2013년 5월 30일 목요일

[발췌: Keynes's] Mitigation by Tariff (1931), in “Essays in Persuasion”

출처: J. M. Keynes, Essays in Persuasion (London, Macmillan, 1931)
자료: gutenberg.ca 

※ 발췌(excepts): Chapter 6 "Mitigation by Tariff," in Part III "The Return to the Gold Standard"


Contents of which:

(ⅰ) Proposals for a Revenue Tariff (March 7, 1931).
(ⅱ) On the Eve of Gold Suspension (Sept. 10, 1931).
(ⅲ) After the Suspension of Gold (Sept. 28, 1931).
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Note to this chapter by Keynes: 

For some months before the collapse of the gold standard it had become obvious that this collapse was becoming inevitable unless special steps were taken to mitigate the gravity of our problem. Somewhat in desperation, I made various suggestions, and, amongst them, a proposal for a Tariff combined, if possible, with a bounty to exports. Mr. Snowden, endowed with more than a normal share of blindness and obstinacy, opposed his negative to all the possible alternatives, until, at last, natural forces took charge and put us out of our misery.

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(ⅰ) Proposals for a Revenue Tariff (March 7, 1931)

Do you think it a paradox that we can continue to increase our capital wealth by adding both to our foreign investment and to our equipment at home, that we can continue to live (most of us) much as usual or better, and support at the same time a vast body of persons in idleness with a dole greater than the income of a man in full employment in most parts of the worldㅡand yet do all this with one quarter of our industrial plant closed down and one quarter of our industrial workers unemployed? It would not merely a paradox, but an impossibility, if our potential capacity for the creation of wealth were not much greater than it used to be. But this greater capacity does exist. It is to be attributed mainly to three factorsㅡthe ever-increasing technical efficiency of our industry (I believe that output per head is 10% greater than it was even so recently as 1924), the greater economic output of women, and the larger proportion of the population which is at the working period of life. The fall in the price of our imports compared with that of our exports also helps. The result is that with three-fourths of our industrial capacity we can now produce as much wealth as we could produce with the whole of it a few years ago. But how rich we could be if only we could find some way of employing four-fourths of our capacity to-day!

  Our trouble is, then, not that we lack the physical means to support a high standard of life, but that we are suffering a breakdown in organisation and in the machinery by which we buy and sell to one another.

  There are two reactions to this breakdown. We experience the one or the other according to our temperaments. The one is inspired by a determination to maintain our standard of life by bringing into use our wasted capacityㅡthat is to say, to expand, casting fear and even prudence away. The other, the instinct to contract, is based on the psychology of fear. How reasonable is it to be afraid?

  We live in a society organised in such a way that the activity of production depends on the individual business man hoping for a reasonable profit, or at least, to avoid an actual loss. The margin which he requires as his necessary incentive to produce may be a very small proportion of the total value of the product. But take this away from him and the whole process stops. This, unluckily, is just what has happened. (A) The fall of prices relatively to costs, together with the psychological effect of high taxation, has destroyed the necessary incentive to production. This is at the root of our disorganisation. It may be unwise, therefore, to frighten the business man or torment him further. A forward policy is liable to do this [※ 앞으로 전진하는 정책, 즉 확장 정책도 기업가에게 겁을 줄 수 있고 더 고통을 줄 수도 있다]. For reasoning by a false analogy from what is prudent for an individual who finds himself in danger of living beyond his means, he is usually, when his nerves are frayed, a supporter, though to his own ultimate disadvantage, of national contraction.

  And there is a further reason for the nervousness. We are suffering from international instability. [:]
  • (B) Notoriously the competitive power of our export trades is diminished by our high standard of life. 
  • (C: due to A) At the same time the lack of profits in home business inclines the investor to place his money abroad, whilst high taxation exercises a sinister influence in the same direction. 
  • (D) Above all, the reluctance of our creditor countries to lend (which is the root-cause of this slump) places too heavy a financial burden on London. These, again, are apparent arguments against a forward policy; for greater activity at home due to increased employment will increase our excess of imports, and Government borrowing may (in their present mood) frighten investors.
  Thus the direct effect of an expansionist policy must be to cause Government borrowing, to throw some burden on the Budget, and to increase our excess of imports. In every way, thereforeㅡthe opponents of such a policy point outㅡit will aggravate the want of confidence, the burden of taxation, and the international instability which, they believe, are at the bottom of our present troubles.

  At this point the opponents of expansion divide into two groupsㅡ [:]
  • those who think that we must not only postpone all ideas of expansion, but must positively contract, by which they mean (a) reduce wages and (b) make large economies in the existing expenditure of the Budget
  • and those who are entirely negative and, like Mr. Snowden, dislike the idea of contraction (interpreted in the above sense) almost as much as they dislike the idea of expansion.
  The policy of negation, however, is really the most dangerous of all. For, as time goes by, it becomes increasingly doubtful whether we can support our standard of life. 1,000,000 unemployed we certainly can; with 2,000,000 unemployed we probably can; with 3,000,000 unemployed we probably cannot. Thus the negative policy, by allowing unemployment steadily to increase, must lead in the end to an unanswerable demand for a reduction in our standard of life. If we do nothing long enough, there will in the end be nothing else that we can do.

  Unemployment, I must repeat, exists because employers have been deprived of profit. The loss of profit may be due to all sorts of causes. But, short of going over to Communism, there is no possible means of curing unemployment except by restoring to employers a proper margin of profit. There are two ways of doing thisㅡby increasing the demand for output, which is the expansionist cure, or by decreasing the cost of output, which is the contractionist cure. Both of these try to touch the spot. Which of them is to be preferred?

  To decrease the cost of output by reducing wages and curtailing Budget services may indeed increase foreign demand for our goods (unless, which is quite likely, it encourages a similar policy of contraction abroad), but it will probably diminish the domestic demand. The advantages to employers of a general reduction of wages are, therefore, not so great as they look. Each employers sees the advantage to himself of a reduction of the wages which he himself pays, and overlooks both the consequences of the reduction of the incomes of his customers and of the reduction of wages which his competitors will enjoy. Anyway, it would certainly lead to social injustice and violent resistance, since it would greatly benefit some classes of income at the expenses of others. For these reasons a policy of contraction sufficiently drastic to do any real good may be quite impracticable.

  Yet the objections to the expansionist remedyㅡthe instability of our international position, the state of the Budget, and the want of confidenceㅡcannot be thus disposed of. Two years ago there was no need to be frightened. To-day it is a different matter. It would not be wise to frighten the penguins and arouse these frigid creatures to flap away from our shores with their golden eggs inside them. A policy of expansion sufficiently drastic to be useful might drive us off the gold standard. Moreover, two years ago the problem was mainly a British problem; to-day it is mainly international. No domestic cure to-day can be adequate by itself. An international cure is essential; and I see the best hope of remedying the international slump in the leadership of Great Britain. But if Great Britain is to resume leadership, she must be strong and believed to be strong. It is of paramount importance, therefore, to restore full confidence in London. I do not believe that this is difficult; for the real strength of London is being under-estimated to-day by foreign opinion, and the position is ripe for a sudden reversal of sentiment. For these reasons I, who opposed our return to the gold standard and can claim, unfortunately, that my Cassandra utterances have been partly fulfilled, believe that our exchange position should be relentlessly defended to-day, in order, above all, that we may resume the vacant financial leadership of the world, which no one else has the experience or the public spirit to occupy, speaking out of acknowledged strength and not out of weakness.

  An advocate of expansion in the interests of domestic employment has cause, therefore, to think twice. I have thought twice, and the following are my conclusions.

  I am of the opinion that a policy of expansion, though desirable, is not sage or practicable to-day, unless it is accompanied by other measures which would neutralise its danger. Let me remind the reader what these dangers are. There is the burden on the trade balance, the burden on the Budget, and the effect on confidence. If the policy of expansion were to justify itself eventually by increasing materially the level of profits and the volume of employment, the net effect on the Budget and on confidence would in the end be favourable and perhaps very favourable. But this might not be the initial effect.

  What measures are available to neutralise these dangers?  A decision to (a) reform the grave abuses of the dole, and a decision to (b) postpone for the present all new charges on the Budget for social services in order to conserve its resources to meet the schemes for the expansion of employment, are advisable and should be taken. But the main decision which seems to me to-day to be absolutely forced on any wise Chancellor of he Exchequer, whatever his beliefs about Protection, is the introduction of (c) a substantial revenue tariff. It is appropriate. The Tariff which I have in mind would include no discriminating protective taxes, but would cover as wide a field as possible at a flat rate or perhaps two flat rates, each applicable to wide categories of goods. Rebates would be allowed in respect of imported material entering into exports, but raw materials, which make up a important proportion of the value of exports, such as wool and cotton, would be exempt. The amount of revenue to be aimed at should be substantial, not less than £50,000,000 and, if possible, £75,000,000. Thus, for example, there might be import duties of 15% on all manufactured and semi-manufactured goods without exception, and of 5% on all food stuffs and certain raw materials, whilst other raw materials would be exempt.[27] I am prepared to maintain that the effect of such duties on the cost of living would be insignificantㅡno greater than the existing fluctuation between one month and another. Moreover, any conceivable remedy for unemployment will have the effect, and, indeed, will be intended, to raise prices. Equally, the effect on the cost of our exports, after allowing for the rebates which should be calculated on broad and simple lines, would be very small. It should be the declared intention of the Free Trade parties ascquiescing in this decision to remove the duties in the event of world prices recovering to the level of 1929.

  Compared with any alternative which is open to us, this measure is unique in that it would at the same time relieve the pressing problems of the Budget and restore business confidence. I do not believe that a wise and prudent Budget can be framed to-day without recourse to a revenue tariff. But this is not its only advantage. In so far as it leads to the substitution of home-produced goods for goods previously imported, it will increase employment in this country. At the same time, by relieving the pressure on the balance of trade it will provide a much-needed margin to pay for the additional imports which a policy of expansion will require and to finance loans by London to necessitous debtor countries. In these ways, the buying power which we take away from the rest of the world by restricting certain imports we shall restore to it with the other hand. Some fanatical Free Traders might allege that the adverse effect of import duties on our exports would neutralise all this; but it would not be true.

  Free Traders may, consistently with their faith, regard a revenue tariff as our iron ration, which can be used once only in emergency. The emergency has arrived. Under cover of the breathing space and the margin of financial strength thus afford us, we could frame a policy and a plan, both domestic and international, for marching to the assault against the spirit of contractionism and fear.

  If, on the other hand, Free Trader reject these counsels of expediency, the certain result will be to break the present Government and to substitute for it, in the confusion of a Crisis of Confidence, a Cabinet pledged to a full protectionist programme.

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(ⅱ) On the Eve of Gold Suspension (Sept. 10, 1931)


The moral energies of the nation are being directed into wrong channels, and serious troubles are ahead of us unless we apply our minds with more effect than hitherto to the analysis of the real character of our problems.

  The exclusive concentration on the idea of "Economy," national, municipal, and personalㅡmeaning by this the negative act of withholding expenditure which is now stimulating the forces of production into actionㅡmay, if under the spur of a sense of supposed duty it is carried far, produce social effects so shocking as to shake the whole system of our national life.

  There is scarcely an item in the Economy Program of the May Reportㅡwhether or not it is advisable on general groundsㅡwhich is not certain to increase unemployment, to lower the profits of business, and to diminish the yield of the revenue; so much so that I have calculated that economies of £100,000,000 may quite likely reduce the net Budget deficit by not more than £50,000,000, and we are just hoodwinking ourselves (unless our real object is to ^pretend^ to balance the Budget for the benefit of foreign financiers) if we suppose that we can make the economies under discussion without any repercussions on the number of the unemployed to be supported or on the yield of the existing taxes.

  Yet if we carry "Economy" of every kind to its logical conclusion, we shall find that we have balanced the Budget at nought on both sides, with all of us flat on our backs starving to death from a refusal, for reasons of economy, to buy one another's services. 

  The Prime Minister has said that it is like the war over again, and many people believe him. But this is exactly the opposite of the truth. During the war it was useful to refrain from any avoidable expenditure because this would release resources for the insatiable demands of military operations. What are we releasing resources for to-day? To stand at street corners and draw the dole.

  When we already have a great amount of unemployment and unused resources of every description, economy is only useful from the national point of view in so far as it diminishes our consumption of imported goods. For the rest, its fruits are entirely wasted in unemployment, business losses, and reduced savings. But it is an extraordinarily indirect and wasteful way of reducing imports.

    If we threw men out of work and reduce the incomes of Government employees so that those directly and indirectly affected cannot afford t buy so much imported food to this extent the country's financial position is eased. But this is not likely to amount to more than 20% of the total economies enforced. The remaining 80% is wasted, and represents either a mere transference of loss or unemployment due to a refusal of British citizens to purchase one another's services.

  What I am saying is absolutely certain, yet I doubt if one in a million of those who are crying out for economy have the slightest idea of the real consequences of what they demand.

  This is not to deny that there is a Budget problem. Quite the contrary. The point is that the state of the Budget is mainly a symptom and a consequence of other causes, that economy is in itself liable to aggravate rather than to remove these other causes, and that consequently the Budget problem, attacked merely along the lines of economy, is probably insoluble.

  What are our troubles fundamentally due to? Very largely to the world depression, immediately to the unbelievable rashness of High Finance in the City, and originally to the policy of returning to the Gold Standard without the slightest appreciation of the nature of the difficulties which this involved. To say that our problem is a Budget problem is like saying that the German problem is a Budget problem, forgetting all about Reparations.

  Now as regards the world depression, there is at the moment absolutely nothing that we can do, for we have now lost the power of international initiative which we seem to be regaining last May. The results of unsound international banking by the City are also, for the time being, irreparable. The choice left to us was whether or not to adhere to the present gold parity of the exchanges.

  This was decided in the affirmative for reasons which I understand but with which I do not agree. The decision was taken in a spirit of hysteria and without a calm consideration of the alternative before us. Ministers have given forecasts of what might have been expected if we had taken a different course which could not survive ten minutes' rational discussion.

  I believe that we shall come to regret this decision, just as we already regret most of the critical decisions taken during the last ten years by the persons who form the present Cabinet.

  But this is not the point at this moment. The decision to maintain the gold standard at all costs has been taken. The point is that the Cabinet and the public seem to have no clear idea as to what has to be done to implement its own decision, apart from the obvious necessity of raising a foreign loan for immediate requirements; which simply has the effect of replacing money which we had previously borrowed in terms of sterling, by money borrowed in terms of francs and dollars. But they cannot suppose that we can depend permanently on foreign loans. The rest of the problem is primarily concerned with improving our current balance of trade on income account. This is what the Cabinet ought to be thinking about.

  There are only two possible lines of attack on this. The one (which is the milder measure open to us) consists in direct measures to restrict imports (and , if possible, subsidise exports); the other is a reduction of all money wages within the country. We may have to attempt both in the end, if we refuse to devaluate.

  But the immediate question is which to try first. Now the latter course, if we were to be adequate, would involve so drastic a reduction of wages and such appallingly difficult, probably insoluble, problems, both of social justice and practical method, that it would be crazy not to try first the effects of the alternative, and much milder, measure of restricting imports.

  It happens that this course also has other important advantages. It will not only relieve the strain on the foreign exchanges. It would also do more than any other single measure to balance the Budget; and it is the only form of taxation open to us which will actually increase profits, improve employment, and raise the spirits and the confidence of the business community.

  Finally, it is the only measure for which there is (sensibly enough) an overwhelming support from public opinion. It is credibly reported that the late Cabinet were in favour of a tariff in the proportion of three to one. it looks as if the present Cabinet may favour it in the proportion of four to one. The only third alternative Cabinet unanimously for it. But sacrifice being the order of the day, we have in the spirit of self-immolation conceived the brilliant contrivance of a "National" Government, the basis of which is that every member of it agrees, so long as it lasts, to sacrifice what he himself believes to be the only sound solution for our misfortunes.

  For if we rule out Devaluation, which I personally now believe to be the right remedy, but which is not yet the policy of any organised party in the State, there are three possible lines of procedure.

  The first is to take the risks of brisk home development, as being preferable to enforced idleness.

  The second is to organise a general reduction of wages, and, in the interests of social justice, of other money-incomes as well, so far as this is feasible.

  The third is a drastic restriction of imports.

  The "National" Government is pledged, if I understand the position rightly, to avoid all three. Their policy is to reduce the standard of life of as many people as are within their reach in the hope that some small portion of the reductions of standard will be at the expense of imports. Deliberately to prefer this to a direct restriction of imports is to be ^non compos mentis^.

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