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T H I S D O C U M E N T IS T H E P R O P E R T Y OF H I S B R I T A N N I C M A J E S T V S G O V E R N M E N T .
Printed
for the Cabinet.
October L930.
MOST SECRET.
Copy No.
C P . 3 6 3 (30).
(Also Paper No. E.A.C.
(H.) 127.)
TO B E K E P T
UNDER
LOCK
AND
KEY.
It is requested that special care may be taken
to ensure the secrecy of this document.
ECONOMIC
ADVISORY
COUNCIL.
COMMITTEE OF ECONOMISTS.
REPORT.
(Circulated
to the Cabinet by direction
2, Whitehall
Gardens, S.W. 1,
October 24, 1930.
(31809)
of the Prime
Minister.)
45
G $
T A B L E OF CONTENTS.
1
Introductory—
Paragraph
(a) Composition and Terms of Reference...
...
...
1
(b) Arrangoment of Report
...
...
...
, 3
(a) Great Britain and the World Slump ...
...
...
5
(b) The Nature of the Domestic Difficulties of
Great
...
ill.—The Causes of t h e P r e s e n t D e p r e s s i o n —
Britain
411
...
...
...
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8
(i) External Changes ...
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...
...
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9
(ii) Internal Rigidities...
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10
(a) Effects of large changes in the Value of Money
...
22
T h e Fall of P r i c e s
18
(b) The Disparity between the prices of primary products
and manufactured goods ...
...
...
...
25
' I V . — R e m e d i e s of an E x t e r n a l Character
...
...
...
28,
V
W a y s of
r e s t o r i n g E l a s t i c i t y to t h e
of G r e a t B r i t a i n
...
Economic S t r u c t u r e
...
...
...
V I . — W a y s of i n c r e a s i n g Industrial Efficiency ...
...
35
...
42 .
V I I . — R e d u c t i o n s in D o m e s t i c M o n e y W a g e s —
(a) The Export Industries
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44
(b) Home Industries
...
...
...
...
48
...
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49
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52
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55
...
(c) Difficulties in the way of wage reductions
VIII
Subsidies to W a g e s
...
...
I X . — W a y s of i n c r e a s i n g B u s i n e s s Confidence
X . — W a y s of i n c r e a s i n g H o m e Investment—­
...
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58
(b) Regulation of Foreign Issues
(a) Cheap Credit
...
...
...
...
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62
(c) Subsidies and Public Works ...
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XI.-Tariffs
63
68
(a) Advantages of a Tariff
...
70
(i) Chronic Large-scale Unemployment ...
...
(ii) The Maintenance of Foreign Investment on an
71
adequate scale
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...
...
...
...
...
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75
(iii) The Terms of Trade ...
...
...
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80
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81
(b) Objections to a Tariff
(iv) Danger of Economic Isolation
...
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86
(c) Conclusions ...
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89
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(i; Safeguarding
...
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90
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94
X I I . — M e t h o d s of a d j u s t i n g M o n e y Incomes g e n e r a l l y . . .
...
98
(ii) A Revenue Tariff
(a) Devaluation...
...
...
...
...
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101
...
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103
X I I I . — S u m m a r y of C o n c l u s i o n s ...
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107
Report by Professor L. R o b b i n s ...
...
...
...
...
39
the
...
43
(b) Tariffs plus Bounties
Page
Appendix.—Statistical Material prepared by the Staff of
Economic Advisory Council...
...
...
REPORT.
I.—INTRODUCTORY.
( a ) Composition and T e r m s of
Reference.
ON t h e 2 4 t h J u l y , 1 9 8 0 , t h e P r i m e M i n i s t e r a p p o i n t e d a
C o m m i t t e e of t h e E c o n o m i c A d v i s o r y C o u n c i l w i t h t h e following
t e r m s of r e f e r e n c e : —
" T o r e v i e w t h e p r e s e n t e c o n o m i c c o n d i t i o n of G r e a t B r i t a i n ,
t o e x a m i n e t h e c a u s e s w h i c h a r e r e s p o n s i b l e for it a n d t o
i n d i c a t e t h e c o n d i t i o n s of r e c o v e r y . "
2.
The Committee was constituted as f o l l o w s : —
Mr. J. M. Keynes, C.B.
(Chairman).
Mr. H . D. Henderson.
P r o f e s s o r A . C. P i g o u .
Professor L . Bobbins.
S i r J o s i a h C. S t a m p , G . B . E .
Mr.
A. F . H e m m i n g ,
C.B.E.,-j
Joint
S e c r e t a r y , E c o n o m i c [ Joint
Advisory Council
Mr. R. F . Kahn
Secretaries
( b ) A r r a n g e m e n t of Report.
3.
O u r R e p o r t falls n a t u r a l l y i n t o t w o m a i n p a r t s .
I n the
first w e d e a l i n S e c t i o n I I w i t h t h e c a u s e s of t h e p r e s e n t d e p r e s ­
s i o n , a n d i n S e c t i o n I I I w i t h t h e effects of t h e fall of p r i c e s .
In
t h e s e c o n d p a r t of o u r R e p o r t w e t u r n t o a d e t a i l e d c o n s i d e r a t i o n
of p o s s i b l e m e a s u r e s t h a t m i g h t b e t a k e n t o m e e t t h e local difficul­
t i e s of t h i s c o u n t r y . I n S e c t i o n I V w e c o n s i d e r p o s s i b l e m e a s u r e s
of a n i n t e r n a t i o n a l c h a r a c t e r . I n S e c t i o n V we d i s c u s s s t e p s t h a t
m i g h t b e t a k e n to r e s t o r e e l a s t i c i t y t o t h e e c o n o m i c s t r u c t u r e of
t h i s c o u n t r y , a n d i n S e c t i o n V I w a y s of i n c r e a s i n g i n d u s t r i a l
efficiency.
S e c t i o n V I I is d e v o t e d t o t h e c o n s i d e r a t i o n of t h e level
of d o m e s t i c m o n e y w a g e s , a n d S e c t i o n V I I I t o t h e p r a c t i c a b i l i t y
of g r a n t i n g of s u b s i d i e s t o w a g e s .
I n Section I X we consider
p o s s i b l e w a y s of i n c r e a s i n g b u s i n e s s c o n f i d e n c e , a n d i n S e c t i o n X
w a y s of i n c r e a s i n g h o m e i n v e s t m e n t .
S e c t i o n X I is d e v o t e d to
tariffs, a n d S e c t i o n X I I t o t h e p o s s i b i l i t y of b r i n g i n g a b o u t a
g e n e r a l a d j u s t m e n t of m o n e y i n c o m e s .
Our general conclusions
are s u m m a r i s e d in Section X I I I . W e have a t t a c h e d to our R e p o r t
a s t a t i s t i c a l a p p e n d i x p r e p a r e d b y t h e Staff of t h e E c o n o m i c
Advisory Council.
4 . P r o f e s s o r R o b b i n s h a s n o t felt able to s i g n o u r R e p o r t for
r e a s o n s w h i c h h e h a s set o u t s e p a r a t e l y .
II.-THE
CAUSES
OF T H E
PRESENT
DEPRESSION.
( a ) Great B r i t a i n and t h e World S l u m p .
5.
T h e p r e s e n t d e p r e s s i o n of t r a d e is o n e w h i c h G r e a t B r i t a i n
s h a r e s w i t h m o s t of t h e civilised w o r l d . S i n c e t h e a u t u m n of l a s t
y e a r w e h a v e b e e n i n t h e g r i p of a d o w n w a r d f l u c t u a t i o n of t r a d e
w h i c h h a s e n g u l f e d a l m o s t e v e r y c o u n t r y , w h e t h e r free t r a d e o r
p r o t e c t i o n i s t , a g r i c u l t u r a l o r m a n u f a c t u r i n g , b a c k w a r d or f o r w a r d
i n e c o n o m i c efficiency.
To suppose t h a t this c a t a s t r o p h e is due to
t h e policy of p a r t i c u l a r G o v e r n m e n t s or t h e inefficiency of
p a r t i c u l a r g r o u p s of p r o d u c e r s w o u l d be to i g n o r e o b v i o u s f a c t s .
6. Nevertheless, there are certain peculiarities i n t h e position
of G r e a t B r i t a i n w h i c h d i s t i n g u i s h h e r difficulties f r o m t h o s e of
t h e r e s t of t h e w o r l d . U p t o t h e e v e of t h e g r e a t s l u m p , s p e a k i n g
v e r y b r o a d l y , t h e r e s t of t h e w o r l d w a s e x p e r i e n c i n g a p e r i o d of
prosperity.
I n A m e r i c a , i n d e e d , t r a d e w a s definitely b o o m i n g .
E l s e w h e r e t h e m a i n i n d i c e s of a c t i v i t y w e r e f a v o u r a b l e .
But in
G r e a t B r i t a i n , a l t h o u g h s o m e p a r t s of t h e c o u n t r y — e . g . , L o n d o n
— a n d some trades, exhibited considerable prosperity, speaking
g e n e r a l l y w e w e r e suffering from s e r i o u s m a l a i s e . I t is i m p o r t a n t ,
h o w e v e r , n o t to e x a g g e r a t e t h e d a r k s i d e of t h e p i c t u r e .
Some
i n d u s t r i e s w e r e g o i n g a h e a d fairly r a p i d l y . B e a l w a g e s h a d r i s e n
c o n s i d e r a b l y : b e t w e e n 1924 a n d 1 9 2 8 a v e r a g e r e a l w a g e - r a t e s
increased 6-5 per cent., and average real earnings per week
i n c r e a s e d 8 - 5 p e r cent.(*) B u t w h e n a l l t h i s is t a k e n i n t o a c c o u n t ,
t h e g e n e r a l v e r d i c t m u s t b e t h a t we w e r e n o t d o i n g n e a r l y as well
a s w e could h a v e d o n e .
T h e t o t a l of u n e m p l o y e d h a d n o t s u n k
p e r c e p t i b l y below a m i l l i o n s i n c e 1 9 2 4 . G r e a t a r e a s i n t h e N o r t h
were stationary or declining. Our export t r a d e as a whole showed
d i s q u i e t i n g s y m p t o m s of s t a g n a t i o n .
7 . B e f o r e t h e a d v e n t of t h e g r e a t s l u m p t h e r e w a s lack of
a d j u s t m e n t in our position relatively to o t h e r countries. ( )
Since
t h e s l u m p b e g a n t h e r e is n o r e a s o n t o s u p p o s e t h a t t h i s c o n d i t i o n
has been remedied.
I n judging our present troubles we have to
d i s t i n g u i s h b e t w e e n t h e difficulties w h i c h w e s h a r e w i t h t h e r e s t
of t h e w o r l d a n d t h o s e w h i c h a r e p e c u l i a r to o u r local w a n t of
adjustment.
W e e x a m i n e first t h e s e l o c a l difficulties, s i n c e it i s
over these t h a t we m a y h o p e to exercise m o s t control.
2
( b ) T h e N a t u r e of t h e D o m e s t i c Difficulties of Great B r i t a i n .
8 . T h e d e p r e s s i o n of t r a d e i n G r e a t B r i t a i n s i n c e t h e w a r
m a y b e r e g a r d e d a s b e i n g t h e r e s u l t a n t of t w o s e t s of c a u s e s :
(a) a d v e r s e l y c h a n g i n g e x t e r n a l c o n d i t i o n s , a n d (b) a l a c k of
internal adaptability.
(i) External
Changes.
9 . T h e m a i n c h a n g e s i n t h e b r o a d e x t e r n a l e n v i r o n m e n t of
B r i t i s h i n d u s t r y since t h e W a r a r e t o o well k n o w n to n e e d
extensive comment.
B r o a d l y s p e a k i n g t h e y m a y b e classified a s
follows : —
(a) T h e r e h a v e b e e n c h a n g e s i n t h e c o n d i t i o n s of d e m a n d
for t h e p r o d u c t s of v a r i o u s i n d u s t r i e s , d u e t o t h e
change from war to peace.
During the War the
i n d u s t r i a l s t r u c t u r e of t h i s c o u n t r y suffered a b n o r m a l
distortions.
T o m e e t t h e d e m a n d s of w a r ,
many
industries were distended to an extent which the
d e m a n d s of p e a c e could n o t p r o f i t a b l y s u s t a i n . At t h e
e n d of t h e W a r , a f t e r t h e b r i e f i n f l a t i o n a r y b o o m , t h e s e
industries were plunged into depression.
I n the ten
years that h a v e elapsed considerable contraction h a s
t a k e n p l a c e , b u t it w o u l d b e r a s h t o a s s e r t t h a t t h i s
p r o c e s s is b y a n y m e a n s o v e r . ( )
(b) S i d e b y side w i t h t h e s e a b n o r m a l c h a n g e s of d e m a n d , b u t
i n t h e i r effects closely p a r a l l e l w i t h t h e m , c o m e c e r t a i n
g e n e r a l c h a n g e s i n w o r l d e c o n o m i c c o n d i t i o n s . Of t h e s e
t h e m o s t i m p o r t a n t a r e (i) t h e d e v e l o p m e n t of t h e c o t t o n
i n d u s t r y i n t h e E a s t ; (ii) t h e less f a v o u r a b l e t e r m s o n
w h i c h t h e a g r i c u l t u r a l a r e a s of t h e w o r l d h a v e s u c c e e d e d
i n d i s p o s i n g of t h e i r p r o d u c t s — a c h a n g e w h i c h n o t o n l y
affects t h e v o l u m e of d e m a n d for t h e p r o d u c t s of o u r
e x p o r t i n d u s t r i e s , b u t also c a r r i e s w i t h i t a n a d v e r s e
m o v e m e n t of d o m e s t i c a g r i c u l t u r a l p r i c e s ;
(iii) t h e
s p e c t a c u l a r d e c l i n e t h a t h a s t a k e n p l a c e i n t h e v a l u e of
s i l v e r , w h i c h h a s h a d t h e effect of c o n s i d e r a b l y i n t e n s i ­
fying t h e difficulties of o u r t r a d e w i t h t h e P a r E a s t ; a n d
3
(') London and Cambridge Economic Service: Article in April 1930 issue
and subsequent figures.
(2) See Appendix, Tables A, H and M.
(8) See Appendix, Tables D and F.
(iv) t h e c o n s i d e r a b l e s u b s t i t u t i o n of oil for b u n k e r coal
a n d of h y d r o - e l e c t r i c p o w e r b y c o u n t r i e s
formerly
dependent on British coal.(')
(c) O u r difficulties i n t h i s r e s p e c t h a v e b e e n a g g r a v a t e d b y
c e r t a i n political m i s f o r t u n e s w h i c h h a v e i n t e n s i f i e d t h e
effects of c h a n g i n g d e m a n d .
I n some ways we have
b e e n definitely u n l u c k y .
I t is c o n c e i v a b l e t h a t t h e
o c c u p a t i o n a n d e v a c u a t i o n of t h e R u h r , w i t h i t s d i s ­
t u r b i n g effects o n t h e c o a l t r a d e , t h e c u r r e n c y d i s o r d e r s
in F r a n c e , Italy, Belgium and G e r m a n y , the General
Strike a n d the troubles in India and China might h a v e
b e e n a v e r t e d b y e x t r a o r d i n a r y p r e s c i e n c e o n t h e p a r t of
s t a t e s m e n , b u t their m a i n weight h a s fallen on t h o s e w h o
were powerless to prevent t h e m , and their cumulative
effect h a s b e e n felt by a society w h o s e p o w e r s of r a p i d
adaptation were already being strained to the u t m o s t .
(d) T h e i n c i d e n c e of t h e s e c h a n g e s w a s t o s o m e e x t e n t l o c a l i s e d
and particular.
T h e fall i n gold p r i c e s i n g e n e r a l , a n d
of s t e r l i n g p r i c e s i n p a r t i c u l a r , w h i c h t o o k p l a c e b e t w e e n
1 9 2 4 a n d 1929 h a d a w i d e r i n f l u e n c e .
O p i n i o n s still
differ s h a r p l y a b o u t t h e e x t e n t of t h e d i s l o c a t i o n w h i c h
w a s b r o u g h t a b o u t b y t h e r e s t o r a t i o n of t h e g o l d
s t a n d a r d ; b u t it i s c l e a r t h a t , i n so far a s it r a i s e d t h e
v a l u e of t h e p o u n d , it i n c r e a s e d t h e difficulties of t h e
export industries.
If g o l d p r i c e s i n g e n e r a l h a d r i s e n
a f t e r t h a t e v e n t , l i t t l e difficulty w o u l d h a v e b e e n
experienced.
A s it w a s , t h e y c o n t i n u e d to fall, t h u s
a c c e n t u a t i n g t h e difficulties of r e a d j u s t m e n t . ( )
s
(e) F i n a l l y , t h e r e c a n b e n o d o u b t t h a t we h a v e suffered
t h e tariff policies of o t h e r c o u n t r i e s .
(ii) Internal
from
Rigidities.
1 0 . C h a n g e s of t h e k i n d o u t l i n e d a b o v e a r e b o u n d t o i m p o s e
o n any e c o n o m i c s y s t e m t h e n e c e s s i t y of r e a d j u s t m e n t .
They may
e v e n b e t h e o c c a s i o n of a n i n e v i t a b l e a n d p e r m a n e n t l o s s . B u t t h e
e x t e n t to w h i c h t h e y a c t u a l l y d a m a g e a n y g i v e n s y s t e m d e p e n d s
u p o n t h e e a s e w i t h w h i c h it a d a p t s itself t o c h a n g e a n d u p o n t h e
flexibility
w i t h w h i c h it r e s p o n d s t o t h e n e w c o n d i t i o n s of d e m a n d ,
of p r i c e a n d p r o d u c t i o n .
E v e n w i t h p e r f e c t flexibility, s o m e loss
m a y still b e i n e v i t a b l e . B u t if flexibility is a b s e n t , t h e loss will b e
m u c h more considerable.
11.
U n f o r t u n a t e l y t h e r e is r e a s o n t o s u p p o s e t h a t , i n t h e
p e r i o d s i n c e t h e W a r , o u r c a p a c i t y for r a p i d a d a p t a t i o n h a s b e e n
inadequate.
T h i s is d u e i n p a r t t o a d v e r s e c h a n g e s i n t h e a g e
c o m p o s i t i o n of t h e p o p u l a t i o n . T h e p r o p o r t i o n of t h e m o r e a c t i v e
a g e - g r o u p s w a s d r a s t i c a l l y c u r t a i l e d b y t h e losses of t h e W a r ; a n d
c o n s e q u e n t l y t h e r e is a s h o r t a g e of m e n i n t h e p r i m e of life i n
important positions.
1 2 . L a c k of a d a p t a b i l i t y h a s also b e e n d u e t o t h e d o m i n a t i o n
of false i d e a s .
S i n c e t h e W a r , a s e r i e s of policies h a s b e e n
f a s h i o n a b l e , e a c h c a p a b l e of i n g e n i o u s d e f e n c e i n itself, b u t t h e
w h o l e t e n d i n g c u m u l a t i v e l y to i n d u s t r i a l ossification a n d t h e
d i m i n u t i o n of t h e N a t i o n a l D i v i d e n d .
These tendencies show
themselves in three w a y s : —
(i) I n t h e first p l a c e t h e y m a y b e s e e n i n t h e i n c r e a s e of r i n g s
a n d monopolistic combinations designed deliberately to
r e s t r i c t t h e v o l u m e of t r a d e . T h i s d o e s n o t m e a n t h a t
large-scale rationalised production is necessarily b a d or
t h a t all c o m b i n a t i o n s a r e of a r e s t r i c t i v e n a t u r e . B u t it
is c l e a r t h a t m u c h t h a t p a s s e s as l e g i t i m a t e a n d f a r - s e e i n g
i n d u s t r i a l policy is i n fact r e s t r i c t i v e a n d a n t i - s o c i a l .
E x a m p l e s of t h i s t y p e will r e a d i l y occur t o a n y o n e
familiar with t h e cotton trade o r t h e various i n d u s t r i e s
w h i c h p r o v i d e t h e m a t e r i a l s of h o u s i n g .
(*) See Appendix, Tables E and J.
(') See Appendix, Table B.
(ii) S e c o n d l y , t h e r e h a s b e e n a r e l u c t a n c e o n t h e p a r t of i n d u s t r y
to r e c o g n i s e t h e e x i s t e n c e of c h a n g e d c o n d i t i o n s , e i t h e r
o n t h e side of t e c h n i q u e o r o n t h e side of d e m a n d .
(hi) T h i r d l y , t h e p e r s i s t e n c e of r e s t r i c t i v e r u l e s a n d p r a c t i c e s
among trade unions h a s been very marked. These take
two f o r m s :
(a) r e s t r i c t i o n s o n e n t r y t o p a r t i c u l a r
o c c u p a t i o n s a n d t h e d e m a r c a t i o n of different o c c u p a t i o n s ,
a n d (b) r e s t r i c t i o n s o n t h e c o n d i t i o n s u n d e r w h i c h c e r t a i n
work can be done.
T h e s e r e s t r i c t i o n s i n v o l v e craft l o y a l t i e s a n d a t t a c h m e n t s t o old
c u s t o m s w h i c h it would b e w r o n g to u n d e r v a l u e , b u t
it
would b e e q u a l l y w r o n g t o i g n o r e t h e i r d e l e t e r i o u s effects o n
production.
If m e n a r e e x c l u d e d f r o m a p a r t i c u l a r o c c u p a t i o n ,
t h e y a r e e i t h e r u n e m p l o y e d or a r e c o m p e l l e d to sell t h e i r l a b o u r
for l o w e r r a t e s e l s e w h e r e . If e m p l o y e r s a r e p r e v e n t e d from u s i n g
t h e m o s t u p - t o - d a t e m e t h o d s of p r o d u c t i o n , t h e efficiency of
i n d u s t r y suffers a n d t h e t o t a l a v a i l a b l e for d i s t r i b u t i o n
is
diminished.
If, i n t h e l a s t t e n y e a r s , p r o d u c t i v i t y h a s failed t o
i n c r e a s e a t t h e r a t e it m i g h t o t h e r w i s e h a v e d o n e , it w o u l d be w r o n g
to a b s o l v e f r o m r e s p o n s i b i l i t y s u c h policies a s r e s u l t i n o n e m a n
w o r k i n g four l o o m s w h e n i n o t h e r c o u n t r i e s m e n w o r k a t l e a s t twice
a s m a n y , o r i n a m a n t a k i n g f o u r y e a r s to qualify a s a b u i l d i n g
o p e r a t i v e w h e n h e c o u l d c e r t a i n l y d o so i n o n e .
C u s t o m s of
t h i s s o r t m i g h t h a v e s o m e j u s t i f i c a t i o n i n a society i s o l a t e d f r o m
w o r l d c o m p e t i t i o n . B u t i n a w o r l d of r a p i d c h a n g e , t h e i r p e r s i s t e n c e
m u s t l e a d t o local s t a g n a t i o n a n d d e c a y .
1 3 . T h e i n t e r n a l p a r a l y s i s from w h i c h s o c i e t y h a s - b e e n
suffering s i n c e t h e W a r m a n i f e s t s itself i n y e t a n o t h e r w a y w h i c h ,
f r o m t h e p o i n t of view of t h e c a u s a t i o n of u n e m p l o y m e n t , is e v e n
more important.
W e r e f e r to r i g i d i t i e s i n t h e p r i c e a n d i n c o m e
structure.
1 4 . I t is c l e a r t h a t since t h e W a r t h e r e h a s b e e n p r e s e n t
i n o u r p r i c e a n d i n c o m e s t r u c t u r e m u c h g r e a t e r r i g i d i t y of t h i s
sort t h a n at a n y earlier period in our history.
T h e r i g i d i t y of
c e r t a i n p r i c e s is well k n o w n ; it is t h e o b v e r s e side of t h e policy of
monopolistic restriction referred
to above.
T h e r i g i d i t y of
w a g e - r a t e s i n c e r t a i n s h e l t e r e d i n d u s t r i e s is also well k n o w n .
B e f o r e t h e W a r , if u n e m p l o y m e n t i n a n y i n d u s t r y w e n t b e y o n d
a c e r t a i n p o i n t , it w a s i n t h e i n t e r e s t s of t h e t r a d e u n i o n s t o
modify wage-rates.
T o - d a y , t h e e x i s t e n c e of t h e u n e m p l o y m e n t
i n s u r a n c e s y s t e m , d i v o r c e d as it h a s b e c o m e f r o m a n y a c t u a r i a l
b a s i s , is t e n d i n g to p r e v e n t t h e s e a d j u s t m e n t s .
Y e t if s u c h
a d j u s t m e n t s a r e n o t m a d e , it i s a m a t t e r of c o m m o n e x p e r i e n c e
t h a t u n e m p l o y m e n t follows.
1 5 . If i n a s i n g l e i n d u s t r y t h e r e w e r e m u c h u n e m p l o y m e n t , in
w o u l d be fair t o a r g u e t h a t w a g e s i n t h a t i n d u s t r y w e r e t o o h i g h i n
t h e s e n s e t h a t if t h e y w e r e l o w e r t h e r e w o u l d b e less u n e m p l o y m e n t .
B u t t h i s a r g u m e n t c a n n o t be e x t e n d e d i n i t s s i m p l e s t f o r m t o
i n d u s t r y a s a w h o l e i n t h e p r e - s l u n r p p e r i o d , for t w o r e a s o n s ,
viz. : —
(a) A l t h o u g h some w a g e s m a y h a v e b e e n too h i g h , i n t h i s
s e n s e , o t h e r s m a y h a v e b e e n too low i n t h e s e n s e t h a t
if t h e r e s t r i c t i o n s w h i c h k e p t w a g e s h i g h i n t h e o n e
industry h a d been removed, those wages might h a v e
risen.
(1)1 C h a n g e s i n w a g e s h a v e g e n e r a l r e a c t i o n s u p o n p r o d u c t i v i t y
i n i n d u s t r y a s a w h o l e . A n d it m a y well h a v e b e e n t h a t
before t h e r e c e n t s l u m p , if t h e r i g i d i t y of w a g e s h a d b e e n
r e l a x e d , t h e i m p r o v e m e n t s i n efficiency a n d t h e r a t e of
progress t h u s m a d e possible would almost i m m e d i a t e l y
h a v e c r e a t e d a s i t u a t i o n w h e r e a g r e a t e r v o l u m e of
e m p l o y m e n t would h a v e been secured without seriously
impairing the average wage.
1 6 . F o r it is q u i t e c l e a r t h a t r i g i d i t y of w a g e - r a t e s is c a p a b l e
of b e i n g a definite h i n d r a n c e to c h a n g e a n d to p r o g r e s s .
The
r a t e a t w h i c h a n i n d u s t r y c a n e x p a n d i s , i n p a r t , a f u n c t i o n of t h e
r a t e of w a g e s it h a s to p a y . If, for e x a m p l e , t h e i n c r e a s e of w a g e s
i n t h e b u i l d i n g i n d u s t r y h a d b e e n l e s s , t h e r a t e of b u i l d i n g w o u l d
h a v e b e e n g r e a t e r , t h e p r i c e of h o u s e s w o u l d h a v e b e e n l e s s , t h e
r e d i s t r i b u t i o n of t h e p o p u l a t i o n w o u l d h a v e t a k e n p l a c e m o r e
r a p i d l y , a n d t h e g e n e r a l p u r c h a s i n g p o w e r of w a g e s w o u l d h a v e
been greater.( )
6
1 7 . M o r e o v e r , w h e n w a g e s a r e k e p t r i g i d , t h e r e is a g r a v e
d a n g e r t h a t t h e a r r a n g e m e n t of i n d u s t r y w h i c h i s t h u s b r o u g h t
a b o u t m a y b e i n j u r i o u s t o t h e i n t e r e s t s of t h e w o r k i n g c l a s s e s a s
a w h o l e . L a b o u r - s a v i n g m a c h i n e r y w h i c h , f r o m t h e p o i n t of view
of s e c u r i n g full e m p l o y m e n t for t h e t o t a l w o r k i n g p o p u l a t i o n , i s
d e f i n i t e l y uneconomical,
may be introduced, and, at the same time,
t h e full b e n e f i t s of d e s i r a b l e r a t i o n a l i s a t i o n m a y b e l o s t .
There
i s a c o n s i d e r a b l e c o n s e n s u s of o p i n i o n t h a t t h e ' ' t e c h n o l o g i c a l ' '
u n e m p l o y m e n t , of w h i c h m u c h h a s b e e n h e a r d i n G e r m a n y i n
r e c e n t y e a r s is d u e t o t h e s e c a u s e s .
Ill—THE
F A L L OF
PRICES.
1 8 . B e t w e e n 1 9 2 4 a n d S e p t e m b e r 1 9 2 9 gold p r i c e s of s t a p l e
commodities, as calculated i n Dr. B o w l e y ' s special index n u m b e r ,
fell i n t h e U n i t e d S t a t e s b y 4 p e r c e n t . , i n S w e d e n b y 14 p e r c e n t ,
and in H o l l a n d by 14 p e r cent. I n t h e U n i t e d K i n g d o m over t h e
s a m e p e r i o d , s t e r l i n g p r i c e s of t h e s a m e c l a s s of c o m m o d i t i e s , p a r t l y
in c o n s e q u e n c e of t h e r e t u r n to g o l d , fell 2 2 p e r c e n t . I n t h e y e a r s
which have since elapsed there h a s been a further catastrophic fall:
b e t w e e n S e p t e m b e r 1 9 2 9 a n d A u g u s t 1 9 3 0 , d o l l a r p r i c e s fell 2 1 p e r
c e n t . , S w e d i s h p r i c e s 14 p e r c e n t . , D u t c h p r i c e s 17 p e r c e n t . , a n d
s t e r l i n g p r i c e s 17 p e r c e n t . I n t h e g r e a t d e p r e s s i o n of t h e e i g h t e e n ­
n i n e t i e s , p r i c e s fell a b o u t 1 8 p e r c e n t , a l t o g e t h e r , s p r e a d o v e r a
p e r i o d of s i x y e a r s . A p a r t f r o m t h e s l u m p of 1 9 2 1 , w h e n t h e fall
w a s f r o m a n e x c e p t i o n a l p o i n t r e a c h e d so r a p i d l y t h a t it h a d n o t h a d
t i m e t o affect e s t a b l i s h e d c o s t s of p r o d u c t i o n , t h e r e is n o r e c o r d e d
c a s e i n r e c e n t e c o n o m i c h i s t o r y of so v i o l e n t a n d r a p i d a collapse i n
t h e p r i c e s of s t a p l e c o m m o d i t i e s . ( )
7
1 9 . A s a g a i n s t t h i s v e r y l a r g e fall i n t h e w h o l e s a l e p r i c e s of
s t a p l e c o m m o d i t i e s (30 t o 35 p e r c e n t , s i n c e 1 9 2 4 i n t e r m s of
sterling),( ) British money wage-rates have remained virtually
unchanged.
B e t w e e n 1 9 2 4 a n d S e p t e m b e r 1 9 2 9 w a g e s fell 1 p e r
c e n t . , whilst d u r i n g t h e p a s t y e a r t h e y h a v e fallen by less t h a n
another 1 per cent.( )
8
9
2 0 . I t is n o t t o b e e x p e c t e d t h a t t h e fall i n t h e cost of
l i v i n g will be s o g r e a t as t h e fall in t h e p r i c e s of s t a p l e
c o m m o d i t i e s , since, by t h e t i m e goods r e a c h t h e c o n s u m e r , a
c o n s i d e r a b l e p a r t of t h e p r i c e r e p r e s e n t s h o m e c o s t s of o n e k i n d
or another, including manufacturing, distribution and retailing
c o s t s , w h i c h do n o t fall so l o n g a s o u r o w n l e v e l of m o n e y w a g e s
i s m a i n t a i n e d , e x c e p t a t t h e e x p e n s e of n o r m a l b u s i n e s s r e t u r n s .
A c t u a l l y , t h e cost of l i v i n g fell 5 p e r c e n t , b e t w e e n 1 9 2 4 and
S e p t e m b e r 1 9 2 9 , a n d h a s fallen o n l y a f u r t h e r S£ p e r c e n t , d u r i n g
t h e past y e a r . ( ) .
I t m a y be t h a t t h e m o r e r e c e n t of t h e s e figures
d o e s n o t y e t reflect t h e full effect of t h e fall w h i c h h a s a l r e a d y
occurred in staple commodities, owing to t i m e lags, frictions, etc.
1 0
2 1 . W e d o n o t t h i n k it p r u d e n t t o a s s u m e t h a t t h e r e m a y
n o t b e a f u r t h e r fall of w o r l d p r i c e s .
W e should expect some
r e c o v e r y f r o m t h e p r e s e n t e x c e p t i o n a l l y low l e v e l a t a d a t e w h i c h
m a y be n e a r at h a n d .
B u t i t is n o t c e r t a i n t h a t t h i s r i s e of
p r i c e s will go f a r e n o u g h to m e n d t h e s i t u a t i o n o r t h a t it m a y
n o t b e followed b y a f u r t h e r s a g g i n g t e n d e n c y i n t h e price-level
continued over a long period. T h e existing international situation
a s i t affects c r e d i t , r a t e s of i n t e r e s t , t h e s t a t e of i n t e r n a t i o n a l
c o n f i d e n c e a n d t h e u s e of gold i n b a n k r e s e r v e s h a s n o t n e c e s s a r i l y
()
(7)
()
f)
(10)
a
8
9
See Appendix, Tables G, I, K and L.
See Appendix, Table B.
Board of Trade and Sauerbeck Indexes.
Dr. Bowley's Index ; see also Appendix, Tables H and K.
See Appendix, Table G.
done its worst. F o r t h e s a m e reasons that it h a s been producing
a fall of p r i c e s h i t h e r t o , i t s m e r e c o n t i n u a n c e m a y p r o v o k e a
f u r t h e r fall for s o m e l i t t l e t i m e t o c o m e .
( a ) E f f e c t s of L a r g e C h a n g e s i n t h e Y a l u e of M o n e y .
22.
W e w o u l d w i s h to affirm w i t h all t h e e m p h a s i s a t o u r
c o m m a n d t h e d i s a s t r o u s c o n s e q u e n c e s w h i c h a r e to b e e x p e c t e d if
t h i s f e a r w e r e to b e fulfilled.
All m o n e y s e t t l e m e n t s of e v e r y
k i n d , u p o n w h i c h t h e s t a b i l i t y a n d p r o s p e r i t y of m o d e r n life,
o r g a n i s e d a s it i s , so p r o f o u n d l y d e p e n d , w o u l d b e c o m e h o p e l e s s l y
inappropriate—international settlements and national debts not less
t h a n money wages.
23.
O u t s t a n d i n g e x a m p l e s of t h i s a r e t h e
following:—
(a) T h e effective b u r d e n of i n t e r - G o v e r n m e n t a l d e b t s a r i s i n g
o u t of t h e w a r is v e r y g r e a t l y i n c r e a s e d .
I n the case
of G e r m a n r e p a r a t i o n s , for e x a m p l e , it is p r o b a b l e t h a t
t h e whole of t h e c o n c e s s i o n s m a d e to G e r m a n y b y t h e
Y o u n g P l a n , as c o m p a r e d w i t h t h e D a w e s P l a n , h a v e
b e e n o b l i t e r a t e d b y t h e fall in p r i c e s w h i c h h a s o c c u r r e d
subsequently.
The safeguards against this very d a n g e r
contained in the Dawes Plan were withdrawn under the
Y o u n g P l a n , and the payments under the Young Plan are
already in serious jeopardy.
(fc) T h e b u d g e t a r y b u r d e n of i n t e r n a l N a t i o n a l - D e b t s is a l s o
greatly aggravated.
I t is n o t e a s y a t t h i s s t a g e t o
c a l c u l a t e t h e a m o u n t of t h e i n c r e a s e , s i n c e t h e l e v e l
of m o n e y i n c o m e s a t h o m e h a s n o t y e t a d j u s t e d itself
to the external price-level.
B u t if t h i s a d j u s t m e n t
w e r e m a d e , t h e v a l u e of m o n e y i n c o m e s d e r i v e d f r o m
interest o n the National Debt would be increased by
3 0 p e r c e n t , as c o m p a r e d w i t h 1 9 2 4 , a n d b y 15 p e r c e n t ,
a s c o m p a r e d w i t h 1 9 2 9 , a t t h e e x p e n s e of t h e r e s t of
the community^ )
T h e s a m e a r g u m e n t a p p l i e s , of c o u r s e , to all o t h e r
f o r m s of b o n d e d d e b t e x p r e s s e d i n t e r m s of m o n e y .
In
t h e case of i n d u s t r y , t h e p e r c e n t a g e of t h e g r o s s r e c e i p t s ,
r e d u c e d i n t e r m s of m o n e y , r e q u i r e d to m e e t d e b e n t u r e
a n d p r e f e r e n c e i n t e r e s t , n o t r e d u c e d i n t e r m s of m o n e y ,
is seriously increased.
(c) T h e s a m e c o n s i d e r a t i o n s a p p l y to m a n y o t h e r G o v e r n m e n t
o b l i g a t i o n s , w h i c h a r e fixed in t e r m s of m o n e y — e v e n
w h e n the a r r a n g e m e n t s governing t h e m are not so
unalterable as those governing the National Debt—so long
a s n o m e a s u r e s a r e t a k e n b y P a r l i a m e n t t o alter t h e m .
T h i s a p p l i e s , for e x a m p l e , to all p e n s i o n s , a n d , i n p a r ­
t i c u l a r , to u n e m p l o y m e n t relief. T h e l a t t e r w a s fixed i n
1 9 2 0 a t 1 5 s . for t h e s i n g l e m a n , w h e n t h e cost of l i v i n g
w a s p a r t i c u l a r l y h i g h . W i t h t h e p r e s e n t cost of l i v i n g ,
9e. t o - d a y h a s t h e s a m e v a l u e a s 15s. i n A u g u s t 1 9 2 0 .
As a m a t t e r of fact t h e m o n e y v a l u e of u n e m p l o y m e n t
b e n e f i t s h a s b e e n s u b s t a n t i a l l y i n c r e a s e d since 1 9 2 0 ,
with t h e result t h a t the real benefits to-day are at least
double w h a t w a s t h o u g h t a d e q u a t e i n 1 9 2 0 . ( " )
(d) M o n e y w a g e s a n d m o n e y i n c o m e s g e n e r a l l y , o t h e r t h a n
b u s i n e s s profits, w h i c h c o n s t i t u t e t h e r e s i d u e , also
become seriously inappropriate to the n e w situation
unless they are altered.
I n t h e s e cases, the obstacle
t o a c h a n g e is for t h e m o s t p a r t n e i t h e r l a w n o r c o n t r a c t ,
b u t a s t r o n g social r e s i s t a n c e to c h a n g e s w h i c h , for t h e
v e r y r e a s o n t h a t t h e y would h a v e to t a k e place p i e c e ­
m e a l a n d w i t h o u t a n y o r d e r e d p l a n , a r e likely t o b e
o p e n to c h a r g e s of i n e q u i t y a n d i n j u s t i c e .
B u t it i s t h e
i n e v i t a b l e r e s u l t of so m a n y of t h e i t e m s of p r o d u c t i o n 1 2
C ) See Appendix, Table C.
V") See Notes 7, 8 and 9. '
0 ) Ministry of Labour Gazette.
1
s
costs r e m a i n i n g fixed in t e r m s of m o n e y t h a t t h e r e s i d u e
w h i c h f o r m s t h e i n d u c e m e n t to t h e b u s i n e s s m a n , a n d is
of t h e o r d e r of o n l y 17 p e r c e n t , of t h e w h o l e , is r e d u c e d
to v a n i s h i n g p o i n t . ( " )
2 4 . T h e r e s u l t of all t h i s is t h a t m o n e y costs i n t e r p r e t e d i n
t h e w i d e s t s e n s e a r e o u t of l i n e w i t h m o n e y p r i c e s .
Consequently,
p r o d u c e r s lose m o n e y ; t h e y a r e u n a b l e t o m a i n t a i n t h e i r f o r m e r
l a b o u r f o r c e s ; a n d u n e m p l o y m e n t e n s u e s o n a colossal s c a l e .
( b ) T h e Disparity
b e t w e e n t h e P r i c e s of Primary
Manufactured Goods.
P r o d u c t s and
25.
T h e foregoing represent t h e m a l a d j u s t m e n t s which arise
if a fall i n p r i c e s b e c o m e s e v e n l y s p r e a d o v e r c o m m o d i t i e s i n
g e n e r a l . F o r t h e t i m e b e i n g , h o w e v e r , t h e o u t s t a n d i n g f e a t u r e of
t h e e c o n o m i c s i t u a t i o n is a d i s h a r m o n y of a d i f f e r e n t k i n d .
The
p r i c e s of p r i m a r y c o m m o d i t i e s , e.g.,
agricultural products and
m e t a l s , h a v e fallen v e r y heavily, a n d are now o n t h e average
v e r y l i t t l e a b o v e , w h i l e m a n y of t h e m h a v e fallen well b e l o w , t h e
p r e - w a r l e v e l . T h e p r i c e s of m a n u f a c t u r e d goods h a v e n o t fallen
i n a n y t h i n g like t h e s a m e degree.
T h e r e s u l t is a n e x t r e m e
d i s p a r i t y b e t w e e n t h e t w o s e t s of p r i c e s , w h i c h is q u i t e i n c o m p a t i b l e
w i t h a n a c t i v e c o n d i t i o n of w o r l d t r a d e . S o l o n g a s t h e i n d u s t r i a l
i n t e r e s t s of t h e w o r l d a t t e m p t t o c h a r g e a n y t h i n g l i k e t h e
p r e v a i l i n g p r i c e s for t h e m a n u f a c t u r e d g o o d s t h e y p r o d u c e , w h i l e
offering o n l y t h e p r e v a i l i n g p r i c e s for p r i m a r y p r o d u c t s , it i s c l e a r
t h a t t h e p r i m a r y p r o d u c e r s will o n l y b e a b l e to p u r c h a s e a
d i m i n i s h e d q u a n t i t y of m a n u f a c t u r e d g o o d s .
Until new markets
for t h e s e g o o d s a r e f o u n d o r new t y p e s of goods p r o d u c e d i n s t e a d
of t h e m — a n d t h i s m u s t t a k e a c o n s i d e r a b l e
time—industrial
u n e m p l o y m e n t o n a l a r g e scale m u s t p r e v a i l .
Partly as
a
r e s u l t of t h i s , t h e p r i c e s of m a n u f a c t u r e d goods a r e l i k e l y t o f a l l ,
u n d e r t h e p r e s s u r e of c o m p e t i t i o n b e t w e e n c p m p e t i n g m a n u f a c ­
turers and competing manufacturing countries.
I n all industrial
countries t h e r e is b o u n d to be a s t r o n g m o v e m e n t towards t h e
r e d u c t i o n of costs b y e v e r y a v a i l a b l e m e a n s , w h i c h will a l m o s t
c e r t a i n l y i n c l u d e a l o w e r i n g of s a l a r i e s a n d w a g e s .
I t is i n d e e d
e v i d e n t t h a t i n m a n y c o u n t r i e s s u c h a m o v e m e n t is a l r e a d y well,
under way.( )
r
1 5
26. I t m a y therefore prove that we a r e only now a p p r o a c h i n g
t h e p h a s e of t h e w o r l d d e p r e s s i o n w h i c h is r e a l l y c r i t i c a l for a n
industrial c o u n t r y like G r e a t B r i t a i n .
If m a n u f a c t u r i n g costs of
p r o d u c t i o n a r e c u t d r a s t i c a l l y t h r o u g h o u t t h e w o r l d , it will n o t b e
p r u d e n t , o r i n d e e d p o s s i b l e , for u s t o a b s t a i n f r o m j o i n i n g i n t h e
general movement.
F o r if we d o a b s t a i n , w e s h a l l r u n a s e r i o u s
d a n g e r of s e e i n g o u r a l r e a d y p r e c a r i o u s h o l d u p o n t h e e x p o r t
m a r k e t s of t h e w o r l d w e a k e n e d t o a d i s a s t r o u s d e g r e e .
2 7 . At t h e s a m e t i m e it is e v i d e n t t h a t a n i n t e r n a t i o n a l p r i c e ­
c u t t i n g a n d w a g e - c u t t i n g c o n t e s t is s o m e t h i n g t o b e l o o k e d f o r w a r d
t o w i t h g r e a t a l a r m a n d t o b e a v o i d e d if it is b y a n y m e a n s p o s s i b l e .
If o t h e r c o u n t r i e s c u t w a g e s , t h e effect o n t h e v a l u e of m o n e y
t h r o u g h o u t t h e w o r l d m u s t b e s u c h t h a t we s h a l l be c o m p e l l e d to
follow s u i t s o o n e r o r l a t e r . B u t it w o u l d b e a far b e t t e r w a y o u t
for e v e r y o n e if t h e r o u t e b a c k t o w a r d s e q u i l i b r i u m w a s n o t s o u g h t
i n t h i s d i r e c t i o n , b u t r a t h e r b y r a i s i n g t h e p r i c e s of s t a p l e c o m m o d i ­
t i e s so a s t o m a k e w a g e c u t s l e s s n e c e s s a r y .
W e think that the
m o s t s t r e n u o u s effort s h o u l d b e m a d e for i n t e r n a t i o n a l c o - o p e r a t i o n
t o t h i s e n d , p r e c i s e l y b e c a u s e , f a i l i n g s u c h a n effort, w e fear t h a t
a wage-cutting campaign amongst the leading industrial countries
i s a r e a l p o s s i b i l i t y a n d m a y p r o v e a s e r i o u s m e n a c e t o social
stability.
IY.-REMEDIES
OF AN
EXTERNAL
CHARACTER.
2 8 . I t will be c l e a r from t h e f o r e g o i n g a n a l y s i s t h a t t h e f u t u r e
c o u r s e of w o r l d p r i c e s is a m a t t e r of t h e v e r y first i m p o r t a n c e for
Great Britain.
A s p e e d y a n d sufficient r e c o v e r y of w o r l d p r i c e s
('*) Bowley and Stamp, "The National Income, 1924."
( ) See Appendix, Table J.
[21809]
I5
0
w o u l d g o a l o n g w a y t o w a r d s p r o v i d i n g a s o l u t i o n of o u r difficulties.
O n t h e o t h e r h a n d , if w o r l d p r i c e s fall f u r t h e r i n t h e n e a r f u t u r e ,
or after a brief a n d p a r t i a l r e c o v e r y , r e s u m e a d o w n w a r d t r e n d ,
t h e s t r a i n u p o n t h e e c o n o m i c s y s t e m of G r e a t B r i t a i n , a s well a s
of m a n y o t h e r c o u n t r i e s , m a y b e c o m e w e l l - n i g h i n t o l e r a b l e .
2 9 . W e believe t h a t m o n e t a r y c o n d i t i o n s p l a y a d o m i n a t i n g
p a r t i n d e t e r m i n i n g t h e c o u r s e of w o r l d p r i c e s o v e r a l o n g p e r i o d .
I n the circumstances which obtain to-day, monetary conditions
d e p e n d u p o n t h e p r o d u c t i o n of' g o l d , i t s d i s t r i b u t i o n a m o n g t h e
different c o u n t r i e s , a n d t h e p r e v a i l i n g p r a c t i c e s of C e n t r a l B a n k s
r e l a t i n g t o i t s u s e . T h e facts w i t h r e g a r d t o t h e s u p p l y of gold
have recently been surveyed by a Committee appointed by the
E c o n o m i c a n d F i n a n c i a l S e c t i o n of t h e L e a g u e of N a t i o n s , a n d
we do n o t p r o p o s e to e n t e r i n t o t h e q u e s t i o n i n a n y d e t a i l .
Our
conclusions. are : —
(i)
t h a t o n t h e whole a n d , h a v i n g r e g a r d t o t h e p r e v a i l i n g
p r a c t i c e s of c e r t a i n f o r e i g n C e n t r a l B a n k s , t h e facts a r e
n o t s u c h a s to e n c o u r a g e o p t i m i s m ;
(ii) t h a t o n t h e o t h e r h a n d t h e r e is n o insufficiency i n t h e t o t a l
s u p p l y of g o l d , p r o v i d e d t h a t it is u s e d w i t h r e a s o n a b l e
e c o n o m y , a n d w i t h d u e r e g a r d t o t h e n e e d s of t h e w o r l d
situation by Central B a n k s ; a n d
tiii) t h a t a c c o r d i n g l y t h e p r o b l e m is o n e w h i c h t u r n s u p o n t h e
policies w h i c h C e n t r a l B a n k s p u r s u e , a n d u p o n t h e
p o s s i b i l i t y of i n d u c i n g t h e m t o act t o g e t h e r w i t h t h e
object of s e c u r i n g a r e a s o n a b l e d e g r e e of s t a b i l i t y , a t a n
a p p r o p r i a t e l e v e l , i n t h e p u r c h a s i n g p o w e r of gold.
30.
T h e m a t t e r is n o t o n e i n w h i c h it is possible for a n y s i n g l e
c o u n t r y a c t i n g a l o n e to a c c o m p l i s h m u c h .
Some influence we c a n
exert, b u t a great deal m o r e m i g h t be accomplished by t h e F e d e r a l
R e s e r v e S y s t e m of t h e U n i t e d S t a t e s j o i n i n g t h e B a n k of E n g l a n d
t o t a k e d r a s t i c a c t i o n o n a c o m m o n p l a n . I t is f u r t h e r p e r h a p s
p e r m i s s i b l e to h o p e t h a t u n d e r t h e p r e s s u r e of t h e w o r l d t r a d e
d e p r e s s i o n a n d t h e g r a d u a l e x t e n s i o n of i t s d e t r i m e n t a l r e a c t i o n s
to c o u n t r i e s w h i c h h a v e n o t h i t h e r t o felt its effects i n a s e v e r e
degree,
the
psychological
atmosphere
may
shortly
become
f a r . m o r e f a v o u r a b l e t h a n it i s a t p r e s e n t t o m o r e g e n e r a l
co-operation a m o n g Central B a n k s , preferably through t h e agency
of t h e B a n k for I n t e r n a t i o n a l S e t t l e m e n t s .
31.
T h e m o s t u r g e n t n e e d a t p r e s e n t is of a different c h a r a c t e r
f r o m t h e m e a s u r e s w h i c h w o u l d h a v e b e e n r e q u i r e d , p r i o r to t h e
r e c e n t fall of p r i c e s , to avoid a n u n d u e fluctuation i n t h e l e v e l of
p r i c e s . T h e difficvdty a t t h e m o m e n t i s n o t a g e n e r a l s c a r c i t y of
s h o r t - t e r m c r e d i t for first-class b o r r o w e r s . I t a r i s e s , i n t h e first
place, because such borrowers are reluctant to enter u p o n n e w
e n t e r p r i s e i n a n a t m o s p h e r e of a f a l l i n g p r i c e - l e v e l . I t is d u e , i n
t h e s e c o n d p l a c e , t o t h e d e c l i n e of t h e s t a n d i n g of m a n y b o r r o w e r s
i n t h e o p i n i o n of l e n d e r s , b e c a u s e t h e d i s l o c a t i o n s e n t a i l e d b y t h e
w o r l d d e p r e s s i o n h a v e g i v e n r i s e t o w i d e s p r e a d d i s t r u s t of t h e
s t a b i l i t y of t h e financial a n d c u r r e n c y s y s t e m s of s e v e r a l c o u n t r i e s .
N o t a b l e i n s t a n c e s a t t h e p r e s e n t t i m e a r e m o s t of t h e c o u n t r i e s of
S o u t h A m e r i c a , A u s t r a l i a , C h i n a a n d s e v e r a l of t h e c o u n t r i e s of
Central Europe.
t
82.
T h e . f i r s t o b s t a c l e t o t h e r e v i v a l of e n t e r p r i s e m i g h t b e
d i m i n i s h e d b y t h e f a v o u r a b l e r e a c t i o n , b o t h o n t h e w i l l i n g n e s s of
lenders to convert s h o r t - t e r m credit into long-term credit and on
t h e w i l l i n g n e s s of b o r r o w e r s to e n g a g e i n n e w e n t e r p r i s e , t h a t w o u l d
follow j o i n t a c t i o n o n t h e p a r t of t h e C e n t r a l B a n k s d i r e c t e d t o w a r d s
c r e a t i n g in t h e m i n d s of financiers a s t r o n g c o n v i c t i o n t h a t t h e
p r e s e n t e a s y t e r m s for s h o r t - t e r m c r e d i t a r e l i k e l y to c o n t i n u e for
a l o n g t i m e to c o m e .
3 3 . A s e c o n d objective of c o - o p e r a t i o n b e t w e e n C e n t r a l B a n k s
m i g h t b e to a l l a y a n d r e m o v e t h e d i s t r u s t n o w felt t o w a r d s t h e
g e n e r a l c r e d i t of t h e g r o u p of c o u n t r i e s t h a t we h a v e m e n t i o n e d
a b o v e , b y f o r m i n g a l a r g e j o i n t pool for a p p r o v e d l o a n s or i n s o m e
other way.
T h e r e is r e a l d a n g e r , as m a t t e r s a r e n o w t e n d i n g ,
t h a t t h e s e v e r i t y -of t h e world d e p r e s s i o n m a y b e i n c r e a s e d a n d
its d u r a t i o n p r o l o n g e d b y a r e n e w a l of t h e c u r r e n c y d e b a c l e s of t h e
e a r l y p o s t - w a r p e r i o d . I t w o u l d lie o u t s i d e o u r p r o v i n c e to p u r s u e
t h i s m a t t e r i n f u r t h e r d e t a i l s i n c e t h e w h o l e q u e s t i o n is of a
difficult a n d d e l i c a t e c h a r a c t e r i n w h i c h i n t e r n a t i o n a l political
c o m p l i c a t i o n s a n d d a n g e r s p l a y a n i m p o r t a n t p a r t ; b u t we d e s i r e
to r e c o r d o u r c o n v i c t i o n t h a t t h e c h a n c e of a s p e e d y r e c o v e r y in
w o r l d t r a d e will t u r n i n l a r g e m e a s u r e u p o n w h e t h e r o r n o t it is
p o s s i b l e t o r e s t o r e a feeling of confidence i n t h e financial s t a b i l i t y
of t h o s e m a n y c o u n t r i e s w h i c h a r e n o w t h e s u b j e c t of d i s t r u s t .
8 4 . A t t h e p r e s e n t t i m e , t h e i n t e r n a t i o n a l s i t u a t i o n is so
d i s a s t r o u s , t h a t t h e t i m e m a y b e a p p r o a c h i n g w h e n s o m e m o r e far­
r e a c h i n g effort
at international co-operation than has been
considered h i t h e r t o may be imperatively demanded.
T h e social
a n d e c o n o m i c s y s t e m s of m a n y p a r t s of t h e world a r e u n a b l e t o
s u p p o r t t h e p r e s e n t m o n e t a r y c h a o s , w i t h o u t b r e a k d o w n a n d civil
dissension.
Y . - W A Y S O P R E S T O R I N G E L A S T I C I T Y TO T H E E C O N O M I C
S T R U C T U R E OF G R E A T B R I T A I N .
3 5 . N o t m u c h t h a t t h i s c o u n t r y a c t i n g a l o n e c a n do i n t h e
e c o n o m i c s p h e r e will m a t e r i a l l y a c c e l e r a t e w o r l d r e c o v e r y .
It is
o n e of t h e i n e v i t a b l e c o n s e q u e n c e s of o u r p o s i t i o n i n t h e w o r l d
e c o n o m y t h a t , w h i l e o u r a b s e n c e of p r o s p e r i t y m a y be of o u r o w n
m a k i n g , o u r prosperity m u s t wait o n world conditions.
On the
w h o l e , w e g a i n m u c h m o r e t h a n we lose f r o m t h e i n t i m a t e n a t u r e
of o u r i n t e r n a t i o n a l c o n n e c t i o n s ; a n d it is r e a s o n a b l e to a c c e p t t h i s
d e p e n d e n c e a s a n o t too e x o r b i t a n t p r i c e for t h e b e n e f i t s t h a t it
provides.
8 6 . B u t , w h i l e t h e i n f l u e n c e t h a t we c a n exercise o n t h e w o r l d
i s l i m i t e d , it is c l e a r t h a t w h a t a c t i o n w e t a k e to m e e t o u r local
difficulties m u s t d e p e n d , i n p a r t , u p o n o u r e s t i m a t e of t h e c o u r s e
of world c o n d i t i o n s . If t h e n we c a n n o t r a p i d l y r e v e r s e t h e e x t e r n a l
t e n d e n c i e s r e s p o n s i b l e for o u r local d i s e q u i l i b r i u m , it i s t h e m o r e
i n c u m b e n t u p o n u s to do w h a t w e c a n t o r e m o v e t h e local d i s a b i l i ­
t i e s of a d a p t a t i o n .
8 7 . N o v e r y s a t i s f a c t o r y m e a s u r e s h a v e y e t b e e n p r o p o s e d for
t h e d i r e c t c o n t r o l of r i n g s a n d m o n o p o l i e s . B u t i n t h e p a s t t h i s
c o u n t r y h a s b e e n b a c k w a r d i n g i v i n g full p u b l i c i t y to t h e w o r k i n g of
s u c h b o d i e s . T h e e x p e r i e n c e of t h e B o a r d of T r a d e C o m m i t t e e o n
T r u s t s m i g h t w e l l be r e v i e w e d . B u s i n e s s i n t e r e s t s h a v e n o t h i n g to
lose f r o m t h e m a x i m u m p u b l i c i t y , e x c e p t p o s s i b l y w h e r e i n t e r ­
national rivalries are involved.
88.
N o d i r e c t G o v e r n m e n t a c t i o n , s h o r t of t h e i n t r o d u c t i o n of
m e t h o d s of c o e r c i o n , c a n d o m u c h to r e m o v e t r a d e u n i o n
r e s t r i c t i o n s . T h i s is a m a t t e r for a c t i o n b y e m p l o y e r s a n d w o r k m e n
in the industries concerned.
The
demarcations
and
trade
customs,
which
grew
up in a n
environment
when
inter­
n a t i o n a l c o m p e t i t i o n w a s n o t so i n t e n s e
and when
there
w a s m o r e slack in t h e productive m a c h i n e , are now entirely
i n a p p r o p r i a t e a n d i n i m i c a l to t h e i n t e r e s t s of t h e w o r k i n g c l a s s e s a s
a w h o l e . C o t t o n o p e r a t i v e s , for i n s t a n c e , w h o r e s i s t t h e i n t r o d u c ­
t i o n of t h e e i g h t l o o m s y s t e m , m a y b e s a f e g u a r d i n g i n d e e d t h e i r
immediate
interests,
but
they
are
only
intensifying
the
difficulties of t h e i n d u s t r y . I n s u c h c i r c u m s t a n c e s it is t h e g e n e r a l
b o d y of w a g e - e a r n e r s w h o a r e n e c e s s a r i l y t h e chief s u f f e r e r s .
8 9 . W e a r e c o n v i n c e d t h a t t h e r e are, m a n y w a y s i n w h i c h t h e
efficiency of t h e l a b o u r force c o u l d b e i n c r e a s e d w i t h o u t a n y c h a n g e
i n i t s a c t u a l s k i l l , i n t h e s e n s e of b e c o m i n g m o r e v a l u a b l e t o t h e
employer a n d therefore more worth t h e existing wage, merely
b y t h e r e m o v a l of artificial r e s t r i c t i o n s .
W e know that trade
unions attach great importance to restrictive provisions, which
have often been hardly won and sometimes represent a real
c o n t r i b u t i o n t o t h e a m e n i t i e s of w o r k i n g c o n d i t i o n s ;
of
4 0 . B u t if t h e y w o u l d a g r e e to r e o p e n t h e w h o l e q u e s t i o n
r e s t r i c t i o n s all a l o n g t h e l i n e a n d c o n s i d e r a f r e s h
with
;an o p e n m i n d w h a t it is r e a l l y r e a s o n a b l e a n d d e s i r a b l e t o e n f o r c e
i n t h e a c t u a l c o n d i t i o n s of t o - d a y i n t h e i n t e r e s t s of l a b o u r a s a
w h o l e , a n d n o t m e r e l y of o n e u n i o n t a k e n in i s o l a t i o n , t h e r e m i g h t
b e a s u r p r i s i n g i n c r e a s e i n t h e effective o u t p u t of l a b o u r a n d ,
c o n s e q u e n t l y , i n t h e a b i l i t y of t h e e m p l o y e r t o offer i n c r e a s e d
e m p l o y m e n t at t h e existing wage.
41.
I t i s , h o w e v e r , o p e n t o t h e G o v e r n m e n t to u n d e r t a k e a
s y s t e m a t i c r e f o r m of t h e w h o l e s y s t e m of u n e m p l o y m e n t i n s u r a n c e ;
a n d t h i s is u r g e n t l y r e q u i r e d in t h e p u b l i c i n t e r e s t .
There is
n o d o u b t t h a t t h i s s y s t e m , d e s i g n e d a s it w a s w i t h t h e m o s t
b e n e f i c e n t i n t e n t i o n s , is now g r a v e l y a b u s e d . T h i s s y s t e m i m p e d e s
m o b i l i t y f r o m i n d u s t r y to i n d u s t r y . I t e n c o u r a g e s t h e a d o p t i o n of
m e t h o d s for m e e t i n g f u n d a m e n t a l i n d u s t r i a l c h a n g e , s u c h a s
s h o r t - t i m e ( a p p r o p r i a t e o n l y to s h o r t - t i m e f l u c t u a t i o n s ) , w h i c h t e n d
t o a g g r a v a t e t h e d i s e a s e it w a s i n t e n d e d to c u r e . I t c o n d u c e s t o
a n artificial r i g i d i t y of w a g e - r a t e s a n d it c o n s t i t u t e s a definite t a x
on employment.
YI.-Y/AYS
OF
INCREASING
INDUSTRIAL
EFFICIENCY,
42.
U n d e r t h e h e a d of i n d u s t r i a l efficiency c o m e m e a s u r e s
designed to improve industrial organisation and technique. A vast
a m o u n t of a t t e n t i o n h a s b e e n g i v e n i n r e c e n t y e a r s to t h e p r o b l e m s
of i n d u s t r i a l r e c o n s t r u c t i o n , w i t h p a r t i c u l a r r e f e r e n c e t o t h e d e ­
p r e s s e d s t a p l e i n d u s t r i e s ; v a r i o u s official i n q u i r i e s h a v e b e e n h e l d
r e s u l t i n g i n m a n y p r a c t i c a l s u g g e s t i o n s a s to t h e l i n e s a l o n g w h i c h
i m p r o v e m e n t should be sought.
W e do not r e g a r d ourselves a s
q u a l i f i e d to offer a n y u s e f u l s u g g e s t i o n s u p o n t h e s e m a t t e r s , w h i c h
a r e e s s e n t i a l l y of a t e c h n i c a l c h a r a c t e r , t h o u g h w e a r e d i s p o s e d t o
s u g g e s t t h a t f r o m t h e s t a n d p o i n t of t h e u l t i m a t e p r o s p e r i t y of
B r i t i s h e c o n o m i c life t h e efficiency of i n d u s t r i e s w h i c h a r e
e x p a n d i n g o r a r e c a p a b l e of e x p a n s i o n d e s e r v e s t o b e r e g a r d e d
a s of n o less i m p o r t a n c e t h a n t h e efficiency of i n d u s t r i e s w h i c h a r e
e n c o u n t e r i n g s e r i o u s difficulties.
I t is c l e a r l y of v i t a l i m p o r t a n c e
t h a t e v e r y t h i n g possible s h o u l d b e d o n e to k e e p B r i t i s h i n d u s t r y
efficient a n d u p to d a t e . B u t t h e m a i n q u e s t i o n w h i c h p r e s e n t s
itself in t h e p r e s e n t i n q u i r y is h o w far s u c h m e a s u r e s c a n suffice
a s a r e m e d y for t h e t r o u b l e s a n a l y s e d i n t h e p r e v i o u s S e c t i o n s .
F o r the most part i m p r o v e m e n t s in industrial methods a n d
t e c h n i q u e a r e b e i n g a d o p t e d , a n d a r e likely t o b e a d o p t e d , a b o u t
a s fast by o u r p r i n c i p a l c o m p e t i t o r s a s b y o u r s e l v e s , a n d , so f a r
a s t h i s is t r u e , t h o u g h it r e m a i n s of c a r d i n a l i m p o r t a n c e t h a t w e
s h o u l d n o t l a g b e h i n d , we a r e n o t l i k e l y to s e c u r e m u c h positive
a m e l i o r a t i o n of o u r c o m p e t i t i v e p o s i t i o n u n d e r t h i s h e a d . M o r e o v e r ,
it is n e c e s s a r y t o r e m e m b e r t h a t m a n y of t h e c h a n g e s w h i c h a r e
included to-day u n d e r the vague t e r m " r a t i o n a l i s a t i o n " are not
of a k i n d c a l c u l a t e d t o i n c r e a s e p r o d u c t i v i t y o r e m p l o y m e n t .
It
i s , for e x a m p l e , a n i m p o r t a n t p u r p o s e of m a n y so-called r a t i o n a l i ­
s a t i o n s c h e m e s t o a r r a n g e a n o r d e r l y c o n t r a c t i o n of o u t p u t i n a
d e c l i n i n g i n d u s t r y w i t h a m i n i m u m of financial loss to t h e firms
concerned. This is, speaking generally, a desirable objective, b u t
i t is n o t c a l c u l a t e d to m a k e a n y d i r e c t c o n t r i b u t i o n t o t h e p r o b l e m
of u n e m p l o y m e n t .
A f u r t h e r c o n s i d e r a t i o n t o b e b o r n e in m i n d
i s t h a t i n so far as i m p r o v e d i n d u s t r i a l t e c h n i q u e t a k e s t h e f o r m
of t h e i n t r o d u c t i o n of l a b o u r - s a v i n g m a c h i n e r y , w h i c h i t is o n l y
p r o f i t a b l e to i n t r o d u c e b e c a u s e w a g e - r a t e s a r e u n e c o n o m i c a l l y
h i g h , t h e y will i n v o l v e a t e m p o r a r y a g g r a v a t i o n of u n e m p l o y m e n t ,
e x c e p t to t h e e x t e n t t h a t it is m i t i g a t e d b y a t e m p o r a r y s t i m u l u s
to t h e industries m a n u f a c t u r i n g t h e labour-saving m a c h i n e r y .
48.
Altogether, therefore, we are driven to t h e conclusion
t h a t i n d u s t r i a l r e c o n s t r u c t i o n c a n n o t s u p p l y i n itself a c o m p l e t e
s o l u t i o n to o u r s e r i o u s e c o n o m i c difficulties. W e s a y t h i s without­
w i s h i n g i n t h e l e a s t to m i n i m i s e t h e s u p r e m e i m p o r t a n c e t o t h e
e c o n o m i c w e l l - b e i n g of G r e a t B r i t a i n of p r e s s i n g f o r w a r d well­
c o n s i d e r e d s c h e m e s of i n d u s t r i a l r e c o n s t r u c t i o n t o t h e u t m o s t i n
o u r p o w e r . I n t h e difficult e c o n o m i c c o n d i t i o n s w h i c h n o w c o n f r o n t
u s w e c a n ill afford t o c a r r y t h e b u r d e n of r e m e d i a b l e i n d u s t r i a l
inefficiency.
Y I I — R E D U C T I O N S IN DOMESTIC MONEY W A G E S .
( a ) T h e E x p o r t Industries.
44.
T h r o u g h o u t t h e l a s t few y e a r s t h e m o n e y cost of p r o d u c t i o n
of B r i t i s h goods h a s b e e n m a i n t a i n e d a t a level w h i c h h a s m a d e it
difficult for B r i t i s h i n d u s t r y to k e e p its h o l d u p o n t h e w o r l d m a r k e t s .
W e a r e , i n d e e d , v e r y far from s u p p o s i n g t h a t t h e whole b l a m e for
o u r e x p o r t i n g difficulties is a t t r i b u t a b l e to excessive costs of p r o d u c ­
t i o n ; n o r do we t a k e t h e view t h a t t h e l a r g e s t possible v o l u m e of
exjiorts s h o u l d be t h e m a i n objective of e c o n o m i c policy.
Various
c i r c u m s t a n c e s , w h i c h h a v e n o t h i n g to d o w i t h B r i t i s h m o n e y costs
of p r o d u c t i o n , s u c h a s t h o s e r e f e r r e d t o i n p a r a g r a p h 9 (c) a b o v e , ­
h a v e exerted an adverse influence on British exports since t h e W a r .
M o r e o v e r , e v e n w h e r e a d e c l i n e i n o u r e x p o r t s is a t t r i b u t a b l e t o t h e
fact t h a t we h a v e b e e n losing g r o u n d to c o m p e t i t o r s , it does n o t
n e c e s s a r i l y follow e i t h e r t h a t excessive costs w e r e t h e e s s e n t i a l c a u s e
of t h e d e c l i n e or t h a t t h e r e d u c t i o n of o u r costs ( o t h e r w i s e t h a n by
m e a n s of i n c r e a s e d efficiency) is a d e s i r a b l e r e m e d y .
As i n d u s ­
trialisation spreads t h r o u g h o u t the world, industrial countries with
a low s t a n d a r d of l i v i n g n a t u r a l l y t e n d to d i s p l a c e o l d e r i n d u s t r i a l
c o u n t r i e s like o u r s e l v e s i n t h o s e f o r m s of m a n u f a c t u r e w h i c h d o n o t
c a l l for a v e r y h i g h d e g r e e of skill or for h i g h l y t r a i n e d t e c h n i c a l
staffs.
D o u b t l e s s i n s u c h c a s e s , if w e w e r e t o c u t w a g e s p r o g r e s ­
s i v e l y , a s t h e n e w c o m p e t i t i o n d e v e l o p e d , we could hold o n t o a l a r g e r
s h a r e of t h e w o r l d ' s t r a d e for s o m e t i m e . B u t s u c h a policy would
b e foolish a n d i n t h e l o n g r u n h o p e l e s s . I t is b e t t e r t o let go t h o s e
b r a n c h e s of t r a d e w h i c h a r e m a r k e d o u t b y t e c h n i c a l c i r c u m s t a n c e s
a s t h e n a t u r a l field of n e w e r i n d u s t r i a l c o u n t r i e s , a n d t o s e e k c o m ­
p e n s a t i o n b y c o n c e n t r a t i n g m o r e o n o t h e r i n d u s t r i e s i n w h i c h we
have greater relative advantages.
45.
T h e v o l u m e of o u r e x p o r t s in 19-29 w a s a b o u t 1 0 p e r c e n t ,
l e s s t h a n in 1 9 1 3 . ( ) T h e l a r g e s t p a r t of t h i s d e c l i n e w a s p r o b a b l y
a t t r i b u t a b l e t o c a u s e s of t h e t y p e d i s c u s s e d a b o v e . E v e n s o , t h e loss
of e x p o r t t r a d e c o n f r o n t s u s w i t h a w k w a r d p r o b l e m s of r e a d j u s t m e n t ,
b e c a u s e s o m e of t h e p r i n c i p a l e x p o r t i n g i n d u s t r i e s w h i c h h a v e b e e n
l o s i n g g r o u n d a r e h i g h l y localised i n d u s t r i e s w h o s e w o r k p e o p l e c a n ­
n o t m o v e easily to o t h e r occupations.
B u t t h e p r o b l e m so far is
e s s e n t i a l l y o n e of r e a d j u s t m e n t , n o t of n a t i o n a l d e c l i n e . T h e r e is
n o s t r i c t n e c e s s i t y for u s to m a i n t a i n a n e x p o r t t r a d e of t h e p r e - w a r
d i m e n s i o n s i n o r d e r t o p u r c h a s e t h e foodstuffs a n d r a w m a t e r i a l s
which we m u s t obtain from abroad.
16
46.
U n f o r t u n a t e l y , e v e n before t h e s l u m p , t h e r e w a s r e a s o n to
b e l i e v e t h a t t h e s e l l i n g p r i c e s of B r i t i s h goods w e r e a b o v e a p r o p e r l y
c o m p e t i t i v e level n o t o n l y i n t r a d e s w h i c h we m u s t e x p e c t t o s e e p a s s
i n t h e c o u r s e of t i m e t o n e w c o m p e t i t o r s , b u t over a w i d e r a n g e of
t r a d e s w h i c h a r e p r e - e m i n e n t l y p r o p e r to a n a d v a n c e d i n d u s t r i a l
n a t i o n . I n t h e l i g h t of t h e w o r l d d e p r e s s i o n t h e s e m i s g i v i n g s a r e
n e c e s s a r i l y d e e p e n e d . F r o m 1 9 2 5 t o 1929 o u r t o t a l e x p o r t s t e n d e d
o n t h e w h o l e t o i n c r e a s e , if o n l y a t a d i s a p p o i n t i n g r a t e , a n d it h a d
s e e m e d r e a s o n a b l e t o c o n c l u d e t h a t t h e d a n g e r of a f u r t h e r a b s o l u t e
decline was not serious. B u t the present depression r e m i n d s u s that
t h e y e a r s 1 9 2 5 - 1 9 2 9 w e r e y e a r s of a c t i v i t y for world t r a d e a s a w h o l e
a n d s u g g e s t s t h a t , t a k i n g good y e a r s a n d b a d y e a r s of w o r l d t r a d e
t o g e t h e r , o u r t o t a l e x p o r t s m a y be still d e c l i n i n g n o t m e r e l y r e l a ­
t i v e l y t o t h o s e of o t h e r c o u n t r i e s b u t a b s o l u t e l y as well.
4 7 . A l t h o u g h w e d o n o t c o n s i d e r t h a t a n e x p o r t t r a d e of t h e
p r e - w a r d i m e n s i o n s is a n i n d i s p e n s a b l e n e c e s s i t y for B r i t i s h
e c o n o m i c life, t h e m a i n t e n a n c e of a n e x p o r t t r a d e u p o n a s u b s t a n t i a l
s c a l e is c e r t a i n l y e s s e n t i a l t o u s . T h e r e a r e m o r e o v e r n o B r i t i s h
p r o d u c t s of w h i c h w e h a v e a n y t h i n g i n t h e n a t u r e of a w o r l d
m o n o p o l y a n d w h i c h w e c a n t h e r e f o r e b e s u r e of
selling
i n d e p e n d e n t l y of t h e p r i c e we c h a r g e .
T h e m a i n t e n a n c e of a
substantial export trade requires in the long run as an essential
c o n d i t i o n t h a t o u r c o s t s of p r o d u c t i o n s h o u l d be c o m p a r a b l e w i t h
t h o s e of o u r c o m p e t i t o r s i n world m a r k e t s . W e e n t e r t a i n g r a v e
0 ) Board of Trade Journal and information given in the Report of tho
B-ilfour Committee on industry and Trade.
C
d o u b t s w h e t h e r o v e r t h e g r e a t e r p a r t of i n d u s t r y t h a t c o n d i t i o n
is fulfilled t o - d a y .
J u s t a s it t a k e s a l o n g t i m e e i t h e r for a n
i n d i v i d u a l b u s i n e s s or for a c o u n t r y to e s t a b l i s h a c o m m a n d i n g
position i n t h e m a r k e t s of t h e w o r l d , so it t a k e s a l o n g t i m e e i t h e r
for a n i n d i v i d u a l b u s i n e s s o r a n a t i o n t o lose t h a t p o s i t i o n o n c e
is h a s b e e n e s t a b l i s h e d , b u t t h e p r o c e s s of d e c l i n e if it g e t s t o a
c e r t a i n p o i n t is a p t to d e v e l o p m o r e r a p i d l y i n its l a t e r s t a g e s . I n
the situation revealed a n d a g g r a v a t e d by t h e world depression,
t h e d a n g e r t h a t we m a y see o u r e x p o r t t r a d e d w i n d l e t o a d i s a s t r o u s
p o i n t , u n l e s s w e c a n s e c u r e a s u b s t a n t i a l r e d u c t i o n of o u r m o n e y
c o s t s of p r o d u c t i o n , is o n e we c a n n o l o n g e r afford to d i s r e g a r d .
(b) H o m e
Industries.
4 8 . N o r is it o n l y i n t h e e x p o r t i n d u s t r i e s t h a t t h e w a g e
s i t u a t i o n is i m p o r t a n t . I t is p l a i n t h a t , o t h e r t h i n g s b e i n g e q u a l ,
t h e q u a n t i t y of e m p l o y m e n t i n h o m e i n d u s t r i e s could be i n c r e a s e d
if w a g e - e a r n e r s t h e r e w e r e p r e p a r e d to a c c e p t l o w e r money r a t e s of
wages.
H o w l a r g e a p e r c e n t a g e of w a g e - r e d u c t i o n , w h e t h e r i n
g e n e r a l or i n p a r t i c u l a r i n d u s t r i e s , would b e r e q u i r e d t o e v o k e i n
t h e n e a r f u t u r e a g i v e n p e r c e n t a g e i n c r e a s e i n t h e v o l u m e of
e m p l o y m e n t w e h a v e f o u n d o u r s e l v e s u n a b l e to d e c i d e .
Never­
t h e l e s s , we m u s t n o t u n d e r - e s t i m a t e t h e a d v a n t a g e s to e m p l o y m e n t
g e n e r a l l y w h i c h w o u l d e n s u e f r o m w a g e - r e d u c t i o n s i n s o m e of t h e
m o r e highly paid sheltered i n d u s t r i e s . Since such reductions would
b e l i k e l y t o r e d u c e t h e cost of l i v i n g , t h e y w o u l d m a k e it e a s i e r t o
secure any unavoidable wage-reductions in other directions.
( c ) Difficulties in t h e W a y of W a g e R e d u c t i o n s .
4 9 . O n e of t h e g r e a t p r a c t i c a l difficulties of a t t e m p t i n g t o
i m p r o v e e m p l o y m e n t b y m e a n s of w a g e - r e d u c t i o n s is t h e a n o m a l o u s
d i s p a r i t i e s w h i c h exist a t p r e s e n t b e t w e e n w a g e s i n different
o c c u p a t i o n s . I t is i n t h e u n s h e l t e r e d i n d u s t r i e s w h i c h h a v e to sell
their goods against foreign competition t h a t t h e pressure towards
w a g e - r e d u c t i o n s will be s t r o n g e s t : b u t i n m a n y of t h o s e i n d u s t r i e s
w a g e s a r e a l r e a d y u n d u l y low in c o m p a r i s o n w i t h w a g e s i n o t h e r
occupations. On the o t h e r h a n d , the industries where wage-rates
a r e h i g h e s t r e l a t i v e l y to t h e p r e - w a r s t a n d a r d , a n d w h e r e w a g e ­
r e d u c t i o n s w o u l d a c c o r d i n g l y e n t a i l a l e s s e r d e g r e e of h a r d s h i p , a r e
usually sheltered industries where the wage-earners' bargaining
p o s i t i o n is s t r o n g .
N e v e r t h e l e s s , t h e c a s e for w a g e - r e d u c t i o n o n
c o m p a r a t i v e g r o u n d s i n s o m e of t h o s e i n d u s t r i e s w h e r e t h e r a t e s
a r e out of l i n e w i t h w a g e s e l s e w h e r e is so clear t h a t w e
t h i n k a n a t t e m p t a t a d j u s t m e n t could b e a m i c a b l y m a d e .
But
t h e friction a n d ill-will w h i c h m u s t be a r o u s e d b y a n y g e n e r a l
m o v e m e n t t o w a r d s l o w e r w a g e s will b e g r e a t l y i n t e n s i f i e d if
t h e w a g e - e a r n e r s a r e s i n g l e d o u t a s t h e o n l y class w h i c h is a s k e d
t o m a k e sacrifices. T h e r e c i p i e n t s of s a l a r i e s a n d of i n t e r e s t , a n d
of fixed i n c o m e s g e n e r a l l y , h a v e b e n e f i t e d j u s t a s m u c h a s t h e
w a g e - e a r n e r s f r o m t h e fall i n t h e cost of l i v i n g . S o far a s t h e c a s e
for w a g e - r e d u c t i o n s r e s t s o n c h a n g e s of p r i c e - l e v e l , we h o l d s t r o n g l y
t h a t n o g e n e r a l a p p e a l s h o u l d b e m a d e by i n d u s t r y to its w o r k p e o p l e
t o a c c e p t l o w e r w a g e s w i t h o u t a p r o p o s a l a t t h e s a m e t i m e for a
c o m m e n s u r a t e reduction in h i g h e r salaries a n d directors' fees.
5 0 . I t is d e s i r a b l e , h o w e v e r , t o p o i n t o u t c e r t a i n facts w h i c h
a r e r e l e v a n t to t h e p r o b l e m . S i n c e 1 9 2 4 , w h e n t h e fall i n t h e cost
of l i v i n g is t a k e n i n t o a c c o u n t , r e a l w a g e s i n G r e a t B r i t a i n h a v e
i n c r e a s e d o n t h e a v e r a g e b y a b o u t 9 p e r c e n t . ( ) M o r e o v e r , o n e of
t h e p r i n c i p a l r e a s o n s w h y t h e cost of l i v i n g h a s n o t fallen so m u c h
a s w h o l e s a l e p r i c e s is p r e c i s e l y t h a t m o n e y w a g e s h a v e n o t fallen
appreciably.
If m o n e y w a g e s w e r e n o w to fall, it w o u l d b e
r e a s o n a b l e to e x p e c t s o m e offset to t h i s i n a r e d u c t i o n in t h e cost
of l i v i n g .
So l o n g a s r e n t s r e m a i n a t t h e i r p r e s e n t l e v e l , t h e
a m o u n t of t h i s offset m a y b e d i s a p p o i n t i n g , b u t w e w o u l d j u d g e
t h a t it w o u l d b e e q u i v a l e n t to n o t l e s s t h a n one-fifth of t h e
r e d u c t i o n of w a g e s . T h u s if m o n e y w a g e s w e r e n o w t o fall e v e n
b y a s m u c h as 1 0 p e r c e n t , o n t h e a v e r a g e , t h e r e s u l t w o u l d be t o
l e a v e r e a l w a g e s s o m e w h a t h i g h e r t h a n t h e y w e r e i n 1 9 2 4 , so l o n g
1 7
(17) See Appendix, Talilo H.
a s t h e p r i c e s of p r i m a r y p r o d u c t s r e m a i n n e a r t h e i r p r e s e n t l e v e l .
I n t h e face of c o n t i n u a l l y f a l l i n g p r i c e s , n o c o u n t r y c a n p r u d e n t l y
m a i n t a i n the principle that money wage-rates are sacrosanct
i n d e p e n d e n t l y of t h e i r r e l a t i o n to r e a l w a g e - r a t e s .
51.
To s u m
up—
(i) E x i s t i n g
money
wage-rates
cannot
be
regarded
as
sa,crosanct i n a world subject to v i o l e n t c h a n g e s i n t h e
v a l u e of m o n e y .
(ii) C e r t a i n w a g e a d j u s t m e n t s i n t h e d o w n w a r d d i r e c t i o n ,
particularly in sheltered industries whose existing wages
a r e o u t of l i n e w i t h w a g e s i n o t h e r
comparable
industries, are desirable now.
(iii) If w o r l d p r i c e s fail to r e c o v e r to a m a t e r i a l l y h i g h e r l e v e l ,
g e n e r a l w a g e - c u t s i n t h i s c o u n t r y (or t h e i r e q u i v a l e n t )
will b e c o m e i n e v i t a b l e , b e c a u s e t h e f a i l u r e of t h e p r i c e ­
level t o r e c o v e r will p r o b a b l y m e a n t h a t s u c h w a g e - c u t s
have been made elsewhere.
(iv) B u t , o n t h e o t h e r h a n d , as we h a v e s a i d in p a r a g r a p h 2 7 , it
w o u l d be u n w i s e for t h i s c o u n t r y t o lead t h e w a y w i t h a
g e n e r a l w a g e - c u t o r to e n c o u r a g e a n i n c i p i e n t w o r l d
m o v e m e n t in this direction.
(v) I n v i e w of t h e i m m e n s e p r a c t i c a l difficulties of a n y g e n e r a l
reduction in m o n e y wages, every other r e m e d y with any
s e r i o u s b a l a n c e of a r g u m e n t i n i t s f a v o u r s h o u l d b e t r i e d
first.
(vi) F u r t h e r m o r e , if a g e n e r a l w a g e - c u t b e c o m e s i n e v i t a b l e , i t
i s m o s t d e s i r a b l e t h a t it s h o u l d b e u n d e r t a k e n a s p a r t of
a w i d e r s c h e m e for r e - s e t t l i n g m o n e y i n c o m e s g e n e r a l l y
( i n c l u d i n g rentier i n c o m e s i n p a r t i c u l a r ) , a n d n o t w a g e s
alone.
VIII.—SUBSIDIES
TO
WAGES.
52.
T h e effect u p o n u n e m p l o y m e n t of a g e n e r a l s u b s i d y to
m o n e y w a g e s i s primd facie t h e s a m e a s t h a t of a n e q u a l p r o p o r ­
tionate reduction in money wage-rates.
S h o u l d it p r o v e possible
b y a low r a t e of s u b s i d y to a b s o r b a l a r g e n u m b e r of t h e
u n e m p l o y e d , it m i g h t h a p p e n t h a t t h e w h o l e cost of t h e s u b s i d y
w o u l d b e off-set b y t h e a s s o c i a t e d r e d u c t i o n i n t h e a m o u n t of
u n e m p l o y m e n t b e n e f i t , f ") I n t h i s e v e n t , if t h e w a g e - e a r n i n g c l a s s e s
d i d n o t , in c o n s e q u e n c e of t h e s u b s i d y , d e m a n d a n d s e c u r e h i g h e r
r a t e s of m o n e y w a g e , u n e m p l o y m e n t w o u l d b e m u c h r e d u c e d a n d
n o off-setting d i s a d v a n t a g e would occur.
I t would, however, b e
h i g h l y optimistic to suppose either t h a t a general wage subsidy at
a n y g i v e n r a t e w o u l d i n fact r e d u c e t h e v o l u m e of u n e m p l o y m e n t
sufficiently to p a y for itself o u t of u n e m p l o y m e n t b e n e f i t , or t h a t ,
if it did s o , t h e w a g e - e a r n e r s w o u l d r e f r a i n f r o m d e m a n d i n g
i n c r e a s e d r a t e s of w a g e . H e n c e i n p r a c t i c e it is t o b e f e a r e d t h a t
t h i s p o l i c y , if t h e s u b s i d y w e r e a t a l l s u b s t a n t i a l , w o u l d i n v o l v e
a heavy additional charge on the Budget even when allowance is
m a d e for s a v i n g s o n t h e U n e m p l o y m e n t I n s u r a n c e F u n d ; a n d i n t h e
p r e s e n t s t a t e of t h e n a t i o n a l finances t h e r e c a n be n o d o u b t t h a t t h i s
would have very unfavourable repercussions. Moreover, a general
s y s t e m of w a g e s u b s i d i e s w o u l d a p p e a r to m a n y p e r s o n s a s a p l u n g e
i n t o t h e a b y s s ; a n d b u s i n e s s confidence m i g h t be so s h a k e n t h a t
e m p l o y m e n t w o u l d suffer t h r o u g h t h a t c a u s e a n i n d i r e c t i n j u r y m u c h
g r e a t e r t h a n a n y d i r e c t g a i n t h a t m i g h t fall to i t .
W e a r e of
o p i n i o n , t h e r e f o r e , t h a t a policy of g e n e r a l w a g e s u b s i d i e s i s n o t
o n e t h a t o u g h t to b e a d o p t e d .
1
5 8 . W e t h e r e f o r e t u r n to p r o p o s a l s for a s y s t e m of w a g e
s u b s i d i e s i n r e s p e c t , n o t of a l l w a g e - e a r n e r s , b u t of a d d i t i o n a l w a g e ­
e a r n e r s w h o m e m p l o y e r s w o u l d u n d e r t a k e to e n g a g e w i t h t h e h e l p
of t h e s u b s i d y . O n t h e a s s u m p t i o n t h a t a n u n e m p l o y e d m a n c o s t s
t h e S t a t e o n e p o u n d a w e e k , to b r i n g h i m i n t o w o r k b y m e a n s of
a s u b s i d y w o u l d b e a c l e a r g a i n all r o u n d , so l o n g a s t h e r e q u i r e d
s u b s i d y w a s a n y t h i n g less t h a n a p o u n d .
Moreover, under this
(18) The present cost of unemployment honefit is now about 7& per cent, of
th.0 wages of the insured population.
s y s t e m t h e r e would b e less p r o s p e c t of w a g e - e a r n e r s d e m a n d i n g
a r i s e in m o n e y w a g e s , a n d m u c h less s h o c k t o b u s i n e s s confidence
t h a n m i g h t b e looked for w i t h a g e n e r a l w a g e s u b s i d y .
The
difficulties i n t h e w a y of a s c h e m e of t h i s t y p e a r e , h o w e v e r , v e r y
great:—
(a) I n c o m p e t i t i v e i n d u s t r i e s it is w e l l - n i g h i m p o s s i b l e t o s a y
for a n y l e n g t h of t i m e w h a t is t h e n u m b e r of e m p l o y e e s
actually additional to the n u m b e r t h a t would h a v e been
in e m p l o y m e n t without the subsidy.
(b) M o r e o v e r , t h e e m p l o y e r s w h o a r e s u c c e s s f u l l y m a r k e t i n g
their product without the subsidy m a y rightly urge that
t h e s u b s i d y is r e a l l y a b o u n t y to t h e less efficient.
(c) If t h e i n c r e a s e d o u t p u t c a u s e d t h r o u g h t h e s u b s i d y c a n o n l y
b e m a r k e t e d a t a l o w e r p r i c e — a s m u s t o f t e n be t h e case
— t h e u n s u b s i d i s e d b u s i n e s s e s find t h e i r p o s i t i o n a n d
m a r g i n of profit a c t u a l l y w o r s e n e d .
(d) E v e n if t h e n u m b e r of a d d i t i o n a l e m p l o y e e s a t w o r k w e r e
c o n s t a n t or d e t e r m i n a b l e , t h e y w o u l d n o t b e n e c e s s a r i l y
c o n t i n u o u s l y in t h e s a m e b u s i n e s s e s , since a c c o r d i n g t o
t h e f l u c t u a t i o n s of t h e f o r t u n e s of different i n d i v i d u a l
b u s i n e s s e s t h e c l a i m t o b e e m p l o y i n g s o m e of t h e s u r p l u s
qualifying
for
subsidy
would
be
shifting
and
indeterminate.
5 4 . I t m a y b e t h a t i n p a r t i c u l a r c a s e s t h e s e difficulties could
be o v e r c o m e a n d a w o r k a b l e s c h e m e could b e d e v i s e d i n w h i c h t h e
d i s a d v a n t a g e s were a t a m i n i m u m a n d t h e a d v a n t a g e s to e m p l o y ­
m e n t at a m a x i m u m .
If a n d w h e r e t h i s is s o , it a p p e a r s t o t h e
m a j o r i t y of u s ( M r . K e y n e s , P r o f e s s o r P i g o u a n d S i r J o s i a h S t a m p )
t h a t t h e case for w a g e s u b s i d i e s in r e s p e c t of additional
employees
a t a r a t e l e s s t h a n t h e p r e s e n t r a t e of u n e m p l o y m e n t p a y is a
strong one.
W e have not investigated a n y particular proposals
under this head.
O n e of u s , h o w e v e r ( M r . H e n d e r s o n ) , is of
o p i n i o n t h a t it w o u l d b e i m p o s s i b l e to f r a m e a n y s c h e m e of s u b s i d i e s
w h i c h would n o t b y i t s r e p e r c u s s i o n s do m o r e h a r m t h a n good,
a n d h o l d s s t r o n g l y t h a t t h e p a t h of s u b s i d i e s t o w a g e s is o n e w h i c h
s h o u l d b e a v o i d e d . If a t t e m p t e d i n p a r t i c u l a r i n d u s t r i e s , s u b s i d i e s
w o u l d n e e d t o b e so f r a m e d t h a t t h e i r t e m p o r a r y c h a r a c t e r w a s
e m p h a s i s e d ; a n d p r o v i s i o n w o u l d n e e d to b e m a d e for t h e i r g r a d u a l
a b o l i t i o n in s u c h a w a y a s n o t to c r e a t e d i s t u r b a n c e .
Subsidies
to wages in particular industries, as a p e r m a n e n t system, are, in
o u r v i e w , h i g h l y u n d e s i r a b l e . M o r e o v e r , it m u s t b e r e m e m b e r e d
t h a t a n y s y s t e m of s u b s i d i e s , w h e t h e r g e n e r a l or p a r t i c u l a r , i s
difficult t o a d m i n i s t e r w i t h o u t r i s k of a b u s e .
I X . — W A Y S OF I N C R E A S I N G B U S I N E S S
CONFIDENCE.
5 5 . A n i m p r o v e m e n t i n t h e s t a t e of b u s i n e s s confidence
w o u l d l e a d t o g r e a t e r r e a d i n e s s t o h i r e l a b o u r for a f u t u r e
return.
Business m e n would borrow more both on
short
term and on long.
I n d e e d , a n i m p r o v e d s t a t e of c o n f i d e n c e
w o u l d h e l p e m p l o y m e n t in two w a y s ; it w o u l d r a i s e
the
t e r m s o n w h i c h b o r r o w e r s w o u l d t h i n k it w o r t h w h i l e to b o r r o w ,
a n d it would l o w e r t h e t e r m s o n w h i c h l e n d e r s w o u l d b e r e a d y t o
accommodate British enterprise.
T h u s , t h e m o n e y that people
saved would be utilised in real i n v e s t m e n t ; t h e price level m i g h t
r i s e i n s o m e m e a s u r e ; a c t i v i t y i n o n e field w o u l d s t i m u l a t e a c t i v i t y
i n o t h e r s . O n c e t h e m o v e m e n t s t a r t e d — u n l e s s s u b j e c t e d to s o m e
v i o l e n t j a r — i t w o u l d a d v a n c e u n d e r its o w n m o m e n t u m .
If t h e
d e v e l o p m e n t of confidence i n t h i s c o u n t r y is n o t a c c o m p a n i e d b y a
s i m i l a r d e v e l o p m e n t e l s e w h e r e , t h e n , i n c o n s e q u e n c e of t h e r e l a t i v e
r i s e i n t h e p r i c e - l e v e l h e r e , a t e n d e n c y m i g h t b e set u p for gold
t o flow a b r o a d . If t h i s s h o u l d h a p p e n it w o u l d , i n o u r v i e w , b e
v i t a l l y i m p o r t a n t t h a t t h e B a n k of E n g l a n d s h o u l d be p r e p a r e d t o
suffer a s u b s t a n t i a l loss of gold r a t h e r t h a n c h e c k t h e u p w a r d
m o v e m e n t too soon b y e n f o r c i n g a n a d v a n c e i n s h o r t m o n e y - r a t e s .
5 6 . T h e b e s t m e a n s of r e s t o r i n g b u s i n e s s confidence is a
p s y c h o l o g i c a l p r o b l e m o n w h i c h t h e o p i n i o n of t h i s C o m m i t t e e is n o t
l i k e l y t o be s p e c i a l l y v a l u a b l e . I n t h e l o n g r u n we d o n o t s e e h o w
b u s i n e s s c o n f i d e n c e is l i k e l y to be m a i n t a i n e d o t h e r w i s e t h a n b y a n
a c t u a l r e c o v e r y of b u s i n e s s p r o f i t s . T h i s m e a n s t h a t , if b u s i n e s s a n d
employment
i m p r o v e for o t h e r r e a s o n s , t h e effect of
this
i m p r o v e m e n t o n b u s i n e s s confidence m a y b e c u m u l a t i v e ; w h i c h i s ,
i n d e e d , a p a r t of t h e j u s t i f i c a t i o n of e m e r g e n c y m e a s u r e s of a
temporary character.
F o r t h e effect of j u d i c i o u s e m e r g e n c y
m e a s u r e s m i g h t b e t o i m p r o v e b u s i n e s s confidence, after w h i c h
b u s i n e s c o n f i d e n c e m i g h t t a k e t h e p l a c e of t h e e m e r g e n c y m e a s u r e s
as providing the necessary stimulus.
5 7 . T h e w a y s of r e s t o r i n g b u s i n e s s confidence w h i c h h a v e b e e n
r e c o m m e n d e d i n o n e q u a r t e r or a n o t h e r a n d s e e m to u s to h a v e
s o m e p l a u s i b i l i t y m a y b e c a t a l o g u e d a s follows,- w i t h o u t o u r
e x p r e s s i n g a n y o p i n i o n a s to t h e q u a n t i t a t i v e effects t o be e x p e c t e d
f r o m t h e m o r a s t o then- g e n e r a l d e s i r a b i l i t y r e g a r d e d m e r e l y a s
stimuli:—
(a) A s o l u t i o n of t h e B u d g e t p r o b l e m s a t i s f a c t o r y to b u s i n e s s
s e n t i m e n t — i n p a r t i c u l a r , t h e a v o i d a n c e of i n c r e a s e d
d i r e c t t a x a t i o n , t h e a v o i d a n c e of a n y s e r i o u s r e d u c t i o n
of t h e S i n k i n g F u n d a n d t h e a v o i d a n c e of i n c r e a s e d
expenditure.
'b) A d r a s t i c r e f o r m of t h e s y s t e m of U n e m p l o y m e n t I n s u r a n c e . .
I t is w i d e l y felt t h a t , if P a r l i a m e n t c a n suffer t h e p r e s e n t
m o n s t r o u s a n o m a l i e s of t h e D o l e — a s t h e y s e e m to b e t o
a w i d e c o n s e n s u s of p u b l i c o p i n i o n — w i t h o u t t r y i n g to d o
a w a y w i t h t h e m , t h i s m u s t b e s y m p t o m a t i c of a g e n e r a l
u n w h o l e s o m e n e s s in t h e b o d y p o l i t i c .
A far-reaching
r e f o r m m i g h t c a u s e a g r e a t r e v u l s i o n of f e e l i n g a s s h o w i n g
t h o s e f e a r s to be g r o u n d l e s s .
(c) A tariff o n m a n u f a c t u r e d i m p o r t s is r e c o m m e n d e d i n s o m e
q u a r t e r s p a r t l y o n t h e g r o u n d t h a t it w o u l d s u p p l y j u s t
t h e s t i m u l u s (or, a s o t h e r s w o u l d c o n t e n d , t h e dope) w h i c h
b u s i n e s s n e e d s after t h e d e p r e s s i o n c a u s e d b y losses p a r t l y
d u e t o f o r c e s , s u c h a s t h e r e t u r n to gold a n d t h e fall of
world prices, beyond its own control. W i t h t h e g e n e r a l
q u e s t i o n of a tariff w e d e a l l a t e r .
(d) I n g e n e r a l , a n y r e m e d i e s w h i c h w o u l d i m p r o v e t h e p r o s p e c t
of e a r n i n g profits m i g h t also b e classified a s p a r t l y
p r o d u c i n g t h e i r r e s u l t s t h r o u g h t h e i r effect o n b u s i n e s s
confidence.
X.-WAYS
OF
INCREASING
HOME
INVESTMENT.
(a) Cheap Credit.
5 8 . T h e a m o u n t of h o m e i n v e s t m e n t , a n d so t h e v o l u m e of
e m p l o y m e n t , w o u l d b e i n c r e a s e d if t h e t e r m s o n w h i c h b o r r o w e r s
can be accommodated were m a d e easier either t h r o u g h a reduction
i n t h e r a t e of i n t e r e s t o r a n i m p r o v e m e n t of facilities i n o t h e r w a y s .
5 9 . T h e m o s t g e n e r a l effect i n t h i s d i r e c t i o n w o u l d b e p r o d u c e d
b y a c r e d i t policy o n t h e p a r t of t h e B a n k of E n g l a n d to m a k e ­
b a n k - c r e d i t a s c h e a p a n d a b u n d a n t as p o s s i b l e . T h e difficulty i s ,
of c o u r s e , t h a t t h e B a n k of E n g l a n d c a n n o t , u n d e r g o l d - s t a n d a r d
l i m i t a t i o n s , m o v e far i n t h i s d i r e c t i o n , u n l e s s o t h e r C e n t r a l B a n k s
do t h e s a m e .
S o m e of u s c o n s i d e r t h a t a n i m p o r t a n t c a u s e
of e x i s t i n g u n e m p l o y m e n t is t o b e f o u n d i n t h e fact t h a t w o r l d
c o n d i t i o n s i n c o m b i n a t i o n w i t h t h e r e q u i r e m e n t s of t h e g o l d
s t a n d a r d h a v e e n f o r c e d o n t h e B a n k of E n g l a n d i n r e c e n t y e a r s
a c r e d i t p o l i c y w h i c h h a s k e p t t h e v o l u m e of d o m e s t i c i n v e s t m e n t
b e l o w w h a t it w o u l d o t h e r w i s e h a v e b e e n .
6 0 . I n r e c e n t m o n t h s s h o r t - t e r m r a t e s of i n t e r e s t h a v e f a l l e n to
a low l e v e l . P r o b a b l y w e h a v e n o t y e t e x p e r i e n c e d t h e full benefits­
of t h i s ; for c a p i t a l p r o j e c t s t a k e a l o n g t i m e to m a t u r e a n d t h e
a m o u n t of t h o s e a c t u a l l y afoot is still u n d e r t h e i n f l u e n c e of t h e
a b n o r m a l l y h i g h r a t e s of 1 9 2 9 . B u t it is p a r t i c u l a r l y n o t i c e a b l e
t h a t , so f a r , t h e r e d u c t i o n of s h o r t - t e r m r a t e s of i n t e r e s t is o n l y
v e r y s l i g h t l y r e f l e c t e d i n l o n g - t e r m r a t e s — w h i c h a r e of m u c h
g r e a t e r s i g n i f i c a n c e t o b o r r o w e r s for fixed i n v e s t m e n t .
61.
W e c o n s i d e r t h a t a policy on t h e p a r t of t h e T r e a s u r y a n d
t h e b a n k i n g s y s t e m i n t e n d e d to b r i n g d o w n l o n g - t e r m r a t e s of
i n t e r e s t , e v e n if i t m e a n t s o m e r a i s i n g of s h o r t - t e r m r a t e s , w o u l d b e
u s e f u l o n b a l a n c e a s f a c i l i t a t i n g a n i n c r e a s e of l o n g - t e r m i n v e s t m e n t .
( b ) R e g u l a t i o n of F o r e i g n I s s u e s .
6 2 . F r o m t i m e t o t i m e i n r e c e n t y e a r s t h e h i g h e r r a t e s of
i n t e r e s t offered a b r o a d a s c o m p a r e d w i t h t h o s e w h i c h d o m e s t i c
i n v e s t m e n t s a r e a b l e to y i e l d h a v e g i v e n r i s e t o a p r e s s u r e t o w a r d s
l e n d i n g m o n e y a b r o a d i n s t e a d of a t h o m e . I n s u c h c o n d i t i o n s , t h e
effect of h i g h w o r l d r a t e s of i n t e r e s t u n d e r a gold s t a n d a r d h a s
b e e n to p u t t h e d o m e s t i c r a t e a b o v e t h e r a t e a t w h i c h e n o u g h n e w
d o m e s t i c i n v e s t m e n t c a n c o m e i n t o e x i s t e n c e . If o u r e x p o r t s w e r e
low e n o u g h i n p r i c e a n d i n sufficient d e m a n d a b r o a d , g r e a t a c t i v i t y
i n t h e f o r e i g n l o a n m a r k e t or i n b u y i n g f o r e i g n i n v e s t m e n t s w o u l d
reflect itself to a p r a c t i c a l l y e q u a l e x t e n t i n i n c r e a s e d e x p o r t s .
But
if t h i s e c o n o m i c o u t l e t is n o t a v a i l a b l e o w i n g t o t h e p o s i t i o n of o u r
e x p o r t t r a d e , t h e n a s t a t e of d i s e q u i l i b r i u m i s c r e a t e d , w h i c h , a g a i n ,
b y i n c r e a s i n g r a t e s of h o m e i n t e r e s t , a c c e n t u a t e s t h e difficulty.
The
o n l y m e t h o d of r e s t o r i n g e q u i l i b r i u m so f a r a d o p t e d h a s b e e n a n
e m b a r g o o n f o r e i g n l e n d i n g i n L o n d o n or a k i n d of i n f o r m a l r a t i o n i n g
of f o r e i g n b o r r o w e r s , b u t t h i s h a s h i t h e r t o b e e n ineffective a n d o p e n
to objection in practice.
T h e h a r m t h a t a r i s e s w h e n t h e r e is a
difference b e t w e e n t h e c a p a c i t y to l e n d a b r o a d a n d t h e c a p a c i t y t o
export, or because increased foreign l e n d i n g c a n n o t be reflected in
d i m i n i s h e d i m p o r t s , m i g h t p e r h a p s b e m i t i g a t e d b y c e r t a i n special
m e a s u r e s . T h e c o n t r o l a l r e a d y e x e r c i s e d b y t h e B a n k of E n g l a n d
o v e r t h e r a t e of n e w f o r e i g n i s s u e s m a y o p e r a t e to s o m e s l i g h t
e x t e n t t o avoid e x c e p t i o n a l p r e s s u r e a t i n c o n v e n i e n t t i m e s .
But
it i s e a s i l y e v a d e d .
B o n d s i s s u e d o n f o r e i g n m a r k e t s find t h e i r
w a y to t h e L o n d o n m a r k e t , without h a v i n g paid B r i t i s h s t a m p
d u t y a n d c o n t r a r y t o t h e w i s h e s of t h o s e r e s p o n s i b l e for t h e r e g u l a ­
t i o n of t h e B r i t i s h m a r k e t . W e t h i n k t h a t a d i s t i n c t i o n m i g h t b e
m a d e b e t w e e n f o r e i g n b o n d s officially a d m i t t e d t o t h e B r i t i s h
i n v e s t m e n t m a r k e t (perhaps by the T r e a s u r y on t h e r e c o m m e n d a t i o n
of t h e B a n k of E n g l a n d ) a n d t h o s e n o t so a d m i t t e d , i n c o m e d e r i v e d
f r o m t h e l a t t e r b e i n g s u b j e c t to a special i n c o m e t a x .
(c) Subsidies and Public W o r k s .
63.
T h e n e x t p o s s i b i l i t y u n d e r t h e h e a d of
increasing
home-investment
is t h a t
of p r o m o t i n g
useful
schemes
of
capital d e v e l o p m e n t , e i t h e r by pressing forward s u c h
work
.as lies w i t h i n t h e d i r e c t c o n t r o l of t h e G o v e r n m e n t , o r b y t h e
offer of S t a t e s u b s i d i e s t o local a u t h o r i t i e s a n d p u b l i c u t i l i t y
c o m p a n i e s . U n d e r c o n d i t i o n s of e x t e n s i v e u n e m p l o y m e n t s u c h a s
p r e v a i l t o - d a y , a n d h a v e p r e v a i l e d i n l e s s e r d e g r e e for s o m e y e a r s ,
w e a r e c o n v i n c e d t h a t w h a t we m a y t e r m t h e policy of ' ' p u b l i c
w o r k s " i s , i n p r i n c i p l e , a s o u n d policy for t h e S t a t e t o p u r s u e .
W e do n o t a c c e p t t h e view t h a t t h e u n d e r t a k i n g of s u c h w o r k m u s t
necessarily cause a m e r e diversion from o t h e r e m p l o y m e n t .
On
t h e c o n t r a r y , w e t h i n k if i m p r o b a b l e t h a t p u b l i c w o r k s , w h i c h
c o m p l y w i t h t h e c o n d i t i o n s w h i c h we d e t a i l b e l o w , i n v o l v e d u r i n g
a t r a d e d e p r e s s i o n a n y i m p o r t a n t d e g r e e of d i v e r s i o n f r o m e m p l o y ­
m e n t i n o r d i n a r y i n d u s t r y . A p a r t from a n y s u c h p o s s i b l e off-set,
t h e effect of p u b l i c w o r k s i n i n c r e a s i n g e m p l o y m e n t i s , of c o u r s e ,
n o t n e c e s s a r i l y o r e v e n o f t e n confined to t h e n u m b e r of w o r k p e o p l e
directly engaged upon t h e m .
They entail an increased d e m a n d
for t h e s e r v i c e s of t h e i n d u s t r i e s w h i c h s u p p l y t h e m a t e r i a l s u s e d ;
a n d t h e i n c r e a s e d p u r c h a s i n g p o w e r of t h e w o r k e r s e m p l o y e d i n
t h e s e w a y s h a s f u r t h e r beneficial r e p e r c u s s i o n s u p o n t r a d e i n
general. T h e r e accrues, accordingly, a n i m p o r t a n t saving to public
f u n d s i n t h e s h a p e of r e d u c e d e x p e n d i t u r e o n u n e m p l o y m e n t
b e n e f i t , a s well a s s o m e i n c r e a s e i n t h e y i e l d of t h e g e n e r a l r e v e n u e ,
w h i c h m a k e s it good b u s i n e s s , e v e n f r o m t h e s t a n d p o i n t of t h e
B u d g e t , t o p a y s u b s i d i e s a m o u n t i n g to a c o n s i d e r a b l e p e r c e n t a g e
of t h e cost of t h e work ( s a y a t l e a s t , o n e - t h i r d ) p r o v i d e d t h a t t h e
fleet of t h e s u b s i d i e s is t o s e c u r e t h a t w o r k is p u t i n h a n d , w h i c h
would not otherwise be u n d e r t a k e n .
6 4 . W e t h i n k it d e s i r a b l e to s t r e s s t h e s e c o n s i d e r a t i o n s l e s t
d i s i l l u s i o n m e n t w i t h t h e a p p a r e n t r e s u l t s of t h e p u b l i c w o r k s policy
of r e c e n t y e a r s s h o u l d e n c o u r a g e t h e belief t h a t e x p e r i e n c e h a s
d e m o n s t r a t e d t h a t a p r o g r a m m e of p u b l i c w o r k s is d i s a d v a n t a g e o u s
r a t h e r t h a n advantageous to e m p l o y m e n t .
N o policy of p u b l i c
w o r k s c a n , of c o u r s e , o u t w e i g h t h e effects of a w o r l d s l u m p of t h e
m a g n i t u d e of t h e p r e s e n t o n e . B u t w e a r e of o p i n i o n t h a t u n e m p l o y ­
m e n t w o u l d s t a n d t o - d a y a t a d e c i d e d l y h i g h e r l e v e l , if t h e G o v e r n ­
m e n t a y e a r a g o h a d a t t e m p t e d to c u t d o w n r o a d p r o g r a m m e s a n d
d e v e l o p m e n t w o r k g e n e r a l l y i n s t e a d of p r e s s i n g t h e m f o r w a r d .
65.
O n t h e o t h e r h a n d , it is i m p o r t a n t to r e c o g n i s e t h a t p u b l i c
w o r k s c a n o n l y b e justified if c e r t a i n c o n d i t i o n s a r e fulfilled.
In
t h e first p l a c e , t h e w o r k s i n q u e s t i o n m u s t r e a l l y b e of a u s e f u l
and productive character.
T o u n d e r t a k e c o s t l y p r o j e c t s of n o o r
o n l y a n e g l i g i b l e v a l u e m e r e l y for t h e s a k e of p r o v i d i n g e m p l o y ­
m e n t would be a n absurdly wasteful proceeding. I n d e e d , i n a s m u c h
as t h e p r o j e c t s w o u l d n e c e s s a r i l y c o n s u m e a g r e a t d e a l of useful
m a t e r i a l s , t h i s w o u l d b e m o r e w a s t e f u l t h a n it w o u l d b e t o p a y
t h e u n e m p l o y e d full w a g e s for d o i n g n o t h i n g .
Secondly, works
w h i c h a r e t o be of a s s i s t a n c e i n m i t i g a t i n g u n e m p l o y m e n t i n t i m e s
of b a d t r a d e , m u s t b e c a p a b l e of b e i n g p u t i n t o o p e r a t i o n a n d
carried out with speed.
Unfortunately, however, the works for
w h i c h t h e r e is t h e s t r o n g e s t e a s e , f r o m t h e p o i n t of v i e w of t h e i r
social a n d e c o n o m i c u t i l i t y , a r e o f t e n of a k i n d w h i c h i t is.
e x t r e m e l y difficult t o g e t g o i n g q u i c k l y , w h i l e , o n t h e o t h e r h a n d ,
t h e u t i l i t y of p r o j e c t s w h i c h it is c o m p a r a t i v e l y e a s y t o s e t i n
h a n d w i t h o u t d e l a y is o f t e n e x t r e m e l y d u b i o u s .
Thirdly, the
w o r k s m u s t b e of s u c h a n a t u r e a s n o t to c r e a t e l a t e r o n a difficult
" d e m o b i l i s a t i o n " problem.
A p r o g r a m m e of p u b l i c w o r k s w h i c h
c o n s i s t s m a i n l y of h e a v y o u t d o o r n a v v y i n g w o r k is e x p o s e d t o a
real weakness u n d e r this h e a d .
Such works necessarily employ
a l a r g e r p r o p o r t i o n of m e n of t h e l o w e r a g e g r o u p s t h a n t h e
average industry.
T h e y a r e a p t , m o r e o v e r , to e n t a i l t h e u n d u e ­
s t i m u l a t i o n of t h e d e m a n d for c e r t a i n k i n d s of m a t e r i a l s . F o u r t h l y ,
as r e g a r d s those works which are subsidised but not directly u n d e r ­
t a k e n b y t h e S t a t e , it is o b v i o u s l y i m p o r t a n t , b u t difficult i n
p r a c t i c e t o e n s u r e , t h a t t h e s u b s i d i e s a r e n o t p a i d for w o r k w h i c h
would have been u n d e r t a k e n in a n y ease.
6 6 . F i n a l l y , t h e scope a n d s c a l e of t h e p r o g r a m m e a s a whole­
m u s t b e s u c h a s t o c o m m e n d itself a s r e a s o n a b l e a n d s e n s i b l e t o
public opinion.
A h a s t i l y i m p r o v i s e d p r o g r a m m e of d u b i o u s
p r o j e c t s , w h i c h w a s w i d e l y r e g a r d e d as w a s t e f u l a n d profligate,,
a n d r a i s e d d o u b t s a s to t h e g e n e r a l s o u n d n e s s of t h e p u b l i c
finances^
m i g h t h a v e s e r i o u s r e a c t i o n s , for e x a m p l e , o n t h e r a t e of i n t e r e s t
a t w h i c h t h e G o v e r n m e n t could b o r r o w . W h i l e , a s we h a v e s a i d ,
we d o n o t b e l i e v e t h a t e m p l o y m e n t c r e a t e d b y p u b l i c w o r k s n e e d
i n v o l v e a d i m i n u t i o n of r e s o u r c e s d e v o t e d to p r i v a t e i n v e s t m e n t ,
it m i g h t e a s i l y d o s o , if it t o o k a f o r m w h i c h a r o u s e d a p p r e h e n s i o n
a s t o t h e s t a b i l i t y of t h e p u b l i c c r e d i t .
6 7 . T h e a b o v e c o n d i t i o n s n e c e s s a r i l y set l i m i t s t o t h e e x t e n t
to w h i c h it is p o s s i b l e to m e e t u n e m p l o y m e n t b y t h e p o l i c y o f
public works.
XI.—TARIFFS.
6 8 . W e a p p r o a c h t h e e x p e d i e n t of Tariffs f r o m t h e s t a n d p o i n t ,
of e c o n o m i s t s w h o , a t all t i m e s p r e v i o u s t o t h e p r e s e n t e m e r g e n c y ,
h a v e b e e n s t r o n g l y o p p o s e d t o t h e m . W e a c c e p t , t h a t is t o s a y ,
t h e v a l i d i t y of t h e t r a d i t i o n a l F r e e T r a d e a r g u m e n t .
T h e c e n t r a l e c o n o m i c a r g u m e n t for F r e e T r a d e m a y b e e x p r e s s e d
as f o l l o w s : —
6 9 . I n n o r m a l c o n d i t i o n s , w h e n t h e r e is n o c h r o n i c a b n o r m a l
u n e m p l o y m e n t , t h e effect of a tariff m u s t m a i n l y b e t o d i v e r t t h e
p r o d u c t i v e forces of t h e c o m m u n i t y from o n e o c c u p a t i o n to a n o t h e r ,
a n d n o t to i n c r e a s e t h e i r t o t a l a c t i v i t y . I t h a s b e e n u s u a l to a d m i t
t h a t s p e c i a l c a s e s c a n b e i m a g i n e d \e.g., i n f a n t i n d u s t r i e s or k e y
industries) where there m a y be advantages in the deliberate
d i v e r s i o n of p r o d u c t i o n o u t of i t s ' ' n a t u r a l ' ' c h a n n e l s b y tariffs.
[21809]
n 2
o r o t h e r w i s e . B u t a s a r u l e t h e r e will be a s t r o n g p r e s u m p t i o n
t h a t tariffs of t h e k i n d w h i c h a r e i m p o s e d i n p r a c t i c e will t e n d to
d i v e r t p r o d u c t i o n from t h e c h a n n e l s w h e r e w e a r e r e l a t i v e l y m o r e
efficient i n t o c h a n n e l s w h e r e we a r e r e l a t i v e l y less efficient; t h a t
is to s a y , t h e p l a y of n a t u r a l forces will b e m o r e successful i n
discovering the occupations in wbich w e can employ ourselves most
p r o f i t a b l y , t h a n a n y s y s t e m of tariffs will b e .
T h i s will b e
p a r t i c u l a r l y t h e c a s e a s t i m e g o e s b y . A tariff is a p t to b e i n e l a s t i c
a n d n o t e a s i l y c h a n g e d in a c c o r d a n c e w i t h c h a n g i n g c i r c u m s t a n c e s .
T h e o l d e r b u t less profitable i n d u s t r i e s will c r y o u t successfully for
p r o t e c t i o n w h i c h will e n a b l e t h e m to r e t a i n p r o d u c t i v e forces w h i c h
o t h e r w i s e would be finding t h e i r w a y i n t o n e w e r a n d m o r e profitable
industries.
M o r e o v e r , i n so far a s t h e p r o d u c t i v e forces of t h e
c o u n t r y a r e o c c u p i e d in p r o t e c t e d t r a d e s w h e r e t h e i r r e l a t i v e
efficiency is less t h a n it is i n c e r t a i n o t h e r t r a d e s , t h e effect will
b e s e e n i n a h i g h e r cost of l i v i n g r e l a t i v e l y to t h e money-wa.ges,
a n d c o n s e q u e n t l y i n a lower s t a n d a r d of life.
r
( a ) A d v a n t a g e s of a Tariff.
70.
T h e q u e s t i o n we h a v e to face t o - d a y i s t h e e x t e n t to w h i c h
t h i s h i s t o r i c a r g u m e n t is i n v a l i d a t e d for t h e t i m e b e i n g b y (i) t h e
e x i s t e n c e of c h r o n i c l a r g e - s c a l e u n e m p l o y m e n t , (ii) t h e d o u b t
w h e t h e r we c a n h o p e m a t e r i a l l y to e x p a n d o r e v e n to r e t a i n o u r
p r e s e n t f a v o u r a b l e b a l a n c e of t r a d e b y m e a n s of a m o d e r a t e c u t i n
o u r m o n e y costs w i t h o u t a r e s t r i c t i o n of i m p o r t s , (iii) t h e possibility
t h a t t h e effect of a tariff o n t h e ' ' t e r m s of t r a d e ' ' m i g h t be g r e a t e r
i n p r e s e n t c i r c u m s t a n c e s t h a n f o r m e r l y , a n d (iv) w h e t h e r t h e
p r o m o t i o n of e c o n o m i c s o l i d a r i t y w i t h i n t h e B r i t i s h E m p i r e m a y
n o t b e a s a f e g u a r d a g a i n s t t h e d a n g e r of e c o n o m i c i s o l a t i o n i n t h e
m o d e r n world.
(i) Chronic
Large-Scale
Unemployment.
71.
A m o n g economists this issue was, before t h e W a r , m a i n l y
d i s c u s s e d w i t h o u t r e f e r e n c e t o t h e p o s s i b l e effects of p r o t e c t i v e
d u t i e s u p o n t h e v o l u m e of e m p l o y m e n t .
T h e popular idea t h a t
since, subject to certain reservations, exports are the price paid
for i m p o r t s , it is i m p o s s i b l e t h a t t h e s e d u t i e s s h o u l d i n c r e a s e
e m p l o y m e n t as a w h o l e , w a s i n d e e d n o p a r t of t h e e c o n o m i s t ' s s t o c k
in. trade.
I t w as a l w a y s o b v i o u s t h a t a c o n t r a c t i o n of i m p o r t s
m i g h t b e b a l a n c e d i n p a r t n o t b y a c o n t r a c t i o n of e x p o r t s , b u t b y
a n e x p a n s i o n i n o u r p u r c h a s e s of f o r e i g n s e c u r i t i e s ; i t w a s
e q u a l l y o b v i o u s t h a t a c o n t r a c t i o n of i m p o r t s m i g h t be e q u i v a l e n t
t o l e a v i n g a b r o a d a l a r g e r p a r t of t h e i n t e r e s t d u e o n o u r e x i s t i n g
foreign i n v e s t m e n t s a s f u r t h e r f o r e i g n i n v e s t m e n t .
E v e n i n so
f a r a s e x p o r t s w e r e c o n t r a c t e d it w o u l d n o t follow t h a t e x p o r t
i n d u s t r i e s m u s t b e c o n t r a c t e d to a n e q u i v a l e n t e x t e n t , since t h e i r
-efforts m i g h t b e t u r n e d to s a t i s f y i n g t h e n e e d s of n e w m e n b r o u g h t
into the protected h o m e industry.
B u t before t h e W a r , t h o u g h ,
of c o u r s e , u n e m p l o y m e n t existed a n d w a s s o m e t i m e s l a r g e i n
a m o u n t , n e a r l y all of it could be a c c o u n t e d for a s a f u n c t i o n of
p r o c e s s e s of a d j u s t m e n t t o w h i c h a n y l a s t i n g s y s t e m of fiscal d u t i e s
w a s i r r e l e v a n t . T h e r e w a s n o l a r g e i n t r a c t a b l e m a s s of u n e m p l o y ­
m e n t a s s o c i a t e d w i t h d i s l o c a t i o n s b e t w e e n costs a n d w o r l d p r i c e s
:such a s h a s existed e v e r s i n c e t h e p o s t - a r m i s t i c e b o o m . No d o u b t ,
e v e n b e f o r e t h e W a r , a m o v a b l e s y s t e m of i m p o r t d u t i e s , t o be
p u t o n i n b a d t i m e s a n d r e m o v e d i n good, w o u l d h a v e affected t h e
employment situation favourably.
But, in pre-war controversy,
t h e p r o t e c t i v e tariff c o n t e m p l a t e d w a s i n t e n d e d t o b e p e r m a n e n t —
tariffs t o b e i m p o s e d a n d r e m o v e d a t s h o r t i n t e r v a l s b e i n g n e v e r
seriously d e b a t e d ; a n d t h e r e was at t h a t time a t a n y r a t e n o
u n e m p l o y m e n t of a s o r t r e l e v a n t t o , o r c a p a b l e of b e i n g
a p p r e c i a b l y affected
by, this policy.
F o r this reason
the
u n e m p l o y m e n t i s s u e w a s often left o n o n e side i n tariff d i s c i i s s i o n s .
T h e s i t u a t i o n is n o w f u n d a m e n t a l l y d i f f e r e n t .
There is, a n d h a s
b e e n e v e r since t h e p o s t - a r m i s t i c e b o o m , a n e n o r m o u s m a s s of, so
to s p e a k , c h r o n i c u n e m p l o y m e n t , a s s o c i a t e d w i t h t h e d i s l o c a t i o n s
d i s c u s s e d i n e a r l i e r s e c t i o n s of t h i s B e p o r t , m u c h e x c e e d i n g i n
r
1
- a m o u n t a n d different i n t y p e f r o m t h a t w h i c h p r e v a i l e d b e f o r e t h e
W a r . I t is e s s e n t i a l t o i n q u i r e h o w f a r t h i s n e w s i t u a t i o n p r o v i d e s
n e w a r g u m e n t s i n f a v o u r of p r o t e c t i v e d u t i e s .
7 2 . I n p r e s e n t c o n d i t i o n s t h e i m p o s i t i o n of r e a s o n a b l y d e v i s e d
p r o t e c t i v e d u t i e s ( t h o u g h o n e of u s ( P r o f e s s o r P i g o u ) t h i n k s t h a t
i n p r a c t i c e it m i g h t n o t be e a s y to d e v i s e t h e m ) t h a t s h o u l d e x c l u d e
.a s u b s t a n t i a l p o r t i o n of t h e i m p o r t s t h a t n o w c o m p e t e w i t h o u r
h o m e i n d u s t r i e s w o u l d , for s o m e t i m e to c o m e , d i r e c t l y i n c r e a s e
t h e a g g r e g a t e v o l u m e of e m p l o y m e n t i n t h i s c o u n t r y , a n d b y
so d o i n g w o u l d set u p r e p e r c u s s i o n s t h r o u g h t h e s a v i n g o n
t h e u n e m p l o y m e n t b e n e f i t a n d so o n , t h a t w o u l d , b y i n d i r e c t
p r o c e s s e s i n c r e a s e it still f u r t h e r .
The gain would probably
b e a s s o c i a t e d w i t h s o m e i n c r e a s e i n t h e cost of l i v i n g a n d
a c o r r e s p o n d i n g r e d u c t i o n i n r e a l w a g e s a n d in t h e v a l u e of
l n p n e y i n c o m e s g e n e r a l l y ; b u t s i n c e a m a i n a l t e r n a t i v e r e m e d y for
u n e m p l o y m e n t ; — a r e d u c t i o n of m o n e y w a g e s — m u s t a l s o i n v o l v e a n
e q u a l or g r e a t e r r e d u c t i o n of r e a l w a g e s , t h i s c o n s i d e r a t i o n is n o t
-of g r e a t w e i g h t . T h e i m p o r t a n t q u e s t i o n t o decide i s w h e t h e r t h e
d i r e c t effect, a n d t h e r e w i t h t h e i n d i r e c t effects, of r e a s o n a b l y d e v i s e d
p r o t e c t i v e d u t i e s i n i n c r e a s i n g t h e a g g r e g a t e v o l u m e of e m p l o y m e n t
would be large or small.
T h e a n s w e r to t h i s q u e s t i o n t u r n s i n
: g r e a t p a r t u p o n t h e d e g r e e of a d v e r s e r e a c t i o n w h i c h t h e c o n t r a c t i o n
b r o u g h t a b o u t i n o u r i m p o r t s is l i k e l y to p r o d u c e o n o u r e x p o r t
industries.
73.
T h e m a j o r i t y of u s ( M r . K e y n e s , M r . H e n d e r s o n a n d
Sir Josiah Stamp) take t h e view t h a t in present conditions
t h e m a i n p a r t of t h e r e d u c t i o n of i m p o r t s w o u l d b e b a l a n c e d for
s e v e r a l y e a r s b y i n c r e a s e d s a l e s to u s of f o r e i g n s e c u r i t i e s .
If w e u s e s u r p l u s c a p a c i t y n o w o u t of e m p l o y m e n t t o m a k e , u n d e r
t h e p r o t e c t i o n of a tariff, a n a r t i c l e w h i c h w e n o w i m p o r t , t h e relief
t o t h e f o r e i g n e x c h a n g e s m a y e n a b l e t h e B a n k of E n g l a n d t o r e l a x
. c r e d i t c o n d i t i o n s , w i t h t h e r e s u l t t h a t t h e r e m a y b e a n i n c r e a s e of
f o r e i g n l e n d i n g b y t h i s c o u n t r y ; so t h a t t h e f r u i t s of t h e l a b o u r
of t h e n e w l y - e m p l o y e d s u r p l u s c a p a c i t y g o . t o i n c r e a s e t h e a m o u n t
-of t h e c o u n t r y ' s f o r e i g n w e a l t h .
Or, alternatively, the former
i m p o r t s m a y b e p a r t l y r e p l a c e d b y i m p o r t s of a different k i n d ,
n a m e l y , t h o s e w h i c h a r e n e e d e d t o satisfy p a r t of t h e i n c r e a s e d
c o n s u m p t i o n of t h e n e w l y - e m p l o y e d w o r k e r s . W e r e t u r n t o t h e s e
considerations below.
74.
O n e of u s ( P r o f e s s o r P i g o u ) h o l d s t h a t t h e a d v e r s e
r e a c t i o n w o u l d after a s h o r t t i m e be n e a r l y
commensurate
w i t h t h e o r i g i n a l c o n t r a c t i o n of i m p o r t s .
His reasons are as
follows.
I n so far a s t h e p r i c e - l e v e l w a s r a i s e d h e r e , o u r
-export i n d u s t r i e s w o u l d b e d i r e c t l y h a n d i c a p p e d ; i n s o far a s
i m p o r t s — o r s u b s t i t u t e s for t h e m — e x c l u d e d f r o m o u r m a r k e t w e r e
d r i v e n to s e e k a n o u t l e t e l s e w h e r e , t h e s e i n d u s t r i e s w o u l d b e faced
w i t h s t r o n g e r c o m p e t i t i o n i n n e u t r a l m a r k e t s . M o r e o v e r , t h e effect
-of a r e v e r s i o n to p r o t e c t i o n o n t h e p a r t of t h i s c o u n t r y m i g h t w e l l ,
i n t h e p r e s e n t i n t e r n a t i o n a l s i t u a t i o n , l e a d to a r i s e i n t h e tariffs
of o t h e r c o u n t r i e s a n d so to a still f u r t h e r h a n d i c a p u p o n o u r
e x p o r t s . Y e t a g a i n , i n so f a r a s e i t h e r h o m e o r e x p o r t i n d u s t r i e s
u s e i m p o r t e d goods e i t h e r a s r a w m a t e r i a l ? o r m a c h i n e r y i n t h e i r
o w n w o r k , t h e s e h o m e i n d u s t r i e s will b e pro tanto
prejudiced.
Professor Pigou, whilst agreeing that t h e present
abnormal
e m p l o y m e n t s i t u a t i o n s t r e n g t h e n s t h e c a s e for p r o t e c t i v e i m p o r t
d u t i e s i n s o m e m e a s u r e , is n o t p r e p a r e d to a d m i t t h a t it
s t r e n g t h e n s it v e r y m u c h .
(ii) The
Maintenance
of Foreign
Investment
on an Adequate
Scale.
7 5 . If t h e view of t h e m a j o r i t y o n t h i s m a t t e r
(para­
g r a p h 78), from w h i c h Professor Pigou dissents, is correct,
t h e p o i n t is v e r y i m p o r t a n t .
F o r t h e r e is a f u r t h e r s e t of
" c o n s i d e r a t i o n s , w h i c h f o r m e r l y , p e r h a p s , w e r e of s m a l l p r a c t i c a l
s i g n i f i c a n c e , b u t m a y b e of
first-class
importance to-day.
We
b e l i e v e t h a t it is difficult o r i m p o s s i b l e a t t h e p r e s e n t t i m e for
G r e a t B r i t a i n to e m p l o y h e r p r o d u c t i v e r e s o u r c e s t o t h e b e s t
a d v a n t a g e w i t h o u t a s o m e w h a t l a r g e p r o p o r t i o n of f o r e i g n i n v e s t ­
m e n t to total savings.
G r e a t B r i t a i n is a n old a n d r e l a t i v e l y
w e l l - e q u i p p e d c o u n t r y ; a n d it is n a t u r a l , t h e r e f o r e , t h a t t h e o u t s i d e ­
w o r l d s h o u l d b e a b l e t o offer m o r e o p e n i n g s c a p a b l e of y i e l d i n g a
h i g h r a t e of i n t e r e s t t h a n c a n be f o u n d a t h o m e . B u t if t h e v o l u m e
of s a v i n g s w h i c h is t h u s a t t r a c t e d t o w a r d s o v e r s e a s is g r e a t e r t h a n
o u r f a v o u r a b l e foreign b a l a n c e of t r a d e , t h e B a n k of E n g l a n d t e n d s ­
to lose g o l d , w i t h t h e r e s u l t t h a t a c r e d i t d i s e q u i l i b r i u m i s set u p
w h i c h is l i k e l y to h a v e a m o s t a d v e r s e effect o n b u s i n e s s profits a n d
h e n c e o n e m p l o y m e n t . T h e o n l y r e m e d i e s a r e to b e f o u n d e i t h e r i n
a n i n c r e a s e of h o m e i n v e s t m e n t , t h e p o s s i b i l i t i e s of s t i m u l a t i n g w h i c h
we h a v e a l r e a d y e x p l o r e d , o r i n a n i n c r e a s e of t h e f a v o u r a b l e
f o r e i g n b a l a n c e . S o m e of u s find t h e m a i n r e a s o n of t h e p r e s e n t
d i s e q u i l i b r i u m of profits a n d e m p l o y m e n t , n o t so m u c h i n a n u n d u l y
h i g h s t a n d a r d of life, as i n t h e fact t h a t t h e p r e s s u r e of s a v i n g s to­
find a n o u t l e t a b r o a d is g r e a t e r t h a n t h e a m o u n t of f o r e i g n i n v e s t ­
m e n t w h i c h c o r r e s p o n d s to t h e b a l a n c e of t r a d e w h i c h we a c t u a l l y
have at present.
7 6 . T h u s u n l e s s s o m e t h i n g o c c u r s g r e a t l y to i n c r e a s e t h e ­
r e l a t i v e a t t r a c t i o n s of h o m e i n v e s t m e n t , a s u b s t a n t i a l i n c r e a s e of
o u r f a v o u r a b l e b a l a n c e of t r a d e m a y be. a n e c e s s a r y i n g r e d i e n t i n
a n y complete solution.
7 7 . N o w t h e f a v o u r a b l e b a l a n c e of t r a d e c a n be i n c r e a s e d
e i t h e r by increasing our exports or by d i m i n i s h i n g our imports."
B y reducing our costs, a n d particularly by c u t t i n g our wages costs,
w e c a n i n c r e a s e t h e v o l u m e of o u r e x p o r t s .
T h e difficulties of
m a k i n g sufficient h e a d w a y a l o n g t h i s l i n e a r e : (1) t h e r e s i s t a n c e
of t h e w o r k e r s t o w a g e r e d u c t i o n s ; (2) t h e p r o s p e c t t h a t o u r f o r e i g n
c o m p e t i t o r s a r e l i k e l y , a t a n y r a t e for a t i m e , t o m e e t a n y c u t s w e
m a y m a k e b y c u t s of t h e i r o w n ; a n d (3) t h e fact t h a t t h e
value
of o u r e x p o r t s , a s d i s t i n c t f r o m t h e volume,
will n o t b e m u c h
i n c r e a s e d u n l e s s t h e p e r c e n t a g e i n c r e a s e i n t h e v o l u m e of t r a d e is­
d e c i d e d l y g r e a t e r t h a n t h e p e r c e n t a g e r e d u c t i o n of p r i c e s (e.g.,
if.
b y c u t t i n g o u r p r i c e s 10 p e r c e n t . , w e o n l y i n c r e a s e t h e v o l u m e
of o u r e x p o r t s 10 p e r c e n t . , t h e v a l u e of o u r e x p o r t s is n o g r e a t e r
t h a n it w a s b e f o r e ) . F o r a c o u n t r y s i t u a t e d a s G r e a t B r i t a i n i s , it
w o u l d be b e t t e r t o o c c u p y o u r u n e m p l o y e d r e s o u r c e s i n m a k i n g
i n c r e a s e d e x p o r t s , so far a s t h i s i s p o s s i b l e o n s a t i s f a c t o r y t e r m s .
B u t it s e e m s o b v i o u s to s o m e of u s t h a t , if we c a n n o t o v e r c o m e t h e
difficulties of a n a d e q u a t e s o l u t i o n a l o n g t h e s e l i n e s , it i s b e t t e r t o
occupy our u n e m p l o y e d resources i n m a k i n g goods to take t h e place
of goods w e n o w i m p o r t t h a n n o t to o c c u p y t h e m a t a l l . F o r t h i s ­
is j u s t a s effective a w a y of i n c r e a s i n g o u r p o w e r t o m a k e f o r e i g n
i n v e s t m e n t s and to a u g m e n t e m p l o y m e n t as increasing o u r exports
would be.
T h u s t h e q u e s t i o n a r i s e s — a n d t h i s is n o t m e r e l y a.
f e a t u r e of t h e i m m e d i a t e c r i s i s , b u t m a y face u s for s o m e t i m e
t o c o m e — w h e t h e r , a s s u m i n g t h a t w e h a v e t o find f u r t h e r e m p l o y ­
m e n t , e i t h e r o n m a k i n g e x p o r t s o r o n m a k i n g goods t o r e p l a c e
i m p o r t s , w e s h o u l d n o t r e l y i n p a r t o n t h e l a t t e r f o r m of
e m p l o y m e n t to s u p p l e m e n t t h e , p e r h a p s l i m i t e d , o p p o r t u n i t i e s f o r
t h e former.
At a n y r a t e , i n d e c i d i n g w h e r e l i e s t h e b a l a n c e of
a d v a n t a g e for o r a g a i n s t a tariff, t h i s , t o g e t h e r w i t h t h e e x i s t e n c e
of l a r g e u n u s e d c a p a c i t y i n p l a n t , m a c h i n e r y a n d a g r i c u l t u r e , i s
o n e of t h e f a c t o r s w h i c h m u s t be t a k e n i n t o c o n s i d e r a t i o n .
With
s o m e of u s , i n d e e d , t h i s h a s b e e n t h e decisive factor i n c o n v i n c i n g ,
u s t h a t t h e a d o p t i o n of s o m e k i n d of g e n e r a l i s e d tariff i s , o n t h e
w h o l e , a d v i s a b l e for s u c h p e r i o d a s t h e e c o n o m i c e q u i l i b r i u m i s o u t
of g e a r o w i n g to o u r w a g e - l e v e l s n o t h a v i n g b e e n a d j u s t e d t o a­
rapidly reduced price-level.
7 8 . I t h a s b e e n p u t t o u s — t o give a c o n c r e t e e x a m p l e — t h a t ,
a s s u m i n g w e n e e d a n i n c r e a s e of £ 5 0 m i l l i o n i n o u r f a v o u r a b l e
b a l a n c e of t r a d e , i n o r d e r t o m a k e f o r e i g n i n v e s t m e n t s i n c o u n t r i e s ,
n e e d i n g n e w c a p i t a l o u t of B r i t i s h s a v i n g s s u r p l u s t o o u r o w n
r e q u i r e m e n t s , it m i g h t b e t o t h e n a t i o n a l a d v a n t a g e a n d r e s u l t i n
a h i g h e r s t a n d a r d of l i v i n g , if we w e r e t o set a b o u t a c h i e v i n g t h i s
b y f a c i l i t a t i n g t h e p r o d u c t i o n a t h o m e of, for e x a m p l e , i r o n a n d
s t e e l p r o d u c t s o r pig- a n d p o u l t r y - p r o d u c t s w h i c h we n o w i m p o r t ,
r a t h e r t h a n b y t r y i n g t o force o u t a l a r g e r v o l u m e of o u r o l d e r
staple exports by competitive wage-cuts which might be m e t , for
all we k n o w , b y a l m o s t e q u a l c u t s o n t h e p a r t of o u r c o m p e t i t o r s . .
I t s h o u l d b e a d d e d t h a t t h e a r g u m e n t for a tariff in s u c h c a s e s
w o u l d b e p a r t l y of t h e " i n f a n t i n d u s t r y " t y p e , a s well a s of t h e
t y p e d i s c u s s e d a b o v e , i n a s m u c h a s t h e object w o u l d b e to s e l e c t
i n d u s t r i e s w h i c h t h e r e s e e m e d good h o p e s of o u r b e i n g a b l e t o
foster a n d expand.
7 9 . M o r e o v e r , t h i s policy m i g h t a l s o be to t h e a d v a n t a g e of t h e
o v e r s e a s c o u n t r i e s w h i c h n e e d o u r s u r p l u s s a v i n g s for t h e i r f u r t h e r
development.
I n o t h e r w o r d s , it is b e t t e r in s u c h c i r c u m s t a n c e s
for t h e r e s t of t h e w o r l d , a s well a s for u s , t h a t o u r s u r p l u s c a p a c i t y
: s h o u l d be u s e d to c r e a t e w e a l t h t h a n t h a t it s h o u l d lie i d l e ; for t h i s
will h a v e t h e i n d i r e c t effect of r e l e a s i n g r e s o u r c e s for t h e c a p i t a l
d e v e l o p m e n t of t h e o v e r s e a s c o u n t r i e s w h i c h m o s t n e e d t h e m , a s
well a s of a d d i n g c o r r e s p o n d i n g l y to t h e f o r e i g n i n v e s t m e n t s of t h i s
"^country.
(iii) The
Terms
of Trade.
.
80.
Economists
have
always
recognised
that,
when
a
^country imposes taxes u p o n i m p o r t s — w h e t h e r
imports
that
compete
with
home
products
or
others—it
will
in
some
m e a s u r e t u r n t h e r e a l t e r m s of t r a d e in i t s f a v o u r ; t h a t is t o
s a y , it will c a u s e a u n i t of its e x p o r t g o o d s t o b u y s o m e w h a t
m o r e i m p o r t goods t h a n b e f o r e ; o r , i n m o r e p o p u l a r l a n g u a g e , t h a t
i n s o m e m e a s u r e it will m a k e t h e f o r e i g n e r p a y i t s i m p o r t d u t i e s .
B e f o r e t h e W a r , for a n u m b e r of r e a s o n s w h i c h it is n o t n e c e s s a r y
t o e n u m e r a t e , it w a s , h o w e v e r , g e n e r a l l y a g r e e d t h a t , so far a s
t h i s c o u n t r y w a s c o n c e r n e d , t h e g a i n t h a t could b e l o o k e d for u n d e r
this h e a d was very small. It was likely, moreover, to evaporate
a s t i m e w e n t o n , b e i n g a n a d v a n t a g e w h i c h we could o n l y s n a t c h
o n a s c a l e w o r t h h a v i n g if we took t h e f o r e i g n e r b y s u r p r i s e a n d
b e f o r e h e h a d t i m e t o a d a p t h i m s e l f to t h e n e w c i r c u m s t a n c e s .
In
p r e s e n t c o n d i t i o n s , in v i e w of t h e l a r g e a m o u n t of s u r p l u s c a p a c i t y
i n t h e i r o n a n d s t e e l a n d s o m e o t h e r i n d u s t r i e s a b r o a d , it m a y
b e t h a t a m o r e s u b s t a n t i a l a d v a n t a g e m i g h t be w o n .
Foreigners
d e t e r m i n e d to sell i n o u r m a r k e t s m i g h t c u t t h e i r p r i c e t o m a t c h
t h e d u t y . I t m u s t b e o b s e r v e d , h o w e v e r , t h a t , so far a s t h e y d i d
t h i s , t h e v o l u m e of i m p o r t s would not be r e d u c e d , a n d , t h e r e f o r e ,
t h e a d v a n t a g e s u n d e r t h e h e a d of e m p l o y m e n t w o u l d b e r e p l a c e d
b y a d v a n t a g e s to t h e B u d g e t .
(iv) Danger
of Economic
Isolation.
81.
F i n a l l y , i t is n e c e s s a r y also t o t a k e a c c o u n t of a c o n s i d e r a ­
t i o n of a v a g u e r c h a r a c t e r . T h e t e n d e n c y s i n c e t h e W a r h a s b e e n
i n t h e d i r e c t i o n of a n i n t e n s i f i e d e c o n o m i c n a t i o n a l i s m , a n d ,
d e s p i t e t h e c o u n t e r - m o v e m e n t set o n foot b y t h e W o r l d E c o n o m i c
C o n f e r e n c e of 1927 a n d t h e s u c c e e d i n g d i s c u s s i o n s a t G e n e v a ,
t h a t r e m a i n s in p r a c t i c e t h e p r e v a i l i n g t e n d e n c y .
I t is t r u e t h a t
t h e r e is a g r o w i n g r e a l i s a t i o n t h r o u g h o u t E u r o p e of t h e m i s c h i e f
caused by this tendency, but the signs are that this new mood,
w h e n it g a i n s sufficient s t r e n g t h , will e x p r e s s itself r a t h e r i n
a g r e e m e n t s b e t w e e n n e i g h b o u r i n g g r o u p s of c o u n t r i e s to g r a n t o n e
a n o t h e r p r e f e r e n t i a l tariff c o n c e s s i o n s , to w h i c h t h e o u t s i d e w o r l d
i s n o t a d m i t t e d , t h a n i n a g e n e r a l r e d u c t i o n of tariff b a r r i e r s . T h i s ,
i n d e e d , i s t h e p r i n c i p l e w h i c h u n d e r l i e s t h e p r e s e n t p r o j e c t of
e c o n o m i c c o - o p e r a t i o n b e t w e e n t h e a g r a r i a n S t a t e s of E u r o p e a n d
w h i c h a l s o i n s p i r e s t h e v a g u e r p r o j e c t of a U n i t e d S t a t e s of
Europe.
8 2 . If a g r e e m e n t s of t h i s k i n d m a t e r i a l i s e , it m a y b e p o s s i b l e
for G r e a t B r i t a i n to s e c u r e for h e r t r a d e t h e p r e f e r e n t i a l t e r m s
a c c o r d e d to e a c h o t h e r b y t h e p a r t i c i p a t i n g S t a t e s in c o n s i d e r a t i o n
of t h e fact t h a t w e i m p o s e few d u t i e s u p o n t h e i r g o o d s . O n t h e
o t h e r h a n d , t h e r e is a m a n i f e s t d a n g e r , if s u c h a g r e e m e n t s a r e
e n t e r e d i n t o in s o m e q u a r t e r s , w h i l s t e l s e w h e r e t h e tariffs of o t h e r
c o u n t r i e s a r e b e c o m i n g i n c r e a s i n g l y h i g h , t h a t w e m a y find
o u r s e l v e s i n a d a n g e r o u s p o s i t i o n of e c o n o m i c i s o l a t i o n .
It may
h a p p e n accordingly t h a t o u r interests m a y best be safeguarded by
c u l t i v a t i n g closer e c o n o m i c r e l a t i o n s w i t h t h e E m p i r e a n d s e e k i n g
for a n extension" of i n t e r - I m p e r i a l t r a d e , e v e n if it w e r e to p r o v e
t o b e a t t h e e x p e n s e of s o m e loss of t r a d e w i t h t h e o u t s i d e w o r l d .
I t s h o u l d be a d d e d t h a t t h e a r g u m e n t for a tariff in s u c h e a s e s
would be p a r t l y of t h e " i n f a n t i n d u s t r y " t y p e , a s well a s of t h e
t y p e d i s c u s s e d a b o v e , i n a s m u c h a s t h e object would be to s e l e c t
i n d u s t r i e s w h i c h t h e r e s e e m e d good h o p e s of o u r b e i n g a b l e to
foster a n d e x p a n d .
7 9 . M o r e o v e r , t h i s policy m i g h t also be to t h e a d v a n t a g e of t h e
o v e r s e a s c o u n t r i e s which n e e d o u r s u r p l u s s a v i n g s for t h e i r f u r t h e r
development.
I n o t h e r w o r d s , it is b e t t e r in s u c h c i r c u m s t a n c e s
for t h e r e s t of t h e w o r l d , a s well a s for u s , t h a t o u r s u r p l u s c a p a c i t y
: s h o u l d be u s e d to c r e a t e w e a l t h t h a n t h a t it s h o u l d lie i d l e ; for t h i s
will h a v e t h e i n d i r e c t effect of r e l e a s i n g r e s o u r c e s for t h e c a p i t a l
d e v e l o p m e n t of t h e o v e r s e a s c o u n t r i e s w h i c h m o s t n e e d t h e m , a s
well a s of a d d i n g c o r r e s p o n d i n g l y t o t h e foreign i n v e s t m e n t s of t h i s
country.
fiii) The
Terms
of
Trade.
80. Economists
have
always
recognised
that,
when
a
. country imposes
taxes u p o n i m p o r t s — w h e t h e r
imports
that
compete
with h o m e
products
or others—it
will
in
some
m e a s u r e t u r n t h e r e a l t e r m s of t r a d e i n its f a v o u r ; t h a t is t o
s a y , it will c a u s e a u n i t of its e x p o r t goods t o b u y s o m e w h a t
more import goods t h a n before; or, in m o r e popular language, that
in s o m e m e a s u r e it will m a k e t h e f o r e i g n e r pay i t s i m p o r t d u t i e s .
B e f o r e t h e W a r , for a n u m b e r of r e a s o n s w h i c h it is n o t n e c e s s a r y
t o e n u m e r a t e , it w a s , h o w e v e r , g e n e r a l l y a g r e e d t h a t , so f a r a s
t h i s c o u n t r y w a s c o n c e r n e d , t h e g a i n t h a t could b e looked for u n d e r
t h i s h e a d w a s v e r y s m a l l . I t w a s l i k e l y , m o r e o v e r , to e v a p o r a t e
a s t i m e w e n t o n , b e i n g a n a d v a n t a g e w h i c h we could o n l y s n a t c h
o n a scale w o r t h h a v i n g if we t o o k t h e f o r e i g n e r b y s u r p r i s e a n d
b e f o r e h e h a d t i m e to a d a p t h i m s e l f to t h e n e w c i r c u m s t a n c e s .
In
p r e s e n t c o n d i t i o n s , in view of t h e l a r g e a m o u n t of s u r p l u s c a p a c i t y
i n t h e i r o n a n d s t e e l a n d s o m e o t h e r i n d u s t r i e s a b r o a d , it m a y
be t h a t a m o r e s u b s t a n t i a l a d v a n t a g e m i g h t be w o n .
Foreigners
d e t e r m i n e d to sell in o u r m a r k e t s m i g h t c u t t h e i r p r i c e to m a t c h
t h e d u t y . I t m u s t be o b s e r v e d , h o w e v e r , t h a t , so far a s t h e y d i d
t h i s , t h e v o l u m e of i m p o r t s w o u l d not b e r e d u c e d , a n d , t h e r e f o r e ,
t h e a d v a n t a g e s u n d e r t h e h e a d of e m p l o y m e n t w o u l d b e r e p l a c e d
b y a d v a n t a g e s to t h e B u d g e t .
(iv) Danger
of Economic
Isolation.
8 1 . F i n a l l y , i t is n e c e s s a r y also to t a k e a c c o u n t of a c o n s i d e r a ­
tion of a v a g u e r c h a r a c t e r . T h e t e n d e n c y since t h e W a r h a s b e e n
i n t h e d i r e c t i o n of a n i n t e n s i f i e d e c o n o m i c n a t i o n a l i s m , a n d ,
d e s p i t e t h e c o u n t e r - m o v e m e n t set o n foot b y t h e W o r l d E c o n o m i c
C o n f e r e n c e of 1927 a n d t h e s u c c e e d i n g d i s c u s s i o n s a t G e n e v a ,
t h a t r e m a i n s in p r a c t i c e t h e p r e v a i l i n g t e n d e n c y . I t is t r u e t h a t
t h e r e is a g r o w i n g r e a l i s a t i o n t h r o u g h o u t E u r o p e of t h e m i s c h i e f
caused by this tendency, but t h e signs are that this n e w mood,
w h e n it g a i n s sufficient s t r e n g t h , will e x p r e s s itself r a t h e r i n
a g r e e m e n t s b e t w e e n n e i g h b o u r i n g g r o u p s of c o u n t r i e s to g r a n t o n e
a n o t h e r p r e f e r e n t i a l tariff c o n c e s s i o n s , to w h i c h t h e o u t s i d e world
is n o t a d m i t t e d , t h a n i n a g e n e r a l r e d u c t i o n of tariff b a r r i e r s . T h i s ,
i n d e e d , i s t h e p r i n c i p l e w h i c h u n d e r l i e s t h e p r e s e n t p r o j e c t of
e c o n o m i c c o - o p e r a t i o n b e t w e e n t h e a g r a r i a n S t a t e s of E u r o p e a n d
w h i c h also i n s p i r e s t h e v a g u e r p r o j e c t of a U n i t e d S t a t e s of
Europe.
8 2 . If a g r e e m e n t s of t h i s k i n d m a t e r i a l i s e , it m a y b e possible
for G r e a t B r i t a i n to s e c u r e for h e r t r a d e t h e i n f e r e n t i a l t e r m s
a c c o r d e d to e a c h o t h e r b y t h e p a r t i c i p a t i n g S t a t e s in c o n s i d e r a t i o n
of t h e fact t h a t w e i m p o s e few d u t i e s u p o n t h e i r g o o d s . O n t h e
o t h e r h a n d , t h e r e is a m a n i f e s t d a n g e r , if s u c h a g r e e m e n t s a r e
e n t e r e d i n t o i n s o m e q u a r t e r s , w h i l s t e l s e w h e r e t h e tariffs of o t h e r
c o u n t r i e s a r e b e c o m i n g i n c r e a s i n g l y h i g h , t h a t we m a y
find
o u r s e l v e s in a d a n g e r o u s p o s i t i o n of e c o n o m i c i s o l a t i o n . I t m a y
h a p p e n a c c o r d i n g l y t h a t o u r i n t e r e s t s m a y best b e s a f e g u a r d e d by
c u l t i v a t i n g closer e c o n o m i c r e l a t i o n s w i t h t h e E m p i r e a n d s e e k i n g
for a n e x t e n s i o n o f i n t e r - I m p e r i a l t r a d e , e v e n if it w e r e to p r o v e
t o b e at t h e e x p e n s e of s o m e loss of t r a d e w i t h t h e o u t s i d e w o r l d .
8 8 . A t t h e p r e s e n t m o m e n t t h e D o m i n i o n s , l a r g e l y a s the­
r e s u l t of t h e difficulties c a u s e d b y t h e w o r l d d e p r e s s i o n , a r e i n
n o m o o d to a b a t e t h e i r policies of n a t i o n a l p r o t e c t i o n i s m , a n d we
d o n o t c o n s i d e r t h a t a n i n c r e a s e of p r e f e r e n c e s w h i c h t a k e s t h e
form of r a i s i n g t h e d u t i e s a g a i n s t i m p o r t s f r o m o u t s i d e t h e E m p i r e
w i t h o u t a b a t i n g t h e tariffs a g a i n s t o u r g o o d s , c a n offer v e r y s u b ­
s t a n t i a l a d v a n t a g e s to B r i t i s h t r a d e . W e see n o g r e a t p r o b a b i l i t y
t h e r e f o r e a t t h e m o m e n t of e n t e r i n g i n t o a n y fully s a t i s f a c t o r y
a r r a n g e m e n t s w i t h t h e D o m i n i o n s , t h o u g h we w r i t e w i t h o u t k n o w ­
l e d g e as to w h a t exact a r r a n g e m e n t s t h e D o m i n i o n s m i g h t be­
p r e p a r e d to offer as t h e r e s u l t of n e g o t i a t i o n s .
8 4 . I t i s , h o w e v e r , fair to r e m e m b e r t h a t t h e p r e f e r e n c e s
a l r e a d y a c c o r d e d to u s b y t h e D o m i n i o n s w i t h o u t a n y i m p o r t a n t
tariff quid pro quo a r e of v e r y r e a l a d v a n t a g e to u s . I n d e e d , the­
m o r e o u r difficulties i n world m a r k e t s i n c r e a s e , t h e m o r e d e p e n d e n t
do s o m e of o u r s t a p l e i n d u s t r i e s s u c h a s t e x t i l e s b e c o m e o n t h e
p r e f e r e n t i a l m a r k e t s of t h e D o m i n i o n s ; a n d a w i t h d r a w a l of all
t h e p r e f e r e n c e s n o w g r a n t e d to u s b y t h e E m p i r e w o u l d u n d o u b ­
t e d l y be a s e r i o u s blow to B r i t i s h t r a d e .
8 5 . I n t h o s e c i r c u m s t a n c e s , t h o u g h w e h a v e n o basis for a n
i m m e d i a t e p r o p o s a l , we c o n s i d e r t h a t t h e d e v e l o p m e n t of i n t e r I m p e r i a l p r e f e r e n c e m a y v e r y l i k e l y b e c o m e a wise e c o n o m i c
policy for G r e a t B r i t a i n , a n d t h i s p o s s i b i l i t y w e a k e n s
the
£ ( r e s u m p t i o n a g a i n s t u s i n g c e r t a i n t y p e s of tariff j u s t n o w a s a
m e a n s of t e m p o r a r y relief f r o m o u r p r e s e n t difficulties.
( b ) O b j e c t i o n s t o a Tariff.
86.
O n t h e o t h e r side of t h e a c c o u n t , t h e r e r e m a i n w i t h
u n a b a t e d force c e r t a i n a r g u m e n t s of a m o r e g e n e r a l k i n d a g a i n s t
a tariff, n a m e l y : —
(a) A tariff m a y be a m e a n s of s n a t c h i n g , a t t h e e x p e n s e o f
o t h e r c o u n t r i e s , a n a d v a n t a g e for o u r s e l v e s w h i c h is n o t
so g r e a t a s t h e d a m a g e d o n e to t h e m ; so t h a t if every-­
o n e p l a y s t h e s a m e g a m e , t h e w o r l d a s a w h o l e is w o r s e
off. T h e w o r l d w o u l d be r i c h e r u n d e r a s y s t e m of g e n e r a l
F r e e T r a d e t h a n it- i s .
(b) G o v e r n m e n t s d e p e n d e n t u p o n p o p u l a r e l e c t i o n s a r e c e r t a i n
to i m p o s e p r o t e c t i v e d u t i e s , n o t o n w e a k i n d u s t r i e s t h a t
may need them, but rather on strong industries that
control n u m e r o u s votes.
(c) O n c e d u t i e s h a v e b e e n i m p o s e d , v e s t e d i n t e r e s t s a r e c r e a t e d : .
a n d it is difficult to r e m o v e t h e m w h e n t h e n e e d for t h e m
d i s a p p e a r s , w i t h o u t inflicting c o n s i d e r a b l e
incidental
hardship.
(d) S o l o n g a s t h e issue of P r o t e c t i o n v e r s u s F r e e T r a d e d i v i d e s
political p a r t i e s , d u t i e s a r e l i a b l e to b e i m p o s e d o r
r e m o v e d n o t o n t h e i r m e r i t s b u t a c c o r d i n g to t h e
e x i g e n c y of p a r t y conflict, w i t h t h e r e s u l t t h a t i n d u s ­
t r i a l i s t s a r e n e v e r c e r t a i n of t h e i r p o s i t i o n a n d m a y b e
d i v e r t e d f r o m t h e t a s k of t a c k l i n g t h e i r p r o p e r p r o b l e m s
to p e r p e t u a l " l o b b y i n g s " i n p u r s u i t of fiscal f a v o u r s .
T h e m o r e t h e p r o s p e r i t y of p a r t i c u l a r i n d u s t r i e s is m a d e
d e p e n d e n t u p o n G o v e r n m e n t a c t i o n , t h e less likely it i s ­
t h a t p u b l i c affairs will b e c o n d u c t e d w i t h a single e y e
to t h e i n t e r e s t s of t h e c o m m u n i t y a s a w h o l e .
87.
Different p e r s o n s will w e i g h u p differently t h e b a l a n c e of
a d v a n t a g e or d i s a d v a n t a g e r e s u l t i n g from c o u r s e s of a c t i o n w h i c h ,
while probably increasing e m p l o y m e n t in t h e i m m e d i a t e future,
would also be o p e n to t h e s e o b j e c t i o n s .
88.
T h e s e i s s u e s a r e n o t s t r i c t l y d e t e r m i n a b l e on c o n s i d e r a ­
tions of e c o n o m i c t h e o r y a l o n e . T h e y m u s t l a r g e l y d e p e n d o n h o w
l o n g we expect t h e e x i s t i n g d i s e q u i l i b r i u m to l a s t , h o w s e r i o u s l y
we e s t i m a t e t h e i m m e d i a t e social r i s k s of a policy w h i c h looks t o
t h e m o r e r e m o t e f u t u r e for its r e w a r d , h o w s e r i o u s l y we r e g a r d '
t h e d a n g e r s of e c o n o m i c i s o l a t i o n if we r e j e c t a n y p r a c t i c a b l e ­
a p p e a l of t h e D o m i n i o n s for closer e c o n o m i c c o - o p e r a t i o n , h o w
g r e a t a n a c t u a l d i m i n u t i o n of t h e n a t i o n a l w e a l t h will e n s u e i n t h e
m e a n t i m e if we do n o t h i n g , how m u c h c a n b e e x p e c t e d f r o m
a l t e r n a t i v e policies, a n d so f o r t h ; a n d , o n t h e o t h e r h a n d , h o w
m u c h u l t i m a t e d a m a g e we m i g h t d o to o u r e c o n o m i c s t r e n g t h b y
diverting o u r productive energies into c h a n n e l s which m a y n o t be
t h e b e s t i n t h e l o n g r u n , h o w m u c h i n j u r y w e m a y inflict o n
i n t e r n a t i o n a l ideals a n d t h e c a u s e of p e a c e a n d a m i t y t h r o u g h o u t
t h e world, h o w far t h e B r i t i s h n a t i o n a l c h a r a c t e r a n d political life
are likely to p r o v e e x e m p t f r o m t h e g r o s s e r evils of P r o t e c t i o n i s m .
(c)
Conclusions.
8 9 . W h e n we c o m e to t h e q u e s t i o n of p a r t i c u l a r s c h e m e s , w e
t h i n k it i m p o r t a n t t o d i s t i n g u i s h s h a r p l y b e t w e e n two different
t y p e s of tariff.
(i)
Safeguarding.
9 0 . W e u n d e r s t a n d by s a f e g u a r d i n g d u t i e s tariffs i m p o s e d
p r i m a r i l y for p r o t e c t i v e p u r p o s e s i n f a v o u r of specially s e l e c t e d
i n d u s t r i e s . W e h a v e a l r e a d y a r g u e d above t h a t a t h e o r e t i c a l c a s e
m a y exist for s u c h d u t i e s , e s p e c i a l l y w h e n an a r g u m e n t of t h e
" i n f a n t i n d u s t r y " c h a r a c t e r is a p p l i c a b l e .
B u t in the actual
c o n d i t i o n s of G r e a t B r i t a i n t o - d a y . we t h i n k t h a t it i s difficult
to find exceptional e a s e s of t h i s k i n d .
9 1 . A p a r t from e x i s t i n g d u t i e s , t h e r e is n o case a m o n g s t
m a n u f a c t u r e s , w h i c h a p p e a r s t o u s to d e s e r v e s e r i o u s c o n s i d e r a t i o n ,
except a tariff on i r o n a n d s t e e l a n d t h e i r p r o d u c t s . I n t h i s c a s e ,
t h e m a j o r i t y of u s ( M r . K e y n e s , M r . H e n d e r s o n a n d S i r J o s i a h
S t a m p ) a r e i n favour of p r o t e c t i v e d u t i e s in t h e p r e s e n t g r a v e
e m e r g e n c y , subject to t h e strict c o n d i t i o n t h a t t h e i n d u s t r y s h o u l d
r a t i o n a l i s e itself in a c c o r d a n c e with a n a p p r o v e d p l a n a n d t h a t t h e
tariff s h o u l d be of a w e i g h t a n d s c o p e a p p r o p r i a t e , not t o p r e s e n t
conditions b u t to t h o s e which will exist after t h e i r r e c o n s t r u c t i o n .
9 2 . O n e of u s (Professor Pigovi) d i s s e n t s from t h i s p r o p o s a l
c o n c e r n i n g iron a n d steel on t h e following g r o u n d s :—
(a) It would be i m p r a c t i c a b l e to a d o p t t h i s proposal w i t h o u t a t
t h e s a m e t i m e n o t m e r e l y g r a n t i n g d r a w b a c k s to e x p o r t
i n d u s t r i e s t h a t use steel in t h e i r w o r k , b u t also s o m e h o w
c o m p e n s a t i n g h o m e i n d u s t r i e s t h a t do t h i s . F r o m s i m p l e
b e g i n n i n g s a n e l a b o r a t e a n d c o m p l i c a t e d s y s t e m of d u t i e s
or o t h e r c o m p e n s a t o r y a r r a n g e m e n t s would t h u s g r o w u p .
(b) T h e condition for p r o t e c t i o n , i.e., t h a t t h e i n d u s t r y s h o u l d
u n d e r t a k e t o r a t i o n a l i s e itself, is n o t o n e t h a t is c a p a b l e
of b e i n g e n f o r c e d ; for t h e i n d u s t r y is n o t a n i n d i v i d u a l .
I t m i g h t e v e n h a p p e n t h a t , u n d e r t h e shelter of p r o t e c ­
t i o n , inefficient firms would be m a i n t a i n e d a n d t h e p r o c e s s
of r a t i o n a l i s a t i o n a c t u a l l y i m p e d e d .
(c) A d u t y of t h i s c h a r a c t e r , t h o u g h i m p o s e d as a t e m p o r a r y
m e a s u r e , would p r o v e in p r a c t i c e , w h e n t h e c i r c u m ­
s t a n c e s , i n r e s p e c t of w h i c h t h e m a j o r i t y c o n t e m p l a t e i t ,
h a v e d i s a p p e a r e d , e x c e e d i n g l y difficult t o r e m o v e .
(d) If it be t h e fact t h a t , i n view of t h e h e a v y losses which it h a s
s u s t a i n e d , t h e i n d u s t r y is u n a b l e to r a i s e t h e c a p i t a l
n e c e s s a r y t o m o d e r n i s e its p l a n t a n d so do w i t h o u t s o m e
form of G o v e r n m e n t a s s i s t a n c e , m e t h o d s of a s s i s t a n c e
o t h e r t h a n t h o s e of a tariff a r e a v a i l a b l e .
9 8 . I n t h e case of a g r i c u l t u r e , it h a s b e e n p u t t o us t h a t
p i g - p r o d u c t s a n d p o u l t r y - p r o d u c t s offer a n i m p o r t a n t field- for
r e p l a c i n g i m p o r t s b y h o m e p r o d u c t i o n , a n d t h e m a j o r i t y of u s
(Mr. Keynes, Mr. H e n d e r s o n and Sir Josiah Stamp) think that t h e
case should be s e r i o u s l y e x a m i n e d .
(ii) A R e v e n u e Tariff.
9 4 . A c o m p a r a t i v e l y low tariff (say 10 p e r c e n t . ) c o v e r i n g wide
categories of i m p o r t s w i t h o u t d i s c r i m i n a t i o n , e i t h e r on m a n u f a c t u r e d
goods or m a n u f a c t u r e d goods a n d food, a n d d e s i g n e d to m i t i g a t e
t h e c o n d i t i o n s of g e n e r a l d i s e q u i l i b r i u m n o w e x i s t i n g , r a t h e r t h a n
to favour particular industries, c a n be supported by a r g u m e n t s which
a r e n o t a p p l i c a b l e to s a f e g u a r d i n g d u t i e s .
95.
T h e m a j o r i t y of u s ( M r . K e y n e s , M r . H e n d e r s o n a n d S i r
J p s i a h S t a m p ) t h i n k t h a t a sufficient c a s e e x i s t s for s u c h a tariff,
h a v i n g r e g a r d to t h e v a r i o u s c o n s i d e r a t i o n s d i s c u s s e d a b o v e , t o
t h e B u d g e t a r y p r o b l e m , a n y relief to w h i c h is o b v i o u s l y of g r e a t
i m p o r t a n c e , a n d to t h e effect o n b u s i n e s s confidence i n r e v i v i n g
e n e r g y a n d e n t e r p r i s e . W e r e c o m m e n d t h a t a g e n e r a l tariff of
t h i s k i n d , w h e t h e r it w a s l i m i t e d to m a n u f a c t u r e d g o o d s or w a s
of a w i d e r c h a r a c t e r , s h o u l d i n a n y c a s e b e r e m o v e d i n t h e e v e n t of
a b n o r m a l u n e m p l o y m e n t b e i n g c l e a r l y a t a n e n d , o r of a s u b ­
s t a n t i a l r e c o v e r y of t h e p r i c e - l e v e l (say) to t h e 1 9 2 5 - 2 8 s t a n d a r d .
W h e t h e r it c a n b e said i n a d v a n c e t h a t t h e political c o n s t i t u t i o n
a n d p s y c h o l o g y in t h i s c o u n t r y a t a f u t u r e t i m e will b e s u c h a s
to p r e v e n t t h e s e l i m i t s a n d c o n d i t i o n s from b e i n g o b s e r v e d , we
r e g a r d a s a m a t t e r for political a n d n o t for e c o n o m i c j u d g m e n t .
I t is n o t a q u e s t i o n w h i c h c a n b e a n s w e r e d n e g a t i v e l y m e r e l y b y a n
i n d u c t i o n from e c o n o m i c h i s t o r y , since t h e r e is n o p r e c e d e n t for
a tariff i n t r o d u c e d subject to s u c h specific l i m i t a t i o n s as we
prescribe.
9 6 . W e a r e of o p i n i o n t h a t t h i s tariff s h o u l d b e r e l a x e d i n
f a v o u r of a n y of t h e D o m i n i o n s t h a t g r a n t s u s a sufficient
p r e f e r e n c e i n e x c h a n g e ; a n d t h a t we s h o u l d allow c o m p l e t e
f r e e d o m of i m p o r t to a n y c o u n t r y w h i c h allows t h e s a m e f r e e d o m
to us.
97.
O n e of u s ( P r o f e s s o r P i g o u ) , w h i l e a g r e e i n g t h a t t h e
a r g u m e n t s for s u c h a tariff a r e s t r o n g e r t h a n for s a f e g u a r d i n g
d u t i e s , n e v e r t h e l e s s d i s s e n t s from t h i s p r o p o s a l o n t h e following
grounds :—
T h e m a j o r i t y p r o p o s e t h a t a 10 p e r c e n t , g e n e r a l tariff s h o u l d
be imposed now a n d should be removed again when abnormal
u n e m p l o y m e n t d i s a p p e a r s or t h e p r i c e - l e v e l is r e s t o r e d . If t h e r e
w e r e a n y r e a l p r o s p e c t of t h i s c o n d i t i o n a s to r e m o v a l b e i n g
a d h e r e d t o , t h e o b j e c t i o n s t o t h e p r o p o s a l would n o t be v e r y
s e r i o u s ; t h o u g h t h e k n o w l e d g e t h a t it i s p r o p o s e d t o r e m o v e
t h e d u t y w h e n u n e m p l o y m e n t d i s a p p e a r s could h a r d l y fail
to have a disturbing influence o n business.
But in practice
it is v e r y u n l i k e l y t h a t t h e tariff w o u l d b e r e m o v e d w h e n t h i s
d e p r e s s i o n e n d s . O n t h e c o n t r a r y , e v e n if it w e r e n o t r a i s e d
m u c h a b o v e 10 p e r c e n t , d u r i n g t h e p r e s e n t d e p r e s s i o n , a s i n
fact m i g h t e a s i l y h a p p e n , it w o u l d a l m o s t c e r t a i n l y b e k e p t o n
a f t e r w a r d s ; t h e n , at the next depression, to m e e t t h a t , the rates
of d u t y w o u l d b e i n c r e a s e d ; a n d s o o n c u m u l a t i v e l y .
The
t e m p o r a r y tariff, l i t t l e a s it is d e s i r e d b y t h o s e p r o p o s i n g i t ,
would become not merely a p e r m a n e n t , but a n ever-expanding
tariff.
T h e r e i s n o i n s t a n c e in h i s t o r y of a tariff i m p o s e d t o
m e e t a d e p r e s s i o n a n d r e m o v e d ' w h e n good t i m e s r e t u r n e d .
XII.-METHODS
OF ADJUSTING
MONEY
INCOMES
GENERALLY.
98.
W e h a v e a t t r i b u t e d a m a j o r p a r t of o u r p r e s e n t difficulties
to t h e c h a n g e i n t h e v a l u e of m o n e y . I n so far a s t h i s m a y r e q u i r e
a c o m p e n s a t i n g c h a n g e in m o n e y w a g e s , it w o u l d b e e a s i e r t o
justify a g e n e r a l r e d u c t i o n of m o n e y w a g e s w h i c h w a s a c c o m p a n i e d
b y a c h a n g e i n o t h e r k i n d s of fixed or quasi-fixed m o n e y i n c o m e s .
T h e c a s e i s , t h e r e f o r e , s t r o n g for t r y i n g to find s o m e k i n d of
g e n e r a l s c h e m e w h i c h would affect a wide r a n g e of m o n e y i n c o m e s
and. would
not
be concentrated
on
particular
categories.
M o r e o v e r , a g e n e r a l s c h e m e would avoid t h e difficulties a n d
i n e q u i t i e s of p i e c e m e a l s e t t l e m e n t s .
9 9 . T h e a d v a n t a g e s of t h e g e n e r a l s c h e m e s t o b e c o n s i d e r e d
i n t h i s s e c t i o n c a n b e classified a s follows :—­
(i) T h e y w o u l d a p p l y to a wide r a n g e of m o n e y i n c o m e s a n d
not- m e r e l y t o m o n e y w a g e s , a n d would t h e r e f o r e effect
a m o r e c o m p l e t e e c o n o m i c r e a d j u s t m e n t a n d would b e
m o r e c o m m e n d a b l e to public o p i n i o n .
(ii) T h e y would be likely to i n v o l v e a less r e d u c t i o n i n r e a l
w a g e s t h a n a r e d u c t i o n i n m o n e y w a g e s t h a t would h a v e
a n e q u a l effect u p o n e m p l o y m e n t ( r e n t s b e i n g t h e m o s t
i m p o r t a n t i t e m i n t h i s c o n n e c t i o n for t h e w o r k i n g c l a s s ,
b u t t h e relief to t a x a t i o n b e i n g also of
first-rate
i m p o r t a n c e for t h e c o m m u n i t y a s a w h o l e ) .
(iii) T h e y would (if t h e y i n v o l v e d a r i s e i n p r i c e s ) be likely t o
p r o v o k e less social r e s i s t a n c e t h a n a r e d u c t i o n of m o n e y
w a g e s w h i c h i n v o l v e d t h e s a m e r e d u c t i o n of r e a l w a g e s :
i n a s m u c h a s for all s o r t s of h u m a n - r e a s o n s m e n c l i n g t o
t h e level of m o n e y w a g e s w h i c h t h e y h a v e w o n for
t h e m s e l v e s , a n d will n o t r e a d i l y believe p r o m i s e s of
f u t u r e c o m p e n s a t i n g b e n e f i t s from a n i n c r e a s e i n t h e
p u r c h a s i n g p o w e r of m o n e y , e v e n t h o u g h t h e s e p r o m i s e s
are well-founded.
(iv) T h e y would effect t h e i r r e s u l t s a u t o m a t i c a l l y or b y a g r e e ­
m e n t over t h e whole field, i n s t e a d of p i e c e m e a l b y a
series of s e p a r a t e conflicts, which a r e likely to r e s u l t
u n e q u a l l y i n a c c o r d a n c e w i t h t h e b a r g a i n i n g s t r e n g t h of
t h e different g r o u p s c o n c e r n e d ; for, a p a r t from s p e c i a l
m e a s u r e s , t h e r e is n o a v a i l a b l e m e a n s for b r i n g i n g a b o u t
a g e n e r a l r e d u c t i o n of w a g e s except b y a s e r i e s of
struggles i n d u s t r y by i n d u s t r y and district by district,
t h e r e s u l t s of w h i c h would be u n e q u a l a n d u n f a i r a n d t h e
r e d u c t i o n s p e r h a p s g r e a t e s t w h e r e t h e y would be l e a s t
useful or least justifiable.
I n d e e d , a s t r u g g l e of t h i s
k i n d would offer a p r o s p e c t to w h i c h n o o n e could look
forward w i t h o u t m i s g i v i n g .
1 0 0 . It is for t h e s e r e a s o n s t h a t a g e n e r a l r i s e in world p r i c e s
( i . e . , a g e n e r a l fall in t h e v a l u e of m o n e y ) would be t h e best of all
r e m e d i e s . F a i l i n g t h i s , t h e m o s t o b v i o u s m e t h o d w o u l d b e to a l t e r
t h e v a l u e of s t e r l i n g in t e r m s of gold. i.c, to d e v a l u a t e .
(a)
Devaluation.
101.
P r i o r to t h e r e t u r n to t h e gold s t a n d a r d in 1925, t h e
v a l u e of s t e r l i n g h a d , in fact, b e e n f l u c t u a t i n g ' i n t e r m s of gold
w i t h i n a s o m e w h a t wide r a n g e . I t would h a v e t h e n b e e n o p e n t o
t h i s c o u n t r y to fix t h e v a l u e of s t e r l i n g a t a different r e l a t i o n t o
gold from t h a t w h i c h w a s a c t u a l l y c h o s e n , a n d , i n fact, t h e m a j o r i t y
of us w e r e i n f a v o u r a t t h a t t i m e of p o s t p o n i n g t h e decision t o fix
t h e v a l u e of s t e r l i n g a t i t s p r e - w a r p a r i t y .
1 0 2 . I t i s , h o w e v e r , q u i t e a different m a t t e r to-day t o go b a c k
on t h e decision t h e n m a d e . W e t h i n k t h a t t h e r e would be g r a v e
objections to s u c h a c o u r s e , b e c a u s e of its r e a c t i o n s on o u r i n t e r ­
n a t i o n a l c r e d i t , a n d n o n e of u s a r e p r e p a r e d to r e c o m m e n d it a t
t h e p r e s e n t t i m e . N e v e r t h e l e s s , we s h o u l d n o t p u t out of o u r m i n d s
t h e possibility t h a t it m a y c o n c e i v a b l y b e c o m e n e c e s s a r y i n t h e
f u t u r e for a n u m b e r of c o u n t r i e s to join t o g e t h e r i n m a k i n g d r a s t i c
c h a n g e s in an international currency system which is serving us
so ill.
(b) Tariffs p l u s B o u n t i e s .
1 0 3 . I n view of t h e difficulty of r a i s i n g world prices a n d t h e
objections to d e v a l u a t i o n , we h a v e c o n s i d e r e d w h e t h e r a n y a l t e r ­
n a t i v e s c h e m e is possible w h i c h would h a v e effects i n t e r n a l l y s i m i l a r
to t h o s e of a r i s e of world costs or of d e v a l u a t i o n , a n d y e t would
be s o m e t h i n g w h i c h we o u r s e l v e s could p u t i n t o force w i t h o u t i n j u r y
to t h e n a t i o n a l c r e d i t .
1 0 4 . T h e following is a n o u t l i n e of a s c h e m e i n t e n d e d to be of
t h i s k i n d w h i c h h a s b e e n laid before u s , with s o m e of t h e a r g u m e n t s
w h i c h c a n be a d d u c e d in its s u p p o r t : —
(1) " T h e p r o p o s a l is for a u n i f o r m tariff of, s a y , 10 per c e n t ,
o n all i m p o r t s w h a t s o e v e r , i n c l u d i n g food, a n d a b o u n t y of t h e
s a m e a m o u n t on all e x p o r t s w h a t s o e v e r .
[21809]
E 2
(2) T h s effect of s u c h an a r r a n g e m e n t on i n t e r n a t i o n a l t r a d e
would be to r e s t o r e s u b s t a n t i a l l y t h e c o n d i t i o n s w h i c h would exist
u n d e r F r e e T r a d e if world costs were t o rise 10 p e r c e n t . , or if
d o m e s t i c costs w e r e t o be r e d u c e d 10 p e r c e n t . ; e x c e p t t h a t it is
m o r e f a v o u r a b l e t h a n t h e l a t t e r to o u r e x p o r t t r a d e s a n d to t r a d e s
w h i c h c o m p e t e w i t h i m p o r t s , a n d would be t h e r e f o r e all t h e m o r e
helpful in i n c r e a s i n g o u r foreign b a l a n c e a n d t h e v o l u m e of o u r
foreign i n v e s t m e n t .
(8) T h e effect a t h o m e would be s i m i l a r to a r i s e of world
costs, b u t different from a c u t in d o m e s t i c m o n e y c o s t s , since t h e
l a t t e r would l e a v e rentiers
a n d o t h e r r e c i p i e n t s of fixed i n c o m e s
to g e t t h e full benefit of t h e r e s u l t i n g fall in t h e cost of l i v i n g . I t
would, t h e r e f o r e , be m u c h f a i r e r , s i n c e it would affect t h e v a l u e
of all i n c o m e s , & c , fixed i n t e r m s of m o n e y , in t h e s a m e kind
of w a y , a n d would n o t d i s c r i m i n a t e a g a i n s t w a g e - e a r n e r s .
(1) I t w o u l d - h a v e , i n effect, t h e s a m e r e s u l t as d e v a l u a t i o n ,
except
that
it would
leave sterling
international
obligations­
unchanged
in terms
of gold.
T h e r e a r e , obviously, very
g r e a t a d v a n t a g e s i n t h i s from t h e p o i n t of view of t h e n a t i o n a l
c r e d i t . M o r e o v e r , s i n c e we a r e a c r e d i t o r n a t i o n i n t e r m s of
sterling, and our i m p o r t s exceed o u r exports, t h e r e is actually
a p e c u n i a r y benefit to u s i n l e a v i n g t h e gold v a l u e of s t e r l i n g
alone.
(5) It w o u l d d i m i n i s h t h e r e a l b u r d e n of t h e i n t e r n a l
n a t i o n a l d e b t a s c o m p a r e d w i t h w a g e r e d u c t i o n s , since t h e
service of t h e n a t i o n a l d e b t w o u l d be a s m a l l e r p e r c e n t a g e of
t h e n a t i o n a l i n c o m e i n t e r m s of m o n e y t h a n if m o n e y w a g e s
w e r e to b e r e d u c e d .
M o r e o v e r , it w o u l d b r i n g , o n b a l a n c e ,
a substantial sum into the Exchequer.
(6) I t could b e b r o u g h t a b o u t b y a s i n g l e act of l e g i s l a t i o n ,
of a k i n d m u c h l e s s l i k e l y to b e u n p o p u l a r t h a n r e d u c t i o n s of
m o n e y wages concentrated on the working classes, t h e position
of all o t h e r r e c i p i e n t s of m o n e y i n c o m e s b e i n g left u n t o u c h e d .
At t h e s a m e t i m e , it would i n v o l v e n o i n t e r f e r e n c e w i t h
contract.
(7) S i n c e t h e tariff o r t h e b o u n t y , as t h e c a s e m i g h t b e ,
would a p p l y to all e x p o r t s a n d all i m p o r t s ( s h i p s for t h i s
p u r p o s e w o u l d h a v e to be r e g a r d e d a s a n e x p o r t ) , n o r e b a t e s
o r c o m p l i c a t i o n s of a n y k i n d would be r e q u i r e d .
Imported
r a w m a t e r i a l s w o u l d p a y t h e tariff, b u t w h e n t h e y w e r e w o r k e d
u p i n t o e x p o r t s t h e y w o u l d get t h e m o n e y b a c k in t h e s h a p e of
the bounty.
T h e o n l y p o i n t t h a t could a r i s e in t h e c a s e of
m a n u f a c t u r e for e x p o r t would be t h e i n t e r e s t o n t h e i m p o r t
d u t y p a i d d u r i n g t h e p e r i o d of m a n u f a c t u r e , w h i c h m i g h t b e
m e t b y s o m e sort of d e f e r r e d s y s t e m of d i s c h a r g i n g t h e d u t y
o u t of t h e s u b s e q u e n t p r o c e e d s of t h e b o u n t y .
(8) I t w o u l d t e n d to h a v e a n e q u a l i s i n g effect a s b e t w e e n
s h e l t e r e d a n d u n s h e l t e r e d i n d u s t r i e s , since it w o u l d b e t h e
u n s h e l t e r e d i n d u s t r i e s w h i c h would benefit d i r e c t l y a n d i n t h e
first i n s t a n c e .
(9) F o r v a r i o u s r e a s o n s s u c h a s c h e m e m i g h t b e i m p r a c ­
ticable in i t s e n t i r e t y ; b u t it could b e a p p l i e d in p a r t w i t h o u t
l o s i n g all its a d v a n t a g e s . B o u n t i e s o n e x p o r t s m a y s o m e t i m e s
be i n c o n s i s t e n t w i t h o u r c o m m e r c i a l t r e a t i e s or w i t h t h e tariff
a r r a n g e m e n t s of o t h e r c o u n t r i e s . I n t h i s case it would be
n e c e s s a r y to s u b s t i t u t e for b o u n t i e s a r e b a t e e q u i v a l e n t to t h e
d u t i e s p a i d o n i m p o r t e d m a t e r i a l , a n d f u r t h e r a s s i s t a n c e to
t h e export, i n d u s t r i e s would h a v e to t a k e s o m e o t h e r f o r m .
Or a g a i n , t h e fact t h a t o u r i m p o r t s exceed o u r e x p o r t s , so
t h a t a b a l a n c e of r e v e n u e would r e m a i n , would m a k e it jiossible
to free f r o m t h e tariff s o m e c a t e g o r i e s of goods w h i c h it w a s
c o n s i d e r e d u n d e s i r a b l e to t a x .
At t h e m i n i m u m s u c h a s c h e m e
would d w i n d l e i n t o p r a c t i c a l l y t h e e q u i v a l e n t of a 10 p e r
c e n t , tariff o n m a n u f a c t u r e d g o o d s , p a r t of t h e p r o c e e d s of
w h i c h m i g h t be d e v o t e d to g r a n t i n g special reliefs from
t a x a t i o n to t h e e x p o r t i n d u s t r i e s . F o r s e v e r a l of t h e a r g u m e n t s
a d d u c e d a b o v e a r e p a r t i a l l y a p p l i c a b l e to a tariff n o t a c c o m ­
panied by a b o u n t y .
(10) S u c h a s c h e m e s h o u l d be r e g a r d e d p r i m a r i l y a s a
m e a n s of a v o i d i n g e c o n o m i c i n s t a b i l i t y a t h o m e d u e to t h e
violent c h a n g e in world p r i c e s , t h e n e c e s s i t y for w h i c h m i g h t ,
I n t h e e v e n t of a sufficient
o n e would h o p e , b e t e m p o r a r y .
r e c o v e r y in world prices, it s h o u l d be g r a d u a l l y r e d u c e d a n d
finally a b o l i s h e d . '
­
105.
As to t h e a d v a n t a g e s of t h i s s c h e m e , we a r e e q u a l l y
d i v i d e d . T w o of u s ( M r . K e y n e s a n d S i r J o s i a h S t a m p ) a r e m u c h
a t t r a c t e d b y i t . T h e y r e c o m m e n d e d t h a t i t s p r a c t i c a l possibilities
s h o u l d b e carefully e x p l o r e d .
T h e y prefer i t . on p r i n c i p l e , to a
tariff, b e c a u s e it is free from t h e possibility of a d v e r s e r e p e r c u s s i o n s
on our export industries, and because, being more clearly a n
e x p e d i e n t to p r e s e r v e e q u i l i b r i u m , it avoids s o m e of t h e d i s a d v a n ­
T h e q u e s t i o n of t h e feasibility of
t a g e s of a p r o t e c t i v e tariff.
b o u n t i e s o r o t h e r m e a n s of a s s i s t i n g e x p o r t s is o n e o n w h i c h t h e y
find it difficult to p r o n o u n c e before a c o n c r e t e s c h e m e h a s b e e n
w o r k e d o u t . I n a n y e v e n t , as in t h e case of t h e 10 p e r c e n t , tariff
a b o v e , it s h o u l d b e r e m o v e d in t h e e v e n t of a b n o r m a l u n e m p l o y ­
m e n t b e i n g clearly a t a n e n d or of a s u b s t a n t i a l r e c o v e r y of t h e
p r i c e - l e v e l (say) to t h e 1 9 2 5 - 8 s t a n d a r d .
1 0 6 . Two of u s ( M r . H e n d e r s o n a n d P r o f e s s o r
Pigouj
o n t h e o t h e r h a n d a r e o p p o s e d to t h i s p r o p o s a l .
A general
s c h e m e of b o u n t i e s u p o n e x p o r t s would, in t h e i r v i e w , b e
i m m e d i a t e l y c o u n t e r e d b y action u n d e r a n t i - d u m p i n g
clauses
o r o t h e r w i s e o n t h e p a r t of o t h e r c o u n t r i e s .
All c o u n t r i e s r e s e n t
s u b s i d i e s given by o t h e r c o u n t r i e s to t h e i r e x p o r t s a s a p a r t i c u l a r l y
u n f a i r f o r m of c o m p e t i t i o n ; a n d t h e view t h a t it is b a d i n t e r n a t i o n a l
c o n d u c t to r e s o r t to s u c h p r a c t i c e s h a s b e c o m e w i d e s p r e a d i n r e c e n t
years.
If a c c o r d i n g l y t h i s c o u n t r y were t o a d o p t t h e s c h e m e
p r o p o s e d it would n o t only expose itself to r e t a l i a t o r y a c t i o n : b u t
would be g e n e r a l l y r e g a r d e d a s h a v i n g c o m m i t t e d a s e r i o u s offence
against international economic comity.
T h e s e c o n s i d e r a t i o n s , to
s a y n o t h i n g of t h e p r a c t i c a l difficulties which t h e o r g a n i s a t i o n a n d
w o r k i n g of s u c h a s c h e m e w o u l d i n v o l v e , l e a d t h e m to c o n c l u d e t h a t
t h e b o u n t y e l e m e n t in it would n e e d e i t h e r to b e a b a n d o n e d
a l t o g e t h e r or t o be so w h i t t l e d d o w n t h a t i t s p u r p o s e w a s d e f e a t e d .
If, h o w e v e r , t h i s e l e m e n t is e x c l u d e d , t h e s c h e m e b e c o m e s
i n d i s t i n g u i s h a b l e f r o m t h a t of t h e s i m p l e 1 0 p e r c e n t , tariff o n
i m p o r t s , discussed a b o v e in p a r a g r a p h s 9 4 - 9 7 .
XIII.—SUMMARY OF
107.
CONCLUSIONS.
W e s u m m a r i s e o u r p r i n c i p a l c o n c l u s i o n s a s follows : —
(a) T H E C A U S E S OF T H E P R E S E N T
DEPRESSION.
An e n t i r e l y n e w s i t u a t i o n h a s b e e n c r e a t e d b y t h e p r e s e n t
t r a d e d e p r e s s i o n , w h i c h h a s b e e n m a r k e d b y t h e c a t a s t r o p h i c fall
in t h e prices of s t a p l e c o m m o d i t i e s . B e t w e e n S e p t e m b e r 1929
a n d A u g u s t 1 9 3 0 , d o l l a r p r i c e s fell 21 p e r c e n t , a n d s t e r l i n g
p r i c e s 17 p e r c e n t , ( p a r a g r a p h s 5 a n d 18).
A l t h o u g h t h e g r e a t e r p a r t of t h e civilised world h a s also b e e n
engulfed in the present depression, there are certain peculiarities
w h i c h d i s t i n g u i s h t h e difficulties of G r e a t B r i t a i n from t h o s e of t h e
r e s t of t h e w o r l d . U p to t h e eve of t h e s l u m p t h e r e s t of t h e
world w a s , g e n e r a l l y s p e a k i n g , e x p e r i e n c i n g a period of p r o s p e r i t y ;
b u t for s o m e y e a r s G r e a t B r i t a i n h a d s h o w n s i g n s of s e r i o u s
m a l a i s e ; d u r i n g t h i s p e r i o d t h e t o t a l of u n e m p l o y e d in t h i s c o u n t r y
n e v e r fell below a million.
G r e a t a r e a s in t h e N o r t h w e r e
s t a t i o n a r y or d e c l i n i n g . B r i t i s h e x p o r t t r a d e a s a w h o l e s h o w e d
d i s q u i e t i n g s y m p t o m s of s t a g n a t i o n ( p a r a g r a p h 6).
T h e d e p r e s s i o n of t r a d e in G r e a t B r i t a i n since t h e W a r m a y
be r e g a r d e d a s t h e r e s u l t a n t of (a) a d v e r s e l y c h a n g i n g e x t e r n a l
c o n d i t i o n s a n d (b) a lack of i n t e r n a l a d a p t a b i l i t y ( p a r a g r a p h 8 ) .
T h e m a i n c h a n g e s in t h e b r o a d e x t e r n a l e n v i r o n m e n t of B r i t i s h
i n d u s t r y since t h e w a r a r e to b e f o u n d in : —
(a) t h e
a l t e r e d c o n d i t i o n s of d e m a n d for t h e p r o d u c t s of
c e r t a i n i n d u s t r i e s d u e to t h e c h a n g e from w a r to p e a c e ;
(b) g e n e r a l c h a n g e s i n world e c o n o m i c c o n d i t i o n s , eg.,
the
d e v e l o p m e n t of t h e c o t t o n i n d u s t r y in t h e P a r E a s t ,
t h e less f a v o u r a b l e t e r m s on w h i c h a g r i c u l t u r a l c o u n t r i e s
h a v e b e e n able to dispose of t h e i r p r o d u c t s , t h e g r e a t
fall in t h e price of silver, e t c .
(c) political d e v e l o p m e n t s d u r i n g t h e p e r i o d , e.g.,
t h e occu­
p a t i o n of t h e R u h r ,
currency disorders in
many
E u r o p e a n countries, troubles in India and China, e t c . ;
(d) t h e g e n e r a l fall in world g o l d - p r i c e s b e t w e e n 1 9 2 4 a n d
1929 a n d dislocation i n G r e a t B r i t a i n c a u s e d b y t h e
r e t u r n to t h e gold s t a n d a r d ;
(e) t h e tariff policies of o t h e r c o u n t r i e s ( p a r a g r a p h 9 ) .
I n t h e s a m e period t h e c a p a c i t y of G r e a t B r i t a i n for r a p i d
a d a p t a t i o n h a s b e e n insufficient t o cope w i t h t h e c h a n g i n g c o n d i t i o n s
w i t h w h i c h it h a s b e e n c o n f r o n t e d .
This has been due t o —
(a) t h e a d v e r s e c h a n g e s ( d u e to w a r losses) in t h e age coin­
position of t h e p o p u l a t i o n ( p a r a g r a p h s 10 a n d 1 1 ) ;
(b) t h e i n c r e a s e of r i n g s a n d m o n o p o l i s t i c c o m b i n a t i o n s d e s i g n e d
d e l i b e r a t e l y t o r e s t r i c t t h e v o l u m e of t r a d e
(para­
graph 12):
(c) t h e r e l u c t a n c e o n t h e p a r t of i n d u s t r y to r e c o g n i s e t h e
e x i s t e n c e of c h a n g e d c o n d i t i o n s , e i t h e r o n t h e side of
t e c h n i q u e or o n t h e side of d e m a n d ( p a r a g r a p h 1 2 ) ;
(d) t h e p e r s i s t e n c e of r e s t r i c t i v e r u l e s a n d p r a c t i c e s a m o n g t r a d e
u n i o n s on (i) t h e e n t r y t o p a r t i c u l a r o c c u p a t i o n s a n d t h e
d e m a r c a t i o n of different o c c u p a t i o n s , a n d o n (ii) t h e
c o n d i t i o n s u n d e r w h i c h c e r t a i n work c a n be d o n e ( p a r a ­
graph 12):
(e) t h e r i g i d i t y of w a g e s ( p a r a g r a p h 1 4 ) .
R i g i d i t y of w a g e - r a t e s m a y act a s a definite h i n d r a n c e to c h a n g e
a n d p r o g r e s s , as t h e r a t e at w h i c h i n d u s t r i e s c a n e x p a n d i s , i n p a r t ,
a f u n c t i o n of t h e r a t e of w a g e s it h a s to p a y . M o r e o v e r , w h e n \vages
a r e k e p t r i g i d , t h e r e i s a g r a v e d a n g e r t h a t t h e a r r a n g e m e n t of
i n d u s t r y w h i c h is t h u s b r o u g h t a b o u t m a y be i n j u r i o u s t o t h e
i n t e r e s t s of t h e w o r k i n g c l a s s e s as a whole ( p a r a g r a p h s 16 a n d 1 7 ) .
(b) T H E E F F E C T S OF L A R G E
IN
CHANGES IN T H E
VALUE
MONEY.
I n s p i t e of t h e p h e n o m e n a l fall in world gold p r i c e s i n t h e l a s t
t w e l v e m o n t h s ( p a r a g r a p h 18), it would be i m p r u d e n t to a s s u m e t h a t
t h e r e m a y n o t be a f u r t h e r fall.
S o m e r e c o v e r y m a y be a n t i c i p a t e d
a t a fairly e a r l y d a t e from t h e p r e s e n t e x c e p t i o n a l l y low l e v e l , b u t
it is n o t c e r t a i n t h a t t h i s r i s e m a y n o t be followed b y a f u r t h e r
s a g g i n g t e n d e n c y in t h e price l e v e l c o n t i n u e d over a l o n g p e r i o d
( p a r a g r a p h 21).
If t h i s s h o u l d h a p p e n , it is i m p o s s i b l e t o o v e r - e s t i m a t e t h e
d i s a s t r o u s c o n s e q u e n c e s t h a t m a y be e x p e c t e d . All m o n e y s e t t l e ­
m e n t s of e v e r y k i n d , u p o n w h i c h t h e s t a b i l i t y a n d p r o s p e r i t y of
m o d e r n life, o r g a n i s e d a s it i s , so p r o f o u n d l y d e p e n d , w o u l d b e c o m e
h o p e l e s s l y i n a p p r o p r i a t e ( p a r a g r a p h 2 2 ) . If t h e l a r g e c h a n g e s t h a t
h a v e t a k e n place in t h e last y e a r i n t h e v a l u e of m o n e y r e m a i n
u n a l t e r e d or b e c o m e a g g r a v a t e d , t h e following a r e o u t s t a n d i n g ­
e x a m p l e s of t h e r e s u l t s w h i c h w-ill e n s u e : —
(d) a
v e r y g r e a t i n c r e a s e in t h e effective b u r d e n of i n t e r G o v e r n m e n t a l d e b t s a r i s i n g o u t of t h e w a r ( p a r a ­
graph 23):
(b) a g r e a t a g g r a v a t i o n of t h e ' b u d g e t a r y p r o b l e m p r e s e n t e d b y
i n t e r n a l n a t i o n a l d e b t s a n d all o t h e r
Government
(e.g.,
o b l i g a t i o n s w h i c h a r e fixed i n t e r m s of m o n e y
p e n s i o n s , u n e m p l o y m e n t relief, &c.) ( p a r a g r a p h 2 8 ) ;
(c) a s i m i l a r i n c r e a s e in t h e effective b u r d e n on i n d u s t r y of all
f o r m s of b o n d e d d e b t (eg.,
d e b e n t u r e i n t e r e s t , &c.)
(paragraph 23);
(d) a s e r i o u s d i s e q u i l i b r i u m b e t w e e n m o n e y c o s t s a n d m o n e y
p r i c e s l e a d i n g to b u s i n e s s losses a n d a g r e a t i n c r e a s e in
u n e m p l o y m e n t ( p a r a g r a p h s 28 a n d 2 4 ) .
T h e f o r e g o i n g r e p r e s e n t t h e m a l a d j u s t m e n t s w h i c h a r i s e if a
fall in p r i c e s b e c o m e s e v e n l y s p r e a d o v e r c o m m o d i t i e s in g e n e r a l .
At t h e m o m e n t , t h e o u t s t a n d i n g f e a t u r e of t h e e c o n o m i c s i t u a t i o n
is a n e x t r e m e d i s p a r i t y b e t w e e n t h e p r i c e s of p r i m a r y p r o d u c t s a n d
m a n u f a c t u r e d g o o d s , w h i c h is q u i t e i n c o m p a t i b l e w i t h a n a c t i v e
c o n d i t i o n of world t r a d e .
U n t i l n e w m a r k e t s a r e f o u n d for t h e
m a n u f a c t u r e d goods w h i c h t h e p r i m a r y p r o d u c e r s a r e u n a b l e t o
p u r c h a s e or n e w t y p e s of goods a r e p r o d u c e d i n s t e a d of t h e m ,
i n d u s t r i a l u n e m p l o y m e n t o n a l a r g e scale m u s t p r e v a i l . I n s u c h
c i r c u m s t a n c e s u n d e r t h e p r e s s u r e of - c o m p e t i t i o n , t h e p r i c e s of
m a n u f a c t u r e d g o o d s a r e likely to fall o w i n g to t h e i n e v i t a b l e
m o v e m e n t in i n d u s t r i a l c o u n t r i e s to r e d u c e costs b y e v e r y
a v a i l a b l e m e a n s ( i n c l u d i n g t h e r e d u c t i o n of s a l a r i e s a n d w a g e s
( p a r a g r a p h 25)).
T h i s is t h e m o s t critical p h a s e of t h e world - d e p r e s s i o n for a n
i n d u s t r i a l c o u n t r y like G r e a t B r i t a i n , s i n c e if m a n u f a c t u r i n g costs
of p r o d u c t i o n a r e c u t d r a s t i c a l l y t h r o u g h o u t t h e w o r l d , it will n o t
be possible for t h i s c o u n t r y to a b s t a i n from j o i n i n g in t h e g e n e r a l
m o v e m e n t ( p a r a g r a p h 26).
(c) R E M E D I E S
OP
AN E X T E R N A L
CHARACTER.
A n a d e q u a t e r e c o v e r y of world p r i c e s would go a l o n g w a y
t o w a r d s p r o v i d i n g a s o l u t i o n of t h e p r e s e n t difficulties.
Monetary
c o n d i t i o n s , w h i c h p l a y a d o m i n a t i n g p a r t in d e t e r m i n i n g t h e c o u r s e
of world p r i c e s o v e r a l o n g p e r i o d , d e p e n d u p o n t h e p r o d u c t i o n of
g o l d , its d i s t r i b u t i o n a m o n g t h e different c o u n t r i e s a n d its u s e
by Central B a n k s .
On t h i s h e a d o u r c o n c l u s i o n s ( p a r a g r a p h 29)
are :—
(i) t h e p r e v a i l i n g p r a c t i c e of c e r t a i n foreign C e n t r a l B a n k s
a r e not s u c h as to e n c o u r a g e o p t i m i s m ;
(ii) t h e r e is n o insufficiency in t h e total - s u p p l y of g o l d ,
p r o v i d e d t h a t it is used b y C e n t r a l B a n k s with r e a s o n a b l e
economy;
(iii) t h e p r o b l e m t u r n s u p o n t h e policies w h i c h
Central
B a n k s p u r s u e , a n d u p o n t h e p o s s i b i l i t y of i n d u c i n g t h e m
to act t o g e t h e r .
T h e m a t t e r is n o t o n e i n w h i c h it is possible for a n y s i n g l e
c o u n t r y a c t i n g a l o n e to a c c o m p l i s h m u c h .
Some influence this
c o u n t r y c a n e x e r t ; a n d m o r e m i g h t be a c c o m p l i s h e d , for e x a m p l e ,
b y t h e F e d e r a l R e s e r v e S y s t e m of t h e U n i t e d S t a t e s j o i n i n g t h e
B a n k of E n g l a n d to t a k e d r a s t i c a c t i o n o n a c o m m o n p l a n
(paragraph 30).
T h e difficulty a t t h e m o m e n t is n o t a g e n e r a l scarcity of s h o r t ­
t e r m credit for first-class b o r r o w e r s ; but i s ' d u e , in t h e first p l a c e ,
to t h e r e l u c t a n c e of b o r r o w e r s to e n t e r u p o n n e w e n t e r p r i s e i n a n
a t m o s p h e r e of a falling p r i c e - l e v e l ; a n d , i n t h e s e c o n d p l a c e , to
t h e decline of t h e s t a n d i n g of m a n y b o r r o w e r s i n t h e o p i n i o n of
l e n d e r s o w i n g to t h e w i d e s p r e a d d i s t r u s t of t h e s t a b i l i t y of t h e
financial a n d c u r r e n c y s y s t e m s of a n u m b e r of c o u n t r i e s ( p a r a ­
g r a p h 31). T h e r e v i v a l of e n t e r p r i s e m i g h t be p r o m o t e d b y j o i n t
a c t i o n o n t h e p a r t of t h e C e n t r a l B a n k s d i r e c t e d t o w a r d s c r e a t i n g
a s t r o n g c o n v i c t i o n t h a t t h e p r e s e n t e a s y t e r m s for s h o r t - t e r m
c r e d i t a r e likely to c o n t i n u e for a l o n g t i m e to c o m e ( p a r a g r a p h 8 2 ) .
C e n t r a l B a n k s m i g h t also allay t h e d i s t r u s t now felt t o w a r d s t h e
g e n e r a l c r e d i t of c e r t a i n c o u n t r i e s by f o r m i n g a l a r g e j o i n t pool
for a p p r o v e d l o a n s or i n s o m e o t h e r w a y .
I t is of t h e first
i m p o r t a n c e to r e s t o r e a feeling of confidence in t h e
financial
s t a b i l i t y of those m a n y c o u n t r i e s w h i c h a r e n o w t h e subject of
d i s t r u s t ( p a r a g r a p h s 88 a n d 34).
( d ) W A Y S O F R E S T O R I N G E L A S T I C I T Y TO T H E
STRUCTURE OF GREAT BRITAIN.
ECONOMIC
No v e r y satisfactory m e a s u r e s h a v e y e t b e e n p r o p o s e d for t h e
c o n t r o l of r i n g s a n d m o n o p o l i e s , b u t t h e e x p e r i e n c e of t h e B o a r d
of
Trade
Committee
on
Trusts
might
well be
reviewed
( p a r a g r a p h 37).
As r e g a r d s t r a d e u n i o n r e s t r i c t i o n s n o d i r e c t G o v e r n m e n t a c t i o n
is possible.
The demarcations and trade customs are now
i n a p p r o p r i a t e a n d i n i m i c a l to t h e i n t e r e s t s of t h e w o r k i n g c l a s s e s
a s a w h o l e . If t h e t r a d e u n i o n s would a g r e e to r e o p e n t h e w h o l e
q u e s t i o n , t h e r e m i g h t be a s u r p r i s i n g i n c r e a s e in t h e a b i l i t y of
e m p l o y e r s t o offer i n c r e a s e d e m p l o y m e n t a t t h e e x i s t i n g w a g e s
(paragraphs 88-40).
W e r e c o m m e n d t h a t H i s Majesty's G o v e r n m e n t should forth­
w i t h u n d e r t a k e a s y s t e m a t i c r e f o r m of t h e w h o l e s y s t e m of
u n e m p l o y m e n t i n s u r a n c e , w h i c h is n o w g r a v e l y a b u s e d . I t i m p e d e s
m o b i l i t y of l a b o u r , e n c o u r a g e s t h e a d o p t i o n of u n s a t i s f a c t o r y
m e t h o d s of m e e t i n g i n d u s t r i a l c h a n g e s a n d c o n d u c e s t o a n artificial
r i g i d i t y of w a g e - r a t e s ( p a r a g r a p h 4 1 ) .
(e)
W A Y S OF I N C R E A S I N G I N D U S T R I A L
EFFICIENCY.
G r e a t a t t e n t i o n h a s b e e n d e v o t e d in r e c e n t y e a r s to m e a s u r e s
d e s i g n e d to i m p r o v e t h e i n d u s t r i a l o r g a n i s a t i o n a n d t e c h n i q u e of
t h e s t a p l e i n d u s t r i e s , b u t t h e efficiency of i n d u s t r i e s w h i c h a r e
e x p a n d i n g o r a r e c a p a b l e of e x p a n s i o n is e q u a l l y i m p o r t a n t .
I m p r o v e m e n t s in i n d u s t r i a l m e t h o d s a r e b e i n g r a p i d l y a d o p t e d by
f o r e i g n c o u n t r i e s a n d t h o u g h it is of c a r d i n a l i m p o r t a n c e t h a t G r e a t
B r i t a i n s h o u l d n o t l a g b e h i n d , little p o s i t i v e a m e l i o r a t i o n of t h e
c o m p e t i t i v e position c a n be e x p e c t e d u n d e r t h i s h e a d .
Moreover,
i n so far as ' ' r a t i o n a l i s a t i o n ' ' i n c l u d e s s c h e m e s for o r d e r l y con­
t r a c t i o n of o u t p u t , it is l i k e l y to i n c r e a s e u n e m p l o y m e n t : a n d
i m p r o v e d i n d u s t r i a l t e c h n i q u e w h i c h t a k e s t h e f o r m of t h e
i n t r o d u c t i o n of l a b o u r - s a v i n g m a c h i n e r y m a y a l s o i n v o l v e a
t e m p o r a r y a g g r a v a t i o n of u n e m p l o y m e n t ( p a r a g r a p h 4 2 ) .
All w e l l - c o n s i d e r e d s c h e m e s of i n d u s t r i a l r e c o n s t r u c t i o n s h o u l d
be pressed forward to t h e u t m o s t , b u t they cannot by themselves
p r o v i d e a c o m p l e t e s o l u t i o n to t h e p r e s e n t e c o n o m i c difficulties
(paragraph 43).
(f) R E D U C T I O N S
IN DOMESTIC
MONEY
WAGES.
(i) E x i s t i n g m o n e y w a g e - r a t e s c a n n o t be r e g a r d e d as s a c r o s a n c t
i n a w o r l d subject to v i o l e n t c h a n g e s i n t h e v a l u e of m o n e y .
(ii) C e r t a i n w a g e a d j u s t m e n t s in t h e d o w n w a r d d i r e c t i o n ,
p a r t i c u l a r l y in s h e l t e r e d i n d u s t r i e s w h o s e e x i s t i n g w a g e s a r e o u t of
l i n e w i t h w a g e s in o t h e r c o m p a r a b l e i n d u s t r i e s , a r e d e s i r a b l e n o w .
(hi) If world p r i c e s fail to r e c o v e r t o a m a t e r i a l l y h i g h e r l e v e l ,
g e n e r a l w a g e - c u t s i n t h i s c o u n t r y (or t h e i r e q u i v a l e n t ) will b e c o m e
i n e v i t a b l e , b e c a u s e t h e f a i l u r e of t h e p r i c e - l e v e l to r e c o v e r will
probably m e a n that such wage-cuts have been m a d e in other
countries.
(iv) B u t , o n t h e o t h e r h a n d , it w o u l d be u n w i s e for t h i s c o u n t r y
t o l e a d t h e w a y w i t h a g e n e r a l w a g e - c u t or to e n c o u r a g e a n
incipient world m o v e m e n t in this direction.
(v) I n view of t h e i m m e n s e p r a c t i c a l difficulties of a n y g e n e r a l
r e d u c t i o n in m o n e y w a g e s , e v e r y o t h e r r e m e d y w i t h a n y s e r i o u s
b a l a n c e of a r g u m e n t i n its f a v o u r s h o u l d be t r i e d first.
(vi) F u r t h e r m o r e , if a g e n e r a l w a g e - c u t b e c o m e s i n e v i t a b l e , it
i s m o s t d e s i r a b l e t h a t it s h o u l d be u n d e r t a k e n as p a r t of a w i d e r
s c h e m e for r e - s e t t l i n g m o n e y i n c o m e s g e n e r a l l y ( i n c l u d i n g
rentier
incomes in particular), and not wages alone.
(g) S U B S I D I E S
TO
WAGES.
T h e effect u p o n u n e m p l o y m e n t of a g e n e r a l s u b s i d y to m o n e y
w a g e s is primd facie t h e s a m e as t h a t of a n e q u a l p r o p o r t i o n a t e
r e d u c t i o n in m o n e y w a g e - r a t e s . If it w e r e possible b y a low r a t e of
s u b s i d y to a b s o r b a l a r g e n u m b e r of t h e u n e m p l o y e d , it m i g h t
h a p p e n t h a t t h e w h o l e cost of t h e s u b s i d y would be off-set b y t h e
a s s o c i a t e d r e d u c t i o n i n t h e a m o u n t of u n e m p l o y m e n t benefit.
But
it w o u l d be h i g h l y o p t i m i s t i c to s u p p o s e t h a t a g e n e r a l w a g e s u b s i d y
a t a n y g i v e n r a t e w o u l d , i n fact, r e d u c e t h e v o l u m e of u n e m p l o y ­
m e n t t o t h i s e x t e n t . H e n c e it is t o be f e a r e d t h a t , if t h e s u b s i d y
w e r e a t all s u b s t a n t i a l , it would i n v o l v e a h e a v y a d d i t i o n a l n e t
charge on the Budget.
I n t h e c i r c u m s t a n c e s , we a r e of o p i n i o n
t h a t a policy of g e n e r a l w a g e s u b s i d i e s is n o t o n e t h a t o u g h t to be
adopted (paragraph 52).
W a g e s u b s i d i e s in r e s p e c t , n o t of all w a g e - e a r n e r s , b u t of
a d d i t i o n a l w a g e - e a r n e r s , w h o m e m p l o y e r s would u n d e r t a k e t o
e n g a g e w i t h t h e h e l p of t h e s u b s i d y , a r e n o t o p e n to t h e s a m e
objections.
B u t t h e p r a c t i c a l difficulties in d e v i s i n g s c h e m e s of
t h i s t y p e a r e very g r e a t ( p a r a g r a p h 5 8 ) .
I t m a y be t h a t in
p a r t i c u l a r c a s e s t h e s e could be o v e r c o m e a n d a w o r k a b l e s c h e m e
could be d e v i s e d in which t h e d i s a d v a n t a g e s w e r e at a m i n i m u m
a n d t h e a d v a n t a g e s to e m p l o y m e n t a t a m a x i m u m .
If a n d w h e r e
t h i s is s o , it a p p e a r s to t h e m a j o r i t y of u s ( M r . K e y n e s , P r o f e s s o r
P i g o u a n d S i r J o s i a h S t a m p ) t h a t t h e c a s e for t e m p o r a r y w a g e
s u b s i d i e s i n r e s p e c t of additional
e m p l o y e e s a t a r a t e less t h a n t h e
p r e s e n t r a t e of u n e m p l o y m e n t p a y is a s t r o n g o n e . M r . H e n d e r s o n
h o l d s s t r o n g l y t h a t t h e p a t h of s u b s i d i e s s h o u l d b e a v o i d e d .
But
s u b s i d i e s to w a g e s in p a r t i c u l a r i n d u s t r i e s , a s a p e r m a n e n t s y s t e m , ,
are highly undesirable (paragraph 54).
(h) WAYS
OF
INCREASING
BUSINESS
CONFIDENCE.
A n i m p r o v e m e n t in t h e s t a t e of b u s i n e s s confidence w o u l d l e a d
t o a n i n c r e a s e of e m p l o y m e n t in h o m e i n d u s t r i e s ( p a r a g r a p h 5 5 ) .
I n t h e l o n g r u n b u s i n e s s confidence is n o t likely to b e m a i n ­
t a i n e d o t h e r w i s e t h a n by a n a c t u a l r e c o v e r y of b u s i n e s s profits.
Such a recovery might be secured by judicious
emergency
m e a s u r e s , a f t e r w h i c h b u s i n e s s confidence m i g h t t a k e t h e p l a c e of
such m e a s u r e s as providing t h e necessary stimulus ( p a r a g r a p h 56).
T h e following m e a s u r e s would a s s i s t i n t h e i m p r o v e m e n t of
b u s i n e s s confidence : —
(a) A s o l u t i o n of t h e B u d g e t p r o b l e m w h i c h a v o i d e d i n c r e a s e d
direct taxation;
(b) A d r a s t i c r e f o r m of t h e s y s t e m of U n e m p l o y m e n t I n s u r a n c e
( p a r a g r a p h 57).
A tariff o n m a n u f a c t u r e d i m p o r t s is also r e c o m m e n d e d
quarters u n d e r this head (paragraph 57).
(i) W A Y S OF I N C R E A S I N G
HOME
in
some
INVESTMENT.
T h e a m o u n t of h o m e i n v e s t m e n t , a n d so t h e v o l u m e of e m p l o y ­
m e n t , w o u l d be i n c r e a s e d if t h e t e r m s o n w h i c h b o r r o w e r s c a n b e
a c c o m m o d a t e d were m a d e e a s i e r e i t h e r t h r o u g h a r e d u c t i o n of flit­
r a t e of i n t e r e s t or t h r o u g h G o v e r n m e n t s t i m u l u s , b y m e a n s of
s u b s i d i e s or p u b l i c works ( p a r a g r a p h 5 8 ) .
(a) T h e B a n k of E n g l a n d c a n n o t , u n d e r g o l d - s t a n d a r d l i m i t a ­
t i o n s , m o v e far i n t h e d i r e c t i o n of m a k i n g b a n k c r e d i t
cheap and a b u n d a n t unless other Central B a n k s do t h e
s a m e ; a policy o n t h e p a r t of t h e T r e a s u r y a n d t h e
b a n k i n g system intended to bring down long-term rate?
of i n t e r e s t , even if it m e a n t s o m e r a i s i n g of s h o r t - t e r m
r a t e s , would be useful o n b a l a n c e as f a c i l i t a t i n g a i .
i n e r e a s e of l o n g - t e r m i n v e s t m e n t ( p a r a g r a p h 5 9 ) .
I n r e c e n t m o n t h s s h o r t - t e r m r a t e s of i n t e r e s t h a v e
fallen to a low level, b u t t h i s r e d u c t i o n is o n l y v e r j
s l i g h t l y reflected i n l o n g - t e r m r a t e s — w h i c h a r e of m u c h
g r e a t e r sighificariee to b o r r o w e r s for fixed i n v e s t m e n t
( p a r a g r a p h 60).
(b) T h e effect of h i g h world r a t e s of i n t e r e s t u n d e r a gold
s t a n d a r d i s to p u t t h e d o m e s t i c r a t e a b o v e t h e r a t e a t
which enough new domestic investment can come into
e x i s t e n c e . Since t h e W a r , a t t e m p t s h a v e b e e n m a d e to
r e s t o r e e q u i l i b r i u m b y i m p o s i n g a n e m b a r g o o n foreign
lending in L o n d o n , and subsequently by the informal
r a t i o n i n g of f o r e i g n b o r r o w e r s , b u t t h e s e m e a s u r e s h a v e
h i t h e r t o proved ineffective.
B o n d s i s s u e d o n foreign
m a r k e t s h a v e f o u n d t h e i r way to t h e L o n d o n m a r k e t ,
w i t h o u t h a v i n g p a i d B r i t i s h s t a m p d u t y a n d c o n t r a r y to
t h e w i s h e s of t h o s e r e s p o n s i b l e for t h e r e g u l a t i o n of t h e
British market.
I n these circumstances, a distinction
m i g h t be m a d e b e t w e e n f o r e i g n b o n d s officially a d m i t t e d
to the British investment m a r k e t (perhaps by t h e
T r e a s u r y o n t h e r e c o m m e n d a t i o n of t h e B a n k of E n g l a n d )
a n d t h o s e not so a d m i t t e d , i n c o m e d e r i v e d from t h e l a t t e r
b e i n g subject to a special i n c o m e t a x ( p a r a g r a p h 6 2 ) .
(c) U n d e r c o n d i t i o n s of e x t e n s i v e u n e m p l o y m e n t s u c h a s prevail
t o - d a y , a n d h a v e p r e v a i l e d in lesser d e g r e e for s o m e y e a r s ,
[21809]
F
BBBHBflBMflHBHHNIfiHyHWHBHHnnBMMm
uniMUUiiiiinra
t h e policy of p r o m o t i n g useful s c h e m e s of c a p i t a l develop­
m e n t , e i t h e r by p r e s s i n g forward s u c h work a s lies w i t h i n
t h e d i r e c t c o n t r o l of t h e G o v e r n m e n t or by t h e offer of
S t a t e s u b s i d i e s to local a u t h o r i t i e s a n d public u t i l i t y c o m ­
p a n i e s is a s o u n d o n e for t h e S t a t e to p u r s u e , since w e do
n o t a c c e p t t h e view t h a t t h e u n d e r t a k i n g of s u c h w o r k
m u s t n e c e s s a r i l y c a u s e a m e r e d i v e r s i o n from o t h e r
e m p l o y m e n t ( p a r a g r a p h G3).
T h e s a v i n g t o p u b l i c f u n d s in t h e s h a p e of r e d u c e d e x p e n d i t u r e
o n u n e m p l o y m e n t benefit m u s t n o t be o v e r l o o k e d : b u t i t i s
i m p o r t a n t to r e c o g n i s e t h a t p u b l i c w o r k s c a n o n l y b e justified if
t h e y a r e of a u s e f u l a n d p r o d u c t i v e c h a r a c t e r a n d a r e c a p a b l e of
being put into operation and carried out with speed.
Considera­
t i o n s of t h i s c h a r a c t e r n e c e s s a r i l y set l i m i t s to t h e e x t e n t to w h i c h
it is possible t o m e e t u n e m p l o y m e n t b y t h e policy of p u b l i c w o r k s
(paragraphs 64-67).
(j)
TARIFFS.
W e a c c e p t t h e v a l i d i t y of t h e t r a d i t i o n a l F r e e T r a d e a r g u m e n t
t h a t t h e r e is a s t r o n g p r e s u m p t i o n t h a t tariffs of t h e k i n d w h i c h
a r e i m p o s e d in p r a c t i c e t e n d t o d i v e r t p r o d u c t i o n f r o m t h e c h a n n e l s
w h e r e a c o u n t r y is r e l a t i v e l y m o r e efficient i n t o c h a n n e l s w h e r e
it is r e l a t i v e l y less efficient ( p a r a g r a p h s 68 a n d 6 9 ) .
( a ) A d v a n t a g e s of a Tariff.
B u t t h e q u e s t i o n t o - d a y is t h e e x t e n t to w h i c h t h i s h i s t o r i c
a r g u m e n t is i n v a l i d a t e d for t h e t i m e b e i n g b y (i) t h e e x i s t e n c e
of c h r o n i c l a r g e - s c a l e u n e m p l o y m e n t , (ii) t h e d o u b t w h e t h e r t h i s
c o u n t r y c a n h o p e m a t e r i a l l y t o e x p a n d or e v e n t o r e t a i n h e r
p r e s e n t f a v o u r a b l e b a l a n c e of t r a d e b y m e a n s of a m o d e r a t e c u t
i n m o n e y c o s t s w i t h o u t a r e s t r i c t i o n of i m p o r t s , (iii) t h e p o s s i b i l i t y
t h a t t h e effect of a tariff o n t h e ' ' t e r m s of t r a d e ' ' m i g h t b e
g r e a t e r in p r e s e n t c i r c u m s t a n c e s t h a n f o r m e r l y , a n d (iv) w h e t h e r
t h e p r o m o t i o n of e c o n o m i c s o l i d a r i t y w i t h i n t h e B r i t i s h E m p i r e
m a y n o t b e a s a f e g u a r d a g a i n s t t h e d a n g e r s of e c o n o m i c isolation
in t h e m o d e r n world ( p a r a g r a p h 7 0 ) .
(i) T h o u g h u n e m p l o y m e n t b e f o r e t h e W a r w a s s o m e t i m e s l a r g e
i n a m o u n t , t h e r e w a s n o l a r g e i n t r a c t a b l e m a s s of
u n e m p l o y m e n t associated with dislocations b e t w e e n costs
a n d w o r l d p r i c e s s u c h as h a s e x i s t e d e v e r s i n c e t h e post­
armistice boom.
The u n e m p l o y m e n t issue t h u s was
o f t e n left o n o n e side i n tariff d i s c u s s i o n s . T h e s i t u a ­
t i o n i s , h o w e v e r , n o w f u n d a m e n t a l l y different, a n d i n
p r e s e n t c o n d i t i o n s t h e i m p o s i t i o n of r e a s o n a b l y d e v i s e d
p r o t e c t i v e d u t i e s ( t h o u g h one. of u s ( P r o f e s s o r P i g o u )
t h i n k s t h a t i n p r a c t i c e it m i g h t n o t b e e a s y to d e v i s e
t h e m ) t h a t s h o u l d e x c l u d e a s u b s t a n t i a l p o r t i o n of t h e
imports that now compete with our home industries
w o u l d , for s o m e t i m e t o c o m e , d i r e c t l y i n c r e a s e t h e
a g g r e g a t e v o l u m e of e m p l o y m e n t in t h i s c o u n t r y , a n d
b y so d o i n g w o u l d set u p r e p e r c u s s i o n s t h r o u g h t h e
s a v i n g o n t h e u n e m p l o y m e n t benefit a n d so o n , t h a t
w o u l d , b y i n d i r e c t p r o c e s s e s i n c r e a s e it still f u r t h e r .
T h e g a i n would p r o b a b l y b e a s s o c i a t e d w i t h s o m e i n c r e a s e
i n t h e cost of l i v i n g a n d a c o r r e s p o n d i n g r e d u c t i o n i n
r e a l w a g e s a n d i n t h e v a l u e of m o n e y i n c o m e s g e n e r a l l y ;
b u t s i n c e a m a i n a l t e r n a t i v e r e m e d y for u n e m p l o y m e n t —
a r e d u c t i o n of m o n e y w a g e s — m u s t also i n v o l v e a n e q u a l
o r g r e a t e r r e d u c t i o n of r e a l w a g e s , t h i s c o n s i d e r a t i o n is
n o t of g r e a t w e i g h t ( p a r a g r a p h s 7 1 a n d 7 2 ) .
T h e i m p o r t a n t q u e s t i o n to decide is w h e t h e r t h e d i r e c t
effect, a n d t h e r e w i t h t h e i n d i r e c t effects, of r e a s o n a b l y
devised protective duties in increasing the aggregate
v o l u m e of e m p l o y m e n t w o u l d be l a r g e o r s m a l l .
The
answer to this question t u r n s in great part upon t h e
d e g r e e of a d v e r s e r e a c t i o n w h i c h t h e c o n t r a c t i o n b r o u g h t
a b o u t i n o u r i m p o r t s is likely to p r o d u c e o n o u r e x p o r t
industries. The majority (Mr. K e y n e s , Mr. H e n d e r s o n
a n d S i r J o s i a h S t a m p ) t a k e t h e view t h a t i n p r e s e n t
c o n d i t i o n s t h e m a i n p a r t of t h e r e d u c t i o n of i m p o r t s
would b e b a l a n c e d for s e v e r a l y e a r s by i n c r e a s e d s a l e s
to u s of f o r e i g n - h e l d s e c u r i t i e s ( p a r a g r a p h s 7 2 a n d 7 3 ) .
O n e of u s ( P r o f e s s o r P i g o u ) h o l d s t h a t t h e a d v e r s e
reaction on exports would after a short time be n e a r l y
c o m m e n s u r a t e w i t h t h e o r i g i n a l c o n t r a c t i o n of i m p o r t s
(paragraph 74).
(ii) If t h e view of t h e m a j o r i t y i n t h i s m a t t e r is c o r r e c t , t h e
p o i n t is t o - d a y a v e r y i m p o r t a n t o n e .
T h e majority
believe t h a t it is e s s e n t i a l a t t h e p r e s e n t t i m e for G r e a t
B r i t a i n to d e v o t e a s o m e w h a t l a r g e p r o p o r t i o n of h e r
total s a v i n g s t o f o r e i g n i n v e s t m e n t ( p a r a g r a p h 7 5 ) . T h e
f a v o u r a b l e b a l a n c e of t r a d e , w h i c h m u s t be e q u a l t o t h e
a m o u n t of f o r e i g n l e n d i n g if t h e B a n k of E n g l a n d is
n o t to lose gold could be i n c r e a s e d e i t h e r by i n c r e a s i n g
exports or by diminishing i m p o r t s . B y reducing costs,
a n d p a r t i c u l a r l y b y c u t t i n g w a g e s c o s t s , it i s possible
to i n c r e a s e t h e v o l u m e of e x p o r t s , b u t t h e r e a r e g r e a t
difficulties in m a k i n g m u c h h e a d w a y a l o n g t h i s l i n e . I t is
t h e r e f o r e b e t t e r to o c c u p y o u r u n e m p l o y e d r e s o u r c e s
i n m a k i n g goods to t a k e t h e p l a c e of goods n o w i m p o r t e d
t h a n n o t to o c c u p y t h e m a t a l l .
P o r this is just as
effective a w a y of i n c r e a s i n g foreign i n v e s t m e n t a n d
a u g m e n t i n g e m p l o y m e n t a s i n c r e a s i n g e x p o r t s would be
( p a r a g r a p h 7 7 ) . M o r e o v e r , tariffs m i g h t also be to t h e
a d v a n t a g e of t h e o v e r s e a s c o u n t r i e s w h i c h n e e d o u r s u r p l u s ­
s a v i n g s for t h e i r f u r t h e r d e v e l o p m e n t ( p a r a g r a p h 7 9 ) .
(iii) T h e r e is g e n e r a l a g r e e m e n t t h a t , w h e n a c o u n t r y i m p o s e s
taxes u p o n i m p o r t s , it will c a u s e a u n i t of its export goods
to b u y s o m e w h a t m o r e i m p o r t goods t h a n b e f o r e , o r , in
m o r e p o p u l a r l a n g u a g e , t h a t in s o m e m e a s u r e i t will m a k e
t h e f o r e i g n e r p a y its i m p o r t d u t i e s . Before t h e W a r , i t
w a s g e n e r a l l y a g r e e d t h a t , so far a s G r e a t B r i t a i n w a s
c o n c e r n e d , t h e g a i n t h a t could be looked for u n d e r t h i s
h e a d w a s v e r y s m a l l , b u t i n p r e s e n t c o n d i t i o n s , i n view
of t h e l a r g e a m o u n t of s u r p l u s c a p a c i t y i n t h e iron a n d
steel a n d o t h e r i n d u s t r i e s a b r o a d , it m a y b e t h a t a m o r e
substantial a d v a n t a g e m i g h t be won ( p a r a g r a p h 80).
(iv) T h e t e n d e n c y s i n c e t h e W a r h a s b e e n i n t h e d i r e c t i o n of
intensified e c o n o m i c n a t i o n a l i s m , w h i c h is s e e n in s u c h
projects as t h e m o v e m e n t of n e i g h b o u r i n g g r o u p s of
c o u n t r i e s t o g r a n t o n e a n o t h e r p r e f e r e n t i a l tariff conces­
s i o n s , t o w h i c h t h e o u t s i d e w o r l d is n o t a d m i t t e d . If s u c h
a g r e e m e n t s m a t e r i a l i s e , t h e i n t e r e s t s of G r e a t B r i t a i n m a y
p e r h a p s best b e s a f e g u a r d e d b y c u l t i v a t i n g closer e c o n o m i c
relations with t h e E m p i r e . W e consider that t h e develop­
m e n t of i n t e r - I m p e r i a l p r e f e r e n c e s m a y b e c o m e a wise
e c o n o m i c policy for t h i s c o u n t r y ( p a r a g r a p h s 8 1 t o 85)..
( b ) O b j e c t i o n s t o a Tariff.
Notwithstanding the foregoing advantages, there r e m a i n w i t h
u n a b a t e d force c e r t a i n a r g u m e n t s of a m o r e g e n e r a l k i n d a g a i n s t a
tariff, n a m e l y : —
(i) A tariff m a y e n a b l e a c o u n t r y t o s n a t c h for itself a n a d v a n ­
t a g e w h i c h is n o t so g r e a t as t h e d a m a g e w h i c h it inflicts
on t h e world. T h e world would be r i c h e r u n d e r a s y s t e m
of g e n e r a l F r e e T r a d e t h a n it is ( p a r a g r a p h 8 6 ) .
(ii) G o v e r n m e n t s d e p e n d e n t u p o n p o p u l a r elections a r e c e r t a i n
to i m p o s e p r o t e c t i v e d u t i e s , n o t on w e a k i n d u s t r i e s t h a t
m a y n e e d t h e m , b u t r a t h e r on s t r o n g i n d u s t r i e s t h a t
control n u m e r o u s votes (paragraph 86).
(iii) D u t i e s c r e a t e v e s t e d i n d u s t r i e s , w h i c h it is difficult to r e m o v e
later w i t h o u t inflicting c o n s i d e r a b l e i n c i d e n t a l h a r d s h i p
(paragraph 86).
(iv) S o long a s t h e i s s u e of P r o t e c t i o n versus F r e e T r a d e d i v i d e s
political p a r t i e s , d u t i e s a r e liable to be i m p o s e d o r r e m o v e d
n o t o n t h e i r m e r i t s b u t a c c o r d i n g to t h e e x i g e n c y of p a r t y
conflict ( p a r a g r a p h 8 6 ) .
(o)
Conclusions.
W e differ a m o n g o u r s e l v e s in w e i g h i n g u p t h e b a l a n c e of
a d v a n t a g e or d i s a d v a n t a g e r e s u l t i n g from c o u r s e s of a c t i o n w h i c h ,
while p r o b a b l y i n c r e a s i n g e m p l o y m e n t i n t h e i m m e d i a t e f u t u r e ,
would also b e o p e n t o t h e o b j e c t i o n s i n d i c a t e d a b o v e ( p a r a g r a p h s
87 a n d 8 8 ) . I n f o r m u l a t i n g o u r c o n c l u s i o n s we t h i n k it i m p o r t a n t
t o d i s t i n g u i s h s h a r p l y b e t w e e n t w o different t y p e s of tariff, v i z . ,
s a f e g u a r d i n g a n d a r e v e n u e tariff ( p a r a g r a p h 8 9 ) .
A t h e o r e t i c a l c a s e m a y exist for s a f e g u a r d i n g d u t i e s , b y w h i c h
we u n d e r s t a n d tariffs i m p o s e d p r i m a r i l y for p r o t e c t i v e p u r p o s e s in
f a v o u r of specially selected i n d u s t r i e s , especially w h e n a n a r g u m e n t
of t h e " i n f a n t i n d u s t r y " c h a r a c t e r is a p p l i c a b l e .
B u t in the
a c t u a l c o n d i t i o n s of G r e a t B r i t a i n t o - d a y , w e t h i n k t h a t it i s difficult
t o find e x c e p t i o n a l c a s e s of t h i s k i n d ( p a r a g r a p h 9 0 ) .
Conclusions
(i)
of Mr. Keijnes,
Sir Josiah
Mr. Henderson
Stamp.
and
Safeguarding.
A p a r t from e x i s t i n g d u t i e s , t h e r e is n o c a s e a m o n g s t m a n u ­
factures
which appears to us to deserve serious consideration,
e x c e p t a tariff o n i r o n a n d s t e e l a n d t h e i r p r o d u c t s . I n t h i s c a s e ,
we a r e in f a v o u r of p r o t e c t i v e d u t i e s i n t h e p r e s e n t g r a v e
e m e r g e n c y , subject to the strict condition t h a t t h e i n d u s t r y should
r a t i o n a l i s e itself in a c c o r d a n c e w i t h a n a p p r o v e d p l a n , a n d t h a t
t h e tariff s h o u l d b e of a w e i g h t a n d scope a p p r o p r i a t e , not t o
p r e s e n t c o n d i t i o n s b u t t o t h o s e w h i c h will e x i s t a f t e r t h e i r
r e c o n s t r u c t i o n ( p a r a g r a p h 9 1 ) . I n t h e c a s e of a g r i c u l t u r e , it h a s
b e e n p u t t o us t h a t p i g - p r o d u c t s a n d p o u l t r y - p r o d u c t s offer a n
i m p o r t a n t field for r e p l a c i n g i m p o r t s b y h o m e p r o d u c t i o n , a n d we
t h i n k t h a t t h e case should be seriously e x a m i n e d ( p a r a g r a p h 93).
(ii) A R e v e n u e Tariff.
H a v i n g regard to the various considerations discussed in the
R e p o r t , to t h e B u d g e t a r y p r o b l e m , a n d to t h e effect o n b u s i n e s s
c o n f i d e n c e , t h e r e e x i s t s a sufficient case for a c o m p a r a t i v e l y low
g e n e r a l tariff (say 1 0 p e r c e n t . ) , c o v e r i n g wide c a t e g o r i e s of i m p o r t s
without discrimination, either on m a n u f a c t u r e d goods or m a n u f a c ­
t u r e d goods a n d food, d e s i g n e d to m i t i g a t e t h e c o n d i t i o n s of g e n e r a l
d i s e q u i l i b r i u m n o w e x i s t i n g , r a t h e r t h a n to f a v o u r p a r t i c u l a r
i n d u s t r i e s ( p a r a g r a p h 94).
We recommend—
(a) t h a t s u c h a tariff s h o u l d in a n y c a s e b e r e m o v e d in t h e
e v e n t of a b n o r m a l u n e m p l o y m e n t b e i n g c l e a r l y a t a n
e n d , o r of a s u b s t a n t i a l r e c o v e r y of t h e p r i c e - l e v e l (say)
t o t h e 19-25-28 s t a n d a r d . ( T h e p o s s i b i l i t y of t h e s e l i m i t s
a n d c o n d i t i o n s b e i n g o b s e r v e d we r e g a r d a s a m a t t e r for
p o l i t i c a l a n d n o t for e c o n o m i c j u d g m e n t ; t h e r e i s n o
h i s t o r i c a l p r e c e d e n t for s u c h a tariff a s we e n v i s a g e , a n d
t h e q u e s t i o n c a n n o t t h e r e f o r e be a n s w e r e d n e g a t i v e l y
(paragraph 95):
lb) t h a t t h e tariff s h o u l d b e r e l a x e d in f a v o u r of a n y of t h e
D o m i n i o n s a c c o r d i n g to t h i s c o u n t r y a sufficient p r e f e r ­
e n c e i n e x c h a n g e , a n d t h a t c o m p l e t e f r e e d o m of i m p o r t
s h o u l d b e a c c o r d e d to a n y c o u n t r y w h i c h allows t h e s a m e
f r e e d o m to G r e a t B r i t a i n ( p a r a g r a p h 9 6 ) .
Dissent
(i)
of Professor
Pigou.
Safeguarding.
P r o f e s s o r P i g o u d i s s e n t s from t h e c o n c l u s i o n s of t h e m a j o r i t y
c o n c e r n i n g t h e p r o t e c t i o n of i r o n a n d steel o n t h e following
grounds:—
(a) it w o u l d b e i m p r a c t i c a b l e to p r o t e c t i r o n a n d s t e e l w i t h o u t
a t t h e s a m e t i m e n o t m e r e l y g r a n t i n g d r a w b a c k s to
e x p o r t i n d u s t r i e s t h a t u s e steel in t h e i r w o r k , b u t also
s o m e h o w c o m p e n s a t i n g h o m e ' i n d u s t r i e s that d o t h i s .
P r o m simple beginnings an elaborate and complicated
s y s t e m of d u t i e s or o t h e r c o m p e n s a t o r y a r r a n g e m e n t s
would t h u s grow u p ;
(b) t h e c o n d i t i o n for p r o t e c t i o n , i . e . , t h a t t h e i n d u s t r y s h o u l d
u n d e r t a k e to r a t i o n a l i s e itself, is n o t o n e t h a t is c a p a b l e
of b e i n g e n f o r c e d ; for ' ' t h e i n d u s t r y ' ' is n o t a n
individual.
It m i g h t even h a p p e n that, under the
s h e l t e r of p r o t e c t i o n , inefficient firms would b e m a i n ­
tained
a n d t h e process of r a t i o n a l i s a t i o n
actually
impeded;
(c) a d u t y of t h i s c h a r a c t e r , t h o u g h i m p o s e d as a t e m p o r a r y
m e a s u r e , would p r o v e in p r a c t i c e , w h e n t h e c i r c u m ­
s t a n c e s , in r e s p e c t of w h i c h t h e m a j o r i t y c o n t e m p l a t e i t ,
h a v e d i s a p p e a r e d , e x c e e d i n g l y difficult t o r e m o v e ;
(d) if it be t h e fact t h a t , i n view of t h e h e a v y losses w h i c h it
h a s s u s t a i n e d , t h e i n d u s t r y is u n a b l e t o r a i s e t h e c a p i t a l
n e c e s s a r y to m o d e r n i s e its p l a n t a n d so do w i t h o u t s o m e
form of G o v e r n m e n t a s s i s t a n c e , m e t h o d s of a s s i s t a n c e
o t h e r t h a n t h o s e of a tariff a r e a v a i l a b l e ( p a r a g r a p h 9 2 ) .
(ii) A R e v e n u e Tariff.
P r o f e s s o r P i g o u , w h i l e a g r e e i n g t h a t t h e a r g u m e n t s for s u c h
a tariff a r e s t r o n g e r t h a n for s a f e g u a r d i n g d u t i e s , n e v e r t h e l e s s
d i s s e n t s from t h e r e c o m m e n d a t i o n of t h e m a j o r i t y i n favour of a
low g e n e r a l tariff. H i s r e a s o n s a r e a s follows. If t h e r e were a n y
r e a l p r o s p e c t of a tariff o n c e i m p o s e d b e i n g r e m o v e d , a s t h e m a j o r i t y
s u g g e s t , w h e n a b n o r m a l u n e m p l o y m e n t d i s a p p e a r s or t h e p r i c e - l e v e l
is r e s t o r e d , t h e o b j e c t i o n s t o t h e p r o p o s a l w o u l d n o t be v e r y s e r i o u s ;
t h o u g h t h e k n o w l e d g e t h a t it i s p r o p o s e d to r e m o v e t h e d u t y w h e n
u n e m p l o y m e n t d i s a p p e a r s could h a r d l y fail t o h a v e a d i s t u r b i n g
i n f l u e n c e o n b u s i n e s s . B u t i n p r a c t i c e it is v e r y u n l i k e l y t h a t t h e
tariff w o u l d be r e m o v e d w h e n t h i s d e p r e s s i o n e n d s . O n t h e con­
t r a r y , e v e n if it w-ere n o t r a i s e d m u c h a b o v e 10 p e r c e n t , d u r i n g t h e
p r e s e n t d e p r e s s i o n , as in fact m i g h t e a s i l y h a p p e n , it would a l m o s t
c e r t a i n l y b e k e p t o n a f t e r w a r d s : t h e n , a t t h e n e x t d e p r e s s i o n , to
m e e t t h a t , t h e r a t e s of d u t y would b e i n c r e a s e d ; a n d so on
c u m u l a t i v e l y . T h e temporary tariff, l i t t l e a s it i s d e s i r e d b y t h o s e
p r o p o s i n g it, would b e c o m e n o t m e r e l y a p e r m a n e n t , b u t a n ever­
e x p a n d i n g tariff.
T h e r e is n o i n s t a n c e i n h i s t o r y of a tariff
i m p o s e d t o m e e t a d e p r e s s i o n a n d r e m o v e d w h e n good t i m e s
r e t u r n e d ( p a r a g r a p h 97).
(k) M E T H O D S
OF
ADJUSTING
MONEY
INCOMES
GENERALLY.
T h e m a j o r p a r t of t h e p r e s e n t difficulties is d u e to t h e c h a n g e
in t h e v a l u e of m o n e y .
I n so far a s t h i s m a y r e q u i r e a
c o m p e n s a t i n g c h a n g e in m o n e y w a g e s , it w o u l d b e easier to justify
a g e n e r a l r e d u c t i o n of m o n e y w a g e s if a c c o m p a n i e d b y a c h a n g e i n
o t h e r k i n d s of fixed or quasi-fixed
m o n e y incomes. The case is,
t h e r e f o r e , a s t r o n g o n e for t r y i n g t o find s o m e k i n d of g e n e r a l
s c h e m e which would affect a wide r a n g e of m o n e y i n c o m e s a n d
would n o t be c o n c e n t r a t e d o n p a r t i c u l a r c a t e g o r i e s . M o r e o v e r , a
g e n e r a l s c h e m e would avoid t h e difficulties a n d i n e q u i t i e s of p i e c e ­
m e a l s e t t l e m e n t s ( p a r a g r a p h 9 8 ) . A g e n e r a l r i s e i n world p r i c e s
(i.e.,
a g e n e r a l fall i n t h e v a l u e of m o n e y ) would be t h e b e s t of all
r e m e d i e s . F a i l i n g t h i s , t h e m o s t o b v i o u s m e t h o d would be to a l t e r
t h e v a l u e of s t e r l i n g in t e r m s of g o l d , i.e., to d e v a l u a t e
( p a r a g r a p h 100).
(i) Devaluation.
W h a t e v e r m i g h t h a v e b e e n possible i n 1925 before t h e r e t u r n
to t h e gold s t a n d a r d , we s h o u l d see g r a v e objections t o - d a y in
r e v e r s i n g t h e decision t h e n m a d e ; a n d n o n e of u s a r e p r e p a r e d to
r e c o m m e n d s u c h a c o u r s e a t t h e p r e s e n t t i m e . It m a y , h o w e v e r
c o n c e i v a b l e , be n e c e s s a r y in t h e f u t u r e for a n u m b e r of c o u n t r i e s to
join t o g e t h e r in m a k i n g d r a s t i c c h a n g e s i n a n i n t e r n a t i o n a l c u r r e n c y
s y s t e m which is s e r v i n g so ill ( p a r a g r a p h s 101 a n d 102).
(ii) Tariffs p l u s B o u n t i e s .
A p r o p o s a l h a s b e e n s u b m i t t e d t o u s for a u n i f o r m tariff of (say)
10 p e r c e n t , o n a l l i m p o r t s w h a t s o e v e r , i n c l u d i n g food, a n d a b o u n t y
of t h e s a m e a m o u n t on all e x p o r t s w h a t s o e v e r ( p a r a g r a p h 104).
On t h e a d v a n t a g e s of t h i s s c h e m e we a r e e q u a l l y d i v i d e d , two of
us (Mr. K e y n e s a n d Sir Josiah Stamp) being m u c h attracted by
t h e s c h e m e , t h e p r a c t i c a b l e possibilities of w h i c h t h e y r e c o m m e n d
should be carefully explored.
They prefer it, on principle, to a
tariff ( p r o v i d e d it w e r e r e m o v e d w h e n t h e s a m e c o n d i t i o n s as t h o s e
s t i p u l a t e d i n t h e c a s e of a tariff a r e fulfilled ( p a r a g r a p h 105). T h e
r e m a i n i n g two of u s ( M r . H e n d e r s o n a n d P r o f e s s o r P i g o u ) a r e
o p p o s e d to t h i s p r o p o s a l s i n c e , i n t h e i r v i e w , a g e n e r a l s c h e m e of
b o u n t i e s u p o n e x p o r t s w o u l d b e c o u n t e r e d b y foreign c o u n t r i e s
u n d e r a n t i - d u m p i n g clauses, etc. Moreover, such a scheme would
b e g e n e r a l l y r e g a r d e d a s a s e r i o u s offence a g a i n s t i n t e r n a t i o n a l
e c o n o m i c c o m i t y ( p a r a g r a p h 106).
(Signed)
J. M. K E Y N E S
H . D.
HENDERSON.
A . C. P I G O U .
J . C. S T A M P .
(Signed)
2 , Whitehall
Gardens,
S.W.
October 2 4 , 1 9 3 0 .
1,
(Chairman).
R E P O R T B Y PROFESSOR L. R O B B I N S .
1. INTRODUCTORY.
I h a v e r e f r a i n e d from s i g n i n g t h e R e p o r t for r e a s o n s w h i c h I s e t
o u t b e l o w . ( S e e especially p a r a g r a p h 6 below.) I a m , h o w e v e r , i n
s u b s t a n t i a l a g r e e m e n t w i t h S e c t i o n s I to V I I , w h i c h r e p r e s e n t w h a t
s e e m s to m e to h e a t r u e d i a g n o s i s of t h e c a u s e s of t h e p r e s e n t
t r o u b l e s , a n d w h i c h , in r e g a r d to i n t e r n a t i o n a l r e m e d i e s a n d
r e m e d i e s d e s i g n e d to r e s t o r e e l a s t i c i t y to i n d u s t r y a n d t h e w a g e
s y s t e m , i n d i c a t e b r o a d l y t h e m e a s u r e s to w h i c h I myself a t t a c h
importance.
T h e r e m a i n d e r , h o w e v e r , a p p e a r s to m e t o c o n t e m ­
plate at disproportionate length m e a s u r e s which a r e n e i t h e r
d e s i r a b l e n o r , in m a n y c a s e s , p r a c t i c a b l e , a n d I wish to dissociate
myself a l t o g e t h e r from t h e decision to f r a m e t h i s p a r t of t h e R e p o r t
on these lines. T h e r e a r e , moreover, certain m a t t e r s about which
I wish to m a k e m y own a t t i t u d e explicit.
2. R I N G S A N D
MONOPOLIES.
I a t t a c h m u c h m o r e i m p o r t a n c e t h a n m y c o l l e a g u e s to t h e
p r o p o s a l t h a t a c t i o n s h o u l d be t a k e n fully to i n v e s t i g a t e a n d b r i n g
to t h e p u b l i c n o t i c e t h e o p e r a t i o n of r i n g s a n d m o n o p o l i e s . I do
n o t a n t i c i p a t e a n i m m e d i a t e effect o n t h e e m p l o y m e n t p o s i t i o n
from t h e m o s t e n e r g e t i c a d o p t i o n of s u c h m e a s u r e s , b u t I d o n o t
b e l i e v e t h a t it is e x p e d i e n t to a s k t h e t r a d e u n i o n s a l o n e t o r e v i s e
t h e i r a t t i t u d e t o w a r d r e s t r i c t i v e p r a c t i c e s , or t o p e r m i t c e r t a i n
r e d u c t i o n s of w a g e s , u n l e s s , a t t h e s a m e t i m e , s t e p s a r e t a k e n t o
expose a n d d e a l w i t h m o n o p o l i s t i c p r a c t i c e s o n t h e p a r t of o t h e r
s e c t i o n s of t h e c o m m u n i t y .
3. FOREIGN
LENDING.
I s h o u l d be definitely opposed to a n y m e a s u r e s w h i c h w o u l d ,
in m y o p i n i o n , t e n d p e r m a n e n t l y to r e s t r i c t t h e v o l u m e of o u r
foreign l e n d i n g .
I a m , t h e r e f o r e , n o t p r e p a r e d to s u p p o r t t h e
s u g g e s t i o n t h a t , in c e r t a i n c i r c u m s t a n c e s , differential t a x a t i o n
s h o u l d be i m p o s e d o n i n c o m e s f r o m c e r t a i n k i n d s of f o r e i g n i n v e s t ­
m e n t , for I b e l i e v e t h a t t h i s w o u l d be t h e effect of s u c h m e a s u r e s .
T o i m p o s e differential t a x a t i o n o n a n y f o r m of foreign i n v e s t m e n t ­
would b e a t o n e blow t o inflict d a m a g e to t h e p r e s t i g e of L o n d o n
as a n i n t e r n a t i o n a l m o n e y m a r k e t , a n d , at t h e s a m e t i m e , to
r e p u d i a t e all t h e l a b o r i o u s efforts w h i c h h a v e b e e n e x p e n d e d b y t h e
r e p r e s e n t a t i v e s of t h i s c o u n t r y a t G e n e v a to e l i m i n a t e t h e a n o m a l i e s
of d o u b l e t a x a t i o n .
T h e a t t i t u d e of o t h e r G o v e r n m e n t s in
r e s t r i c t i n g foreign i n v e s t m e n t is n o t i n f r e q u e n t l y m a d e t h e subject
of o p p r o b i o u s c o m m e n t o v e r h e r e . If we wish t o u r g e o t h e r p e o p l e
to good i n t e r n a t i o n a l b e h a v i o u r , it is scarcely c o n s i s t e n t , a t s u c h
a t i m e , to i m i t a t e p r e c i s e l y t h o s e e l e m e n t s in t h e i r policy w h i c h
we a r e at p r e s e n t e x h o r t i n g t h e m to a b a n d o n .
4 . P U B L I C WORKS, ETC.
A s r e g a r d s e x p e n d i t u r e on P u b l i c W o r k s , e t c . , I a g r e e w i t h m y
c o l l e a g u e s as to t h e n a t u r e of t h e c r i t e r i a to w h i c h s u c h m e a s u r e s
s h o u l d be s u b m i t t e d . I a m less c e r t a i n , h o w e v e r , t h a t t h e effect
of s u c h m e a s u r e s as h a v e a l r e a d y b e e n p u t into o p e r a t i o n h a s b e e n
wholly g o o d ; a n d I a m m o r e a p p r e h e n s i v e t h a t a c o n t i n u a n c e of
t h i s policy m a y definitely t e n d to d e l a y t h e c o m i n g of r e c o v e r y .
M o r e o v e r , I a m v e r y d u b i o u s of t h e w i s d o m of t h e g e n e r a l policy
of s u b s i d i s i n g t h o r a t e of i n t e r e s t a t w h i c h c e r t a i n b u s i n e s s e n t e r ­
p r i s e s c a n b o r r o w . I n e x c e p t i o n a l c i r c u m s t a n c e s , I c a n conceive
a justification for t h i s policy, b u t I believe t h a t it is difficult to c a r r y
it far w i t h o u t g r a v e d a n g e r of w a s t e a n d m a l d i s t r i b u t i o n .
8. W A G E
SUBSIDIES.
I a m opposed to wage subsidies. I n m y view t h e y are b o u n d
to cause unfairness and anomaly, and, in the present budgetary
s i t u a t i o n , to d i s c u s s t h e m at l e n g t h a p p e a r s t o m e t o be w h o l l y
superfluous.
6. T A R I F F S .
As r e g a r d s t h o s e s e c t i o n s of t h e R e p o r t w h i c h r e l a t e to tariffs
and similar measures, I am in complete disagreement with t h e
m a j o r i t y of m y c o l l e a g u e s .
I do not believe t h a t t h e adoption
of t h e m e a s u r e s t h e r e d i s c u s s e d w o u l d b e e x p e d i e n t , and I do not
believe that the form of the discussion
adequately
represents
the
balance of the arguments
involved.
M y objections u n d e r this head
may be s u m m a r i s e d t h u s : —
As r e g a r d s t h e g e n e r a l d i s c u s s i o n of t h e a r g u m e n t s for a n d
a g a i n s t tariffs, t h e r e a r e m a n y p r o p o s i t i o n s i n t h e R e p o r t w i t h
w h i c h I a m n o t i n s e r i o u s d i s a g r e e m e n t . T h e t o t a l effect I b e l i e v e
to b e m i s l e a d i n g .
T h e i m p r e s s i o n w h i c h I i m a g i n e i t will m a k e
o n t h e m i n d of a n y l a y r e a d e r is t h a t t h e v a r i o u s a r g u m e n t s
a g a i n s t F r e e T r a d e w h i c h it e n u m e r a t e s a r e t o b e r e g a r d e d , a n d
a r e r e g a r d e d i n fact b y t h e m a j o r i t y of p r o f e s s i o n a l e c o n o m i s t s ,
a s b e i n g of a d e g r e e of i m p o r t a n c e a t l e a s t c o m m e n s u r a t e w i t h t h e
arguments against.
T h i s i n f e r e n c e , I b e l i e v e , w o u l d be w h o l l y
false. I n t h e m a i n , I believe it t o b e t r u e t o s a y t h a t , i n t h e p a s t ,
t h e so-called e x c e p t i o n s to t h e g e n e r a l p r e s u m p t i o n i n f a v o u r of
F r e e T r a d e h a v e b e e n r e g a r d e d b y e c o n o m i s t s as a c a d e m i c p l a y ­
things—interesting as illustrating remote analytical points, b u t ,
f r o m t h e p o i n t of view of p r a c t i c e , c o m p l e t e l y i n s i g n i f i c a n t - a n d
t h e r e i s n o r e a s o n to s u p p o s e t h a t t h i s is n o t still t h e c a s e .
Some
e c o n o m i s t s i n t h i s c o u n t r y , d e s p a i r i n g of t h e r i g i d i t y of m o n e y
w a g e s , m a y h a v e t u r n e d to P r o t e c t i o n a s a d e s p e r a t e e x p e d i e n t ,
b u t , i n m y o p i n i o n , it is q u e s t i o n a b l e w h e t h e r t h e i r v e r d i c t will
be generally accepted.
T h e tariff is e s s e n t i a l l y a n e x p e d i e n t for a v o i d i n g t h e effects of
t h e r i g i d i t y of m o n e y w a g e s , a n d i t s r e s u l t m u s t i n e v i t a b l y b e t o
reduce real wages by raising prices. I agree with m y colleagues
t h a t t h e r i g i d i t y of m o n e y w a g e s is u n d e s i r a b l e , a n d t h a t , i n t h e
p r e s e n t e m e r g e n c y , s o m e r e d u c t i o n of m o n e y w a g e s m a y b e
n e c e s s a r y . B u t I do n o t b e l i e v e t h a t , if t h i s c a n n o t b e a c h i e v e d
b y c a l m a n d s t r a i g h t - f o r w a r d i n g r e a s o n i n g , it is d e s i r a b l e t h a t i t
s h o u l d be a t t e m p t e d b y i n d i r e c t m e a n s .
A tariff w o u l d t e n d t o
i n v o l v e lower r e a l w a g e s . T h e r e s h o u l d b e n o m i s t a k e a b o u t t h a t .
B u t , w h i l e t h e tariff m u s t t h u s be c o n c e i v e d a s a n e x p e d i e n t for
a v o i d i n g t h e effects of w a g e r i g i d i t y , it i s h i g h l y d o u b t f u l w h e t h e r ,
e v e n s o , it is t o b e r e g a r d e d a s a n effective e x p e d i e n t .
A
s u b s t a n t i a l p r o p o r t i o n of t h e u n e m p l o y e d a r e i n t h e e x p o r t
industries which are technically unprotectable.
These industries
will n o t b e h e l p e d b y P r o t e c t i o n .
O n t h e c o n t r a r y , t h e y will b e
i n j u r e d . A n d t h i s for t w o r e a s o n s : —
(a) I n
t h e first p l a c e , t h e y will b e i n j u r e d b e c a u s e , if w e
c o n t r a c t t h e v o l u m e of i m p o r t s , we i n j u r e o u r f o r e i g n
c u s t o m e r s . I t is n o t , s t r i c t l y s p e a k i n g , t r u e t h a t i n t h e
very short r u n our imports and exports necessarily
e x p a n d a n d d e c l i n e i n exact c o r r e l a t i o n . B u t d i s c o v e r y
of t h i s s i m p l e f a c t , l o n g k n o w n t o a l l r e p u t a b l e
e c o n o m i s t s , s h o u l d n o t b l i n d u s t o t h e solid core of t r u t h
in t h e old classical c a t c h w o r d . T h e B e p o r t s u g g e s t s t h a t
t h e c o n t r a c t i o n would be m e t b y a n i n c r e a s e i n f o r e i g n
lending.
I do not believe t h a t this would necessarily
follow. B u t , if it d i d , it w o u l d s u r e l y b e a n odd s t a t e of
affairs in w h i c h we h a d to l e n d m o r e a b r o a d in o r d e r t o
e n a b l e c u s t o m e r s t o b u y g o o d s w h i c h we h a d p r e v e n t e d
t h e m from o b t a i n i n g b y t h e e x c h a n g e of t h e i r o w n
products!
(6) S e c o n d l y , a n d of e v e n g r e a t e r i m m e d i a t e i m p o r t a n c e , a s
far a s t h e s h o r t r u n p r o b l e m s a r e c o n c e r n e d , p r o t e c t i o n
w o u l d r a i s e t h e c o s t s of t h e e x p o r t i n d u s t r i e s .
If t h e
tariff is g e n e r a l , r a w m a t e r i a l p r i c e s m u s t b e affected.
If it is l i m i t e d t o m a n u f a c t u r e s , d o m e s t i c p r i c e s w o u l d
still be r a i s e d . A n d it m u s t n o t b e f o r g o t t e n t h a t m a n y
m a n u f a c t u r e d i m p o r t s a r e t h e r a w m a t e r i a l of s o m e of
o u r m a i n e x p o r t i n g i n d u s t r i e s . T h e t i n p l a t e i n d u s t r y of
Wales, t h e shipbuilding industry generally, would b e
prejudiced b y a tariff o n i m p o r t e d s t e e l .
N o r s h o u l d we s l u r o v e r t h e i n t e r n a t i o n a l r e p e r c u s s i o n s of t h e
a d o p t i o n of a tariff policy by t h i s c o u n t r y . A tariff is a n affirmation
of s e p a r a t i s m , a r e f u s a l to c o - o p e r a t e , a d e c l a r a t i o n of r i v a l r y . T h a t
twelve y e a r s after a w a r w h i c h d e v a s t a t e d civilisation a n d t h r e a t e n e d
to d e s t r o y t h e goodly h e r i t a g e of E u r o p e a n c u l t u r e , w e s h o u l d e v e n
be d i s c u s s i n g s u c h m e a s u r e s , is a s a d r e m i n d e r , n o t o n l y t h a t s o m e
m e n lose faith in a g r e a t i d e a l w h e n it is n o t r e a l i s e d q u i c k l y , b u t
t h a t m o s t a r e totally b l i n d e v e n to t h e m o s t obvious c o n s i d e r a t i o n s
of m a t e r i a l i n t e r e s t . T h e blow w h i c h w o u l d be s t r u c k t o t h e m o v e ­
m e n t for lower tariffs i n t h e r e s t of t h e world b y a decision o n t h e
p a r t of t h i s c o u n t r y t o a d o p t a policy of P r o t e c t i o n i s m , would itself
i n v o l v e r e a c t i o n s sufficiently s e r i o u s to c o u n t e r b a l a n c e a n y p o s s i b l e
b e n e f i t s . O u r position i n t h e m o d e r n world is n o t s u c h t h a t we c a n
afford to give t h e s l i g h t e s t e n c o u r a g e m e n t or p r o v o c a t i o n t o t h e
forces w h i c h a r e c o n t i n u a l l y a t work m a k i n g for h i g h e r tariffs
ilse where.
7 . A s r e g a r d s t h e p a r t i c u l a r tariffs d i s c u s s e d i n t h e R e p o r t ,
w h a t I h a v e said a b o v e i n d i c a t e s t h e n a t u r e of m y o b j e c t i o n s to t h e
10 p e r c e n t , g e n e r a l tariff. If it is n o t a c c o m p a n i e d b y d r a w b a c k s , it
a t o n c e h i t s t h e e x p o r t t r a d e s . If it is, it c r e a t e s g l a r i n g a n o m a l i e s .
A d r a w b a c k o n i m p o r t e d s t e e l , for e x a m p l e , would b e a n i n c e n t i v e
t o u s e t h e f o r e i g n p r o d u c t . I h a v e n o belief t h a t t h e tariff w o u l d
b e t e m p o r a r y , o r w o u l d n o t l e a d at once to a l l t h e p o l i t i c a l
a b u s e s w h i c h e l s e w h e r e h a v e a c c o m p a n i e d t h e i n t r o d u c t i o n of tariffs.
W e t h i n k too h i g h l y of o u r s e l v e s if we s u p p o s e t h a t it is a n o p e n
q u e s t i o n w h e t h e r we c a n e s c a p e t h e s e t h i n g s . T h o s e of u s w h o d o
n o t m i n d c o r r u p t i o n in p u b l i c life m a y decide to p a y t h i s p r i c e for
t h e p r o b l e m a t i c b e n e f i t s : it is i m p o r t a n t t h a t we s h o u l d r e a l i s e t h e
n a t u r e of t h e price w e a r e p a y i n g .
8. T h e " tariff b o u n t y " p r o p o s a l s e e m s to m e to b e of a c a d e m i c
interest only.
A n y tariff e x p e r t could d e s t r o y a n y belief i n i t s
p r a c t i c a b i l i t y in five m i n u t e s . I t is c e r t a i n t h a t it would b e m e t
b y t h e i m m e d i a t e e r e c t i o n of a n t i - b o u n t y d u t i e s by f o r e i g n P o w e r s .
If it b e c o m e s a s y s t e m of tariffs p l u s d r a w b a c k s , it b e c o m e s
administratively inconvenient.
9. As r e g a r d s t h e special " s a f e g u a r d i n g " d u t i e s p r o p o s e d
for i r o n a n d s t e e l , a n d p i g a n d p o u l t r y p r o d u c t s , I a m e n t i r e l y
u n c o n v i n c e d t h a t a n y case h a s b e e n p r e s e n t e d .
I agree with
P r o f e s s o r P i g o u ' s m i n u t e of d i s s e n t a s r e g a r d s i r o n a n d s t e e l .
If t h e r e is a special c a s e for a s s i s t a n c e to t h i s i n d u s t r y , t h e r e a r e
m a n y w a y s of p r o v i d i n g it o t h e r t h a n b y m e a n s of a tariff.
As r e g a r d s p i g - a n d - p o u l t r y p r o d u c t s , t h e p r o p o s a l s e e m s t o m e
e v e n less d e s i r a b l e . T h e r e is n o r e a s o n t o s u p p o s e t h a t t h e p r o d u c e r s
of t h e s e p r o d u c t s a r e i n e x t r a o r d i n a r y difficulties; t h e r e c a n be n o
s h a d o w of justification for r e g a r d i n g t h e k e e p i n g of p i g s or fowls a s
a n i n f a n t i n d u s t r y . M o r e o v e r , h e r e is a case w h e r e t h e r e p e r c u s s i o n s
on o u r e x p o r t t r a d e m i g h t be expected to be d i r e c t l y i n j u r i o u s .
A
s u b s t a n t i a l p r o p o r t i o n of o u r p i g - p r o d u c t i m p o r t s c o m e from
D e n m a r k . D e n m a r k i s a c o n s i d e r a b l e b u y e r of E n g l i s h m a n u f a c ­
t u r e s . If we cease to b u y D a n i s h b a c o n , is it to b e s u p p o s e d t h a t
t h e i n h a b i t a n t s of D e n m a r k c a n c o n t i n u e to b u y t h e s a m e q u a n t i t i e s
of o u r m a n u f a c t u r e s ? P e r h a p s it will b e replied t h a t we m a y l e n d
t h e m (or o t h e r s ) t h e m o n e y to do so. T h i s does n o t s e e m t o m e t h e
k i n d of r e p l y w h i c h will a p p e a l t o t h e p r a c t i c a l j u d g m e n t .
T h e r e i s , h o w e v e r , o n e a r g u m e n t w h i c h s o m e m i g h t t h i n k to be­
i n favour of t h e t a x a t i o n of D a n i s h p i g - p r o d u c t s . O u r i m p o r t s from
D e n m a r k a r e p r o d u c e d b y poor b u t i n d u s t r i o u s p e a s a n t s , o w n i n g
t h e i r own l a n d a n d h a v i n g few a v a i l a b l e s o u r c e s of a l t e r n a t i v e o c c u ­
[21809]
o
p a t i o n . C i r c u m s t a n c e s of t h i s s o r t p r o v i d e one of t h e r a r e cases in
w h i c h , for a time, it is a c t u a l l y possible to e x a c t t a x a t i o n from t h e
f o r e i g n e r . If we t a x D a n i s h b a c o n , it is c o n c e i v a b l e t h a t , for a time,
we m a y r a i s e s o m e little r e v e n u e , n o t a t t h e cost of t h e E n g l i s h c o n ­
s u m e r , b u t a t t h e cost of t h e s t a n d a r d of life of t h e D a n i s h p e a s a n t
producer.
To s o m e of m y f e l l o w - c o u n t r y m e n t h i s m a y a p p e a r
d e s i r a b l e . T o o t h e r s it m a y a p p e a r m e a n a n d d e s p i c a b l e .
(Signed)
2 , Whitehall
Gardens,
S.W.
October 2 4 , 1 9 3 0 .
I,
LIONEL
BOBBINS.
STATISTICAL MATERIAL P R E P A R E D BY T H E STAFF
T H E ECONOMIC ADVISORY COUNCIL.
OF
Table A . — I n d e x Figures of Industrial Production.
-
1924.
Great Britain
TJ.S.A
100
100
1925.
1929.
101 1
109
2nd Quarter,
1930.
103-4
109
Ill S
124
Sources:
Board of Trade Journal,
Federal
Reserve
Bulletin,
London
and Cambridge
Economic
Service
(for 1925
figure).
Table B . — W o r l d P r i c e s .
T h e following t a b l e s h o w s m o v e m e n t s of w o r l d p r i c e s a n d p r i c e s
i n c e r t a i n c o u n t r i e s , as g i v e n b y D r . B o w l e y ' s i n d e x d e s i g n e d for
international comparisons.
T h e b a s e - y e a r i s 1 9 2 5 . T h e figures
g i v e n for t h e m o n t h s s h o w n i n 1928 a n d 1 9 2 9 a p p e a r to h a v e b e e n
m a x i m a a n d t h o s e for 1927 m i n i m a . All p r i c e s h a v e b e e n r e d u c e d
t o g o l d , b y r e f e r e n c e to t h e r a t e of e x c h a n g e .
Britain...
U.S.A
Germany
France
Sweden...
Weighted
average
world prices
1922. 1923. 1924.
97
SS
103
99
112
100
105
101
92-2
99-9
101
98
98
103
100
May Sept. Aug.
1925. Jan.
1927. 1928. 1929. 1930.
100
100
100
100
100
91
88
95
101
91
99 1 100-0 90-5
95
100
105
105
94
87
94
96
96
86
72
74
87
87J
75
100 4
93-3
76-8
Table C . — E s t i m a t e of t h e National I n c o m e in T e r m s of Money.
T H E following t a b l e gives e s t i m a t e of t h e N a t i o n a l I n c o m e i n
t e r m s of m o n e y . T h e r i s e of m o n e y v a l u e of t h e n a t i o n a l i n c o m e
b e t w e e n 1 9 2 4 a n d 1 9 2 8 , i n spite of t h e fall i n c o m m o d i t y p r i c e s ,
was p a r t l y d u e to i n c r e a s e d p r o d u c t i o n a n d p a r t l y t o t h e i n c r e a s i n g
r e l a t i v e i m p o r t a n c e of services (e.g., r e t a i l d i s t r i b u t i o n of w h i c h t h e
price h a s not fallen).
F r o m 1928 t o 1929 it a p p e a r s t h a t t h e r e w a s a f u r t h e r
considerable rise i n both wages a n d profits.
Sources:
B o w l e y a n d S t a m p , The National
Income,
1924.
B r o u g h t u p to d a t e w i t h Report
of His Majesty's
Commissioners
of Customs
and Excise,
1 9 2 9 , Ministry
of Labour
Wage
Enquiry
(Gazette,
October-December,
1929), a n d m o n t h l y e s t i m a t e of i n s u r e d
persons at work.
( £ million.)
—
1911.
Wages*
...
...
...
...
* ...
Profits and Salaries*
-"Unearned" interest from home Investment!...
770
583
270
1,000
1,295
530
1.G23
3,425
3,045
194
171
156
222
250
255
1,988
3,803
4,150
Net proceeds of industry and trade
Net income from overseas ...
Net income from land and houses
Total Social income
1924.
1928.
1
1,720
1,925
Transfer Payments made out of above.
National Debt interest, (internalj)
Health and unemployment benefits ...
War and services pensions ...
Old Age and Widows' Pensions
Poor, relief...
1G ­
10
9
10
14
268
07
89
24
32
277
69
78
40
32
Revenue raised for making the aboue and
other Payments.
Direct taxation (excluding P.O. and Road
Fund) ...
Indirect taxation (Customs and Excise)
Rates
84
72
73
494
235
160
493
253
188
Wages as % of net proceeds of industry
and trade
47 "5
46-7
47-1
* Before deduction of insurance contributions.
I Excluding National Debt interest.
i External payments are deducted from the receipts from overseas
investment.
T a b l e D . — E x p o r t s a s a P e r c e n t a g e of P r o d u c t i o n .
T h e following t a b l e s h o w s t h e d i m i n i s h i n g i m p o r t a n c e of t h e
e x p o r t t r a d e r e l a t i v e l y to o u r w h o l e n a t i o n a l e c o n o m y .
Distinction
is d r a w n b e t w e e n w o r k e r s i n m a n u f a c t u r e a n d w o r k e r s i n all
o c c u p a t i o n s ( t h e l a t t e r i n c l u d e s b u i l d i n g r e t a i l t r a d e a n d so f o r t h ) .
Sources:
P l u x , A. W . National Tncome, J o u r n a l ,
Eoyal
S t a t i s t i c a l S o c i e t y , 1 9 2 9 , P a r t 1, a n d c a l c u l a t i o n s b y m e t h o d
i n d i c a t e d i n m e m o r a n d u m p r e p a r e d for t h e E c o n o m i c A d v i s o r y
Council i n M a y 1 9 3 0 (Council P a p e r E . A . C . ( H . ) 9 1 ) .
—
Workers Manufacturing
for Export as a
Percentage of all
Manufacturing Workers.
Workers for Export as
a Percentage of the
Whole Occupied
Population.
44-5
39-4
38-4
33-8
29-6
27-4
235
1907 ...
1924
1929 ...
1930 (2nd quarter)
T h e following
based :—
table
gives the
figures
Workers Employed by
Export Trades.
(000's)..
(000's)
1907
1924
1929
1930 (2nd Quarter) ...
(ii) Trans(i) Manuport and
facture.
Distribution.
2,465
2,485
2,445
2,000
300
325
350
285
on which
Table
D
is
Tota
Totall
Totall Engaged
Engage d
Engage d i n Tota
Engaged
Buildin g
Mining
Minin g and
and in Building
Distribution
Distributio
n
ManuManu­
Services
Services,, &c.
&c.
facture.
facture .
5,550
6,315
6,375
5,905
3,700 approx.
3,200
3,815
3,915
Table E . — Y a l u e of certain Commodities Exported.
1913.
1924.
1929.
1930
(on basis of
first nine
months).
50-7
50-5
126-4
356
33-8
525-3
72-1
74-5
199 2
67-8
44-8
801-0
48-6
68-0
135-4
52-9
54-4
729-6
46-6
540
95-2
38-8
48-0
588-1
—
Coal...
Iron and steel
Cotton
Wool
Machinery
All exports ...
Sources:
Statement
of Trade
and
Navigation.
V o l u m e of B r i t i s h E x p o r t s (1924 = 100).
1918
1924
1929
1930 (2nd Quarter)
120 (approx.)
100
108-3
87-4
Sources:
Board
of Trade
Journal
Committee
on Industry
and
Trade.
and
Reyort
of
Balfour
T a b l e F . — U n e m p l o y m e n t in E x p o r t I n d u s t r i e s .
T h e following t a b l e s h o w s t h e e x t e n t of t h e c o n c e n t r a t i o n of
w o r k e r s i n t h e old s t a p l e i n d u s t r i e s .
Sources:
Ministry
of Labour Gazette.
Calculations carried back
t o 1 9 1 1 f r o m i n f o r m a t i o n i n C e n s u s 1 9 2 1 a n d 1 9 1 1 , C e n s u s of
Production 1924, and information in Balfour report, by method
given in t h e J o u r n a l , Boyal Statistical Society, 1929, P a r t I .
(Figures in Thousands.)
Numbers Seeking
Employment.
Numbers
Unemployed.
1911.
1921
1924.
1929.
June
1924.
June
1929.
1,038
192
1,201
262
1,229
308
1,075
284
60
50
204
50
253
96
718
550
228
1,039
527
227
994
555
253
932
555
239
184
87
16
110
76
34
203
258
64
All Insured In­
dustries
10,430 11,000
11,327
12,094
1,085
1,164
2,119
-Coal
Iron and Steel
Engineering
and
Shipbuilding
Cotton
Wool
August
1930.
Table G.—Retail Prices.
July 1914.
Food...
Kent...
Clothing
Fuel and light
General
Source
: Ministry
...
100
100
100
100
100
of Labour
July 1924.
162
147
225
185
170
Gazette.
July 1929.
Aug. 1930.
149
153
215-220
170
161
144
153
210
170
157
Table H
R e a l W a g e a n d P r o d u c t i v i t y C h a n g e s s i n c e 1924.
T h e following t a b l e e x a m i n e s i n d e t a i l t h e factors r e l a t i n g t o t h e
r i s e i n r e a l w a g e s since 1 9 2 4 . I t will be s e e n t h a t , o n t h e w h o l e ,
p h y s i c a l v o l u m e of o u t p u t p e r h e a d h a s r i s e n f a s t e r t h a n r e a l w a g e s ,
w h i c h h a v e b e e n h e l d b a c k b y t h e fact t h a t r e t a i l p r i c e s h a v e fallen
m o r e slowly t h a n w h o l e s a l e . . T h e r e h a s b e e n s o m e r i s e i n t h e r a t i o
of w a g e - c o s t s to p r o c e e d s . T h e figures in t h e T a b l e refer to m a n u ­
facture and mining.
Sources : Board of Trade Index of
Production.
E m p l o y m e n t e s t i m a t e d b y m e t h o d g i v e n in J o u r n a l , R o y a l
Statistical Society, 1929, P a r t I.
R e a l w a g e s from P r o f e s s o r B o w l e y ' s i n d e x a n d M i n i s t r y of
L a b o u r Cost of L i v i n g I n d e x .
S e l l i n g v a l u e of m a n u f a c t u r e d goods f r o m a v e r a g e v a l u e s of
British exports.
M o n e y v a l u e of n e t o u t p u t from a b o v e i n d e x of s e l l i n g p r i c e s a n d
S a u e r b e c k i n d e x for r a w m a t e r i a l s , a s s u m i n g 8 0 p e r c e n t , of s e l l i n g
v a l u e r e p r e s e n t e d b y r a w m a t e r i a l s i n 1 9 2 4 (vide F l u x , N a t i o n a l
I n c o m e , R o y a l S t a t i s t i c a l Society, N o v e m b e r 1 9 2 8 ) .
Output Index.
Persons Employed (000's).
Year.
Output per head.
Index of
Index of Margin
Selling between
Real
Value
ManuDistribuWages. Manu- factured
tion Trans- ManuManuManufactured Goods and
Mining. Genera).
Mining. General.
Mining.
port,
facturo.
facture.
facture.
Goods.
Building
Raw
Materials.
Services.
100
100
100
100
100
95-0
100 8
101-3
123-8
100 8
105
80-5
86-0
91-7
100-7
1094
89-2
105-5
104 -5
120-4
100 8
io:
86-3
86-8
92-0
99-7
3,815
115-1
96-8
111-8
108 2
126-3
110-7
106
84-0
86-8
00-1
99-1
8G1
3,835
113-2
102-0
110-9
111-2
131-3
1132
107
82 0
86-0
97 a
98-7
758
3,845
107-6
87-4
103-4
109-3
120-1
110-4
110
805
85 8
95-8
98-3
1924
5,220
1,093
3,229
100
1927
5,470
840
3,093
109-3
1928
5,403
771
3,707
1929
5,547
829
1930
(1st quarter)
5,316
1930
(2ndg.uarter)
5,145
100
100
Money
Value
of Net Money
Output Wages.
per
Man.
100
100
100
Output Index.
Persons Employed (000's).
Year.
Output per head.
Index of
Index of Margin
Selling between
Real
Value
ManuDistribuWages. Manu- faetured
tion Trans- ManuManuManufactured Goods and
Mining. General. facture. Mining. General.
Mining.
port,
faeture.
facture.
Goods.
Raw
Building
Materials.
Services.
100
100
100
100
100
95-0
106 8
104-3
123-8
106 8
105
86-5
86-0
91-7
100-7
1094
89-2
105-5
104-5
126-4
106 8
io:
86-3
86-8
92-6
99-7
3,815
115-1
96-8
111-8
108 2
126-3
110-7
106
84-0
86-8
96-1
99-1
861
3,835
1132
102-0
110-9
111-2
1313
1132
107
820
86-0
97-5
98-7
758
3,845
107-5
87-4
103-4
109-3
1261
110-4
no
805
85 8
958
98-3
5,220
1,093
3,229
100
1927
5,470
840
3,693
109-3
1928...
5,463
771
3,767
1929
5,547
829
1930
(1st quarter)
5,316
1930
(2ndquarter)
5,145
100
100
100
100
1924
100
Money
Value
of Net Money
Output Wages.
per
Man.
CO
j
Table I
Wages in certain Industries.
T h e following t a b l e gives c o m p a r i s o n s b e t w e e n w a g e r a t e s i n
different i n d u s t r i e s t o g e t h e r w i t h o t h e r r e l e v a n t i n f o r m a t i o n , s u c h
a s ' t h e r a t e of g r o w t h of t h e i n d u s t r y a n d t h e e x i s t i n g m a r g i n of
unemployment.
Absolute comparisons are a t t e m p t e d .
Relative
c h a n g e s s i n c e 1 9 1 4 a r e difficult to a s c e r t a i n , p a r t l y b e c a u s e t h e r e
h a v e b e e n c o n s i d e r a b l e c h a n g e s i n t h e r e l a t i v e i m p o r t a n c e of
i n d u s t r i e s s i n c e t h e n , p a r t l y b e c a u s e (as w a s p o i n t e d o u t b y t h e
E o y a l C o m m i s s i o n o n t h e Coal I n d u s t r y , 1925) t h e y e a r 1914 w a s t h e
c l i m a x of a s e r i e s of e x c e p t i o n a l y e a r s d u r i n g w h i c h t h e r e h a d b e e n
a r e m a r k a b l e rise in wages in the exporting industries relatively to
w a g e s in g e n e r a l .
F o r all i n d u s t r i e s for w h i c h c o m p a r a b l e i n f o r m a t i o n is a v a i l a b l e
figures a r e g i v e n s h o w i n g t h e r a t e of g r o w t h of t h e i n d u s t r y , t h e
m a r g i n of u n e m p l o y m e n t i n J u n e 1 9 2 9 (*.e., a t t h e c l i m a x of
s e a s o n a l a c t i v i t y ) a n d a v e r a g e w a g e r a t e s for skilled a n d u n s k i l l e d
w o r k e r s . W h e r e t h e r e is o n l y o n e r e c o r d e d w a g e r a t e for t h e w h o l e
i n d u s t r y ( u n d e r s o m e s u c h t i t l e a s " d a y w o r k e r s " ) t h i s figure i s
given separately in the third column as " u n i f o r m r a t e . "
Except
for o n e o r t w o i n d u s t r i e s w h i c h a r e h i g h l y localized (e.g., cutlery),,
t h e figures g i v e n a r e t h e a v e r a g e of r a t e s i n t h r e e r e p r e s e n t a t i v e
a r e a s ; i.e., G r e a t e r L o n d o n , t h e L a n e a s h i r e ^ S t a f f o r d s h i r e i n d u s t r i a l
district, a n d South-Western E n g l a n d , as representing a pre­
d o m i n a n t l y r u r a l a r e a w i t h s c a t t e r e d i n d u s t r i a l c e n t r e s . The
figures
given refer only to time rates for adult male workers.
This accounts
for t h e e x c l u s i o n of s u c h i n d u s t r i e s a s c o t t o n a n d coal, w h e r e m o s t
of t h e w o r k is d o n e o n piece r a t e s .
Time Rates and Hours
Sources : Standard
1 9 2 9 ( M i n i s t r y of L a b o u r ) ; a n d Labour Gazette,
1929.
of Labour,
August
July and November
a
Set
3
O
a
"Wages
(s. per Week, 1929).
-
11
3. a
Skil
Skil
3
c
£"S
O
s ^
000's.
I.—Industries expanding at a
greater rate than
Insured
Population.
Silk and artificial silk ...
Heating and ventilating apparatus
Musical instruments
Electrical wiring and contracting
Paint, varnish, &c.
Brick and tile ...
Electrical engineering ...
Stone quarrying
Distributive trades
Wall-paper
Public works contracting
Furniture
Electrical cables
Laundry
Road transport...
Constructional engineering
Cement
Building
Hosiery
Brush and broom
Rubber
Printing
Cutlery and tools
Seamen
Railway wagon...
Drink ..
General ironfounding ...
Tailoring
...
Grain milling ...
+ 103-4
8-7
4- 61-1
4-7
-1- 49-9 , 8 0
+ 44-4
7-7
4- 4 4 2
4 1
+ 41-4
8-7
-t- 41-2
46
4- 39-6
8-2
-I- b 6 4
5-7
4- 35-9
3-5
-t- 34-0 18-6
4- 33-1
6-0
4- 31-6
5-0
4- 28-9
3-6
4- 25 8 11-3
4- 24-6 1 0 5
4- 23-8
57
4- 21-2
8-6
-r 1 9 7
5-9
4 18-2 1 1 1
4- 17 4
7-0
4- 17-4
4-0
4- 14-7 14 0
4- 1 2 8 15-5
8-6
* 10-8
4- 10-8
6-4
4- 10-5
9-5
4- 8-6
4-4
4- 8-5
7-0
II.—Industries Declining.
Boot and shoe ...
Wire ...
Docks...
Baking
General engineering
Leather goods ...
Brass goods
Dressmaking ...
Wood-working ...
Bolts, screws, nails, &c....
Lace ...
Coke ovens
Ship-building ...
Carriage and cart
-
:
2-1
2-9
4-9
8-0
8-6
90
10-9
11-1
12-5
12-7
16-3
16-3
21-5
30-9
13-6
8-8
318
6-4
8-8
7-2
7-8
2-8
9-3
9-3
9-7
12-8
227
7-4
60
72
78
79
...
42
52
55
j
86
53
72
63
65
70
...
50
56
70
54
64
73
63
42
46
56
73-9
8-7
28-4
16-6
52
18-9
52
82-0
j
65
" ..." '
84-4
65
49.
42-7
64
54
1,6790
...
77'
45
6-2
65
164-4
55
74
57
120-3
55
49
94-0
...
60
135-a
66
58
182-6
75
68
28-2
...
47
19-5
73
55
826-0
45
105-8
10-2
... 44
BSS8B 42
65-3
100
63
253-6
76
57
33-5
67
41
141-4
60
45
54-2
76
62
108-5
61
43
88-8
98
45
199-4
69
53
29-a
...
35
41
46
44
48
47
57
64
48
135-2
22-3
171-2
144-8
586-7
20-0
28-1
103-4
23-2
25-4
16-9
12-0
204-5
18-9
Table J.—Relative Price Movements.
(1924 = 100.)
—
1924
1925
1926
1927...
1928
.1929J anuary-M arch
April-June
July-September
October-December ...
1930January-March
April-June
Raw
Food
Materials
(Sauerbeck). (Sauerbeck).
Average
Prices of
British
Imports
(Board of
Trade).
Average
Prices of
British
Exports
(Board of
Trade).
100-0
97-8
91 0
88-0
88-5
100-0
97-0
912
88-1
85-4
100-0
100-1
91-6
87-6
88 -6
100-0
97-3
91-7
865
86-3
860
840
84-5
812
85-0
80-7
80-0
767
86-5
86-6
86 5
85-2
84-8
83-2
84-5
83-7
78-5
74-0
73-0
68-3
81-0
765
82-0
80-5
Table II.—Employment, Output per Head, &c, in Main Industrial
Groups, 192i-1929. ...
T h e " following t a b l e e x a m i n e s i n f u r t h e r d e t a i l t h e r i s e i n
p r o d u c t i v i t y p e r h e a d s i n c e 1 9 2 4 . C u r r e n t v a l u e of n e t o u t p u t is
c a l c u l a t e d for e a c h g r o u p of i n d u s t r i e s o n t h e a s s u m p t i o n t h a t n e t
o u t p u t is proportional to gross o u t p u t .
Employment
Sources:
Board of Trade Index of Production.
c a l c u l a t e d f r o m a n n u a l figures p u b l i s h e d b y M i n i s t r y of L a b o u r .
O u t p u t p e r h e a d from above t w o . Selling prices from average
v a l u e of e x p o r t s (except for coal a n d i r o n a n d steel w h e r e B o a r d of
T r a d e price indexes a r e used directly).
Output per Worker.
1924 ^ 100.
Phypieal Volume of Output.
1924 - 100.
Volume of Employment.
(Thousands.)
1929.
1924.
1927.
1928.
1929.
1924.
1927.
1928.
1929.
Coal mining
840
829
1,093
771
2315
Iron and steel ...
245-0
235-8
227-5
Engineering and shipbuilding (in­
cluding motors and electrioal
trades)
1,158
1,118
1,206
1,243
Textiles
1,130
1,088
1,138
1,155
Food, drink and tobacco...
498-:
476 6
497-5
496-3
Leather and boots
165180 -8
179 1
165-6
205Chemicals and allied trades
192-7
183-8
202-9
100-0
100 0
94-0
110 0
89-0
102-3
96-4
114-0
100-0
100-0
122-4
114-3
126-2
110 2
127-1
120-6
100-0
100-0
100-0
100-0
100-0
115-2
101-6
99-7
107-7
105-2
113-1
99-9
101-9
102-0
110-3
120-9
98-5
106-0
9S-5
112-5
100
100
100
100
100
11294
95
106100
115-7
95-5
97-8
110-4
99-9
115-6
94-8
.101 -4
106 9
100-8
100-0
106 -8
105-5
111-6
10070
106-6
106-9
111-1
1924.
All industry
6,324
1927.
6,338
1928.
6,242
6,359
Output per Worker.
(£ per annum at Current Prices.)
Index of Selling Prices,
1924 - 100.
Coal mining
Iron and steel ...
Engineering and shipbuilding (in­
cluding motors and electrical
trades)
Textiles
Food, drink and tobacco...
Leather and boots
Chemicals and allied trades
All industry
Annual Earnings.
(Average per Worker.)
1924,
1927.
1928.
1929.
1924.
1928.
90-0
77-5
175
226
185
219
171
197
186
211
123
153-1
97
151-1
96-1.
84-4
88-9
117-2
85-0
94 1
81-7
81-9
109.4
82-1
214
178
371
190
380
231
136
306
200
342
238
144
323
245
321
232
138
308
222
314
131-3
84105115131-
135-5
84-8
105 5
111-7
135-5
86-7
85-0
218
204
203
206
120
117
1924.
1927.
1928.
1929.
100 0
100-0
86-1
84-3
75-5
78-7
100-0
100-0
100-0
100-0
100-0
96 0
79-5
86-8
998
89-8
100-0
87-2
Table L.—Earnings and Productivity in Certain Industries,
1907-1924.
T h e following t a b l e is d e s i g n e d p r i m a r i l y t o s h o w for c e r t a i n
i m p o r t a n t i n d u s t r i e s t h e r i s e i n money w a g e s s i n c e p r e - w a r d a y s a3
c o m p a r e d w i t h t h e money
v a l u e of n e t o u t p u t p e r h e a d .
The
d i v i s i o n of t h e p r o c e e d s of i n d u s t r y b e t w e e n w a g e s a n d profits is
t h u s s h o w n d i r e c t l y w i t h o u t t h e n e c e s s i t y of c a l c u l a t i n g ' ' r e a l ' '
wages and " physical " productivity per head.
Sources:
Census of Production
Preliminary
Reports.
Earnings
and H o u r s E n q u i r i e s , 1907, 1924, 1928.
Selling prices index
c a l c u l a t e d f r o m C e n s u s of P r o d u c t i o n R e p o r t s .
—
Net Output per
Person Employed
(£ per Annum).
Average Annual Earnings
(£ per Annum).
Average Weekly
Hours.
Earnings as Per
Cent, of Net
Output.
Selling
Prices
(1907 =
100).
1907.
1924.
1906.
1924.
1928.
1906.
1924.
1906-7.
1924.
1924.
Coal
127
175
86
123
97
8
per shift
7
per shif o
68
70
211
Iron and steel
Engineering
Shipbuilding
Motor and cycle
115
109
98
109
218
199
164
226
82
68
71
68
155
123
131
144
153
129
130
153
54-5
53-0
52-9
53 4
44-8
47-0
47-0
47-0
71
62
73
62
71
62
80
69
158
Cotton
Wool
Silk and artificial silk
Hosiery
Textile finishing
Clothing
Boot and shoe
79
71
55
61
109
62
71
159
187
255
159
251
151
170
48
40
34
39
55
35
47
93
102
99
88
126
70
115
93
99
103
94
125
72
110
55-5
55 -6
54-5
33-9
55-7
51-7
53-6
47-9
480
480
47-0
48-0
462
47-8
61
36
62
64
51
56
66
58
55
39
65
50
46
68
251
280
Grain milling
Baking
Brewing
Tobacco
178
104
325
155
341
254
685
617
61
54
63
35
139
119
136
108
138
116
135
116
58-1
55-5
54-9
49-6
46-7
48-6
47-9
47-1
34
52
19
23
41
47
20
18
158
167
213
295
Brick
Pottery
Chemicals ""
Rubber
Printing
78
68
183
124
108
209
156
369
247
294
56
48
63
52
59
126
98
134
112
151
126
97
139
114
154
55-4
52-5
54-7
55-0
515
48-5
46-9
48-1
477
47-3
72
71
34
42
55
60
63
36
45
51
178
137
90
to
258
268
256
179
Co
Net Output per
Person Employed
(£ per Annum).
Average Annual Earnings
(K per Annum).
Average Weokly
Hours.
Earnings as Per
Cent, of Net
Output.
1907.
1924.
1906.
1924.
1928.
1906.
1924.
1907.
1924.
85
55
196
136
63
33
129
78
133
...
53-1
54-0
46-7
47-0
74
CO
66
58
84
205
68
147
147
53-2
45-3
81
72
Gas
Water
Electricity...
205
411
249
272
509
472
78
70
74
152
146
163
158
149
170
52-6
55-1
48-5
47-5
38
17
56
29
All industry (manufacture and
mining)
100
220
52
120
117
51-9
54
approx.
47-3
47-1
30
52
34
55
Furniture ...
Laundry
...
...
Building
Selling
Prices
(1907 =
100).
1924.
193
193
Table M—Physical Volume of Output per Head, 1907 & 1924.
T h e following t a b l e g i v e s t h e r e s u l t s of a c a l c u l a t i o n d e s i g n e d
to s e c u r e s o m e m e a s u r e of c h a n g e s i n t h e n e t o u t p u t of i n d u s t r y
expressed in an unchanging money standard.
T h e m a t e r i a l s of
i n d u s t r y a n d t h e final p r o d u c e of i n d u s t r y a r e o b t a i n e d free of
d u p l i c a t i o n a n d c o r r e c t o r s a p p l i e d t o t h e 1 9 2 4 figures i n a c c o r d a n c e
w i t h t h e r i s e i n p r i c e s of r a w m a t e r i a l s a n d
finished
goods
respectively.
B y s u b t r a c t i o n t h e " r e a l " n e t o u t p u t is o b t a i n e d .
Final product...
Materials
Net output ...
Value 1907.
(£ million.)
Value 1921.
(£ million.)
Prices 1924.
(1907 = 100.)
1924 at. 1907
Values.
1,139
464
675
2,478
848
1,630
190
175
1,304
484
820
T h i s s h o w s a r i s e of 2 1 £ p e r c e n t , of ' ' r e a l ' ' a g g r e g a t e n e t
o u t p u t a s a g a i n s t a r i s e of 1 0 ^ p e r c e n t , i n t h e n u m b e r of w o r k e r s
b e t w e e n 1907 and 1924. B u t t h e r e are n o statistical d a t a as to
t h e i n c r e a s e of c a p i t a l w h i c h h a s a s s i s t e d i n b r i n g i n g t h i s a b o u t
a n d w h i c h n e e d s t o b e r e m u n e r a t e d o u t of t h e p r o d u c t .
Sources:
R e p o r t s of C e n s u s of P r o d u c t i o n 1 9 0 7 a n d 1 9 2 4 .
V a l u e of r a w m a t e r i a l s i n 1 9 2 4 f r o m F l u x l o c . c i t .
P r i c e s of
finished
g o o d s c a l c u l a t e d from a v e r a g e v a l u e s i n C e n s u s of
Production.