X. (Conclusion) The State and Economic Policy

CHAPTER X (Conelusion ) THE STATE AND ECONOMIC POLIC1: The central theme of this final chapter was alluded to previously when it was remarked that economic policy is essentially politics in the real sense. It was at the same time intimated that the relations between the State and the economic system are too manifold to be treated within the compass of this small work. The remarks of this chapter are limited to a few funda mental points, a fact which in itself testifies to the enormous scope of the topic. Undoubtedly one of the most important lessons to be learned from the experiences of the last few years is that wisdom or stupidity in matters of economic policy are not linked with particular forms of government. Any neutral observer will be bound to acknowledge that the most democratic countries, as well as countries with dictatorial regimes, have pursued much the same economic policy. In the sphere of currency policy, for example, there are democratic States as well as dictatorships trying to maintain their currencies strictly at the old parities, while there are ,examples also of devaluation in both groups of countries. And it is possible to find many other illustrations of the same thing. Protectionism, for instance, is certainly not exclusive to any particular form of government, and all that there is to be said on this topic is ,equally applicable to most of past history. It would not be unuseful to draw up a detailed account along these lines 141 142 THE LIMITS OF ECONOMICS for a number of differently organized States. In the first place, such a study would provide an empirical demonstration that, apart from communism, which is a v-ery special case, all forms of State organization are compatible with all types of measures of economic policy. For this reason it is for the most part meaning less to make general statements about the relation of the State to economic organization and policy. This is, however, frequently done, and whole books are often devoted to the subject, books which of course lead nowhere. The only way of making headway in this sphere is to make a critical analysis of concrete historical circumstances as they occur. Any other method is " theorizing " in the bad sense in which we have reJected that practice. It is worth noticing, how ever, that amateur economists, encouraged by the lack of investigations of a scientific nature, are particularly inclined to let their energies loos,e in this field.

It is nevertheless possible, allowing for the limita tions just outlined, to make certain statements which are highly significant. Thus, for example, it is notice able that during the rec,ent depression many countries have taken to legislating by the method of emergency decree, and parliamentary control has been greatly reduced. It was only by assuming plenary powers of this kind that the Government was able to force certain adjustments which the depression seemed to have made an urgent necessity. But the reason for this does not necessarily lie in the parliamentary system, which in many countries, such as England and Sweden, for example, seems to be functioning very satisfactorily. It lies in the economic structure of the countries con cerned. Few countries have had so much rigidity introduced into their economic structure by monoSTATE AND ECONO~fIC POLICY 143 polies, cartels and trade unions, as the Central European countries and Italy. Faced by this concen tration of power, the State found itself obliged to adopt special counter-measures, at least in the form of shortening the process of legislation. It is obviously a great deal to ask that anybody should vote his own salary-cut when he has at the same time the power to shift this painful process on to the should,ers of the nameless general public. And one cannot always be sure that the measure will, in fact, produce an improve ment in the economic situation. If, however, free com petition, with sufficient mobility of all factors, eff,ec tively prevails in the country concerned, then the market takes complete charge of the necessary adjust ments and politics need not bother with them. In that case it is immaterial what kind of State organization happens to prevail in the country. The form of State organization is important only to the extent that it strangles or interferes, with the mechanism of the free market, as is manifestly the case in the vast majority of countries. The reasons for measures of State intervention ar,e as various as the methods by which they are imposed. It is consequently of particular interest that no unique relationship can be discovered between economic policy and the form of Stat,e organization.

It appears then, in contradistinction to the commonly held view, that an absolutist-autocratic form of government, far from being necessarily inconsistent with a liberal ,economic policy, actually gives it, when once it is decided upon, much better chances than it has elsewhere. The reas,on for this is that a free economic system depends less on framing positive measures than in r,efraining from doing so. Politico-economic activi144 THE LIMITS OF ECONOMICS ties are almost always carried on with the object of securing someone in the country a larger portion of the national product than he has at the beginning; even at the price of the whole cake becoming smaller as his share increases. In contrast the authoritarian State is theoretically in a position to say "N0" to manreuvres of this kind and so secure that the distri bution o,f the social product shall be determined according to the shares that are implicit in the condi tions of the market. It can also, what is particularly important, pursue an economic policy, like any other policy, of a long TUn character, whereas a parlia mentary government is anxious to see the fruits of what it does during its b.wn term of office. In this sense the form of government has a decisive influence on the general trend of economic policy.

Absolutist forms of government also have dangers, of course , which must be set against the dangers of democracy, and it is an open question which are the greater. What is especially likely to happen under an absolutist government is that a particular group with common economic interests will obtain control over the government and then use it shamelessly to its own advantage, or simply that there will be incapable, ignorant people and charlatans at the helm who may do untold harm out of their lack of understanding. Another interesting field for discussion is opened up by the examination of the elasticity of the actual economic policy pursued by governments of different countries. It may be said in this connexion that a democratically governed country has the greater elasticity since a new ministry can easily drop the principles followed by its predecessors. If this happens frequently, of course, it is a disadvantage STA.TE A.ND ECONOMIC POLICY 145 rather than an advantage, elasticity turning into insta bility. Dictators who, for example, have it carved in stone that they will "d,efend the external value of the currency to the last drop of blood," find it extremely difficult to agree to devaluation, and are exposed to a sharp loss of prestige if they do something which is thoroughly reasonable from the economic point of view and which they themselves probably consider equally reasonable. On the other hand, of course, dictators are able, especially if, for example, there is an important national ideal at stake, to demand incom ..

parably more suffering from the public than would be possible in countries governed in a different way. This fact is only just coming to he realized which explains why it was so widely miscalculated when people main tained that certain countries would collapse within some limited space of time. These are factors which connect up very clos,ely with the general theme of this book which is to ascertain what is the range of application of theoretical economics. Governments need advisers in economic matters and the function of these advisers will vary with the form of government. In States where there is freedom of expression of opinion, everybody can gain a hearing, but how wide a hearing he will be able to find will depend on whether he has a " pressure group" behind him. In States with autocratic governments, and not only in those of them where public opinion is throttled, added importance accrues to all people who have the ear of those in power. A typical example is provided by the recent state of affairs in the United States of America. The circle of people who have been gathered round the President as the "Brain Trust " bears the outward responsibility for the L 146 THE LIMITS OF ECONOMICS economic policy when their recommendations are carried out. These seem for the most part to be so senseless and full of contradictions that the American experiment, if carried out as it was originally intended, is bound to be a failure. The blame will then be pushed on to the" Brain Trust," and rightly so. But it is not right that the blame should be put on the "economists" because there is not one of the members of this group whQ is an economist of any repute. (This recalls what was said in an earlier chapter on the difficulty of defining an economist.) Of course, it is at any time within the power of the leaders of the administration to take on really expert and capable men, so that ultimately the fault is not with those who have given the advice but with those who have followed the advice. The responsibility always lies only with the administrators.

This is a point on which the brilliant analysis of Max Weber leaves little more to be said. Finally, there is still the question whether and to what extent we are in the position of being able to " control" the economic policy of governments. It is necessary first, in approaching this subject, to be clear what is meant by " control." Obviously, it can refer to two things: first, it may mean ascertaining whether the actual course of events corresponds to the expected course. This is a form of control which is undertaken with varying degrees of thoroughness by the government itself. What is required is simply to find out whether or not the intended aim has been reached. This is admittedly not easy to discover because the sequence of events which are supposed to provide the proof or disproof cannot be set Qut in terms of any simple causal nexus. It follows that STATE AND ECONOMIC POLICY 147 even this elementary kind of control must involve a certain expenditure which governments have up till now provided for only very sporadically. Besides, governments must always have an eye to propaganda and they will consequently always maintain that the measures they took were the best in the circumstances prevailing at the time. An independent " control"

Ot the kind described requires continuous scrutiny and an apparatus appropriate to the purpose. The latter is available to-day in the form Qf the various Insti tutes tor Economic Research to whom functions might be assigned which in a certain sense would go beyond those they at present practice, or rather would lend a deeper significance to the activities in which they have so tar engaged. Since, however, these Institutes are only at the beginning of their career and generally s.peaking have so far only worked up a relatively small section of the field of investigation open to them, they have not yet occupied themselves with this important topic. Secondly, " control" may refer to an examination of a more minutely objective kind which seeks to discover whether the methods applied are, or were as the case may be, appropriate to the ends, whether due weight was given to all the arguments pro and contra, &c. This brings us back to the theme which was analysed in some detail in the preceding pages.

Obviously, the problem here is not that of balancing sectional interests either in the process of selecting' the aims of economic policy, or, where these are already given, in choosing the distribution, which is always possible of variation, of the incidence of the burden involved in determining the means. This kind of adju.stment can be taken care of by various 148 THE LIMITS OF ECONOMICS bodies such as chambers of commerce, manufacturers' associations, economic councils, &c. The more far reaching control of the type envisaged is concerned with the following questions: (a) whether all the relevant information available was used: (b) whether it was given its due weight; (c) whether analogous cases of an earlier date and comparable cases in other countries were examined; (d) whether quantitative estimates of the anticipated effects and repercussions were made; and (e) whether quantitative calculations were made regarding the specific measures introduced (e.g., the height of the tariff, the amount of taxation).

Obviously, there are certain prerequisites necessary to the successful undertaking of a " control " of this type. The person or organization responsible :for it must have the same empirical material at his or its disposal as the government i tself (or the other organs concerned), and as far as is possible the 71Wtives of the measures must also be made available. Should the not unlikely case arise that the government is in reality aiming at something quite different from what it pretends to be doing, or can for the moment disclose without causing harm, the task, i:f it is to be per formed publicly, is so much the more difficult. Usually, however, the real intentions of governments do not remain secret for more than a very short time. It may be concluded that the difficulty only becomes serious when it is sought to link up the general idea of control with political control, which is certainly not essential, although the application of the general idea would necessarily give rise to very far-reaching political reforms in r'espect o:f the majority of existing systems of government. If the control of the kind indicated were established at all constitutionally, a STATE AND ECONOMIC POLICY 149 very important factor making for stability in public life would also be created. This has extremely important economic aspects since few things do more harm than the frequent changes of direction which are constantly taking place in economic policy and which prevent the necessary processes of adjustment from ever being completed.

The kind of critical examination of economic policy described here could only be exercised by independent experts, since it would at the same time constitute a criticism of the government and would naturally not be regarded very favourably by the latter. Never theless, institutions appropriate to the purpose might be established after the style of the office of the Comptroller and Auditor-General in England, and the corresponding authorities in other countries, who each year render a detailed account of budget expenditure, thus giving the taxpayer in civilized countries periodical information on the way his money is spent. One more question that may be asked is whether this " control " does not presuppos,e very specialized know ledge which we do not poss,ess. The answer is simply that the difficulties of scrutinizing economic policy are no greater and no less than those of economic policy itself. 'This should be obvious, from what has been said above. It is just the same as checking a mathematical exercise in which everybody has the same knowledge and in which everybody must be acquainted with the data. The whole difficulty of scrutinizing ,economic policy consists in getting hold of the facts. There is no theoretical problem involved. On the practical side, of course, as has already been indicated, a laboratory for economic policy, as I would call it, would need to he set up. This institution would be analogous to the 150 THE LIMITS OF ECONOMICS technical laboratories possessed by all the larger firms., for in industry it is accepted beyond all doubt that there can be no production programme with only chance fragments of knowledge. And more and more of the larger firms are setting up economic bureaus.

It would hardly be possible for the banks to do without them in these days and much the same applies to the railways and the chemical industry. It is only govern ments that continue to distinguish themselves by their passivity in this connexion. The culpable heedlessness which this fact displays is undoubtedly very largely responsible for the miserable state of affairs which has reigned in the world during the last few decades. To-day the preparatory work connected with legislation on economic matters is carried on in the indi vid ual departments, the work of anyone being usually com pletely divorced from the work of all the others. Co ordination of the discussion-which need not imply any co-ordination of responsibility-is inadequate even where it exists. This is a situation which is in need of thorough-going reform from which the public would have nothing to lose and much to gain. The State sets the fram,ework of economic policy in a wider s·ense than that it is itself the pillar of that policy. Individuals, associations, firms, &c., also con duct economic policies of their own, but these are con ditioned throughout by the framework set b~ the State.

Investigations of this aspect of economic policy are inevitably faced with difficulties which cannot be sur mounted with the aid of economic science alone. I t would be necessary to write another book to show that the State, besides imposing limitations, is itself subject to limitations which have their roots deep in the very nature of life, and such as are described in STATE AND ECONOMIC POLICY 151 the ,economic sphere by economic laws. To these there belongs especially the so-called theory of economic imputation (Wirtschaftsrechnung), in different types of State organization. All the limits have reciprocal interactions and hold together like an arch. The greatest wisdom of which economic policy and its framers could boast lies in recognizing what are the possibilities and what are the internal and external limitations as set out in economic laws, so far as these have up till now proved capable of formulation.

To make full use of these possibilities requires the untiring application and continuous development of economic theory . This is one of the tasks which most m·erits the attention of this and coming generations.