THE FRAMEWORK
OF AN ORDERED SOCIETY
SIR ARTHUR SALTER
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UNIVERSITY OF FLORIDA LIBRARY
THE FRAMEWORK
OF AN ORDERED SOCIETY
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THE MACMILLAN COMPANY
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THE FRAMEWORK
OF AN
ORDERED SOCIETY
By SIR ARTHUR SALTER, K.C.B
NEW YORK: THE MACMILLAN COMPANY
CAMBRIDGE, ENGLAND: AT THE UNIVERSITY PRESS
1933
Copyright, 1933, by THE MACMILLAN COMPANY.
All rights reserved — no part of this book may be reproduced in any form without permission in writing from the publisher, except by a reviewer who wishes to quote brief passages in connection with a review written for inclusion in magazine or newspaper.
Set up and printed.
Published June, 1933.
Reprinted August, 1933.
PRINTED IN THE UNITED STATES OF AMERICA
CONTENTS
PAGE
Prefatory Note vii
I The Need for a New System i
II
Institutional Self-Discipline 22
III
The Role of Governments and Economic Advisory Councils 41
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PREFATORY NOTE
A
lectureship has recently been established in memory of Alfred Marshall, the duties of the lec- turer being to give in the year of office three lectures, or such other number as the Faculty Board of Eco- nomics and Politics may approve, dealing with "some development of Economics or of Economic History or of some kindred subject."
Sir Arthur Salter was appointed as the first Alfred Marshall Lecturer, and delivered the three lectures which are here reprinted at Cambridge on February 22, 23 and 24, 1933.
These lectures do not attempt to present a novel contribution to either economic thought or practical policy. A good deal of work has been done in the last few years both by individuals and by societies in developing the idea of a planned society. In some of this work the lecturer has been privileged to partici- pate. His conception of a new society is therefore partly derived from others, partly individual. He has presented it in relation to his general economic thought in Recovery: The Second Effort. He here discusses some of the principles on which it is based in a form designed to stimulate thought and enquiry among his audience of members of Cambridge Uni- versity. He has tried to sketch, in bare and tentative outline, a ground plan which he hopes may encour- age others to build.
THE NEED FOR A NEW SYSTEM
It is now nine years since Alfred Marshall died, and nine decades since he was born. It would be pre- sumption for one who is a member neither of his University nor of his profession to attempt to add more than the most modest of laurels to his wreath. His place is established securely as the first of mod- ern economists, continuing as he did the great tradi- tion of the English economists and bequeathing it to his successors, especially to those of his own Uni- versity which maintains in his science the leadership which he established.
Two characteristics, however, of his work and life I may venture to recall. First, he was a better econ- omist for being more than an economist. His range of interest, extending over ethics and metaphysics, and philosophy, was as wide as that of John Stuart Mill, though in an already more specialised age his original contributions were more closely limited to one field. Secondly, he was always intensely inter- ested in the practical application of economic doc- trine to the current economic problems of the day. He would, I think, have been in sympathy with the increased demand which arises from the present world depression that economists should contribute what they have to give to the formation of current
2 THE FRAMEWORK OF AN ORDERED SOCIETY
policy and should equip themselves for this con- tribution by close contact with the realities of eco- nomic activity and organisation.
It is perhaps significant of the present relation of economics to the practical problems of to-day that the first lecturer appointed on this foundation is one who is not, in the strict sense, an economist, having neither the special academic training nor the aca- demic qualifications which most of those in this room possess or will possess before they complete their residence at this University.
The true economist, I suppose, usually acquires his doctrine in the first instance by a deductive process. He draws the conclusions which follow from such basic assumptions as that of "the economic man," and builds his doctrine in the first instance upon con- clusions so obtained. With a doctrine so formed, or partly formed, he approaches the study of the actual activities of man, of the economic process as it oper- ates in the complex and intricate variety of real life; and he develops, modifies and applies his original doctrine as seems to be necessary. The original skele- ton is clothed afterwards with living tissue. My own process has been the opposite one. For a quarter of a century or so I have been engaged in practical ad- ministrative work which in varying degree involved problems for which the guidance of economic doc- trine seemed likely to be useful. Under this direct practical stimulus I have tried to learn what I could from economists, have thought about their science, and have sometimes attempted, in the sphere of what one may call applied economics, to test, or develop,
THE NEED FOR A NEW SYSTEM 3
or modify, a doctrine by fragments of direct personal experience. I have therefore taken other people's de- ductive doctrine ; but anything I have added for my- self has been by an inductive process. Any ideas of my own have, so to speak, been squeezed from ex- perience, not brought to it. Well, there are many ave- nues to truth, and in economics as elsewhere the in- ductive method is the complement of the deductive. I was interested to read, a little time ago, a remark of a distinguished Professor of this University about the extent to which, in another sphere, the contribu- tions to applied science had come, not from labora- tory research, but from the "artisan thinking about his job." I can claim to be no more in relation to economic problems than the artisan who has thought about his job; and the only kind of contribution that can be expected from such a source is not to the pure science but to the applied science.
Speaking then from the point of view of the prac- titioner seeking guidance from the scientist, I con- fess that I have sometimes felt that economists as a whole have not always been as helpful to those beset by the daily problems of policy as they might be. Too often they seem to be divided between economic historians immersed in facts with no guiding thread of principle through the maze, and theoretical econ- omists whose doctrine has no close and visible rela- tion to the actual processes of economic life. I make this general comment here with the less diffidence because I must add in justice that the reproach applies less to Cambridge economists trained in the tradition of Marshall, who studied so profoundly
4 THE FRAMEWORK OF AN ORDERED SOCIETY
the real activities of men and realised how imperfect a reflection of them was to be found in the abstrac- tion of the "economic man."
It is from this point of view that I have chosen as the title of my present lectures "The Framework of an Ordered Society," for I believe that the conditions and the methods of supplementing our present eco- nomic system with deliberate planning constitute one of the most urgent and difficult problems of our day.
I propose in this first lecture to discuss why plan- ning is now necessary to supplement the working of the competitive price system ; to argue that the con- trols and restrictions of which the world is now full are not examples of planning because they have been improvised by opportunists, and that their replace- ment by planned control is now essential; and that this task cannot be carried out by Government alone but needs the co-ordinated action of unofficial insti- tutions. In my second lecture I propose to illustrate the kind of institutional self -discipline in the eco- nomic system which is, I believe, required as an ad- junct to the machine of official Government; and in my third and concluding lecture I propose to discuss the consequent relations between private institutions and the Government, and the possible role in this connection of Economic Advisory Councils.
I think it is of the most vital importance that economists should now squarely face the question whether the actual economic life of the world in fu- ture is likely to be within a framework substantially like that of the nineteenth century or profoundly dif-
THE NEED FOR A NEW SYSTEM 5
ferent; and if they conclude that the latter is in- evitable, that they should work intensively on the question of the modification which that will entail to economic doctrine and especially to its applica- tion. I can understand the reluctance of both the economic historian and the theoretical economist to contemplate any really fundamental change in the situation. The former has vividly in his mind the triumphs of the nineteenth century system, which encouraged and harvested the application of scien- tific invention to industrial technique; so that within a framework merely of law, gold currencies and ele- mentary social safeguards, individual enterprise was free to exploit the riches of the new discoveries, while supply adjusted itself to demand, and each one of an infinitely intricate series of economic processes and activities to every other, without either the pain- ful effort or restrictive discouragements of deliberate planning and control. None at least can withhold an honourable tribute at its passing to a system which sheltered hundreds of millions in a comfort known before only to as many thousands ; and which decade by decade absorbed an increasing population and supported it at higher standards of living. The reluc- tance of the theoretical economist is no less intel- ligible. To pass from a system in which economic phenomena are determined by the motives of innu- merable economic men, whose individual caprices do not exist or cancel out, to one in which they are profoundly affected by the deliberate and fallible reason of a few hundreds, is to pass from a compar- atively exact to a mainly empirical science. The theo-
6 THE FRAMEWORK OF AN ORDERED SOCIETY
retical and mathematical science based upon the as- sumptions that make exact conclusions possible may still remain and cultivate itself with ever-increasing subtlety; but if it fails to adjust itself to facts, it must lose even the semblance of any important rela- tion to the practical life of man. Under a functioning laissez-faire system the economist had the best of two good worlds; the satisfaction which intricate and exact intellectual reasoning gives, and the equally pleasing but usually incompatible satisfac- tion of exercising power. It is a privilege hard to abdicate.
Nevertheless, I believe it is clear that an objective consideration of the actual forces and tendencies now in the world shows conclusively that this situa- tion must be faced. It is indeed possible, as it is certainly to be ardently hoped, that some of the impediments to the free working of automatic adjust- ments can be removed or reduced, that here and there a field of free action can be cleared. If, how- ever, we consider the factors which, as compared with the last century, are novel in degree and indeed in kind, and which tend to restrict and disturb the normal free adjustments, we shall, I think, realise that the, automatic system can never again be relied upon to function as easily and frictionlessly as it did in the past.
Let us take, for instance, the character of the in- dustrial organisation of a considerable part of the largest industries in the most advanced countries. The steel industry in America, for example, is so nearly a monopoly that it can within considerable
THE NEED FOR A NEW SYSTEM 7
limits establish the price at which it will sell its products. §uch effective competition as exists, in the case of industries. organised upon this scale, is a com- petition with producers of substitute articles (oil in- stead of coal, etc.) rather than with producers of the same article, and often the most effective force tend- ing to keep prices down is not the competitive price of the article but what the market will stand. The consideration which determines the price that is fixed is based upon whether reduction will tap a large additional demand or increase will kill it. The same is true for a large part of the distributive and com- mercial organisations, where there are rings or semi- monopolies, or understandings. The consumer loses his "rent" and those with whom the decision rests are able to choose at a time of falling wholesale prices whether they will reduce their own prices correspondingly or lose the chance which reduced prices would give of maintaining or extending their custom. Whenever these conditions apply it is clear that the automatic adjustment of the old system works much less effectively than in the past.
A^ similar impediment to adaptation is of course created by all the organisations and the forces which tend to make wages rigid. This impediment is of course of special importance at a time when mon- etary or other causes are creating considerable changes in the general level of prices, but it is of importance at all times. The same is true also of the extending social legislation which has been so rapid a phenomenon of this century, especially in this country.
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8 THE FRAMEWORK OF AN ORDERED SOCIETY
Not less important than the above factors is eco- nomic nationalism, expressing itself in tariff and other commercial policy. This has been steadily growing ever since the war and has now reached a height for which we can find no precedent in recent history. It is true that some of the causes of this movement may be temporary and that some retracing of our steps may be possible. It is difficult, however, to anticipate in any easily foreseeable future that we shall have a system favouring the free movement of trade as much as that of the nineteenth century did, even after the protection initiated by Germany in its later decades. We may reasonably hope for an im- provement of the present position in some respects. In particular we may hope that tariffs will become more stable, after the present financial crisis is past. But no prophecy surely could be safer than that, in the world as a whole, tariffs will for many years remain as a principal factor in determining the eco- nomic structure of most countries and the volume and character of the trade between them.
When again we turn from the sphere of economics to that of monetary policy and finance, we must surely contemplate not less but more control than was exercised in the years immediately preceding the crisis. The crisis itself indeed has demonstrated the impossibility of a system which combined almost complete freedom in the movement of capital, and in all capital operations, with such severe restric- tions upon the movement and distribution of trade.
Wherever we turn, therefore, we have a prospect of extensive control and restriction upon the free
THE NEED FOR A NEW SYSTEM 9
development of enterprise and of trade. I have men- tioned only some of the more striking examples of permanent and, for the most part, increasing impor- tance. Now all of these, whether they are wise or foolish, whether they are improvised or planned, have one characteristic in common. They interfere with the free working of the automatic system of competitive price adjustment; they make it more rigid and less quickly and readily adaptable.
With this loss of elasticity in the system we are confronted with the other principal phenomenon of our age, the unprecedentedly rapid extension oi mech- anisation and the improvement in industrial tech- nique, which makes rapid adaptability in the eco- nomic system more essential if the most disastrous reactions and dislocations are to be avoided. Every new invention, displacing men, changing the distri- bution of purchasing power, and consequently the direction of demand, will cause waste and unemploy- ment, unless the economic system is so elastic and responsive as to make the new demand quickly effec- tive, to adjust supply to it, to transfer and absorb the displaced workers. There is indeed much exag- geration and folly associated with the " technocracy" which has recently been so much discussed in Amer- ica. Many of those who have been dazzled by the staggering results of new technical inventions in par- ticular industries, where a 90 per cent, economy or more has been effected in man-power, have assumed that this represents a process likely to extend in a similar degree over most human activities. This is, of course, a wild exaggeration. Some have fallen into
fa
io THE FRAMEWORK OF AN ORDERED SOCIETY
the even more absurd error of thinking that man's increase of power over nature, instead of being as it is a promise of immensely greater prosperity, must inevitably entail permanent and increasing unem- ployment and impoverishment. Others again have, with equal folly, advocated the adoption, as the basis of currency systems, of a "unit of energy," failing to realise that the physical power used in production bears a changing and diminishing relation to eco- nomic values and human activities as a whole; and that it is therefore completely unsuitable either to determine the total amount of currency required at a given period, or to secure adjustment between dif- ferent human activities, or to afford a measure of relative reward.
It is also true that new technical inventions, in spite of the displacement of labour which they in- volve, do not constitute the main origin of our pres- ent troubles; nor can they be regarded as solely re- sponsible for the continuance of the unemployment which they cause by displacement. It would be more exact to say that when the adaptability and absorp- tive capacity of the economic system have, for other reasons, been reduced, the rapidity of technical in- vention is an aggravating factor. "Technological un- employment" is a substantial part of the present unemployment in the world and, in one sense, it can be approximately measured. Three separate esti- mates, for example, by competent economists have recently put the figure at one million out of the five million out of work in Germany. It would, however, be a mistake to conclude from this that if there were
THE NEED FOR A NEW SYSTEM n
no general depression there would be in Germany a million unemployed through technological displace- ment. A large proportion of those who have become unemployed through this cause would in other cir- cumstances be absorbed into other work and only remain unemployed now because the depression, it- self due mainly to other causes, has temporarily re- duced the absorptive capacity of the economic sys- tem.
Nevertheless, when we have stripped "technoc- racy" of all its fallacies and its exaggerations, this at least remains true. The combination of an increase in the rapidity of technical inventions and processes with the increased impediments to automatic adjust- ment which have been mentioned above must result, in any foreseeable future, in a substantial mass of "technological unemployment," unless we can re- store the absorptive capacity of the economic sys- tem; and since many of the new impediments to automatic adjustment are likely to be permanent, we can only do this if we supplement it by some form of deliberate planning.
There are indeed, as I have suggested, many spe- cial features and causes of the present depression — some of which are unprecedented and will, we may hope, be neither permanent nor recurrent: a mass of indebtedness left after the war; a passionate na- tionalism expressing itself in economic policy; a monetary disturbance which has resulted from these and in turn has aggravated their consequences. But when all these have been dealt with, or have worked out their own solution, much will remain to differ-
12 THE FRAMEWORK OF AN ORDERED SOCIETY
entiate both the system and the problems of our period from those of the last century. I am con- vinced that the task of the future is not merely that of removing unwise restrictions, though much of this is required, but that of replacing foolish and im- provised control by wisely planned control.
I do not think that many will dispute that the great mass of the present restrictions, controls and recent interferences with the working of the auto- matic system has been improvised, and foolishly im- provised. Demonstration is therefore unnecessary, and a few illustrations will suffice to remind us of what we all know.
Let us consider, for example, in broad outline the character of State action within the sphere of com- mercial policy. I do not now propose to discuss the general merits of Protection and Free Trade. I as- sume that, whether we like it or not, some measure of State protection in most countries will be a funda- mental feature in the world's economic system for many years to come. My present point is that the present tariffs are scarcely ever the expression of what in any reasonable sense can be called either national or any kind of policy. It is rarely possible to discover in the mind of any government a general conception of economic policy for their country of which their detailed tariffs are the logical develop- ment. Ideas of improving the balance of trade, or of securing self-sufficiency, or of making the foreigner pay, float about, but they operate, not to determine the character and proportions of the actual tariff sys- tem, but merely as arguments and forces to secure
THE NEED FOR A NEW SYSTEM 13
the acceptance of tariffs. The tariffs themselves are selected, and their height determined, in most cases as the net result of organised competitive pressures. For some years at Geneva, during the tariff negotia- tions there, I tried to discover what were the real springs of action, what were really the dominant anxieties and preoccupations in the minds of Min- isters of Commerce and their chief officials when they were defending existing tariffs or proposing changes. In nearly every case, when it was possible to penetrate behind the words to the thoughts of the persons concerned, it was not a conception, whether wise or unwise, of general economic national policy, but a calculation of prospective political forces, that was determining action. Tariffs as we have them now in the world have not been planned but improvised, and improvised under organised pressure.
It is the same when we turn from tariffs to other forms of commercial policy. Let us take a few exam- ples from our own country of the selective encour- agement by State action of particular kinds of pro- duction. The most notable schemes that have been actually put into operation have concerned, in chron- ological order, rubber, sugar and wheat.
It seems incredible, in retrospect, that any govern- ment could have employed official action to enforce a restriction scheme of which the ultimate effect was bound to be merely to profit the Dutch competitor. Had it been possible to secure the inclusion of the Dutch rubber planters, the scheme, whether or not defensible or desirable on other grounds, would at least have been a practicable one. But it should have
14 THE FRAMEWORK OF AN ORDERED SOCIETY
been obvious, and would have been obvious to any body of competent and disinterested persons who had been given a week to examine the situation, that in their absence nothing but permanent harm could result. What happened was exactly what could have been anticipated. Great profits were made by speculators, and even greater profits by the Dutch planter, who enjoyed the full benefit of the higher prices which the restriction caused, while being him- self free not only to continue his full protection but to expand it; and in these circumstances the price ultimately fell again, as it was bound to, but with the difference that the British share of the world mar- ket was left on a permanently lower level. When this had happened, and the harm done was irreparable, the scheme was brought to an end. My point is that the explanation of this ill-conceived venture is that a harassed, preoccupied, over-worked and inexpert Government succumbed to the pressure of a concen- trated and organised interest, as it is always apt to unless it has at its disposal, and utilises, a machinery and procedure which will provide a safeguard against such follies. Had a committee selected from among such persons as are now associated with the present Economic Advisory Council been called to examine the proposal and report, there can be no doubt that their conclusions would have been strongly adverse. It does not follow, of course, that their advice would have been accepted; the Government might, under the pressure of the interests concerned, have still sinned against the light.
I will now take two examples affecting agriculture
THE NEED FOR A NEW SYSTEM 15
in this country — the subsidies given to sugar and wheat. Again, I do not now propose to argue whether, by Government action, and at some public expense to either the taxpayer or the consumer, it is wise to expand agricultural production in this country be- yond the point which it would reach under a system of free competition with the outside world. If, how- ever, we assume that this is our policy, surely one thing is clear; that the kind of agricultural produc- tion we should especially encourage is that for which the country has the best natural advantages.
Now it is obvious that as regards meat, fruit, poultry and dairy produce, this country has a nat- ural advantage in that all these articles deteriorate in time or lose something of their quality by preser- vation, so that it is a good thing for the producer to be near his market. In contrast with these, sugar and wheat lose nothing by lapse of time, and cost very little to transport or store. Moreover, owing to the way in which our land is parcelled up, and the ten- ure under which it is held, we are obviously at a great disadvantage in comparison with other coun- tries from which we might import. Sugar is just as good if it is transported over the world, and is in- deed better if it comes from Java or the West Indies where a tropical sun has transmitted sweetness through the cane. Wheat too is obviously produced more advantageously in lands where large spaces facilitate mechanised processes. There is another consideration, too. There is a natural long-term tend- ency of the world demand for fresh meat, fruit and dairy produce to increase, not only proportionately
1 6 THE FRAMEWORK OF AN ORDERED SOCIETY
to the increase of population, but also with a rising standard of living, since they are relatively luxury foods. On the other hand, it had long been obvious that sugar and wheat were likely for years to come to be produced in excess of an almost stationary de- mand. A policy definitely designed to make us self- sufficient in wheat, in view of the risks of war, would of course be logically defensible, though very expen- sive and perhaps impracticable. But no such policy was at the basis of our action. If that consideration is excluded it is obvious that a policy of agricultural protection, which had been planned and thought out with care, would have put wheat and sugar at the bottom, not at the top, of its list. It is a good illus- tration of our present unplanned control that it was these two commodities which were selected for first and special encouragement. The wheat subsidy, at the expense of the consumer, is relatively recent. The sugar subsidy has been in operation long enough for us to see its results. It has proved so extravagant that the public (as taxpayer and consumer) was pay- ing more than £2 for every £i's worth of sugar even before the recent abnormal fall of world prices.
If we turn from commercial policy to monetary policy, the case is perhaps not quite so clear. Here there has obviously been deliberate planning and di- rection. The planning has, however, been incomplete and to a large extent ineffective. To some extent this is due to the impact of forces of exceptional strength, resulting from war disturbance, both internal and external. Exclude these, however, and we cannot fail to admit in retrospect that, if our own monetary
THE NEED FOR A NEW SYSTEM 17
policy was based upon a very definite view of Lon- don as a financial centre, and England as a creditor, it was not planned in relation to a balanced view of all the varied interests of the country. It is clear that if there had been an equal consideration of the whole economic situation of the country, with due regard to the new rigidities of the price and wage structure, the pound would not have been so light-heartedly stabilised at 4.86, with the facile assumption, so commonly made by Treasuries trained under a more elastic system, that the economic adjustments of prices would follow automatically.
The instances discussed above of official interven- tion in schemes affecting production are not isolated or exceptional. On the contrary they are typical of the greater part of the world's commercial policy, which has been built up by successive concessions to interested pressure. It is the most serious, and the most unjust, obstacle to the schemes not only of Socialists but of all those who desire any system in which the public interest is adequately protected by public control, that the present commercial policies of the world constitute a kind of bastard socialism, conceived not in the public interest but pressed upon harassed governments by strong sectional organisa- tions. Nor is this accidental or fortuitous. It results inevitably from the unsuitability of the present pro- cedure and traditions of representative government for the economic tasks of the present period.
It has, I think, become abundantly clear that, for such responsibilities ,. the machine of government as we know it in countries with free democratic insti-
1 8 THE FRAMEWORK OF AN ORDERED SOCIETY
tutions is incompetent. The system, its methods and its traditions, grew up when the bulk of the work of government was political, and its tasks in relation to economic development either secondary or only oc- casional. There is a complete and fundamental dif- ference between these two categories of tasks, and the kind of government which is suitable for each. Political problems, whether they are internal, turn- ing for example on the extension of the full rights and opportunities of citizenship to hitherto unfranchised or unprivileged classes, or external, turning upon disputes with other countries, may be both difficult and dangerous. But they are relatively simple in their content, discontinuous, disconnected and termi- nating. A new extension of the franchise is given or denied; a dispute is settled and ended. Each may be a precedent or an occasion for a new problem; but there is not normally any such essential unity or interrelation between them as there is, or should be, between separate and successive measures of eco- nomic policy.
For economic problems, however, unless successive acts of government are to lead to continually increas- ing confusion, deliberate planning, consecutive think- ing and careful elaboration of the main policy with- out the disturbing influence of sectional pressure are essential.
Parliamentary government, as it now operates, makes this impossible. Parliament consists of a het- erogeneous mass of persons distinguished from their fellows by the qualities that please electors or party committees, or who have more means and leisure
THE NEED FOR A NEW SYSTEM 19
than other men; in their contact with the executive's task of continuous government and elaboration of economic policy they are at once inexpert and sec- tionally minded, at once ineffective and exacting. In such an environment a Minister cannot plan ; he can only improvise. The daily impact of successive visi- tors, combined with the inconsecutive, troublesome, urgent difficulties of daily administration, pouring in from every sphere of governmental activity and from every quarter of the world, makes consecutive think- ing impossible. A modern Minister is ex officio an improviser and an opportunist; and he is ex officio a weary man — perhaps a weary Titan, but certainly weary. And this is true not only of Ministers, but of the relatively small number of officials who are con- sulted on major policy. Now, unhappily, the first in- stinct of every tired man is to reject new or external assistance as likely only to give him new work and worry. On a short view this is always true, and it is always the short view that the tired and overworked man tends to take. The best chance a Government or a Minister has of giving effect to a well-considered and deliberately thought-out policy is that they will have occupied a preceding period of opposition and relative leisure in thinking it out. But this is unlikely and unsatisfactory, for a policy worked out in oppo- sition is likely to be determined too much by reaction from the opposing principles or proposals of rival parties ; it suffers from the absence of expert opinion and the sense of responsibility which office gives; and, as events change quickly, it may be out of date. Moreover, the permanent advisers enjoy no such
20 THE FRAMEWORK OF AN ORDERED SOCIETY
respite or opportunities. They are subject, without intermission, to the successive minor difficulties of daily administration ; they see policy from the point of view of these near and narrow problems, and of a single, departmental point of view — and are likely therefore to fail to see the wood for the trees. De- partmentalism, a conservative clinging to traditions and precedents unsuited to changed conditions, and an opportunist attitude to such new problems as can- not be ignored, are almost inevitable characteristics of an official system; and unless they are corrected by a wider vision and a more broadly conceived policy brought from outside by Ministers and those consulted by them, the results must be disastrous.
It is in large measure the change in the character of modern tasks of government which explains the discredit, the deterioration, and in many cases the replacement, of free representative institutions. In Russia we have a centralised system which enforces planning at the expense of political, personal and economic liberty alike. In Italy we have a Fascism which, at the expense of political freedom, has re- tained a measure of controlled economic freedom. In Germany and other countries we see a similar de- velopment. Even here, the establishment of the Tariff Advisory Committee, and the reasons by which it was explained, are a tentative step towards the removal from Parliament of powers previously exercised by it. It is becoming clear that either Rep- resentative Government must be replaced — at what a terrible price and by what methods I will not stop to enquire — or it must reform itself and its methods.
THE NEED FOR A NEW SYSTEM 21
I believe myself that the latter course is practicable. I do not believe that the only alternatives before us are a Communism which destroys both political and economic freedom, or a Fascism which, at the expense of political liberty, leaves a limited freedom for cap- italists ; or the inefficiency which follows the assump- tion of new and more complex tasks by a representa- tive government as it now functions. I believe that we can both plan and preserve freedom on three con- ditions: that Parliaments will delegate some of their functions to the Executive, without abdicating their ultimate responsibility; that the Executive will fit itself for its tasks by welcoming the assistance of those who direct the actual economic activities of the country; and that these in turn will assume the task of collectively controlling and planning their own activities, in association with Government and through an appropriate organisation. The character of this organisation will be the theme of my next lecture.
II
INSTITUTIONAL SELF-DISCIPLINE
i
n my last lecture I tried to show that an ordered society is essential, that our present controls and re- strictions now improvised piecemeal must be re- placed by planned control, and that the central organ of Government, with only its professional ad- visers, was and would remain incapable either of planning on the scale required or even of directing the execution of a planning scheme.
If we are to have a planned and directed economic system, it is from inside that system that we must find those who will, for the most part, plan and con- trol, and they must do this through their own institu- tions. True, Government can and must play a part, but it can be a part only; and even for that part, of encouragement and general guidance, they will in my view need to utilise the assistance of those who are actively engaged in the economic activities of the country to a much greater extent than at present.
In a word, J believe that our economic system needs to develop an institutional self-discipline, aided but not in detail directed by the Government. I be- lieve this, though difficult, is not impossible, and that it represents the one practicable alternative to in- creasing inefficiency on the one hand or the estab-
22
INSTITUTIONAL SELF-DISCIPLINE 23
lishment of a system incompatible with political and economic freedom on the other.
I propose to suggest very tentatively the lines upon which this institutional self-government might develop. But let me first recall in the most general terms the goal to be attained. Throughout our intri- cate moHern life of varied needs and specialised ac- tivities, supply needs to be adjusted to demand and each economic process to the others on which it de- pends. The automatic adjustments of changing prices under a fully competitive system can no longer be relied upon by themselves, for the reasons I gave in my last lecture, and they need to be supplemented by deliberately planned direction. Each one of our individual activities tends to react destructively ujapiL others, and needs therefore to be kept within a general framework which will prevent such fatal interactions. We must have a system which trans- lates each increase in productive capacity into equiv- alent purchasing capacity and so enables us to utilise to the full the resources and the skill which are now at our disposal. For this the competitive price system supplemented by a mere system of law, or centrally devised regulations, within the competence of a cen- tral government, will no longer suffice. The economic system must develop institutions through which it can to the extent required regulate its own activities; and those who direct it must regard themselves as having, not a single but a double responsibility, first for carrying out their own individual business effi- ciently, and, second, for constructing, with others engaged in similar activities, a framework of general
24 THE FRAMEWORK OF AN ORDERED SOCIETY
policy and regulation which will leave the stimulus to individual effort but will prevent the action of the individual, or business concern, from reacting de- structively upon others or upon the general public interest.
To some extent this will mean creating new insti- tutions; to some extent transforming those we have. I remember a remark made to me when the world depression was beginning by one who has had an almost unequalled experience of commercial policy in Central Europe. He said in effect: "You in England have a more elaborate system of economic organisa- tions than any other country. You have Chambers of Commerce and Federations of Industry. You have Employers' organisations and Trade Unions which fix wages. You have rings or understandings which, within considerable limits, determine prices. You have social legislation which settles a large part of the overhead costs of every business. We are enter- ing on a period in which great adaptations to chang- ing conditions will be necessary. Your institutions may in this period be a great handicap or they may be a great advantage. If they are used only to resist and postpone changes ultimately necessary, they will be a handicap. But if they could be used to an- ticipate and accelerate the changes that must even- tually come, they might be a great advantage, for they would enable you to make the necessary adap- tations that will come more slowly and with great waste from the ruthless operation of blind but com- pelling economic forces. If, for example, a change in wholesale prices makes possible, and will ultimately
INSTITUTIONAL SELF-DISCIPLINE 25
compel, a reduction in retail prices, your distributive organisation may postpone it and lose its custom, or it may anticipate what must ultimately come and maintain the volume of business to the general ben- efit. What you need is to convert your institutions from instruments of resistance to change into instru- ments of rapid and unwasteful adaptation."
I propose a little later to illustrate the way in which what I have called institutional self-develop- ment may develop in the different parts of our sys- tem, which concern respectively the control of money, the flow of capital, and industrial organisa- tion. But before entering each of these spheres sep- arately, let me suggest a few principles which will apply throughout.
Inj&eJ&rst place we need, I think, to "profession- alise" the organisations which at present represent sectional activities. These organisations have usually a double aspect. First, that of defending the special interests of those concerned, either as against directly opposed or competing interests or the public in gen- eral; and, secondly, that of developing standards of efficiency and of conduct, of encouraging an internal selWiscipline which is in the general public interest. I may call the first the "defensive" and the second the "professional" aspect of these organisations. It is obvious that the proportions in which the two ele- ments are to be found varies very greatly in the case of the different organisations. It is also obvious that at present in most cases the defensive element pre- dominates. Take; +bf example, such ah Employers' Federation ,as' is found in the coal industry. It -has
26 THE FRAMEWORK OF AN ORDERED SOCIETY
become evident in recent years that an organisation was needed which could speak for the industry as a whole and could exercise an effective influence over its constituent units in regard to any general scheme of reform required. The existing organisation, how- ever, was formed primarily for the purpose of de- fending the interests of employers as such against those of employees as such. The whole traditions of such an organisation were necessarily such as to make it unsuitable for a task that needed to be at once constructive and co-operative. Nor is it only the tra- ditions. It is natural that when for many years an organisation has existed for defensive purposes, the personnel who become associated with it are those who are specially interested in that kind of work. A body whose primary work it has been to contest the claims of labour is likely to be staffed throughout, and directed at the top, by those who think primarily in terms of dealing with every difficulty in terms of reductions of wages rather than improvement of effi- ciency and reconstruction, and the real constructive intelligences in the industry are likely to be outside and without influence in it.
As an instance of a sectional body of a different type I may cite the General Medical Council, which is more professional in character and is perhaps helped to maintain its professional standards by the existence as a separate organisation of the British Medical Association. The General Medical Council does exist, primarily "to encourage an improvement in the standards- of 'conduct of the profession, which is in the public interest. It removes* the qualifications
INSTITUTIONAL SELF-DISCIPLINE 27
of doctors who have been guilty of unprofessional conduct in neglecting their patients, etc. Even in the case of a body such as this, however, we sometimes find greater enthusiasm shown in dealing with pro- fessional misconduct which injures the profession — such, for example, as co-operating with an unquali- fied practitioner — rather than that which injures the public.
If they are to be the instruments of a planned economic system, it will be necessary in the above sense to "professionalise" the group organisations that exist, and at the same time to relate them more directly to those who really direct action and policy so that they are more effective in controlling and in- fluencing that policy. It is also obvious that, whereas existing organisations may, with modifications and adaptations, cover a certain part of the ground, they will need to be supplemented in many cases by new institutions; and these may, in my view — according to the extent of the general public interest which is involved — comprise in varying measure the associa- tion of public representatives.
In all these sectional organisations, however, there is one principle to which I attach great importance and the observance of which will largely determine the whole character of a planned system. In my view welieed to conceive of the planned structure of so- ciety as' always growing up from below and not en- forced from above. Each controlling authority, if it is to have either the experience or the influence re- quired, must be constructed from within itself and not imposed by an external power. The application
28 THE FRAMEWORK OF AN ORDERED SOCIETY
of this principle varies of course considerably in the different cases, but it is so important that I think it may be well to expand a little what I have to say on the point. I will illustrate it by a problem of organi- sation which I found confronting me in connection with the control of shipping some sixteen years ago. It had become in 191 7 of the utmost importance that the shipping policies of the main Allies in the war — which at that time, through the shortage of shipping, dominated and controlled the whole supply pro- grammes— should be effectively co-ordinated. It was decided to form an Allied Maritime Transport Coun- cil. But upon what principle was this Council to be formed? Some proposed that a number of whole- time people should be appointed on a Shipping Board which would be given power to plan and di- rect the use of all ships at the disposal of the Allies — British, French, American or Italian. It was ob- jected to this proposal, and with reason, that the Shipping or Supply Ministers of the different coun- tries could hardly be expected to delegate to other persons powers which would make their own posi- tions quite subordinate, and would indeed, in view of the extent to which the control of shipping at that time affected every sphere of policy, be tantamount to asking the Governments themselves to abdicate, as regards a large measure of their responsibility, in favour of a new authority external to themselves. Such an authority was unlikely to be given and, if given, would certainly be withdrawn. A counter- proposal was therefore made, that the Shipping Board should not be executive but advisory, that it
INSTITUTIONAL SELF-DISCIPLINE 29
should make its plans and then advise each Govern- ment to accept and carry out the part which fell within its own province. It was, however, objected with equal reason that, if the first proposal involved the delegation of too much power, the second in- volved too little; a mere advisory board would be completely impotent to secure the action necessary. And then came the discovery. A Shipping Council was formed, and constituted into both a planning and executing authority, by the appointment of the ac- tual Shipping and Supply Ministers of the different countries, who continued to exercise their national functions, but became for a time and for a definite purpose, as members of an international organ, not National but Allied Ministers. This principle of or- ganisation avoided the dilemma of choosing between either an impossibly powerful or a hopelessly weak planning authority. For the plan made by a body so composed was necessarily adjusted to the policies and interests of the different governments as well as their common interest, and the action agreed to by each member in his international capacity was after- wards executed in his national capacity as Minister of his own country. This vital principle, which has since been expressed in the Council of the League of Nations, is one which needs, I suggest, to be at the basis of the whole structure of any planned society. So only shall we get realism in our plans, competent and effective execution of them, and self-government in the most real sense throughout the economic structure.
The next main question that arises is how far
3o THE FRAMEWORK OF AN ORDERED SOCIETY
planning must go both extensively and intensively; what can be left outside its scope, and how far con- trol must penetrate down to the detail of every.-ac- tivity. Upon the answer to these questions, of course, depends what measure of real economic freedom planning leaves with us and, indeed, what measure of political freedom either. We shall see some answer to these questions as we come to the different spheres of activity. In the meantime it is sufficient to suggest that the ideal should be, first, to see, when arranging any particular measure of control, that the range of its reactions and consequences are foreseen and dealt with by any necessary complementary planning, but, secondly, that — subject to this — the maximum scope for free adjustments and free enterprise shouldjDe left. No more control should ever be imposed than is required to prevent the free activities of individuals from causing more damage in their impact upon each other than they add directly to the common good.
With these principles in mind, what, in each main sphere, would be the main institutions and their functions?
At the centre, of course, is the authority control- ling the currency. Here we have, nationally, in the Bank of England an institution which in some meas- ure has the characteristics of the institutions which I wish to see more generally extended. The Bank is legally a private institution under charter. But in fact it fulfils vital public functions and has developed traditions corresponding to those functions. Its most severe critics do not allege that its decisions, as to Bank rate, etc., are determined by considerations as
INSTITUTIONAL SELF-DISCIPLINE 31
to whether a high or low rate would be more bene- ficial to the shareholders' dividends; and it is evi- dent that if its present traditions were abandoned, and the Bank actuated in its policy primarily by profit-making motives, its constitution would have to be changed or its privilege withdrawn. What is al- leged, however, is that the Bank is influenced in its policy, not by its own shareholders' interests, but by those of the environment in which it mainly lives and works, that of the financial interests of the City of London as distinct from industry and commerce or the economic life of the country as a whole. What, if any, changes then are needed? Well, it is clear that the ultimate decisions as to the main basis of the national currency must rest, as they do, with the Government and Parliament, who must decide, for example, whether the current^ should be on gold, and if so at what parity it should be fixed. But surely the authority of those who represent the general pub- lic interest should extend further. The Bank surely ought not to decide itself, on its own authority and with its present constitution, whether policy should, for example, during a given period, be directed to- wards securing an upward or a downward movement of prices. The Bank is admirably fitted to be an executant of general policy but not to determine it. Main policy should, I suggest, be laid down by the Government, which in turn should itself be advised by persons reflecting the views of those engaged in all the main activities of the country. The machinery through which this advice might be given is sug- gested in what follows.
32 THE FRAMEWORK OF AN ORDERED SOCIETY
Currency questions, more than any other, lead in- evitably to a consideration of international co-opera- tion. It will suffice at this point to remark that the informal co-operation between the Governors of the principal Central Banks, which has been developing since the war, has now been supplemented by the creation of an International Bank — the Bank for International Settlements. This institution — with a suitable extension of its powers — could serve as the instrument of whatever world monetary policy is de- cided upon. Its directing authority is constituted of those who control the national Central Banks — and it is therefore their collective instrument of action. It is thus founded upon the fundamental principle just suggested, that the directing authority should not be external and imposed but a collective expres- sion of the constitu6:< elements whose co-operation is required. The International Bank, so composed and so controlled, could be made the main world in- strument for guiding both monetary and financial policy. It could, for example, be used at present first to help world prices up and then to maintain the general level of prices reasonably stable.
Next we come to the system which directs the flow of capital. Here I should like to see several types of new institutions. First I think we need the kind of National Investment Board which Mr Maynard Keynes has been advocating. This Board in my view should include, but not consist mainly of, Govern- ment officials. It should have powers, which should be exercised sparingly, to forbid public issues tem- porarily (or in extreme cases permanently) for sped-
INSTITUTIONAL SELF-DISCIPLINE 33
fied purposes. We have at present a practical em- bargo imposed when and as the Treasury thinks fit. The exercise of such powers — not less effective for being based upon no legal authority — by a Depart- ment which does not state its reasons and is likely to be actuated by a single point of view in what may be a very complex situation is obviously not justifiable except as a temporary and emergency measure, and in the absence of any regular institution. In addition to its rarely exercised veto, the National Investment Board would in my view fulfil a more important function in improving the whole mechanism through which capital is obtained from the investor for new issues, and in particular issues for new concerns, I need not dilate on the scandals connected with com- pany promotion, perhaps the least creditable part of the whole of our system. My (J ,Mn point is that, with provision for prohibiting certain issues and with an improved mechanism for the guidance of the new investor, the main flow of capital could be left to find its way freely, guided by the ordinary economic motives.
As regards permitted foreign lending, something rather differentTs, I think, required. The amount al- lowed Jto„be issued might be limited by the Invest- ment Board, but the direction of the permitted for- eign investment must depend on the individual investor and on the issuing houses to which he looks for advice. A substantial part of the cause of the financial collapse of 1931 is to be found in the reck- less and ill-directed lending (especially to Govern- ments and public authorities) of the years 1924-
34 THE FRAMEWORK OF AN ORDERED SOCIETY
1928. Foreign issuing houses cannot be absolved of a serious responsibility. They could now, without great difficulty, prevent the danger of similar abuses in the future. Half-a-dozen houses in New York and even a smaller number in London and Paris have the matter in their hands. They could collaborate in drawing up a code setting out the conditions and safeguards desirable for different classes of foreign loans — especially those to public authorities. And if they then used their collective influence to discour- age issues that did not comply with these conditions, they could make it impossible for any would-be "blacklegging" house to tempt the investor after his recent experiences. So much for negative action. Pos- itively I believe the reluctant investor could be both encouraged and safeguarded by the creation of a few specialised institution^ such as the one recently rec- ommended by the League of Nations for agricultural mortgage loans in distant countries.
In some cases the co-operation of the Stock Ex- changes and the Banks is needed to deal with an abuse. The speculative boom in America and the following crash were the opening chapters of the great depression. The crash was proportionate to the speculative boom which preceded it; and the extent of this in turn was due to the facilities which the small and ignorant investor has to speculate on mar- gins and on borrowed money. There ought surely to be some machinery to restrict these facilities at a time when a dangerous speculative boom is in prog- ress.
It will probably be conceded that, if a reasonable
INSTITUTIONAL SELF-DISCIPLINE 35
amount of constructive intelligence and collective determination is available, the worst defects in the world's currency and credit system could be reme- died. This alone, however, is obviously not enough, and we enter a much more difficult sphere when we come to industrial production, In the case of a num- beFof the most important industries — iron and steel, motor-cars, etc. — it is clear that the efficacy of the self-adjusting system has been largely destroyed. The existence of very large concerns, with many of the powers of monopolies but no machinery for effec- tively planning production in relation to demand throughout the whole of the markets they serve, is likely to be the source of frequent and perhaps in- creasing crises of over-production, and more and more intense slumps after booms. Such organisations have financial resources, and credit with the public enabling them to raise additional resources, which makes them independent of the monetary system and makes it possible for them to defeat, if they wish to, the attempts of a central monetary authority to de- flate a boom which is becoming dangerous. Their resources make it possible for them to continue full production for a time when, under a system based upon smaller units, falling prices would have rapidly adjusted supply to a reduced demand. Then, when it has become clear that it will not be possible to sell at existing prices, they still have enough control of the market to give them a choice between reducing prices or losing custom; and just when the general situation makes the former course most desirable they often choose the latter.
36 THE FRAMEWORK OF AN ORDERED SOCIETY
All this is true. But two important considerations which tend to make the problem soluble need equally to be borne in mind. The first is that where a large- scale organisation of this kind has developed it can itself, without insuperable difficulty, be made the instrument of the new direction that is required. Corporations which are powerful enough to resist the adjustments forced upon weaker concerns under the automatic, competitive system, may, with no impos- sible development of collaboration, be also powerful enough to secure those adaptations by deliberate de- cision, and without either the delay or the loss that the competitive process involves. They also consti- tute ready-made units for a wider organisation which can guide policy throughout the whole world sphere of the particular industry. The second consideration, no less important, is that a system of this kind need not comprehend all industries. If, in addition to a reform of the monetary and financial system, the dangers to equilibrium arising from the competitive over-expansion of the great basic industries which are organised in large units can be arrested, the gen- eral system would be sufficiently stabilised to enable the ordinary free automatic adjustment to work as at present, without intolerable waste or dislocation, throughout the large field of industrial enterprise which remains organised in smaller units. Not even in the case of the few large-scale industries is more than a partial replacement of the competitive system necessary. Each unit would normally be conscious of the effect of external competition and would be guided in its policy by the same considerations as
INSTITUTIONAL SELF-DISCIPLINE 37
at present. But, by being linked up with such a sys- tem as I am now proposing, it would be assisted in the determination of its own policy; and the differ- ent units in the same industry would be able to deal collectively with the special needs that arise, for ex- ample, at the crucial points of a trade-cycle.
I should exceed both the scope of my theme, and the limits of my time, if I attempted to forecast the type of organisation appropriate to different types of industry. It is evident, however, that developments which have already taken place in many industries foreshadow an instrument of direction and control through which many of the present, dislocations of production and markets could be prevented. But the organisation will vary in different industries and countries and will change with time and changing needs. Nor need I dilate upon the special problems of agriculture, where the multiplication of small units in production will involve a somewhat different di- vision of functions between Government and pro- ducers as regards any regulative control that may be required. My object is only to suggest some of the main principles upon which economic self-govern- ment may develop.
Perhaps the main character of the kind of struc- ture which I am suggesting will already have begun to emerge.
A monetary system directed as in the past, but with international co-operation, through a machinery both national and international; the relatively auto- matic operation of accidental gold supplies being replaced, as it can be, by deliberate policy. An invest-
38 THE FRAMEWORK OF AN ORDERED SOCIETY
ment system, both national and international, di- rectly controlled as to a small part by the prohibition of specified issues, but otherwise free as in the past, except for the improvement of the machinery for giving advice and information. In industry, the co- operation of the leaders of the greatest concerns in the task of anticipating and mitigating the move- ments of the trade-cycle, but by methods which still leave them subject in the main and at normal times to the ordinary operation of competitive forces ; and the continued free operation of the competitive price system over the rest of industry, subject only to the customary restraints of law and social regulation. In agriculture such planning and control as may prove necessary, guided more directly by a Government suitably advised. Throughout all these spheres ap- propriate organs of control and guidance would be developed by the appointment of committees and councils, not imposed from above but appointed from within and composed of those engaged in sep- arate individual enterprises; so that each leader in a country's economic life would have a double role and function, that of managing his own concern and that of assisting in constituting the framework within which it operates. The whole of these sec- tional planning and guiding authorities would be linked together by the formation of wider councils, drawing their membership by selection from the smaller councils, and culminating nationally in Na- tional Economic Councils, and internationally in a World Economic Council; these councils being suit- ably related to the Governments, so that the whole
INSTITUTIONAL SELF-DISCIPLINE 39
system would be an adjunct to — or rather an integral part of — the machine of Government.
This system would in principle grow up from be- low, not be imposed as an external and superior set of ruling institutions from above. Logically, there- fore, the constitution of each smaller unit should precede the creation of a large one. In fact, however, the general plan must largely be not '/only ..made but initiated centrally. And pending the growth and proved competence of the smaller units, the larger units must doubtless be appointed on a selective and not a representative basis. But the constant effort should be to develop the whole pyramidal system in such a way that each stage up to the apex should be based upon the stage immediately below.
In this way we may hope to get a system which supplements the now defective automatic system of competitive price adjustment by the minimum of de- liberate regulation and control. It leaves economic freedom in a double sense; first that, subject to a more effective and complete framework of law and regulation, the vast bulk of the adjustments of eronomic process are still left to the operation of ToTnpetitiv'e price, and enterprise is left free, with the stimulus of profits; and second, that such measure of additional regulation as is required is both devised and applied through a system of economic self-gov- ernment. The economic system would thus supply the institutional self -discipline required to deal with its own defects. And lastly, under such a system the central responsibility of the political organs of gov- ernment would be so lightened and shared that,
40 THE FRAMEWORK OF AN ORDERED SOCIETY
though political reform would still be necessary, there would be no need of a change of system of so fundamental a character as to involve the sacrifice of political freedom.
We arrive, therefore, at a planned society com- patible with both economic and political freedom.
This system obviously needs, however, to be linked up to the organs of political government; and the relations which are involved, I suggest, through a form of improved and developed National Economic Council, will be discussed in my next and concluding lecture.
Ill
THE ROLE OF GOVERNMENTS AND ECONOMIC ADVISORY COUNCILS
i
n my last lecture I tried to present a sketch of a self-governing and self-regulating economic struc- ture, based upon specialised institutions and group organisations. I believe that this is the kind of struc- ture of society which is likely to develop ultimately from the stress and strain of this period of transition and transformation; and that it is the system which has the best chance of combining the planned regu- lation and control which has now become necessary with the essentials of both economic and political freedom. The merit of such a system is that it would at once relieve government of an intolerable burden, and free economic enterprise and development of the dead hand of the kind of control which, exercised by government as we know it, cramps, restricts and de- stroys both variety and elasticity.
Nevertheless, no institutional self-discipline in the economic system can develop so perfectly and so completely as to make it unnecessary for govern- ment itself to assume and continue vast responsibili- ties in regard to the economic life of the country.
In__the first place, such a system cannot be ex- pected to „ gr ow spontaneously throughout every sphere of activity in which it is required. A lead must
41
42 THE FRAMEWORK OF AN ORDERED SOCIETY
be given; general guidance and direction must be forthcoming; if the Government need not plan in detail, it must "plan planning."
In the second place, there will sometimes be a need for powers which can be given only by Parlia- ment, on the advice of the Government, to deal with resistant minorities.
In the third place, there will be a continuing task of seeing that the institutions which develop in dif- ferent spheres are co-ordinated with each other.
In the fourth place, the development at the best will be unequal; it will need stimulating, reinforcing, and supplementing where it is weakest.
In the fifth place, there will always be the danger that the "defensive" aspect of a sectional institution will outbalance its "professional" aspect; that it will use the powers which organisation, and often some degree of monopoly, give to exploit rather than serve the public interest. Government itself, which alone derives its authority from the public as a whole, must remain the ultimate guardian of the public interest. It may delegate its responsibility, but it cannot abdicate. It must determine the conditions upon which sectional institutions can grow and work so as to be in the public interest; it must watch their actual working; and any delegation of responsibility must continue only on condition that, and so long as, the trust is honoured and the public interest served.
In the sixth place, there are many forms of eco- nomic activity, and there will be more, where not only is the public interest vitally involved but where monopoly is desirable. In such cases some form of
GOVERNMENTS AND ECONOMIC COUNCILS 43
public ownership and control will probably be re- quired. This does not of course mean direct manage- ment by a Government Department like the Post Office. All sorts of mixed systems are practicable, of which the Central Electricity Board, the Port of London Authority, and the B.B.C. are examples in this country and of which Germany provides more numerous and more varied instances. These again will involve considerable work and responsibility for the Central Government, in determining the condi- tions appropriate to each case, in making appoint- ments, in watching the due observance of both the letter and the spirit of the charters given, and in considering whether later experience or changing conditions necessitate a modification in the original charters.
Lastly, Government will of course have duties with which we are familiar in regard to the public finances, commercial policy and so on.
Ts it not clear that for such tasks the machinery of government must be strengthened and its methods improved? The solution should, I believe, be of two kinds. There should be a change in the relations of Parliament to the Executive ; and the Executive it- self should arrange to be continuously advised, through, an appropriate organisation, by those in di- rect touch with the country's economic activities.
The first of these reforms lies a little outside my theme, and I cannot now discuss in detail the form which it should take. It is so important a supplement, however, to any general scheme of economic govern- ment that a few comments are necessary.
44 THE FRAMEWORK OF AN ORDERED SOCIETY
If Ministers in office usually become increasingly incapable of consecutive thinking, the explanation is to be found only partly in the greater range and complexity of the problems now presented to them. It is equally due to the Parliamentary environment in which they work. Throughout the greater part of the year they are exposed to daily questioning, and frequent debates, on the details of their administra- tive action; their bills are subject not only to criti- cism in main principle but amendment in every de- tail; the drain on time and energy involved is doubled by the personal representations and pres- sures which are added to these public proceedings. This system worked well enough when the issues were mainly political and relatively simple. It does not work now. It is indeed visibly breaking down throughout a great part of the world. If Parliaments are to retain their essential powers, and to discharge their first responsibility to the public, on which free government depends, it looks as if they must volun- tarily surrender the powers and rights which are less essential and which they are least competent to exercise. Suppose for example that Parliaments met for only two or three months of the year. In that time they could approve in main principle the legis- lation to be enacted for the ensuing year, leaving its detail to be worked out and applied by Order in Council; they could review the action of the Execu- tive during the preceding year and either, by ap- proving it, give it a future lease of life, or, by cen- suring, secure a change and the appointment of a new Cabinet. Ministers would then have three-quar-
GOVERNMENTS AND ECONOMIC COUNCILS 45
ters of the year to work out, in conjunction with those best qualified to advise them, the general policy for which they had received a mandate. .With this reform each part of the body politic would discharge tlSQui^on for which it is best qualified. Let me take an example. The electorate as a whole is quali- fied, and entitled, to say what shall be the main character of its economic structure; whether, for ex- "ampTe7 it desires to be predominantly industrial and as an aid to that ambition to buy its food in the cheapest world markets; or whether, alternatively, it desires a more balanced system under which, at a necessary cost to its industrial expansion and per- haps to its average standard of living, its agricultural production could be expanded. The electorate having through their choice between candidates expressed their views on this major issue of policy and consti- tuted a Parliament, Parliament itself is qualified to lay down the main principles by which the desired end shall be sought ; whether for example it shall be through quotas, tariffs, marketing schemes, con- trolled prices, controlled production, etc. The Gov- ernment then is best qualified, if it utilises not only itsjermaneW but those who have direct
knowledge of agriculture, to elaborate the scheme in detail. And lastly the scheme would be best applied through an organisation created by agriculturists themselves, supervised and guided but not directed in detail by the organs jof Government. I take this example with no intention of expressing any opinion on this particular issue of policy but only of illustrat- ing what would seem to be the best division of func-
46 THE FRAMEWORK OF AN ORDERED SOCIETY
tion in carrying it through. The electorate, while competent to express its view as to main objective, cannot effectively deal with methods even in main principle. Parliament is competent to consider and lay down principles but is likely to cause administra- tive confusion if it actually drafts the details of a bill. Government can work out these details if it is left reasonably free to do so, and utilises the proper advice; and the public has its safeguards in the lim- iting principles laid down by Parliament and the latter 's power to change the Cabinet. And lastly the industry itself can better, with guidance, apply its own scheme of control through its own organisation, than work under detailed orders from a central au- thority.
The first reform needed then is a delegation of power from Parliament to the Executive; the second is the utilisation by the latter of specialised external advice, to supplement the help of its own permanent advisers.
In order that this external advice may be effective, available, and utilised, an appropriate organisation will be required. This might take the form of a kind of National Economic Council. It would be a mis- take, however, to conceive of such a Council as a kind of Economic Parliament with a large and rela- tively unchanging personnel consulted as a whole on each economic problem that arises. If it is to be effec- tive, it must include not only a Council capable of occasionally discussing general questions of policy but a flexible machinery through which a few of the best qualified specialists can be made quickly avail-
GOVERNMENTS AND ECONOMIC COUNCILS 47
able for the particular problem of the moment. It will be an organisation, pivoting on a small central staff, and normally working through small temporary committees. It^should be increasingly linked up with the_economic institutions already discussed, but not so closely that the expert character of the various committees is subordinated to the object of making them "representative," or that the flexibility of the advisory methods is impaired.
I think that the movement for the establishment of Economic Advisory Councils which has been taking place through the world during the last decade is ex- tremely remarkable and significant. We have some such body, through which representative persons with experience of the main economic activities of the country are brought into association with the Government, in operation in France, Germany, Italy, Poland, Belgium, Czechoslovakia, Spain and Greece, and I have myself been invited to make plans on the spot for similar organisations in China and India; while successive special enquiries, serving in part the same purpose, have been conducted in the U.S.A. and Australia.
Now the important thing about this movement is, not that these Councils have proved their utility. They have not. Their functions and constitutions differ greatly, and the right form of body has prob- ably not yet been discovered — certainly it has not proved itself. But the extent of the movement, which has developed spontaneously in so many countries, demonstrates clearly a widely felt need to supple- ment the existing machine of government. The more
48 THE FRAMEWORK OF AN ORDERED SOCIETY
onerous and intricate economic duties falling upon, or thrust upon, Governments; the manifest inade- quacy both of Governments to discharge these duties and of the Parliamentary machine — overworked, po- litical in outlook and tradition, and unspecialised — to ensure adequate contact between official policy and unofficial opinion, are throughout the world re- sulting in experiments which vary in form but are obviously designed to meet similar, and universal, needs.
In creating these new Councils the world has been feeling, or fumbling, its way towards a remedy for the obvious defects of the previous system of gov- ernment. Unhappily the task of discovering the right kind of organisation has been difficult and its estab- lishment slow. The fact is that mere Advisory Coun- cils of men of varied experience but varying ability constitute a very small contribution to the real prob- lem. They can be no substitute for an efficient sys- tem extending throughout the main activities of the country; and in any case their own methods of work and machinery need to be devised and applied with great skill upon principles which are in many re- spects novel. All this means long and difficult con- structive work inspired by real creative intelligence. And in the meantime events have been marching fast, straining the whole social system and often transforming the political system into a form incom- patible with freedom. This step, however, has not yet been everywhere taken, and when it has been taken it may be retraced. It is worth while therefore to examine the results of these new experiments in gov-
GOVERNMENTS AND ECONOMIC COUNCILS 49
ernment, and to consider the conclusions which they suggest. In general Economic Advisory Councils have so far been unsuccessful. But I believe that they embody an idea which, if developed along the right lines, may prove a real contribution to the fun- damental problem of government of our age. Let us look, then, at some of the experiments actually made.
The new institutions embody, in very varying pro- portions, two different principles and purposes; that ofjecuring expert advice and that of securing repre- sentative advice.
In Germany, for example, the latter principle is dominant. The Reichswirtschaftsrat consisted of no less than 300 persons, most of whom were appointed by organisations representing the main branches of economic activity. The object was to secure a col- lective expression of the opinions and wishes of these national organisations, and, as a counterpart, to se- cure a better understanding by them of the policy adopted by the Government. The result was a cum- brous and unworkable institution; and the practical work was carried on by a small central committee.
In France the representative principle also is the main basis ; but the actual work has so far been pre- dominantly in the nature rather of enquiries into facts than the formulation of policy, though recom- mendations are sometimes made. The other Euro- pean institutions tend to have somewhat the same character as the French or to be something between that and the German system. The Italian organisa- tion is in some respects particularly interesting, as the ideal of the "corporative system" is a form of
So THE FRAMEWORK OF AN ORDERED SOCIETY
institutional self-discipline. It must, however, be re- membered that, so far, the corporative system is an unrealised ideal, as only the sectional "syndicates," whose union is to form the "corporation," have been actually formed, and the Central Government fulfils the functions ultimately allotted to the corporation.
In this country the Economic Advisory Council is based on a different principle and is primarily de- signed for a different purpose, namely not that of representing different classes of opinion but that of giving expert advice. It is designed throughout to give private expert advice to the Government, as the latter may desire. It not only meets in private but so far it has, with rare exceptions, issued no public re- ports, recommendations or statements. It is small in numbers and, though it includes the main categories of expert qualifications and experience, it is not "rep- resentative" in the sense that the members are ex- pected to express the opinions of any organisations with which they are connected. Its Chairman is the Prime Minister of the time, and several other Minis- ters are ex officio members. It studies only such ques- tions as it is asked to by the Government, or one of the Ministerial members on its behalf. It furnishes its reports in private and these are circulated to the Ministers and Departments concerned; and it nor- mally works through a flexible and convenient sys- tem of small committees, formed partly of members of the Council (one of whom presides) and other persons added ad hoc.
This bare description gives no true conception of the real character of the organisation, and of either
GOVERNMENTS AND ECONOMIC COUNCILS 51
its value or its weakness. These can only be judged by considering how it works. The Council itself hardly ever meets in full session, and seems to have given up doing so. The rare meetings of the full Council are the only ones that are publicly an- nounced, and even then the bare fact of the meeting, or perhaps the general subject discussed, is all that is stated. The general public opinion therefore is probably that it is a defunct institution which does no work and exercises no influence. The public is mistaken in thinking that no work is done; as to whether it is mistaken in thinking that it has no in- fluence is a question more difficult to answer. The facLis._th.at the real work of the Committee is done through^ small committees, appointed on the initia- tive of a Minister, usually the Prime Minister, and with the aid of a small but extremely efficient secre- tariat. These committees, which comprise some of the busiest and best qualified men both in finance and industry, worL hard and well; their reports are often of great interest and first-rate quality. Their value, however, depends less on their intrinsic merits than on the use to which they are put. They might serve to inform the public if they were not kept se- cret; they may influence the policy of the Govern- ment to the extent — difficult to judge — to which they are seriously considered. I personally regard it as very regrettable that the reports, or most of them, are not at once published. There is very rarely any- thing in them of which the publication would be in any way against the public interest — and that little could easily be omitted — unless it is regarded as
52 THE FRAMEWORK OF AN ORDERED SOCIETY
against the public interest that the public should be aware of the collective opinions of a number of ex- perts, chosen by the Government itself, on certain subjects of current economic problems to which the Government of the day may at the time be paying little attention. Of course the reports would not usu- ally be read by the general public, but they would be read by all those who are writing on current prob- lems, and the whole public discussion of such prob- lems would to the general advantage be improved. As it is, the reports have, and can only have, a value proportionate to the attention given to them by the Minister and Departments concerned. And at this point we confront the psychology of Ministers and officials harassed by pressure and immediate diffi- culties. The inclination of tired men is to disregard outside advice which is unaccompanied by pressure; and it is a natural instinct of permanent advisers to react against the advice of the external amateur. The consequence is that work, requiring the attendance at meetings over successive weeks, of very busy men may be hastily read or not read at all by the Minis- ters who alone have the power to give effect to what is recommended; or a collective recommendation may be quietly killed by a brief departmental minute whose nature may not be disclosed to the Committee. This is of course part of a larger question, which affects a much wider field of work than that of the Economic Advisory Council — namely , the- whole attitude of Government, of Parliament and the De- partments, to the advice which they seek from per- sons outside the Governmental machine. Commis-
GOVERNMENTS AND ECONOMIC COUNCILS 53
sions, Committees and Conferences are appointed in rapid succession. They occupy the time of experi- enced and busy men of good-will for months. An ex- amination in retrospect of the extent to which their work has resulted in action is an extremely discour- aging one. This is due to several causes. Sometimes it may be suspected that the real object of a Govern- ment is to obtain, not advice, but an excuse for de- lay; sometimes even to occupy and muzzle persons who would have pressed opinions upon them fre- quently and by inconvenient methods. Often the terms of reference are inadequately considered; often the personnel hastily or carelessly chosen. The re- sult is extremely serious if the general view presented in these lectures is a true one — if over all the main spheres of the country's economic life it is important that persons engaged in private enterprise should take a large part in determining the conditions and policy which form the framework for their activities, and that those who direct the country's economic life should be associated with government, and form an adjunct to its mechanism. For there is only one, but that a vital, condition on which this association, to- gether with the advice of those outside the central machine, can be secured as a help in the formation of policy — and that is that the persons invited to do this work should have a reasonable expectation that their time will not be wasted. To begin with, they all have at least the illusion that their work will be utilised. One day, however, I fear, an investigator — perhaps a research student of this University — will make a comprehensive study of the fate of the work
54 THE FRAMEWORK OF AN ORDERED SOCIETY
of Commissions and Committees appointed by Gov- ernments; the record will be a disillusioning one, and when its meaning has been realised it may be- come increasingly difficult to secure the services of the most experienced — and consequently the busiest — men in private enterprise.
I believe that this would be a great disaster, be- cause, for the reasons I have given, I believe that the directing ability and experience in all the main economic activities of the country must take its part in the task of "governance," in constituting and adapting the framework of law, regulation and policy within which individual activities must develop, and for this purpose must be suitably associated with the central organs of government.
It is therefore to be hoped that the customary attitude of Government, Parliament and the Depart- ments to advice from those outside their own mem- bers will in time be changed. I think that the mech- anism and methods of seeking and utilising such advice should be revised in such a way as to secure that it is more regularly and extensively obtained; that it is utilised to the utmost possible effect; and that it is closely related to, and representative of, the directing institutions by which throughout the economic structure the economic life of the country is guided and controlled.
To illustrate what I mean I will mention the lines upon which I suggest the functions of the Economic Advisory Council might usefully develop.
First I think it should, in its methods of working, gradually approximate more nearly to the idea of a
GOVERNMENTS AND ECONOMIC COUNCILS 55
General Economic Staff, out of which — as presented by~5ir William Beveridge — it originated. This would mean inter alia that it would normally have referred to_jtLquestions covering the more important aspects of current economic policy. These would not neces- sarily include, at least to begin with, the most con- troversial and fundamental questions, on which the Government might take a prior decision. But sup- posing, at a given moment, the Government decided that tariffs or other restrictions were desirable to relieve a strain on the currency. The Council, through an appropriate committee, might then .advise as to the most appropriate principles and methods to apply for that purpose. Or the Government might de- cide to give protection to industry, on the ordinary protectionist grounds. The Council might then ad- vise as to the principles on which (assuming the main policy) the tariff would most advantageously be constituted. Both protectionists and free-traders, for example, might agree that either the most good (or the least harm, as they would respectively put it) would result from extending the range of an activity for which a country is especially suited rather than by bringing into existence one for which it is quite unsuited. The Tariff Advisory Committee is not really suited for the work of developing such main principles of policy. It has certain advantages, in re- lieving the Government from the constant pressure of sectional interests; it has the detachment, and something of the impartiality, of a judicial organ. But a judicial authority needs a law to apply and interpret. You cannot refer political problems turn-
56 THE FRAMEWORK OF AN ORDERED SOCIETY
ing upon a change in existing law to a Hague Court; and the Tariff Advisory Committee has no law, or doctrine, or worked-out general policy to apply. Or supposing, again, that the Government decides to encourage British agriculture, it would be a great advantage if a considered study were available as to the direction in which it could most advantageously direct its efforts — and its necessarily limited re- sources. It is no accident that the first two forms of production encouraged, at great expense, have been sugar and wheat, for which Great Britain has least advantages.
Secondly, I think that the reports of the Council and its Committees should normally be published, only such reports or passages being withheld as either their authors, or the Government by deliberate de- cision, decide to be unsuitable for publication.
Thirdly, I think the present system of committees (including both members and non-members of the Council) should be continued and extended; that there should be no permanent committees, and that every committee should be terminated as soon as its activity has ended. But the Council might meet in full session at least once a year ; review the work of all the committees during the preceding year; and suggest — though not determine — special subjects or special committees, the decision resting with the Government.
Lastly, I think the future development of the Council should depend upon its proved ability and utility; upon the reputation it has earned; and, in time, upon the extent to which it can represent the
GOVERNMENTS AND ECONOMIC COUNCILS 57
find link between the unofficial economic institutions and the Government. In regard to this central insti- tution, as to all secondary or more specialised ones, I think that Government and Parliament, the ulti- mate guardians of the public interest, should dele- gate conditionally and gradually but without abdi- cation. In time an enlarged Council, linked up with subsidiary group organisations, might largely serve the purposes of an "economic parliament" — but a subordinate Parliament. No such functions, how- ever, should be allowed to interfere with the flexible and convenient system of small, ad hoc, advisory committees utilising the machinery of the Council.
As regards Commissions, etc., I think the whole tradition needs to be similarly changed. The Govern- ment might well regard itself, and be regarded, as making its main commitment — subject to an ultimate power of rejection, rarely to be exercised, when a Commission is appointed and its task assigned. The terms of reference ought to be so drafted, and the personnel so chosen, that on the defined issue the col- lective authority of the Commission should be re- garded as practically decisive. It ought to be re- garded as a reproach — except in the event of decisive and unforeseeable later events — that a Government should have appointed a Commission, consisting of persons chosen by itself, and entrusted with a task defined by itself — and should then come to the con- clusion that either itself, or some other persons, were better qualified to decide on the same question.
It is of course obvious that no external rules could secure the result desired. If such rules as the above,
58 THE FRAMEWORK OF AN ORDERED SOCIETY
for example, were forced on a reluctant administra- tion, which was in fact jealous of outside advice, the obvious administrative device would be to add de- liberately to each Commission one or two persons who could be relied upon to insist upon departmental views and, if necessary, to prevent unanimity. Noth- ing of the kind of development I am picturing is pos- sible unless the political organs of Government defi- nitely desire, and take all possible means to secure, external assistance.
In discussing so vast a question in the space of a few hours, I have necessarily had to be content with the barest and baldest outline. And even the outline has often been rather slightly sketched than drawn firmly. I have tried, not so much to give an ordered and logical description of a mechanism of planning, as to comment upon some of the issues that arise in such a way as to suggest lines of thought and study to my listeners. I am not attempting to make any novel contribution either to economic thought or practical policy. The conception of a planned society has captured the imagination of the public in many different parts of the world and inspired a great deal of study and investigation, both individual and col- lective. But individual conceptions of the kind of planned society differ widely. These rather incon- secutive comments will perhaps have indicated the general character of my own. I believe we can find a real alternative to a Communism which destroys both political and personal liberty, or a Fascism which at least seriously curtails the first; to a re- strictive state socialism directing everything from
GOVERNMENTS AND ECONOMIC COUNCILS 59
the centre and to an unregulated laissez-faire, which we cannot recover if we would, and any attempt at which will cause the continuance or the recurrence of our present economic troubles. To find this middle, or new, way is the distinctive task of our age. It will not be found by a mere compromise, by taking a middle line, between extremes. The compromise, if such we call it, must be creative and selective, unit- ing the best that other systems have to offer and avoiding their worst dangers and defects. Such a se- lective system will, I believe, be based upon the con- ception of self-government in industry, and in every other sphere of economic activity, but a conditional self-government, encouraged and guided by the con- stitutional and representative government of the state, dependent for its extent and its development upon being so exercised as to be consistent with the public interest, of which those who draw their au- thority from the electorate must remain the ultimate arbiters.
I am convinced that it is only by the utilisation of all the constructive and directing skill and experi- ence of the country in the task of controlling and directing specialised activities that we can face the problems of our period and secure a planned society which will on the one hand prevent the suicidal im- pact of particular activities upon each other, and on the other hand will preserve the essentials of both economic and political freedom. Man has accom- plished half his task; he has wrested enough of Na- ture's secrets from her to give the material basis of a high civilisation to every country in the world; to
60 THE FRAMEWORK OF AN ORDERED SOCIETY
provide not only the necessities but the comforts of life to the whole of the world's teeming population. The other — and the more difficult — half remains; that of controlling his own human relationships, and directing his own activities so that they are not mu- tually destructive. The distinctive task of our age is not to extend scientific achievement but to improve the regulative mechanism of government in its wid- est sense. Among the ideas that will help in this task I believe that of economic self-government to be one of the most promising.
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