VII. Inherent Difficulties of Economic Policy

CHAPTER VII INHERENT DIFFICULTIES OF ECONOMIC POLICY One of the outstanding and most important :features of economic policy is the fact that its development shows an unmistakable trend in the direction of in creased interventionism. This is true largely independently of the time and actual content of the economic policy, and the reason is to be sought in the current economic ideology or economic attitude. Nor can there be any doubt that such :forces as these do exist and that they are able to exert a very strong influence. At times people simply do not want certain things, or-what is more-do not even want to recognize facts. It is not expedient, however, to discuss these matters here, not beca us,e their importance is to be denied, but because they are far too changeable, and it would, moreover, necessitate entering upon" meta economic" ground, which is generally not advisable as long as there is still much to be contributed to the subject in the purely economic sphere. That is how things stand at present. Economic organization itself contains a large variety of elements which force economic policy again and again into the same groove, so that a knowledge of these elements would in most cases provide sufficient explanation of the policy.

First, it has to be realized that economic knowledge is the prerogative of only a very limited number of people. Hardly any other science-not even mathe matical physics-is as esoteric, as exclusive as economic 73 74 THE LIMITS OF ECONOMICS theory. For this there are good reasons, which need to be examined more closely. In contrast to the natural sciences, economics boasts of no physical constants, no fixed relationships, but is based exclusively upon the establishment 01 relative changes, which can in turn be comprehended and expressed only in terms of other relationships. There is no doubt that thinking in terms of purely logical relationships is one of the most difficult tasks with which the human mind has to contend, and if a science is based predominantly upon such a mode of thinking, it is clear that it will not be easy to popularize that science. Furthermore, even the passing on of scientific doctrines from one generation to another within the narrow circles of those who seriously pursue the study of this science is more difficult than in other sciences.

It seems to be inevitable that the rising generation should have to re-think out all the errors ever made in economics. Otherwise it would be inexplicable how agaiI;l. and again, often at short intervals, works could appear which contain old errors in some new guise, and are yet supposed to represent a fresh contribution to knowledge. Every individual economist must always start afresh for himself right from the begin ning; he can rely upon no " established results" in the way the natural scientist, for instance, can. This takes time and is a laborious task, which explains why one must be extremely distrustful of any economists (particularly young economists) who come forward with patent solutions. What is here the fate of the indivi dual on a small scale, is repeated on a large scale as the fate of nations, if only in the, perhaps, com paratively limited sphere of economic policy.

INHERENT DIFFICULTIES OF ECONOMIC POLICY 75 Still more difficult than the passing on of economic knowledge :from one generation to the next is the handing down of experience obtained in the field of economic policy. Though it is obvious that the generations do not :follow each other at sharp intervals, but that there is a sort of "synchronization" of young and old, this is mainly true only in a physio logical sense. Intellectually the cresuras are generally much greater, as is particularly evident at the present time. This explains why the same stupidities in economic policy are committed and vigorously upheld over and over again, with pathetic regularity. The disasters of an inflation remain in the memory only :for a short time and a few years later a new inflation is begun in the same country, and is looked upon as the last word in wisdom. Although we have already had one experience of the breakdown o:f a system of foreign exchange control, ten years later the same thing happens again in the same countries, and this in spite of the fact that some time ago inter national conferences plainly and clearly showed the utter futility of this kind 01 monetary policy. Tariffs far from warding off economic crises only augment their intensity: nevertheless, exorbitant increases in tariff protection, in the :form of quotas and import prohibitions, are time and again believed to be the remedy for the most severe depression. A nervous juggling with measures which are, for the most part, mutually inconsistent is a permanent characteristic of what is supposed to be super-rational procedure.

It may be seen from this that it is not only a question of further developing the theory (in doing which it is assumed that the theory is actually familiar In the form which it has at the time); but of securing 76 THE LIMITS OF ECONOMICS the effective acceptance 0:£ what has already been worked out. These inherent difficulties of economic policy will only be properly appreciated by the man who has himsel:£ devoted a long time to the study at first hand 0:£ the economic ideology of the leading groups of various camps and countries. The repetition of all the errors a,t frequent intervals -by" errors" is meant the inappropriateness 0:£ the means for obtaining given ends, including all the secondary effects-can nevertheless have its good sides, in so :£ar as it is possible to learn from these errors. It is conceivable, for instance, that in the future, at least a "catechism of rules 0:£ thumb" will be drawn up, the constant application 0:£ these rules being, as has already been described, one of the principal characteristics of the actual practice of economic policy. The reason :£or the p'ermanency of these rules of thumb is not only that economic policy is difficult to conduct; it lies also in the representa tional structure 0:£ sectional interests in the economic system, a structure which is in large part quite independent 0:£ the :£orm of government. The point is not only that, as has already been remarked, con sumers' interests, :£or instance, can always, and, what ever outward form they may take, only be asserted with much less vigour and success than, say, pro ducers' interests. The organizability of the various interests is always unequal and will always remain so, no matter in what framework they may be set (e.9 ., Parliam'en t, economic councils, the corpora te state, &c.). In accordance with the degree of these differences in organizability a kind of " trend" will mani:£est itself in the actual course 0:£ economic policy in each country, or at any rate a preponderating INHERENT DIFFICULTIES OF ECONOMIC POLICY 77 influence will emerge, which gives the economic policy a quite definite stamp, and which is largely indepen ..

dent of the form of government. That is how things are in reality. The fact that certain interests always secure strong representation creates a tradition and produces people practised in the art, who ar,e generally far superior to the chance partners with whom they have to deal (members of Par liament for instance), in skill, knowledge, eloquence, and so on. Politicians are often and certainly. when they are new-comers, completely at the mercy of these men, as was repeatedly evidenced in many cases in the post-war period. The trend of economic policy as thus determined undoubtedly lies in the direction of strong discrimination in favour of all those interests possessing distinctive organizing potentiali ties. In the front of these there rank agriculture, the primary products i industries, and in general those branches of industry which are engaged in producing intermediate products. There is nothing incomprehensible about all this; for it follows from the mere fact that interests are represented at all, that economic policy will always exhibit a highly " interventionist" feature. Closer examination of this state of affairs shows it to be deter mined by the structure of the State and many other concrete circumstances too numerous to permit of detailed comment here. The whole object of the activi ties of the group represented is to secure for itself as large a share as possible of the social product. The mere fact that organizations are formed, supports the assumption that the free mecbanism of effecting dis tri bution would result in the receipt of a smaller share, and that the share obtained by means of representation 78 THE LIM::rrS OF ECONOMICS must be greater. It makes a difference, of course, whether the organizations were created for reasons of State, or came to life because others were already in existence, which assured other groups of the upper hand. It is, of course, clear that in a democratic State with a strongly socialist leaning, the role played by the wage-earning classes will be different from that in a State in which, by reason of a purely political distri~ bution of power, the rhythm is set by the agricultural interests, for instance. All thes,e remarks are plati tudes, but, nevertheless, if they are taken altogether, an important lesson may be learned from them. This lesson will be briefly developed in Chapter X.