How cute!
Read at the ESHET in Prague, 2008
Seeking the Cure for the Malaise of the Market
Economy
―Social Philosophy in Interwar Cambridge ―
1.
Introduction
The inter-war Cambridge, needless
to say, marked a gigantic advance in the history of economics. Suffice it to
mention Pigou’s welfare economics, Keynes’s macroeconomic theory, Robertson’s
theory of industrial fluctuations, Hawtrey’s
trade cycle theory, J. Robinson’s theory of imperfect competition which came
from the Cost Controversy initiated by Sraffa and so forth. Although each of
them have been so far extensively studied, studies which aimed at examining the
Cambridge School as a whole seem to be unexpectedly few in number.
Although such a study in the field of
economic theory should be important to be pursued, we will leave it to other
opportunities. In the present paper we will rather examine the social
philosophies — the images of the market economy with value judgments —
entertained by the inter-war Cambridge School by taking the cases of Keynes,
Pigou, Robertson and Hawtrey.1 How did these world-leading
economists evaluate the market society? How did they think it needed to be reformed
or transformed? And just how much did they really have in common and difference?
These are the tasks which this paper should address.
The significance of this task might in the
first place be seen in the fact that their social philosophies, except for
Keynes’s, have long been forgotten. Thus, bearing the situation of present-day
neo-classical economics in mind, it is all too easy to run away with the idea
that except for Keynes the Cambridge economists applauded the laissez-faire market
society. This is, however, far from the truth.
Secondly, by clarifying the social philosophies
of the Cambridge economists we can get a useful clue to understanding ‘the
relation between social philosophy and economic theory’. On the whole, we can
say that in the inter-war Cambridge economic theories underwent multifarious
developments through critical discussions, while their social philosophies
showed, in contrast, a considerable degree of similarity.
This paper runs
as follows. In section 2 we deal with the age of Marshall as a prelude. From
sections 3 to 6, Keynes, Pigou, Robertson and Hawtrey are respectively examined
in view of of social philosophy. In section 7 we will characterize the age of
Keynes. Section 8 is the conclusion.
The
present paper deals with ‘market’ and ‘governance’, concentrating our attention
to the social philosophies of the leading economists in inter-war Cambridge
(Knowledge is rather argued by Marshall. It was Hawtrey2 and Keynes,
however, who was interested in knowledge in terms of philosophy).
2.The Age of Marshall
– a Prelude
In this period, Marshallian economics and the New
Liberalism dominated the scene in the UK. It should be noted here that
Marshall’s economic liberalism was not an influential force, but the New
Liberalism had some influence on Marshall’s social philosophy.
The predominant social philosophy in this period was represented by
Social Imperialism (Chamberlain), Free Trade Imperialism (Asquith), New
Liberalism (Hobson) and Fabianism (the Webbes and Shaw). What all these
exponents had in common was their advocacy of the need for positive involvement
of the state in tackling the poverty problem (social reform), and they were
critical of laissez-faire. For lack of appropriate term, let us dare to call
these trends of thought ‘Collectivism’. Laissez-faire had by now become
practically a lame duck.
During this period the mainstream of English economics was constituted
by the neo-classical school led by Marshall. It was Marshall who put forward
the theory of exchange as a theory of stable equilibrium of normal supply and
demand (the ‘static theory of equilibrium’) which, assuming the constancy of
both the marginal utility of money and the general purchasing power of money,
and confining the object of analysis to one commodity, provides an effective
way of working out inter-temporal problems, though it leaves out the analysis
of spatial interrelations among goods. The fundamental idea running through all
the various parts of the central problem of distribution and exchange, Marshall
says, is the ‘general theory of the equilibrium of supply and demand’.
In spite of the fact that his mind dwelt so much on
Socialism or Collectivism, Marshall’s social philosophy was based on classical
liberalism. Groenewegen (1995, p.610) sums up Marshall’s position ‘in terms of
a virtual persistent adherence to the tenets of classical liberalism as they
existed during his formative years. From these he never departed’.
He stressed the importance of the role which
entrepreneurs or firm organizations play for economic development, the
importance of competition, which free trade should promote, and the importance
of the external economies generated by small or medium firms and their
concentration in certain districts. He also emphasized, using the surplus
analysis, the maximization of social surplus brought about by competition.
That Marshall apprehended the unfavourable situation in which the UK
found itself in competition with Germany and the USA is a well-known fact.
Nevertheless, he advocated free trade on the grounds of the advantages of
competition, emphasised the advantages of small and medium firms concentrated
within a district, and established the ‘Economic Tripos’ – ‘gentlemanly’
education – in order to reform its education system.
Marshall, as an economic theorist, literally succeeded in bringing British
economics under his control. His stance in social philosophy, however, was one
of economic liberalism and conservatism in terms of the current trend. In this
sense, the Age of Marshall is the one in which Marshallian economics ruled the
roost in the field of economics, as did the New Liberalism in the field of
social philosophy.
3. Keynes3 ― ‘New
Liberalism’
Keynes
brought about the so-called ‘Keynesian Revolution’ in economic theory and
policy through the General Theory.
However, this is not the only influence. The social philosophy ― ‘New
Liberalism’ ― which ruled post-war Europe owes an important share to Keynes
than any economist in Cambridge. In this section we will examine it.
3.1 The Nature of the Market Society ― Pseudo-morality
and Economic Efficiency
Keynes’s view of the market society is based
on the perception that it depends, in essence, upon ‘an intense appeal to the
money-making and money-loving instincts of individuals’ as the main motive
force of the economic machine (Keynes, 1926, p. 293). The market
society thus characterized, Keynes argued, is subject to
a serious dilemma. On the one hand, it is very unpleasant in terms of morality,
the money-loving instincts being so elevated to such heights. On the other hand,
it is superior to any other type of society in terms of economic efficiency,
precisely because it is fuelled by the same instincts. Despite
its serious flaws from the point of view of morality, the market society cannot
but find general approval for the foreseeable future from the point of view of
economic efficiency
This
is Keynes’s fundamental view of the market society.
However,
recognizing the market society’s superiority in terms of economic efficiency does
not mean blanket approval of the laissez-faire principle. Keynes believed that
if left to itself, the market economy would be subject to inherent instability.
In order to make it work efficiently, policy measures aimed at effective
management of the market economy should be pursued, the laissez-faire principle
being relinquished.
Keynes poses a serious question ― the moral
problem in our age is how we should come to grips with the relation between
morality and money. In judging the market society morally unpleasant,
Keynes meant that pseudo-morality rules the roost there — ‘the love of money, ...
the habitual appeal to the money motive in nine tenths of the activities of
life, ... the universal striving after individual economic security as the
prime object of endeavour, ... the social approbation of money as the measure
of constructive success, and ... the social appeal to the hoarding instinct as
the foundation of the necessary provision for the family and the future’ become
the dominant social ethic (Keynes, 1925a, pp.268-269). These traits ─ the most unappealing
aspects of human nature ─
are enshrined as the highest virtue. Nevertheless,
we have no choice but to live under this pseudo-morality for some time yet to
come, as we know of no means to attain economic efficiency aside from exploiting
it (Keynes, 1930, p. 331).
Keynes’s distaste for the pseudo-morality
of the market society is reflected in
his remarks on Leninism — its ethics can be, in essence, regarded as a
challenge to the individuals’ and society’s ‘love of money’ (see Keynes, 1925a,
pp. 259-260). He maintained that if it is to survive the competition with communism,
the market society must be several times as efficient as communism (see Keynes,
1925a, pp. 267-268).
We can,
indeed, go as far saying that behind Keynes’s perception lay Moore’s ethics ─
which was critical of the utilitarianism of J.S. Mill and Sidgwick. Keynes was
profoundly influenced by Moore4. The story does not end here. Moore’s
ethics would also have profound impact on the Bloomsbury Group5.
And yet Keynes considered that the market
society could not but be accepted for the time being because of its economic efficiency.
On the other hand, the market economy is subject to instability and fluctuations.
How can the market economy work efficiently without causing heavy unemployment?
It was to be Keynes’s calling as an economist to pursue economic theory and
policy to this end.
One important question remains to be asked — what
should relations be between the state and the market? In this respect Keynes
was a realist. He argued that the government’s agenda and
non-agenda problem should be addressed with the case-by-case approach rather
than on the basis of abstract reasoning.
Below we will consider Keynes’s view of the
market society (besides the question of morality) in detail.
3.2
The Mechanism of the Market Economy
How
does Keynes perceive the mechanism of the market economy? In a few words: (i) he
rejects the view advocated by exponents of laissez-faire philosophy and
economics, and (ii) he emphasizes the role which the state and non-market
institutions play in stabilizing the market economy.
A.
Criticism of Laissez-faire Philosophy and Economics
a.
Laissez-faire Philosophy
According
to laissez-faire philosophy, argues Keynes, the maximum public good is
attainable through each individual’s pursuit of his/her own maximum private
good driven by his /her enlightened self-interest. In other words, if the state
interferes as little as possible with the market economy, the maximum public good
as well as the maximum private good will be achieved.
Laissez-faire philosophy (which encompasses
individualism and the doctrine of social contract) is based upon two
propositions: (i) individuals are possessed of enlightened self-interest, and
(ii) the maximum public good can be attained through this enlightened
self-interest.
Keynes, however, doubts them. Firstly, there
is no built-in mechanism which can harmonize private interests with the social
interest.
Secondly, individuals are not necessarily
wiser than the organizations to which they belong. Laissez-faire philosophy,
which is based on the supposition that society is composed of rational
individuals, ignores the real world as being largely occupied by ignorant and
weak individuals.
If
the market society is left to individuals’ pursuit of their private good alone,
the market society will fail in attaining the maximum public good. Only if some
sort of social units were organized would this be attainable. Keynes’s stance
was very realistic and in sharp contrast to the philosophy of laissez-faire,
which derives its basic propositions from an idealization of society and
individuals.
b.
Laissez-faire Economics
Laissez-faire
economics, he argues, is based on two assumptions: (i) an ideal distribution of
the means of production between various ends is brought about through
competition among independent individuals; (ii) unlimited opportunities for
making money are necessary and effective as an incentive to bring out maximum
efforts.
From
these derives the proposition that the pursuit of profit by individuals brings
about the maximum volume of output. Laissez-faire economics also maintains that
economic matters should be left to the supply and demand mechanism in the
market (Cf. Keynes, 1925b, p.305)6.
Keynes criticizes laissez-faire economics on
two points.
Firstly,
it is constructed on three unrealistic assumptions, namely: (a) the process of
production and consumption are not organic; (b) there exists sufficient
foreknowledge of conditions and requirements; and (c) there exist adequate
opportunities for obtaining this foreknowledge.
He
argues that these tenets fly in the face of facts evident in the real economy:
(d) an efficient production unit is larger than a consumption unit; (e) there
exist overhead or joint costs; (f) internal economies promote the concentration
of production; (g) the time required for adjustment is long; (h) ignorance
prevails over knowledge; (i) monopolies and combinations impair equal
bargaining7.
Laissez-faire economists tend to believe, argues
Keynes, that (a) and (c) are ‘natural’ and, therefore, ‘ideal’, even when they
are apparently not in accordance with the observed facts. This critique corresponds
to his critique of laissez-faire philosophy.
Secondly, laissez-faire economics pays exclusive
attention to the final results, overlooking the fact that competition itself entails
costs/sacrifices, and that not a small amount of wealth tends to be distributed
in the field in which competition is not so strongly felt.
It
should be noted that his critical attitude towards laissez-faire economics runs
through his entire life. In the 1920s and 1930s Keynes constructed his
‘monetary economics’8 in the Treatise
and the General Theory, which is at
variance with laissez-faire economics (and laissez-faire philosophy). He
maintains this stance in his policy proposals of the 1940s.
B.
Keynes’s Social Philosophy
a.
An Institutional View of History
How does Keynes express
his own social philosophy? He considers self-interest not all that enlightened,
and individuals all too ignorant and weak. From this position he criticizes the
Individualism of Locke and Hume: a philosophy of the consequences of behavior
based on rational self-love among individuals under the social contract.
Keynes also criticizes Individualism from a
historical point of view: it is not adaptable to modern conditions, although it
was adaptable to conditions in the 18th and 19th centuries (see Keynes, 1925b,
pp. 300-301).
This relativistic view of history is to be
seen even more clearly in his acceptance of the view taken by Commons9,
the leading economist of Institutionalism. This acceptance reflects Keynes’s
realistic stance, and is indispensable for an understanding of his social
philosophy.
Commons classifies modern history in three
periods.
The
first is a ‘period of scarcity’ which precedes the Industrial Revolution. It
was a period when the freedom of individuals was minimized while government
regulations with the accompanying physical enforcement were maximized.
The second is a ‘period of abundance’ when
personal transactions took the place of quotas. It was a period when the
freedom of individuals was maximized while government regulations accompanied
by physical enforcement were minimized. Through the struggles of the 17th and
18th centuries, it saw the triumph of laissez-faire and liberalism in the 19th
century.
The
third is the ‘period of stabilization’ in which we are living. It is a period
when individual freedom tends to be somewhat reduced partly due to government
sanctions, but mainly due to collective actions (by corporations, trade unions,
manufacturers, merchants, laborers, bankers and so forth).
Keynes acknowledges that we are living in a
‘period of stabilization’, and welcomes it. What he terms ‘the New Liberalism’10
indicates a social philosophy of the third period (see Keynes, 1925b, p. 305).
Keynes is critical of the idea that an ideal
society should consist of economic subjects who amount to no more than
individuals in pursuit of their private interests. For example, against
Marshall, who praises the situation in which entrepreneurs lead society, he
argues that entrepreneurs have now become disgraced idols who cannot lead us to
utopia. The same doubt is also given similar expression elsewhere (see Keynes,
1925a, p. 268).
Keynes
firmly believes that an ideal unit in the economy should lie somewhere between
individuals and the state, and welcomes the emergence of organizations such as ‘semi-autonomous
bodies’ and the ‘socialization of large joint-stock institutions’ through
history.
Semi-autonomous bodies are organizations
which focus their activities exclusively on the public good (the universities,
the Bank of England, the Port of London Authority and the railway companies are
mentioned). In the ordinary course of affairs they are permitted to operate freely,
but ultimately they must abide by Parliament.
The socialization of large joint-stock
companies is related to a separation of ownership from management, which forces
them to respond adequately to the demands of the public rather than aim at maximizing
a profit in favor of shareholders (see Keynes, 1926, pp. 289-290).
As the market society evolves, organizations which
pursue the public good will increase, and large joint-stock companies will socialize
themselves. These phenomena should appreciably mitigate the pseudo-morality and
instability characteristic of the market society.
It should be noted that Keynes does not think
of the necessity of changing these phenomena but of leveraging and promoting
them.
b. The Market Society and the State
Keynes’s understanding of the evolution of
the market society which we saw above, however, does not imply that he
considered that the market society’s serious problems would be settled of
themselves. He continued, on the contrary, to hold that we have no ground for
believing any such thing. He points out the three spheres in which maximum
public good cannot be attained in the free market society, and in which the
state needs therefore to be involved ―
(i) the existence of risk,
uncertainty and ignorance11, (ii) the volume of saving and its
distribution
and
(iii) the population problem (see Keynes, 1926, p.292).
c. The Continued
View of the Market Society ― Evidence
from the General Theory
We have so far examined Keynes’s social
philosophy through his papers of the mid-1920s. It should be emphasized,
however, that he continued to hold to it thereafter, as is shown by the General Theory.
The social philosophy there is, in a
nutshell, that the market society, if left unchecked, inherently stays at
‘underemployment equilibrium’.
Two
points are relevant here.
Firstly,
the market society is subject to fluctuations in terms of employment/output. The
fluctuations in the marginal efficiency of capital are mentioned as one of the
main factors (the main theme of Chapter 12).
Secondly,
the market society can stay at a low level of employment. It will reach neither
full-employment nor a minimum level. Rather, it tends to stay in between (lower
than full-employment, but much higher than a life-threatening level) (see Keynes,
1936, p. 254) due to the following built-in stabilizers: (i) the multiplier
larger than one, but not very large; (ii) moderate changes in the prospective
yield of capital or the rate of interest will not induce great changes in the
rate of investment; (iii) changes in money wages are modest relative to those
in employment; (iv) the nature of capital, such that a movement toward one direction
tends to reverse itself (see Keynes, 1936, pp. 250-251).
Recognizing these points does not necessarily
mean taking a wait-and-see approach. Keynes was firmly convinced that these
flaws could be remedied with the right policies12, as is shown by the
stress he placed on state management of investment and monetary policy (see
Keynes, 1936, p.164). It is worth underlining the fact here that Keynes endeavored
to construct theories from which he could draw practical policies throughout
his whole life, which contrasts strikingly with the approach taken by Schumpeter
and Hayek.
4. Pigou13 ―
Socialism or Capitalism?
Pigou’s
largest contribution to economic theory is Pigou (1920), which is, in nature, macroeconomics.
What he aimed at was to examine how various factors (such as policies,
imperfect knowledge, the habit of the people which value the present over the
future, uncertainty, and so forth) will influence future national dividend (=
national income)14 and how we
could increase national dividend or economic welfare. His recommendation for
progressive tax, and his argument of the divergence between social marginal
cost and private marginal cost are closely related to this aim.15
Pigou16,
as the author of The Theory of
Unemployment (1933), was targeted for attack as representative of the ‘Classical
School’ in the General Theory. Different
from Robertson, however, Pigou acknowledged Keynes’s pioneering work and
endeavored to reconstruct classical macroeconomics in Employment and Equilibrium (1949).17
In
spite of the fact that Pigou made a great contribution to economics, he has
been evaluated exclusively as a champion of anti-Keynesians. This viewpoint seems
to have overshadowed Pigou as an original economist.
With
respect to his view on the market society, the situation is quite different. The
fact is that this day Pigou’s social philosophy is almost forgotten. We will
examine it through Socialism versus
Capitalism (1937).18
4.1.
Socialism
Pigou
characterizes socialism as a system (i) excluding profit making; (ii) collectively
or publicly possessing the means of production and (iii) having central
planning.
He compares it with capitalism on various points
— (i) wealth and income distribution; (ii) the allocation of productive
resources; (iii) the allocation of productive resources under socialistic central
planning; (iv) unemployment, and so forth. Let us take them one by one.
4.2.
Wealth and Income Distribution
Pigou
starts by drawing attention to the following point: in the capitalistic system
there is clear-cut inequality in the distribution of wealth and income. This will
inevitably cause serious harm because resources are wasted in that they are
allocated to the spheres in which priority is relatively low, neglecting the
spheres in which priority is relatively high. Thus Pigou places the emphasis on
transforming the capitalistic system so that greater equalization of wealth and
income distribution may be attained with several measures19: (i) progressive
death duties and income tax; (ii) subsidies to the production of goods bought
by the poor; (iii) extension of social services to fields favoring the physical
and mental improvement of the young, and so forth. Having said so much, he sees
some limitations in these measures in the capitalistic system.
Once
a socialistic system is set up, argues Pigou, this kind of anxiety will be eliminated,
for capital accumulation is then directly carried out by the state by securing
the resources necessary for investment at their disposal prior to income
distribution to individuals.
4.3.
The Allocation of Productive Resources
What Pigou emphasizes here is an ‘appropriate’
allocation of productive resources among different uses given the existing
distribution of money income. This is defined as an ‘ideal allocation’, in
which the marginal net products become equal everywhere in a society in which ‘all
money incomes and everybody’s tastes and needs [are] exactly alike’ (p.33). He argues
that what matters next is a degree of divergence in the actual resource
allocation from this ideal one, which comes from divergences between marginal social
and private costs, monopoly, and imperfect competition.20
Pigou maintains that even in the capitalistic
system divergences between marginal social and private costs can be rectified
by means of proper bounties and duties. With regard to monopoly and imperfect
competition, he proposes, respectively, (i) the nationalization of monopolistic
firms in order to do away with the harm, and (ii) extension of nationalization to
the industries in which resources are wasted on unnecessary competitive advertising.
4.4. The
Allocation of Productive Resources under Socialist Central Planning
Here Pigou seems to take up a Lange-type theory
of socialism.
That is, he argues that by exploiting a Walrasian tâtonnement method the
Central Planning Authorities can bring an ‘ideal distribution’ to fruition.21
Pigou’s discussion
is composed of two parts. Firstly, given the allocation of resources among different
industries, he examines methods in which the Central Planning Authority will distribute
consumptions goods to the individuals. Pigou recommends here a compulsory
system to guarantee incomes. Secondly, given the distribution of money incomes,
he examines methods in which resources are allocated among different
industries. His proposal here is to bring the economy close to ‘ideal
allocation’, that is, the state of perfect competition.
Pigou then draws
up a blueprint22 of the socialist economy. Productive activities are
managed and run by the Central Planning Authority23. This authority determines
the ‘accounting’ prices for various means of production and labor by decree,
and then endeavors to bring the allocation of productive resources close to the
state of perfect competition. According as the demand-supply situation changes,
it revises the accounting prices for various means of production and labor. It should
be noted that the accounting prices are not what is actually paid.
Pigou
firmly believes that the situation of perfect competition is attainable under
the Socialist System. In this respect he might implicitly belong to the Lange=Taylor
camp.
4.5.
Unemployment
Pigou
declares socialism the winner in conquering unemployment. His arguments run as
follows.
Unemployment is a problem which arises in a
dynamic economy. Two movements should be distinguished. One is a ‘relative
movement’ which is related to frictional unemployment. The other is an
‘absolute movement’, which results from economic fluctuations. What matters is
unemployment in relation to the latter.
Pigou draws comparison between
the capitalistic system with state intervention allowed for and the socialist system.
Firstly,
Pigou points out that the socialist system in which decisions are made by the
Central Planning Authority gains an advantage over the capitalistic system in which
decisions are made by many firms.
Secondly,
Pigou asks which system is more effective in implementing public works policy
and monetary policy in the direction of curing unemployment. His conclusion is
that the socialist system wins out with the former policy through unification
of decision-makings, while in the case of the latter the effect will be the
same.
Finally,
Pigou mentions two cures that only the socialist system has at its disposal to implement:
(i) compulsory transference of productive resources among different industries;
and (ii) a cut in money wages.
Having
thus compared several aspects in the two systems, Pigou concludes that the
socialist system can, all things considered, be declared the winner.
5. Robertson24
― ‘Liberal Interventionism’
Robertson is famous, among other things, for his
theory of trade cycle set out in Robertson (1915)25 and Banking Policy and the Price Level
(1926). Both of them were the products through long discussion with Keynes, who
was given, in turn, a path by Robertson (1926) toward the Treatise.27 Robertson’s book has been
valued highly as a representative of the Wicksell Connection, although it was
not influenced by Wicksell (1898).
Having
constructed a dynamic theory in which large-scale production is emphasized as key
feature of modern industry, Robertson became more and more critical of Keynes
as he proceeded from the Treatise to
the General Theory. It was Robertson
rather than Pigou who opposed the General
Theory throughout his life, while defending Marshallian economics such as the
theory of value and distribution, and the quantity theory of money as is clear
from Lectures on Economic Principles
(1957-9).
So far as social philosophy is concerned,
however, we see, rather, a certain similarity between the two. To use his own
terminology, Robertson’s view of the market society is ‘Liberal Interventionism’ (EO, p.51). Let us examine it through The Control of Industry (1923), which never
fails to remind us of The Economics of Industry
(1879) by Marshall and Marshall.
5.1.
Large-scale Industry
It is
the ‘factory system’ that Robertson regards as an essential of the modern
capitalistic economy.
In the first chapter, he starts by discussing
the advantage of the division of labor, and proceeds to focus on the evolution
of standardization and specialization26. Robertson shows how these
phenomena brought about large-scale industries, and the ascendancy of
large-scale firms over medium-small firms. He goes as far as stating that the
development of division of labor in mental work led to the economies of
large-scale control, accelerating the primacy of large-scale firms.
In
chapter 2, ‘Large-Scale Industries’, vertical and lateral integrations, and
trust are the focal points. The key concept here is ‘the principle of standardization’,
a concept in contrast with ‘the principle of differentiation’ so far treated as
a key concept. Due to this a very wide range of economic activities are brought
under the control of a few firms. And Robertson is neither negative about ─
nor
critical of ─ this
phenomenon.28
Robertson
submits to our attention the following situation: the firms thus enlarged come
under the control of the few, while the majority of people live under their power.
He considers the tendency of firms to the large scale and the subsequent monopolization
as a sort of natural or reasonable evolution.
However,
he is very critical of another condition entailed with capitalism: the majority
who work for the big firms bear the risks while they are not entitled to contribute
to the control of them. What he dearly hopes for is an improvement in the
market society so that risk and control may be fairly and impartially shared.
5.2.
Robertson’s View of Capitalism
The capitalistic system has, according to Robertson, three
salient features: (i) an un-coordinate system; (ii) the ‘Golden Rule’ of
Capitalism (control is with risk); and (iii) the widening gap between rulers
and subjects.
A. The Un-coordinated System
The capitalistic
system is, by nature, un-coordinated.29 Although ever larger firms
are emerging, says Robertson, they are yet no more than small islands in the
ocean.30
He mentions as advantages of the capitalistic
system: (i) democratization
of many economic activities; (ii) allowance for individual’s judgment and
initiative; (iii) freedom of life; (iv) freedom to use the income at one’s disposal;
(iv) regular and affluent sufficiency of consumers’ wants.
In
contrast, he sees disadvantages: (i) wants which cannot be expressed in terms
of money are not fulfilled; (ii) waste of resources by means of marketing;
(iii) regular occurrence of depression.
Robertson’s
basic stance is that we are able to improve the capitalistic system on our own
initiative without detracting from the advantages. He is sure that there is
much room for further diversifications and experiments for the concentration of
industrial power into the hands of the few to be mitigated. However, he also
adds a word of warning: ‘… it behoves the reformer to beware lest in pursuing
this difficult goal [the control of industry] he overlook the achievements and
impair prematurely the operation of that delicate mechanism of price and
profit, faith and expectation …’ (Robertson, 1923, pp. 87-88).
Robertson considers that improved
control of industry is to be attained through people’s continuous efforts. It was
from this point of view that he took an interest in various experiments under
way at the time.31
B. The
Golden Rule of Capitalism
The
rule is that those who run a risk have a right to control. Robertson maintains,
however, that capitalism as it is now breaks the rule on several counts:
(i) Separation of ownership from
management ― Shareholders
take a risk while managers control the firm.
(ii) Those who take some risk, but have no
share in the control of industry ―
life
insurance companies and speculators.
(iii) The
majority who have no share in the control of industry, but run a considerable
risk ― the laborers.
Robertson
dwells in particular on item (iii)32, stating that laborers run
three kinds of risk:
(a)
the firms for which they work may go bankrupt; (b) the product which they produce
may decline due to demand shift or technological progress, and (c) they may be
thrown into unemployment.
Robertson
insists that no plan to transfer control power should be held successful unless
transfer of risk-bearing is included.
C. Widening
Gap between the Rulers and the Subjects33
This
involves a social division between those who give orders and those who carry
them out. Robertson is here concerned with the alienated feelings which the
laboring class experience in the industrial system.34
5.3.
Towards a Reform
Robertson
proposes that we should aim at eliminating the harm which the concentration of
industrial power into the hands of the few causes by devising methods for consumers
and laborers to share in power.
Chapter
9 examines collectivism and communism. Collectivism is defined as a system in
which the state owns and manages business while prices and markets are kept
intact. Communism is defined as a system in which the state manages business
but the calculation of profits is disregarded.
Robertson
points out the fields of industry where collectivist organization plays a
useful role, examining its advantages and disadvantages in great detail.35
As for
communism, he examines the possibility of its partial application, pointing out
its advantages and disadvantages. Robertson
is, however, critical of the extreme communism in which a system of prices and
production costs is completely disregarded.
While approving of
the market system Robertson aims ─ through
various forms of collectivism, the introduction of co-operatives and so forth ─ at
reforming private firms, reducing the widening gap between rulers and subjects,
and addressing the present situation of risk and control.36
Robertson’s
stance toward Economic Liberalism is very delicate, for he does not seem to
believe in it from the bottom of his heart. Properly expressing, his social philosophy
should be ‘Sceptical (or Schizophrenic) Liberalism’. The
following epitomizes his stance:
those of us with the liberal virus in our
blood but unwilling to be banished to the desert or the wilderness (Robertson,
1947, p.47).
He
describes liberalism as ‘virus’ and bare competition as ‘desert or wilderness’,
which indicates that he is far from applauding either side. Liberalism is a
virus, and yet we cannot weed it out because it already runs through our blood vessel.
On the other hand, we do not like a society in which bare competition rules the
roost. It is something like desert or wilderness. It is because he was in the state
of mind that cannot deny that liberalism is something which is now obsolescent
that he calls liberalism ‘virus’37 (no one calls something which a
person evaluates highly ‘virus’). There is, at least, Robertson who thinks and
feels so. But another Robertson mutters to himself: liberalism must be still maintained
as fundamental social philosophy.
Robertson’s liberalism ― ‘Liberal
Interventionism’ (Robertson, 1947, p.51) ― is put in such a psychological
conflict.
5.4. Robertson’s Stance toward the Planned
Economy
Robertson, who supports Liberal
Interventionism, is critical of the Planned Economy. On the other hand, Robertson
entertains a doubt that the economic phenomenon which took place in the war
economy might not be transitory but irreversible trend.
In the Economic Outlook, Robertson set out
the following question:
… one of the questions to which my paper … is
intended to lead up is precisely whether this anti-thesis [the transitional
period and the postwar normal period] is one which it is still sensible to
draw, or whether the lesions caused or precipitated in our economy by the war
are now revealed as being of so deep and lasting a character that this
distinction between the transitional and the permanent must be thrown, with
relief or regret according to our temperaments, upon the scrap heap (Robertson,
1947, p.47).
Robertson
stands on the side which hopes for the gradual restoration of the market
mechanism. He also consents to Robbins (1947) in which he stresses the
accelerated restoration of the market mechanism, while emphasizing the role of
the government for correcting economic motives’ influences. On the other hand,
however, Robertson is not sure of whether this could be argued based on the
distinction between the transitional period and the peace period. He thinks
that it is not clear at all whether the difference between liberal
interventionism and the planned economy is a problem of quality or the one of
degree. Evidently Robertson reveals some hesitation and anxiety.
Those
of us … who are handicapped … by the kind of congenital or educational bias
which I have tried to describe have a real personal problem to solve. How far can
we honestly manage to attune our thoughts and our teaching [liberal
interventionism] to the prevailing wind [the planned economy]? And in so far as
we fail to do so, is there nothing for us but to adopt the stance ― an
honorable stance, but emotionally fatiguing and apt to be operationally sterile
― of owls in the desert and pelicans in the wilderness, praising past times and
prophesying doom? (Robertson, 1947, p.46).
It is interesting to compare his stance with
that of Henderson (1947) in which he ‘identified the essence of planning as
consisting in the formulation of precise quantitative programmes extending over
a considerable range of time ahead, and set himself to investigate the limits
within which, in time of peace, such programmes can be expected to serve as
useful instruments of action’ (Robertson, 1947, p.48).
I
felt that he [Henderson] had rested his case too little for my taste on the
positive merits of a free system, and too much on the weakness of the weapons
at his disposal for supplanting it (Robertson, 1947, p.49).
6. Hawtrey38
― Ethical Criticism of Capitalism
Hawtrey
is well-known, among other things, for his monetary theory of the trade cycle.
(his criticism, of the Treatise,
based on it had some influence on Keynes’s theoretical development from the Treatise to the General Theory). He is also famous for the so-called ‘Treasury View’.39
It is very difficult to see how Hawtrey was influenced by other
economists, for although he was a prolific writer, he maintained his style of
seldom referring to other economists. This is true even of Marshall. Hawtrey
should be called an independent economist who greatly influenced other
contemporary economists.
Curiously
enough, however, no paper has been produced examining Hawtrey’s social
philosophy, which we consider here in the light of Economic Problem (1926.).40
6.1.
Ethical Stance ― Welfare and Value
Hawtrey
defines an ‘economic problem’ as one appealing to human motives in such a way that
a cooperative action may be secured for a desirable objective. What is here set
as an ‘objective’ is ‘welfare’ in the sense Hawtrey attributes to it (Hawtrey,
1926, p.185). He emphasizes ethical considerations in setting an objective.
6.2. False Ends
Hawtrey argues
that notwithstanding the ethical value should be set up as our ends, economics has
overlooked this, and in the market society ‘false ends’ rule the roost41
— that is, what should, by nature, be the means becomes autotelic.
He considers
that because money making (among other things, profit making) is a fundamental
motive for business activities, worship of it becomes an end itself in an
individualistic system.
6.3.
The Market Society
Hawtrey
defines civilization as application of rational management by human will to the
economic problem. The market is, according to him, an imperfectly civilized
system in which both consumers and producers are liable to lack in taking initiative.
Hawtrey
has no encomiums to make of the market society in which the main economic
activities are conducted in the form of exchange in the market, for he holds
that it does not succeed in attaining ‘ethical value’.
Market
prices, which establish themselves through equalization of supply and demand, diverge
from ethical values, which should constitute ‘welfare’ in the sense Hawtrey
attributes to the term. It is from this viewpoint, be it noted, that Hawtrey
criticizes Pigou’s welfare economics based on ‘satisfaction’ 42
The divergence between ethical
values and market values is, Hawtrey argues, attributable to two causes.43
The first cause
is imperfection of judgment on the part of the consumers. Consumers are lacking
in wise spending capacity, while producers and merchants lack sufficient ability
to provide them with ‘creative products’. (Hawtrey classifies products in two
categories: (i) ‘defensive products’ necessary for the people to enjoy material
welfare, and (ii) ‘creative products’, closely related to the culture of human
society.)44
The
second cause is an excessive inequality
of income distribution, which is in turn caused by the profits that economic
agents are allowed to make as an incentive. The result is a tendency for an
ever larger share of income to go to a small number of entrepreneurs.45
In
order to rectify this tendency, Hawtrey suggests two possible methods: (i)
taxation on profits; (ii) state intervention in wage determination. He feels,
however, that, in the case of (i) because of the effects on savings while in
the case of (ii) because of the effects on profits, there might be limitations
in an individual system.
Interestingly
enough, Hawtrey considers that cyclical unemployment is curable by means of
wise credit control, and does not regard it as the area where human wisdom finds
itself despairingly impotent.
6.4.
The Market
Hawtrey
sets out to observe various markets from the point of view of exchange
activities, and this characterizes his approach. Here we will take the case of the
goods market.
The
consumers here always appear as passive agents, the merchants as active ones. The
merchants endeavor to anticipate, through their daily activities, what
consumers will be wanting. With the information thus obtained they order goods from
the producers. Thus the initiative in this market is with the merchants.46
Hawtrey
agrees that the prices of goods are determined through supply and demand. What
is worth noting here, however, is Hawtrey’s perception that the prices reached
through exchange activities in the market do not attain ethical values because people
are lacking in sufficient ability to select goods wisely.
6.5.
The State
Hawtrey
considers that an essential function of the state lies in the regulation of
human behavior through authority. In
order to maintain an individual system the endeavor of the state must be to ensure
that the rules are respected by the people. For that purpose the state as an ‘organized
power’ requires a huge amount of material resources, and consequently exercises
the power to levy tax.
Hawtrey
goes on to address the question: Assuming an individual system, to what degree could
the state, rectifying the flaws in the system, contribute to make genuine
ethical values attainable? His answer is profoundly skeptical.47
6.6.
Collectivism
Hawtrey
argues that collectivism, which is synonymous with socialism, is an approach
opposed to profit. It excludes profit motives, and seeks an alternative motive
in the state. Socialists hope that the extinction of profit will brings about a
change in humanity. Hawtrey is sympathetic to socialism48, although
he does not identify himself as a socialist, for yet he sees serious defects in
an individualist system49 and considers socialism as a means of exploiting
the state in order to bring welfare to fruition.50
Hawtrey drew up a blueprint for
socialism51 that saw the markets for consumers’ goods kept intact
but the markets between producers and retailers, as well as those between
producers, abolished. On the other hand, between laborers and consumers only the
state and its agencies would be at work.
7.
The Age of Keynes
Now that we have examined social philosophy in
inter-war Cambridge, let us go on to see how we might characterize this period
as a whole.
7.1. Economics
First we need to look through economic theories put
forward by the leading economists in this period, focusing on their original
features.
Pigou’s principal contribution was The Economics of Welfare (1920), which
belonged, in essence, to macroeconomics. Pigou discussed how several factors
(policies, incompleteness of knowledge, the nature of the public and so forth)
will influence the national dividend in the future. Above all, he concentrated
on ways to increase the national dividend, which meant enhancing welfare. His
famous arguments on the recommendation of progressive tax and the divergence
between social marginal cost and private marginal cost are related to this
problem.
It should be not be forgotten that Pigou, who was
severely criticized by Keynes in the General
Theory, contributed to the re-construction of neo-classical macroeconomic
theory by means of the ‘Pigou Effect’, accepting Keynes’s criticism to some
degree in his late years.
Robertson’s originality lies in his theory of economic
fluctuations, which was developed in
Banking Policy and the Price Level (1926). Although he was independent of
Wicksell, this might be regarded, in essence, as following along the
Wicksellian tradition rather than Marshallian lore.
Keynes developed his own theory of economic
fluctuations in the Treatise, and put
forward the theory of underemployment equilibrium in the General Theory.
In contrast with Pigou and Robertson, who endeavoured
to defend Marshall’s theory, Keynes was critical of it in both books. (Even so,
it is true that his monetary theory and short period analysis were greatly
influenced by Marshall’s theory).
Hawtrey is famous for his monetary theory of economic
fluctuations, which occupies a unique place in Cambridge economics.
The result of all this activity was that that the
leading economists representing inter-war Cambridge made remarkable
contributions in the field of macroeconomics. This is, after all, hardly very
surprising, for they were in fact completing Marshall’s unfinished work. In
this field the four economists endeavoured to construct their own theories,
influencing each other and getting into heated controversy.52 Above
all, Keynes, greatly influenced by Robertson in his collaboration period in the
mid-1920s, advanced towards the Treatise.
Keynes moved further in the direction of the General Theory, taking the criticism offered by Hawtrey and the ‘Cambridge
Circus’.
It should be noted that they added nothing to
Marshall’s greatest achievement, i.e., the theory of value. It was,
however, added to as a result of Sraffa’s criticism of Marshallian value theory
– the so-called Cambridge Cost Controversy. Sraffa raised a problem of
incompatibility between decreasing returns and perfect competition. Although, as far as Sraffa himself was
concerned, he was to return to the classical world, rejecting the equilibrium
theory of supply and demand and adhering to the constant returns to scale, this
opened the way to the imperfect competition theory formulated by J. Robinson.
7.2. Social Philosophy
What is
shared by the leading economists in the inter-war Cambridge is the emphasis
placed on the malaise to be seen in the market society and the issue of how it
could be removed (in sharp contrast with Hume and Hayek, who emphatically sing
the praises of the market society).53 With their diagnosis of the
imperfection of individuals, they concur in the opinion that a laissez-faire
policy can do little for the improvement of the market society, arguing that
excessive inequality of income distribution and excessive unemployment are a
malaise of that society which must and can be cured by the state.54
Based on this type of social philosophy, they endeavoured to construct their
own economic theories, which are, therefore, policy-oriented. And we can say
that this stance follows Marshall’s stance on economics with a view to the good
of society.55
And when we try to characterize the situation as a whole, not only in
Cambridge but also in the UK, the conclusion we are driven to is that in this
period the New Liberalism as social philosophy together with monetary economics as economic theory (to which the
Wicksell Connection and the General
Theory belong) ruled the
roost, which amounts to stating that this could well be called the ‘Age of
Keynes’.56
8.
Conclusion
We hope
that the meaning of the phrase at the top of this paper, ‘far from the truth’
has now become evident.57 While
economic theory in the inter-war Cambridge produced heated controversy and a cleavage,
we see a considerable degree of similarities in social philosophy.
Keynes called his social philosophy ‘New Liberalism’ (while Robertson spoke of ‘Liberal
Interventionism’). Rejecting both Liberalism and Socialism, they aimed, broadly
speaking, to find a middle path between the two. By and large, the consensus
that this approach is the best way to organize society has guided Western
Europe after World War II.
In the U.K., however, recent years have witnessed
the rise of an ‘enterprise culture’, which is hostile to the post-war consensus.
Those who promote it have risen to the commanding positions in the market society.
As a result British society has been greatly transformed.
How much significance, then, does Keynes’s (and
his colleagues) social philosophy retain today?
It is our belief that however strong the drive
towards enterprise culture might be at the moment, an advanced society will
shift only modestly to the right in terms of the political spectrum, and that
it would be impossible for the market society to approach classical Liberalism.
The Society will remain and proceed on a middle path.
Moreover,
it is far from clear that Neo-Conservatism ─ the driving force behind
enterprise culture ─
is superior to New Liberalism (or the social philosophies dealt with in this
paper). Keynes’s view was never ideological, but always practical: decisions
should be made on the case-by-case basis. Neo-Conservatism is a social philosophy
which seeks to make an impossible dream come true and is, for that reason,
ideologically driven. If this is right, then some revised version of New
Liberalism (not a return to the dogmatic socialism of the old Labor Party) would
be required.
1) Besides them, W. Layton and H. Henderson are worth examining. They
were the principal members, together with Keynes and Robertson, of the Liberal
Summer School (cf. Freeden (1986, ch.4)) and The Yellow Book (Liberal Party, 1928) (cf. Skidelsky, 1992,
pp.263-269). Layton, who had led the Liberal Summer School and supported the
Liberal Party throughout his life and had been a ‘no ordinary press baron’, worked
as a chief adviser of Programmes and Planning, Ministry of Production in
1942-3.
Although
Henderson was to become a harsh critic of Keynes in the 1940s, it does not mean
that he turned to laissez-faire. For Henderson’s social philosophy, see Henderson
(1947) and Komine (2003). Shove was a pacifist as well as ‘a Fabian and an
active member of the Liberal Party’. He was a great admirer of Marshallian
economics and a critic of Pigouvian economics. For this, Carabelli (2005).
See Marcuzzo=Rosselli
(2005), which brilliantly describes the human relationship among the Cambridge
economists in this period based on unearthed correspondence. Also see Collard (1990),
Hicks (1979) and Marcuzzo=Sanfilippo (2005).
2) In this respect, ‘Thought and Things’ is important – the only and
book manuscript on philosophy in
the text of which we find the year ‘1969’. It presents what might be called a theory of Aspect. The main theme is
to analyze thought in terms of discernment of aspects, the introspective method
being broadly applied. The basic point is that the mind discerns aspects.
Aspects exist, in nature, within things in the form of potentiality. Aspects
become reality only when the mind discerns them at the level of conscious
experience. Aspects, thus obtained, are accumulated, and the mind repeats the
action of remembering aspects thus accumulated whenever it makes some judgment.
Hawtrey’s philosophy belongs to the general area of Empiricism, and is critical
of behaviourism and materialism. He points out the limitations of the tendency
of science to try to explain everything in terms of things. ‘Aspects’ was the
fundamental concept which he continued to cherish throughout his life from his
early days.
3)
This section is based on Hirai (2003, ch.5).
4) For
this, see Keynes (1949), Shionoya (1992), Hirai (2002) and Asano(2005, ch.1).
It should be noted that Hawtrey and Pigou as well as Woolf were also greatly
influenced by Moore.
5) L.
Strachey and L. Woolf are, among others, important figures.
6)
Keynes comments that this idea belongs to 50-100 years ago.
7) It
should be emphasized that these features are distinctly recognizable in
Marshall=Pigou.
8)
See Hirai (2003, pp.81-83; pp.579-583).
9)
See Commons (1934, pp.773-788).
10) On Keynes’s ‘New Liberalism’, see Clarke
(1988, Chapter 4, ‘The Politics of Keynesian Economics, 1924-1929’) who grasps
Keynes as a New Liberalist who succeeds the New Liberalism of the Edwardian
period (pp. 13-14, 78-80); Freeden (1986), and Cranston (in Thirlwall ed.,
1978) both of whom see Keynes as a ‘Centrist Liberalist’ different from a ‘New
(or Left) Liberalist’ in terms of a refusal of a faith in the state as the
disinterested agent of the community, the emphasis of the ideological
difference between liberalism and a socialist/trade-unionist Labor party, and
less reflective, philosophical and synthetic mind (see Freeden, 1986, pp.
128-129, 12-14, and 171-172); and Skidelsky (1992, Chapter 7, ‘Keynes’s Middle
Way’) who supports Freeden and Cranston subject to several qualifications. In
his paper, ‘Keynes’s How to Pay for the War: A Reinterpretation’, read
at the History of Economic Thought Conference (University of Bristol, 1997),
Skidelsky maintains that Keynes (1940) advocated his fiscal policy (deferred
pay) based on the spirit of ‘the middle way’. See also Fitzgibbons (1988,
Chapter 9, ‘The Political Ideals’). Moggridge (1992, Chapter 18, ‘Industry and
Politics’) maintains that Keynes’s political thought evolved from the New
Liberalism in the 1920s to the ‘Liberal Socialism’ in the 1930s and later.
Peacock (in Crabtree and Thirlwall eds., 1993) describes Keynes as an ‘end-state’
liberalist who is in contrast with a ‘contractarian (or ‘procedural’) liberal’.
Peacock seems to grasp Keynes within the context of the classical liberalism
rather than that of the ‘New Liberalism’. See also Maloney (1985, pp. 159-161)
in relation to Freeden’s (1978) evaluation of Hobson as the leader of the new
liberal movement.
The New Liberalists of the Edwardian Era such as Hobson
and Hobhouse, who saw the root cause of the problem of poverty and unemployment
in under-consumption due to unequal distribution of income. See Hobson (1938), Mouri (1990,
Ch.2). This is different from the Idealists such as Green and Bosanquet, who
ascribe economic inequality to the latifundism as the remnants of
feudalism.
11) In
later years Keynes (1937) pointed out two points different from the traditional
theory. One is to incorporate the reality that the
future is uncertain into theory, and the other to put forward a theory of
demand and supply for the output as a whole. We
should not think that Pigou and other Cambridge economists neglected this
point. See Pigou (1920, Part I, ch. II; Part II, ch.VI), and Lavington (1912).
12)
This is Keynes’s persistent stance since Keynes (1923).
13)
This section is based on Hirai (2004).
14)
On this, see Collard (1996).
15)
This book was to be under fire by Robbins on the grounds that individual
utilities cannot be compared.
16) Different
from Robertson and Hawtrey, Pigou (1931) evaluates the Treatise highly. For example, he remarks: ‘[Keynes] claims for his
new equation … that it enables the causal sequence, in many sorts of industrial
disturbances, to be followed with a surer eye. This is, I think, a valid claim’
(544).
17) See
also Pigou (1950, 65). Pigou
considers the significance of the General
Theory to lie in its having put forward a theoretical framework which
consistently connects the real factors with the monetary factors. He pays
particular attention to, among other passages, pp. 246-247 (Chapter 18), where
Keynes summarizes his view that the three fundamental psychological factors
(the propensity to consume, liquidity preference, the state of long-term
expectation), money-wages, and the volume of money determine the level of
national income and employment.
The
Pigou effect (the real balance effect) has been used as a powerful tool in
favor of neo-classical as opposed to Keynesian macroeconomics.
18) Pigou (1948) is also revealing. Pigou (1953), where Marshall’s social
philosophy is examined, is instructive as well.
19) See Pigou (1937, p.30).
20) Needless to say, these were the main themes in
Pigou (1920).
21)
It should be noted that Pigou mentions neither Lange nor Walras. Some
economists detect some flavor of general equilibrium theory in Pigou’s way of
thinking. See Hicks in a letter from Ursula to Hicks dated 4 October 1935 (kept
in the University of Hyogo) in which Ursula wrote that ‘it is perfectly true
what you say about him being a general equilibist at bottom, that is one thing
that makes his judgment so good. Myint (1948) distinguished Marshall’s partial
surplus analysis from Pigou’s general equilibrium analysis. Laidler (1999,
p.165) pointed out the same thing in Pigou (1933).
22) This
reminds us of the ‘Blueprint’ in Schumpeter (1943).
23) Pigou
(1948) emphasizes the role of the government in the market society because of
the existence of the market failures and the propensity of individuals to
prefer the present to the future. He classifies government planning into two:
the primary planning (the planning of the ends) which aims at an increase of
the economic welfare (here the correction of income inequality is emphasized) and
the secondary planning (the planning of the means) in which financial policy
which is implemented through the price mechanism and the method of directives
by the government. Pigou (1948) is a review of Robbins (1947). See the
difference between Pigou and Robertson (1947, p.48).
24)
This section is based on Hirai (2004).
25)
Roberston (1915) ‘led Robertson to have little respect for Say’s Law and the
associated, so-called ‘classical’ disposition to see an automatic movement to
full employment in a capitalist economy’ (Presley ed., 1992, 85).
26) See Hirai
(2003, pp.111-116). The collaboration between the two is traceable to Robertson
(1915) in the making. See Presley (1992, pp.82-86).
27) This aspect is dealt with in detail by Marshall
(1920). Marshall argues that organization, through a division of labour, aids
the development of knowledge.
28) Robertson (1923,p.39).
29) Robertson
(1923,p.85).
30) See Robertson (1923,
pp.84-85).
31) See
Robertson (1923,p.87).
32) See Robertson (1923,
p.91).
33) See Robertson (1923,p.95).
34) See Robertson (1923,
pp.97-98).
35) See Robertson (1923,p.126).
36) See Robertson (1923, pp.162-163).
Robertson (1947) is also enlightening with respect to Robertson’s social
philosophy.
37)
See the same expression: ‘we sufferers from the bug of liberalism’ (EO, p.48).
38)
This section is based on Hirai (2004).
39)
Recently Hawtrey came under the focus of Laidler (1993) in relation to the ‘the
Chicago tradition’. See also Laidler and
Sandilands (2002). Hawtrey attracted the attention of the Circulationists, for
which see Torre (1985).
40) Hawtrey went on pursing the same problem in Hawtery (1944) and in an
unpublished manuscript, Right Policy
(Churchill College, Cambridge University).
Here let us take a brief look at the latter. This was Hawtrey’s last work, in the
text of which we find ‘1964
at present’, in the field of social (or political)
philosophy. It has the following features: (1) ‘the ruler’ – he stresses the importance of the existence of the ruler, authority
and power being the recurrent key words here; (2) ‘rationalisation’ – referring
to the process by which ‘reason’ makes religion explainable; (3) we see Moore’s
influence on Hawtrey; (4) Hawtrey adopts an evolutionary approach to some
degree; (5) the question of ‘false ends’ – which is equivalent to ‘intermediate
ends’; (6) classification of the final product in utility products and plus
products; (7) the proposition that maintaining full employment policy means
entrusting the trade union movement with stabilization of the value of money;
(8) stress on the importance of the role which dealers and traders play in the
market economy; (9) he is not critical of collectivism.
41) See Hawtrey (1926, p.314).
Welfare and false ends are also dealt with in Chapter 12 of Hawtrey (1944), and Chapter 2 of Hawtrey
(Churchill College).
42) For Pigou’s response to this, see Pigou
(1950, p.17, n.3).
43) See
Hawtrey (1926, p.216).
44) Subsequently, defensive
products were renamed ‘utility products’ (see Hawtrey, 1926, Chapter 13),
and creative products ‘plus products’ (see Hawtrey, Churchill College, Chapter
6), Hawtrey continued to adopt the same classification.
45) See Hawtrey (1926, p.225).
46) See
Hawtrey (1926, p.225).
47)
See Hawtrey (1926, p.132).
48) He had been so even before WW1. The
typescript estimated to have been before 1914 begins by saying that ‘In theory
at any rate Socialism is the natural sequel of democracy’. See Hawtrey Papers,
6/5/2.
49) See Hawtey (1926, p.390).
50)
See Hawtrey (1926, p.379). In Hawtrey (1944, p.358), a way towards collectivism
and a way towards ‘the third possibility’ (which corresponds to ‘New Liberalism’)
are suggested. Although he does not judge which is more excellent, his
criticism of ‘competitivism’ (equal to an ‘individual system’ in Hawtrey
(1926)) is clearly shown.
51) See also Hawtrey (1944, pp.354-355).
52) The following shows three economists’ (Robertson,
Keynes, Hawtrey) theoretical relation vividly.
In his letter to Robertson (26 October. JMK.13, 315-317), Keynes argued that
Robertson’s spontaneous saving is very near to his ‘saving’ in the Treatise (his ‘queer sense’) and he can
see ‘no connection whatever’ between … [Robertson’s] revised meaning of
hoarding and the Marshallian K and income velocity V’. Robertson replied to
Keynes’s two remarks in the negative. Concerning the second remark he stated
that ‘I am prepared to assert that on any
level of abstraction all forces acting on P can be expressed in terms of M, V,
or R (JMK.13, 318). The topic should
be the Cambridge quantity theory M=KRP=RP/V. In an unpublished paper, ‘Saving
and Hoarding’ (GTE/1/164-170), Robertson argued that his revised hoarding (‘a
version of the old pair of trousers whose legs are the Marshallian K and the
income-velocity of money V’) and Keynes’s revised one (‘a richly-embroidered
version of the same garment’) are one and the same of the Cambridge quantity
theory.
It should be noted that throughout their correspondence
Keynes did not express his new theory as explained in the present paper. The
points for controversy seem to be put on Keynes as the author of the Treatise and Robertson as the author of
the Banking Policy and the Price Level.
Hawtrey (1932, 279) maintained his theory of consumers’
income and outlay, arguing that the quantity theory of money is of no use in
the state of disequilibrium. Hawtrey’s criticism of the quantity theory of
money (see Deutscher, 1990, 36-39) is similar to Keynes’s criticism in the Treatise except that Hawtrey puts
forward his theory of consumers’ income and outlay whereas Keynes the Treatise theory.
We go to the harsh
(even destructive) mutual controversy between Hawtrey (1933) and Robertson
(1933). They were very critical of each other’s theory. Hawtrey bluntly
criticized Robertson’s economics of lacking on several points (the lack in
reality, the neglect of stock of commodities, and so on) from a point of his
economics of consumers’ income and outlay (See Hawtrey (1926) which was a
criticism of Robertson (1926)). Robertson (1933), in turn, criticized Hawtrey’s
theory, and emphasized his theory’s advantage of ‘setting in high relief’
analytically interesting points.
It is very
interesting to know that Keynes, who was first influenced by Robertson in the
mid-1920s, was to be influenced by Hawtrey after the Treatise, and to move forward thereafter, while Robertson and
Hawtrey retained their own theories.
The following letter to Lydia (30 Oct. 1933)
mirrors Keynes’ state of mind: ‘[Hawtrey
was] very sweet to the last but quite mad. One can argue with him a long time
on a perfectly sane and interesting basis and then, suddenly, one is in a
madhouse. … I have just been having a hopeless debate with Dennis [Robertson].
His mind, though frightfully ingenious, seems to me maliciously perverse. Again
it is like arguing with a madman. But when I talk with Alexander [Kahn], it’s
all so quite different. (Skidelsky, 1992, p.495)
Besides
the above, see Robertson’s and Hawtrey’s criticisms of Keynes’s General Theory, Hawtrey’s (1949) harsh
criticism of Pigou (1949), and Shove’s criticism of Pigouvian economics.
53) Robertson (1947) characterized the social
philosophy of the Cambridge School as represented by Marshall and Pigou as follows:
(i) it approves of a system of private
property and economic freedom; (ii) it endeavors to try to tinker the
malaise of the system through discrete intervention of the state. Robertson
also emphasized that this social philosophy entertains two basic beliefs: (i)
the limitations of human knowledge, and the fallibility of human foresight;
(ii) ‘Progress mainly depends on the extent to which the strongest, and not merely the highest
forces of human nature can be utilized for the increase of social good’.
54)
The younger economists such as Kahn, and Meade held the same view. For Kahn, ‘Kahn
believed that ‘markets are good servants, but bad masters’. That is, if
individual and anonymous decisions in unregulated domestic or international
markets tend to produce disequilibria …, these can be avoided by the collective
actions of individuals through the state and international coordination …, In
this way, Kahn, in the Keynesian tradition, was opposed not only to the ‘harmony
of unregulated classical liberal capitalism’, but also to the traditional
Marxist view that the growing and cumulative contradictions and crises of
capitalism would necessarily become unmanageable in the end. (Palma, 1994,
117). For Meade, he used to call himself ‘Liberal-Socialist’. See
Howson=Moggridge eds. (1990), and Meade (1948).
Hicks
(1979 [1984], p.285, fn.11) recollected that at LSE ‘Hayek, and Vera Lutz, have
been the only ones of us [Robbins’ group] who in later years have been fully
constant in the old faith [free market faith]. Even Robbins has departed from
it, to a considerable extent’.
55)
This point was harshly criticized by Stigler (1990) from his point of view of ‘abstract
formalism’.
56) This
is in sharp contrast with the feature of the ‘Age of Marshall’ to which we
referred. For how dominant economic theory and dominant social philosophy has
been related in these 100 years, see Hirai (Hirai ed., the last chapter).
57) Keynes
was surrounded by important Cambridge figures: L.Woolf who epitomizes the ‘League
enthusiasts’, and was a political scientist of the Labor Party; K. Martin was a
pacifist and an editor of the New
Statesman and Nation; and B. Russell was an ‘absolute’ pacifist. On Woolf, see Yoshikawa
(1989). On Martin, see JMK.28, Ch.1, ‘Keynes
and Kingsley Martin’. The controversy on the New Statesman and Nation, July-September 1936 are instructive in
knowing Keynes who supported the ‘appeasement policy’ of the Baldwin Cabinet
from a nationalistic standpoint, and the surrounding political atmosphere. See
Hayasaka (1967), Miyazaki (1980) and Yoshikawa (1989, 225-235).
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