Keynes and the world depression

There is widespread talk in the industrialised countries that the future is uncertain if not positively threatening. Profits have been falling in the past two years not only in Britain, but fairly generally. Many big industries have over-expanded so that there is surplus oil, surplus shipping, surplus coal and surplus manufacturing capacity. City editors watch the portents and anxiously wait for signs of profit margins rising again. The employers were hoping that increasing unemployment would help them out by keeping wages down, but more unemployment is double-edged, for at the same time it causes shop sales to stagnate or decline.

Business men and governments in each country think to find a way out by increasing exports but, of course, all the other countries are trying to do the same.

In Britain the Government finds a new cause for concern. Even when total production and sales increase as they have in recent months this has been achieved without employing more workers. The Guardian (2/11/62) offers the explanation that industry has been in the habit of holding on to workers, though they were not all required, because it expected trade to improve fairly soon and the workers would be needed again, but industry has “now abandoned hope of an early change in the trend of trade and is parting with ‘hoarded’ labour.”

At the same time world prices of food and raw materials have been falling and this means that the countries dependent on selling these products are less able and willing to buy the exports of the industrialised countries.

It has been common in post-war years for the followers of the late Lord Keynes to take comfort in the belief that various Keynesian devices, including low interest rates to encourage investment, could always deal with capitalism’s economic problems. Now many of them are not so confident. Capitalists do not in practice expand their factories and plant merely because interest rates are low, they need also to be assured that they will be able to sell the products at a profit. As the Monthly Economic Letter of the First National Bank of New York put it recently (September, 1962)—“we found during the Great Depression, that ’you can’t push a string’—no matter how abundant credit may be, business men will be reluctant to borrow unless they can see productive use for the money with a reward of profit in sight.”

Some economists, observing that in the post-war years Government action on, interest rates, purchase tax and so on has not eliminated the ups and downs of trade and production, have taken the line that governments cannot control the small movements but can still control the big ones: it seems that they may now have another opportunity of testing it out. But Keynes is not so widely accepted as he was. Some of those who used to think that he supplied the answer to all the ills of stagnant trade and heavy unemployment are now to be found arguing that the only solution for Britain is to get into the Common Market. The one is as irrelevant as the other to the real contradictions of capitalism.
H.