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The Economics of Sir William Beveridge

ISSUE:  Summer 1945

Full Employment in a Free Society. By William H. Beveridge. W. W. Norton and Company. $3.75.

There is a certain looking-glass quality about many of the slogans of political discussion today. When Mr. Winston Churchill exclaims, “We nail to our mast the banner of free enterprise,” what does he mean? When Secretary Wallace declares in favor of “free enterprise” and “little business,” what has he in mind? When Sir William Beveridge and Professor Hayek both extol a “free society,” what do they imply? For assuredly these gentlemen do not mean the same thing. Is “free enterprise” merely the fact that some people still own private property? Is a “free society” ensured by regular elections? Or do we mean by “free enterprise” and “free society” that general sociological, institutional, and intellectual pattern men have called capitalist democracy? Such questions are not semantic curiosities. Behind them lie some of the basic issues of civilization.

Few figures in English life are more respected—one should rather say revered—than Sir William Beveridge. President of the Royal Economic Society, author of the Beveridge Report on Social Insurance, author of many other works on business cycles and unemployment, he is universally recognized among the world’s most famous economic statisticians. One comes to a new book by him expecting thorough technical achievement, lucid exposition, and a generous spirit of human sympathy breathing life into the most formidable statistical table. The present volume shows all of these things. Within its frame of reference there is little indeed at which one can cavil. The book is solid reading for the non-professional but well within his grasp. Laymen might possibly be advised to commence with the last chapter, “Unemployment and Social Conscience,” and then return to the beginning, but this is not really necessary. A lengthy appendix contains a mass of information for the technical worker, but even so is not entirely “closed to the public” and there are sections on cycle analysis which will interest everyone. Yet conceding all these merits there is still a certain ground for disappointment.

The frame of reference within which Sir William assembles his material is narrowly, uncompromisingly, and starkly “Keynesian.” Nor is it even the economics of Lord Keynes himself, but the far more drastic simplification of his chief disciples. Much present opposition to Keynesian unemployment analysis is clearly traceable to the writings of some of those who have sought to “popularize” it. They have scraped the qualifications from Keynes’s thesis like barnacles from a boat, converted his probabilities into certainties, his special cases into universals, and his tentative suggestions into imperative commandments.

Sir William, however, accepts what might be called “streamlined” Keynesianism practically without question. What Beveridge presents is at first glance an almost completely literal application of the idea which swept the seminars of Cambridge (both Massachusetts and England) about eight years ago, and which is today embodied in the Murray “full employment” bill now pending before Congress: When private investment declines, let government investment take over. When private investment revives, let the government “taper off.” What could be more obvious?—and it must be granted at once that such a program could ensure “full employment.” But would it be in a free society? Unfortunately, it is just at this point that trouble begins.

Sir William accepts the familiar notion that there is a close connection between personal freedom and a “free” market only in a drastically modified form. But, assuming some relationship to exist, it is not hard to show how easily his idea could operate to destroy the pattern of competitive adjustment. Suppose unemployment to be due to the ousting from public favor of, say, automobiles by aeroplanes. Under the orthodox system of pains and penalties, loss and unemployment in the auto industry would send labor and capital out of building autos and into making planes. But during the process, as we all know today, a net shrinkage of income (euphemistically called “short run”) is easily possible, and such a shrinkage could start a general collapse. Sir William would prevent this by public works. Yet if his work projects are located in the depressed areas, labor will be retained where it is no longer needed. If the projects ave located elsewhere, the unemployed will not be directly helped. Again, if the men are paid as much by government as they received before, there may be little incentive to transfer. If they are paid less, consumers’ income will not be maintained. These are but samples of the potential headaches involved and no theoretically satisfactory solution appears available —though workable compromise is certainly possible^

But mere workable compromise between the market economy and intervention is not what Sir William has in mind. He sets as his goal constant full employment of about 97 per cent. Furthermore, the state investment which he envisages consists of things—as he puts it—”passionately” desired. They will be so passionately desired, indeed, as even to risk transcending the desire for democracy. For Beveridge states, “there must be reasonable continuity of economic policy in spite of changes of government.” Yet suppose a government is voted in which is pledged to a “discontinuous” policy. What then? Is it surprising that certain English writers have suggested that the defeated government might “refuse” to resign unless “reasonable” continuity were “ensured”! The fact is that while Sir William recognizes the problems we have mentioned and many others, they do not trouble him as much as they do many American economists, for he has a far more sweeping remedy in mind than they.

A very brief examination will show that Beveridge is not arguing for a compensatory policy designed to ease the strains of democratic capitalism, but for comprehensive overall state planning of the entire field of investment. Indeed, most economists would agree with him that only thus could continuous 97 per cent full employment be secured. But again one asks—would it be secured in a free society?

Beveridge’s book marks a culminating point of a long development in English thought. Its roots are clearly traceable as far back as certain overtones in the later work of John Stuart Mill, if not sooner. Be that as it may, the dogma seems now thoroughly formed: Saving is a bad thing, spending is good. Scarcely any profit is necessary; interest is a largely unjustified “purely monetary” phenomenon. Business cycles are the result of a lack of economic planning—no more, no less. There is no need for the “owner” to have authority in the plant; there is not much need for an owner. Strict literal equality of money income is one of the first aims of economic policy. Equality of opportunity, however, receives only lip service and secondary consideration. The gods of free international trade are given respectful bows, but actual proposals tend strongly toward cartelized “planned” protection. Regarding foreign trade, and even in other matters, there is, indeed, a certain parallel between the attitudes prevalent throughout the long decay of the Spanish world empire and those now prevailing in its successor, Britain.

To discuss all this adequately is clearly impossible in the scope of the present paper. Certain basic points, however, must be briefly mentioned which would lead to a fundamental dissent from Sir William’s point of view. A comprehensively planned economy, as I see it, implies eventual rule by a self-perpetuating group of specialists. For in planning what industries are to be expanded, we almost inevitably plan what groups are to hold economic power. No man can rise without the consent of those already in control. Political elections might nominally remain free. But the voter would depend for his bread and butter on the state. In a reasonably prosperous and competitive capitalism, a dissenter has a chance to transfer out of the reach of an oppressive boss. In a planned state, transfer beyond the reach of the ultimate employer is impossible. The voter then is seldom really independent.

With economic and political institutions both tending toward self-perpetuation, the inevitable narrowing of the self-perpetuating group will set in. Preference and promotion go to the agreeable rather than the able. It is a phenomenon well recognized that the “school,” the “academy,” tends to fall into increasing rigidity. What would have been the fate of Shelley, Pasteur, de Gaulle, even Edison, in such a world of pensioned post-office clerks as Beveridge’s plan could easily become? They had none too easy a time as it was. Even in reading Sir William’s moving chapter on unemployment and social conscience, one should also remember, in assessing the misery of the unemployed, the misery of the free and inquiring mind in a world of dull conformity.

The vital features of a democratic and scientifically progressive community are the alternative job opportunity and a chance to rise on independent terms. Without these, cultural stagnation and social stratification are both likely to set in. The little business that counts is the little business that has a chance to be big business. By such a standard there is little to choose between present English parties. Mr, Churchill’s idea of “free enterprise” seems often merely a coalition of all present vested interests into a single regime of co-operating planned monopoly. Beveridge’s free society is a new vested interest of dominant government planners. But to the real believer in democracy and science, the self-perpetuating vested interest—no matter who initially composes it—means eventual death. One may freely grant the lofty moral tone of contemporary English thought, but results are often unfortunately independent of intentions.

One may question, too, the technical analysis upon which many popular English ideas are based. The business cycle is not the result of capitalism alone, but the result of growth and change. It can be shown that rapidly developing socialism would involve quite similar maladjustments. Is saving “bad”? Eventually the answer depends on whether we really are in an “economy of abundance” instead of “scarcity.” Estimated Indian income per head is less than one hundred dollars a year. Are not Indians people? Whatever the shortcomings of “orthodox” economics—and they were numerous —it was unswervingly internationalist, democratic, peace-loving. It could never forget in the brief prosperity of the West the hungry mouths of Asia. Let us take care lest our new “realistic” economics imply an equivalent moral decay.

Let me make myself clear. The grouping of economists in recent years has been substantially as follows: On one side are the adherents of approximate laissez faire and extreme monetary orthodoxy—for example, Professor Hayek. On the other are the extreme socialists and totalitarians. In between come certain liberals, under a variety of names, who wish to maintain capitalism, but also to render it more secure. Their hope is to keep unemployment and deflation within bounds and in this endeavor government investment is an important weapon. To such a synthesis of the modern conflict I myself subscribe. But Beveridge’s work is no such synthesis. In the theory of its functioning it is directly authoritarian and the whole direction of its economic bias is toward aristocratic stagnation. We can make our world more secure, but we cannot make it ninety-seven per cent secure and still have science or freedom. After all, as Professor Whitehead remarks in “Science and the Modern World,” “On the whole the great ages have been unstable ages.”


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