.
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