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The Worst Is Yet to Be

ISSUE:  Summer 1932

Essays in Persuasion. By John Maynard Keynes. New York: Harcourt, Brace and Company. $2.50. Recovery, the Second Effort. By Sir Arthur Salter, K.CB. New York: The Century Company. $3.00. Economic Stabilisation in an Unbalanced World. By Alvin Harvey Hansen. New York: Harcourt, Brace and Company. $3.00. Is Capitalism Doomed? By Lawrence Dennis. New York: Harper and Brothers. $3.00.

Engagingly, Mr. Keynes introduces his collected essays of the past decade as “the croakings of a Cassandra who could never influence the course of events in time,” who could not persuade, not because of the character of his utterances but because they ran counter to the overwhelming opinions and sentiments of those in economic and political power. Mr. Keynes is one of the world’s living economists who possesses remarkable powers of analysis and of foreshadowing coming events. His “Economic Consequences of the Peace,” written in 1919, was the first attack on the system of reparations, and a prophecy of economic consequences which have come to pass. Later, in 1925, he warned the leaders of Great Britain of the romantic folly of returning to the gold standard prematurely.

“Essays in Persuasion” are not fugitive papers. They deal in the main with closely interconnected controversies of the last decade. Three large themes emerge out of these essays, addresses, and letters to the press. First, the phases of the industrial and financial crisis of Britain, bound up with the treaty of peace, war debts, the policy of deflation, the return to the gold standard, and other related problems of economic confusion. The second theme is a consideration of the outworn system of laissez-faire, the failure of traditional liberalism, and the meaning of Russian communism for our civilization, concluding, in a third emergent theme, with an unhurried view of matters of human culture in the distant future.

Stimulating reading, this record of Mr. Keynes’s urbane yet unrelenting battle with the financial powers of the City, the “spinsters” of finance and industry, from 1923 to 1926, when England, feeling the pressure of falling prices, unemployment, and frozen credits, reverberated with the slogans of deflation, government economy, wage cutting, the safety of the gold standard, slogans so familiar now in these United States. The intellectual failure of the “spinsters” was simply this, that they identified individual economic behavior with that of the whole community, as though the social economy were physically impoverished, as though the State had no powers for sensible and careful planning, for broadening the credit basis of society, for initiating economic projects and getting men back to work, and thereby break the downward trend of commodity prices and deflation. “We are failing to make full use of our opportunities,” Keynes wrote, “failing to find an outlet for the great increase in our productive powers and our productive energy. Therefore we must not draw in our horns; we must push them out. Activity and boldness and enterprise, both individually and nationally, must be the cure.” These battles of gold and deflation have been won for England, in part, by the irresistible pressure of events. But the economic problem, the problem of poverty and want and of struggles between classes and between nations, is still a frightful muddle, an unnecessary muddle, seeing that society possesses natural resources, technical and business efficiency, and the will to work.

The way out is not clear. Mr. Keynes has been spending his intellectual substance in trying to persuade those who apparently cannot or will not be persuaded. Embattled, wearied in the long struggle with the “spinsters” and die-hards of Britain, Mr. Keynes had but little time for the problems of society as viewed by the opponents of capitalism, yet his small writing on the subject is extremely penetrating and wise. He cuts his way through the webs of communist dogma and other unlovely features of a social system in the making in order to grasp the central passion of sovietism, the emotional and ethical essence of Leninism, namely, as the first attempt to construct a framework of society in which pecuniary motives influencing human action shall have a changed relative importance, in which money-making and money-calculations shall not enter into life-calculations of rational men. We of the West, Mr. Keynes contends, underestimate the communist passion as a religion, as the great exaltation of the common man. Modern capitalism is “absolutely irreligious” as a way of life, as a system of organization; it is without internal unity, without much public spirit; it can keep its hold upon us because it has been immensely successful or because it still holds out hopes of continuing prospective successes. But the strength of communism is that of a faith uniting its co-religionists against the egotistic atomism of the irreligious; and if irreligious capitalism is ultimately to defeat religious communism “it is not enough that it should be economically more efficient—it must be many times as efficient.” Alas! regarded as an end, as a way of life, our business organization of society, while tolerable, is “not so satisfactory.”

Yet we could render the capitalist structure satisfactory, provided we feel free and bold to experiment, to take action, to try possibilities of things. It is not revealed how and in what directions, but Mr. Keynes confidently predicts that in one hundred years the standard of life in progressive countries will be four to eight times as high as it is today, assuming that no important wars and no great increase in population take place. Lie feels sure that with a little more experience we shall use our resources and our acquired knowledge quite differently from the way in which the dominant classes use them today; that with a little more experience we shall recognize the love of money for what it is, as a somewhat disgusting morbidity, and that we shall learn “to live wisely and agreeably and well.” Therefore, when he looks into the future, the economic problem does not appear to him to be the permanent human problem—how to use the freedom and the leisure which science and economic efficiency will have won for the human race.

Sir Arthur Salter, who has for eleven years served as the director of the Economic Section of the League of Nations, has, in “Recovery, the Second Effort,” traced in detail the course of events predicted by Mr. Keynes in the year of the Peace. Sir Arthur is a civil servant who possesses a wide-ranging, comprehensive intelligence, the detachment of an experienced observer, a knowledge of the vast intricate forces of our world economy, the complicated issues of clashing nationalisms and groups. He traces our first economic recovery in the immediate years following the war, how the framework of industry was restored, the channels of commerce cleared up, and many currencies restored to their gold basis. He does not introduce any new explanations for the depression which later overtook the European world, save the familiar witnesses of rapid expansion, decline in prices, lower purchasing power, lower profits, and unemployment ; he is primarily concerned with the financial crisis in its international aspects, with the orgy of credit expansion in violation of the fundamental requisites of lending and investment. At the same time speculation in the United States, inflation of credit, overproduction in agricultural products, and the keeping up of exports largely on the basis of more lending, contributed to the general confusion, and the world crisis was further aggravated by tariff wars, import quotas, and other devices of exchange restriction. So world-wide is the dislocation, so pervasive the defects of international finance, that it would require, the author asserts, the collective action of many nations to effect a real remedy; yet the stubborn facts of independent nationalism stand in the way of effective common action. Sir Arthur recognizes freely that modern economic science has under its control the real factors for the solution of our economic and financial maladies, but that the problem requires “not a middle, but a new, way.” And the new way is to fashion such a system of law, custom, and institutions, such planned guidance and direction, as would secure for the general welfare the advantages of individual enterprise and of social control. But maybe, he sorrowfully admits, it is too late, and the adjustment which might earlier have been made by deliberate policy must now come from the pressure of hard facts and brute force as a result of wide-spreading bankruptcy and international default. We need a searching analysis and constructive reform “comparable in boldness and in determination to that which is now being witnessed in Russia,” and he is frank to admit that “it may be that before recovery comes there will be revolution and social disintegration.”

Strangely enough, Sir Arthur Salter continually harks hack to the brief golden period from 1925 to 1929, when the Dawes Plan worked, when production was ever rising; and he recommends the early restoration of the gold standard as a “new constitutional monarch” with the world’s gold concentrated in the vaults of an international central bank. He overlooks the fundamental malady of that so-called golden period—the slow growth of consumers’ purchasing power in comparison with the rapid improvement in productive power and capital accumulation. The reforms he suggests do not touch the present basis of financial credit management, nor the adequacy of consumers’ power, nor the improvement of the standard of living of the general mass; he neglects the function of money for distributing the gains in the output of industry to consumers. He would make production again profitable, whereas our problem is at bottom to make goods marketable. His advocacy of internationally-controlled credit and lending is mainly for the purpose of speeding up production and rationalization and for more inflation, without relation to the distributive system; a wayward reform, indeed, repugnant to the well recognized facts that our present dislocation and poverty have come from plenty, from imperfect planning, and from the weakness inherent in our distributive system.

In “Economic Stabilization” Professor Hansen has even more carefully sifted the documentary materials of business, production, trade, finance, unemployment, and other factors. He would agree with Sir Arthur that we cannot achieve stability without taking into account the outside world, for the present depression has become intensified by wrong governmental policies in matters of commerce and finance. But Professor Hansen docs not believe that we shall succeed in solving the depression through the device of inflation, or that future depressions could be avoided by planning systems and sounder governmental and banking policies. No balanced co-ordination of industry and finance is possible in our modern complex order, with its thousands of commodities, trades, and industries; and unless social control is pervasive and all-inclusive in its methods of controlling production and prices, the downward trend of prices cannot be stopped. On the other hand, complete social control would be purchased at the price of lower production, lower real wages, at the price too of freedom and progress; and though stability, security, and a larger measure of economic quality are excellent aims in themselves, a stabilized economy would almost certainly fail to yield as much in invention, in improved processes, in real income as can be had under the pressure of free markets. He concludes that “we shall perhaps not be able to reach stabilization until we have attained a standard of living sufficiently high so that we can afford the luxury of security.” In other words, security may be purchased at the price of progress, under a static State. This is not very comforting—to be thrown back upon the “natural” processes of painful readjustment, back upon the old thought that there is a self-regulative and recuperative power in every depression in the scaling down of fixed charges by way of bankruptcies and reorganizations, wage reductions, lower per-unit costs of production, more and greater efficiency. This is mainly a policy of drifting with the tide, of placing our trust in the blind working out of “natural” processes which man has himself created. One wonders if the masses of unemployed, all the insecure and the anxious of the modern world who bear the burden of business dislocations, will accept the defeatist attitude, the social failure of free competition and unregulated industrialism, the social cost of uncontrolled credit expansion and political muddling through.

The new challenger of the policy of drift is Mr. Dennis, a writer who is frank, courageous, original, rich with experience afforded by years of banking and diplomacy. His hand is steady, his industry large, his frankness unbounded and refreshing; in “Is Capitalism Doomed?” investment bankers, business forecasters, and political leaders come under his unsparing criticism and biting wit. He holds the banking community responsible for the orgy of credit expansion and the immense losses to American investors in foreign securities. His basic plan of reform is a tax of about ten billions of dollars for construction work under federal direction; he would set agriculture going again by trading government bonds for farm mortgages and by imposing upon the beneficiaries a system of crop restrictions; he would rehabilitate the purchasing power of the masses through higher wages and the coercive power of the State for taxation and useful expenditure, so that our power of production and consumption may be maintained at equilibrium. We can place no reliance upon the business system for planning and economic security, for business is a competitive game of profit-making and not a co-operative way of promoting human welfare; business has no social objectives, no philosophy of life and human destiny. Business leadership may be good at supplying things, but it is poor at the task of managing the economic life of the nation as a whole; it is a poor master, poor at supplying the major wants and needs—the wants of leisure, the needs of security and self-respect—which are partly or wholly of an intangible nature and are not fully satisfied by the possession of things. There is no effective leadership in the country today capable of planning for great social, cultural objectives, and capable of turning these plans into action; we do not understand the objectives, not even the mechanics of thought necessary to the rational handling of the problems of a planned economy. Thus, as in the past, we shall wait for the devastation of a great war to end the depression, a war that would relieve business and labor the world over, bring work to the unemployed and profits to business. And such a war seems inevitable; it will impose itself by the force of economic and political events which modern leadership is not able to control.

Thus the four books, all by outstanding men of scholarship and experience. The outlook is gloomy. We have no new conception of commerce among nations free of predatory impulse—no conception enlightened enough to suit the conditions of a world economy. The dominant philosophy of power, the metaphysics of success, the religion of enterprise -these have introduced new contradictions into the very foundations of our industrialism. There is no experience of nations sustaining one another on a comprehensive, sympathetic plan of world co-operation. We may, by groping, find the terms of enduring economic satisfaction and of international peace. Who will lead the way? Sir Arthur Salter holds that the old order is without will power and social vision. He opines that the main energy for new reform may well have to come from those who did not themselves directly participate in the first recovery from the war, from those who are “not handicapped by having the very structure of their minds interwoven with old methods and earlier assumptions.”

Who is this class? . . . There is no answer.


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