The Case for Orthodoxy
By IAN HOROBIN, M.P. [in arliele.by Capt. Harold Macmillan, ALP., on " The Case for Etpansion," appeared in last week's " Spectator."] I DISTRUST all " expansionists." As politicians they are sure to be dangerous," for they found their proposals on defective theories of money. And one can see at a glance that these theories are sure to be defective from the sort of politicians to which they appeal.
I will not cover ground covered elsewhere nor attempt a condensed synopsis of the case against them, but only make one or two particular points. We are all agreed that at the present time expenditure which will earn its keep in interest and Sinking Fund should be proceeded with. Nor are we primarily concerned with the. question whether some other expenditure which will increase rates and taxes (e.g., on sluM clearance) may not, even to-day, be justified on social grounds. The controversy turns solely on whether there be a " way to prosperity " by a large expenditure of borrowed money on objects which it is not even claimed will earn their interest and Sinking Fund charges. The expansionist case expands and con- tracts so rapidly that it sometimes embraces borrowing money to pay unemployment insurance pay, and some- times contracts to mean merely proceeding with normal expenditure. of a remunerative type. But I will ignore these controversial, though characteristic, eddies.
First a word on the theoretical issue. This arises from Mr. Keynes' Treatise on Money. The book was ex- tensively revised by him before publication and by all his political disciples ever since. For they have rarely appreciated • how technical is his apparatus and how deceptive his terminology. I will only give one concrete illustration bearing on a vital point. In the summer of 1932 tin stocks in this country were approximately 60,000 tons. During the month of May an important firm was in difficulties and on June 6th it failed. Large stocks were thrown on the market and between June 3rd and June 7th the price of tin fell nearly £5 per ton. Many of Mr. Keynes' camp-followers argue that in so far as this loss was 'realized, British investment fell short be- tween these dates by no less a sum than £300,000. Upon this premise they demand money with menaces from the Government in order to spend the said sum of £300,000 on new Schools and Lunatic Asylums in order to " keep savings and investment equal." As the Treasury and the Bank demur, the further proposal is made that an Invest- ment Board should be set up for the purpose. I dislike the view from this expanse.
I turn to another point. In any confused and widely- minifying problem it is usually essential to find one or more key logs of the jam and concentrate on those. Anything that distracts the attention, even to something desirable in itself but secondary in importance, is disas- trous. Under the influence of false doctrine and the contagion of currency-reform epidemics, the attention of the statesmenof the world has in fact been distracted in this way, with disastrous results. The patient has a fever and the doctor has been so anxious to keep his clinical thermometer stable that he has confined his treatment to putting it out in the cool night air with the eat. Others desire to smash the thermometer altogether. It is, however, not the thermometer but the patient who is ill. It is not true that the primary objective of states- manship should be the stabilization, still less the manipu- lation of the price level. Our own and American experi- ence, in the last ten years, as well as theory, all show that this is often undesirable and often impracticable. Space does not permit me to argue this at length, but I believe many will agree with me. I should, however, like to make the practical point that this distraction of attention is peculiarly disastrous to politicians, because all of us like to have any excuse for putting off unpleasant and unpopu- lar work while engaging on " bold " and " imaginative " schemes for getting out of trouble without unpleasantness to anybody.
I have two specific points in mind. First, it is quite futile to flatter ourselves with the belief that we can make world prices rise while every one of us is busily engaged in adding to the glut by seeking out every established world trade and promptly duplicating it, at the tax- payer's or consumer's expense, by means of every kind of tariff and quota and boycott and subsidy that the half-wit of man can devise. Secondly, it is quite futile to suppose that, as long as the necessary steps are not taken to write off losses and rearrange productive capacity in such industries as the cotton industry, any amount of London money-market operations will quickly lead capital to flow into Lancashire. You cannot cure gangrene in one end of the body politic by giving the other end dropsy.
The difference between the parties to this great debate can perhaps most clearly be appreciated by considering their attitude to what is incomparably the most im- portant event of the last two years—an event which would never have happened if their advice had been taken in 1931, an event which will immediately be reversed if their advice is taken now. I refer, of course, to the fall in the rate of interest. This vital achievement—a con- dition precedent and sine yud non to any industrial recovery—was carried out by taking the directly contrary advice to that of Mr. Keynes and Mr. Lloyd George.
Faced with it, this school, imagining that it will last for ever in spite of anything they may do, proceed to make two fundamental errors. First, they grossly exaggerate the actual total sum which is available for long-term investment at that low rate. If they endeavour to borrow more, they will inevitably put up the rate again. Secondly, they assume that by money-market jiggery-pokery they can secure a permanently -low rate of interest in spite of encouraging Governments to commit all the finan- eial crimes which preserved for so long prohibitive rates here at home, and still preserve them abroad. We, on the other hand, having done all the unpopular things in spite of them, things which all experience taught us would make money cheap, when we are now asked for what purpose we keep money cheap, give an equally unpopular and equally true answer : we don't know. No one in the world knows, nor can know in any society such as ours. What we do know is that if we keep money cheap, if we patiently and laboriously disentangle all the knots into which they and their like tangled the financial affairs of the world, we shall find that, little by little, first one man and then another will take advantage of it and will find it worth while to build a factory in Slough or electrify a railway or redecorate a house. The world must decide whether it will now at last return to a state of society dependent for its livelihood on free men seeing a profit and going for it, or whether it will return to its vomit and stand by while hounding on Governments to seek out losses and go after them, at the taxpayers' and the consumers' expense. The latter policy has had a very good run for our money—. its victims now number millions both of investors and unemployed. Every one of them may well consider whether there is not some truth in our contention that this depression which started as an ordinary boom and reaction due to •faulty finance and over-borrowing and foolish lending, has been gravely intensified and greatly prolonged mainly by the efforts which we associate in this country with the distinguished name of Mr, Maynard Keynes.
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