2013년 5월 23일 목요일

[발췌: Keynes's] A Programme of Expansion (General Election, May 1929), in “Essays in Persuasion”

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

※ 발췌(excepts): Chapter 4 "A Programme of Expansion (General Election, May 1929)," in Part II "Inflation and Deflation"

The contents of which:

  1. Inflation (1919)
  2. Social Consequences of Changes in the Value of Money (1923)
  3. The French Franc : (i) An open letter to the French Minister of Finance (1926). (ii) The Stabilisation of the Franc (1928). 
  4. A Programme of Expansion (General Election, May 1929)
  5. The Great Slump of 1930 (Dec. 1930)
  6. Economy (1931) : (i) Saving and Spending (Jan. 1931). (ii) The Economy Report (Aug. 15, 1931). (iii) The Economy Bill (Sept. 19, 1931). 
  7. The Consequences to the Banks of the Collapse of Money Values (Aug. 1931)
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4. A Programme of Expansion (General Election, May 1929)


Except for a brief recovery in 1924 before the return to the gold standard, one-tenth or more of the working population of this country have been unemployed for eight yearsㅡa fact unprecedented in our history. The number of insured persons counted by the Ministry of Labour as out of work has never been less than one million since the initiation of their statistics in 1923. To-day (April 1929) 1,140,000 workpeople are unemployed.

  This level of unemployment is costing us out of the Unemployment Fund a cash disbursement of about £50,000,000 a year. This does not include poor relief. Since 1921 we have paid out to the unemployed in cash a sum of about £500,000,000ㅡand have got literally nothing for it. This sum would have built a million houses; it is nearly double the whole of the accumulated savings of the Post Office Savings Bank; it would build a third of all the roads in the country; it far exceeds the total value of all the mines, of every description, which we possess; it would be enough to revolutionise the industrial equipment of the country; or to proceed from what is heavy to what is lighter, it would provide every third family in the country with motor car or would furnish a fund enough to allow the whole population to attend cinemas for nothing to the end of time.

  But this is not nearly all the waste. There is the far greater loss to the unemployed themselves, represented by the difference between the dole and a full working wage, and by the loss of strength and morale. Thre is the loss in profits to employers and in taxation to the Chancellor of the Exchequer. There is the incalculable loss of retarding for a decade the economic progress of the whole country.

  The Census of Production of 1924 calculated that the average value of the net annual output of a British working man when employed is about $220. On this basis the waste through unemployment since 1921 has mounted up to approximately £2,000,000,000, a sum which would be nearly sufficient to build all the railwas in the country twice over. It would pay off our debt to America twice over. It is more than the total sum that the Allies are asking from Germany for Reparations.

  It is important to know and appreciate these figures because they put the possible cost of Mr. Lloyd George's schemes into its true perspective. He calculates that a development programme of £100,000,000 a year will bring back 500,000 men into employment. This expenditure is not large in proportion to the waste and loss accruing year by year through unemployment, as can be seen by comparing it with the figures above. It only represents 5% of the loss already accumulated on account of unemployment since 1921. It is equal to about 2.5% of the national income. If the experiment were to be continued at the rate of £100,000,000 per annum for three years, and if the whole of it were to be entirely wasted, the annual interest payable on it hereafter would increase the Budget by less than 2%. In short, it is a very modest programme. The idea that it represents a desperate risk to cure a moderate evil is the reverse of the truth. It is a negligible risk to cure a monstrous anomaly.

  Nothing has been included in the programme which cannot be justified as worth doing for its own sake. Yet even if half of it were to be wasted, we should still be better off. Was there ever a stronger case for a little boldness, for taking a risk if there be one?

  It may seem very wise to sit back and wag the head. BUt while we wait, the unused labour of the workless is not piling up to our credit in a bank, ready to be used at some later date. It is running irrevocably to waste; it is irretrievably lost. Every puff of Mr. Baldwin's pipe costs us thousands of pounds.

  The objection, which is raised more frequently, perhaps, than any other, is that money raised by the Stae for financing productive schemes must diminish ^pro tanto^ the supply of capital avaliable for ordinary industry. If this is true, a policy of national development will not really increase employment. It will merely substitute employment on State schemes for ordinary employment. Either tha, or (so the argument often runs) it must mean Inflation. There is, therefore, little or nothing that the Government can usefully do. The case is hopeless, and we must just drift along.

  This was the contention of the Chancellor of the Exchequer in his Budget speech. "It is the orthodox Treasury dogma, steadfastly held," he told the House of Commons, "that whatever might be the political or social advantage, very little additional employment and no permanent additional employment can, in fact, and as a general rule, be created by State borrowing and State expenditure." Some State expenditure, he concluded, is inevitable, and even wise and right for its own sake, but not as a cure for unemployment.

  In relation to the actual facts of to-day, this argument is, we believe, quite without foundation.

  In the first place, there is nothing in the argument which limits its applicability to State-promoted undertakings. If it is valid at all, it must apply equally to a new works started by Morris, or Courtaulds, to any new business enterprise entailing capital expenditure. If it were announced that some of our leading captains of industry had decided to launch out boldly, and were about to sink capital in new industrial plant to the tune, between them, of £100 millions, we should all expect to see a great improvement in employment. And, of course, we should be right. But, if the argument we are dealing with were sound, we should be wrong. We should have to conclude that these enterprising business men were merely diverting capital from other uses, and that no real gain to employment could result. Indeed, we should be driven to a still more remarkable conclusion. We should have to conclude that it was virtually out of the question to absorb our unemployed workpeople by ny means whatsoever (other than the unthinkable Inflation) and that the obstacle which barred the path was no other than an insufficiency of capital. This, if you please, in Great Britain, who has surplus savings which she is accustomed to lend abroad on the scale of more than a hundred millions a year.

  The argument is certainly derived from common sense. No ordinary man, left to himself, is able to believe that, if there had been no housing schemes in recent years, there would, nevertheless, have been just as much employment. And, accordingly, most ordinary men are easily persuaded by Mr. Lloyd George that, if his schemes for employment are adopted, more men will be employed.

  But the argument is not only unplausible. It is also untrue. There are three resources which can enable new investment to provide a net addition to the amount of employment.

  The first source of supply comes out of the savings which we are now disbursing to pay the unemployed.

  The second source of supply comes from the savings which now run to waste through lack of adequate credit.

  The third source of supply comes from a reduction in the ^net^ amount of foreing lending.

  Let us consider these in turn beginning with the first source. Individual saving means that some individuals are ^producing^ more than they are ^consuming^. This surplus may, and should, be used to increase capital equipment. But, unfortunately, this is not the only way in which it can be used. It can also be used to enable other individuals to ^consume^ more than they ^produce^.

  This is what happens when there is unemployment. We are using our savings to pay for unemployment instead of using them to equip the country. The savings which Mr. Lloyd George's schemes will employ will be diverted not from financing other capital equipment, but form financing unemployment. From the Unemployment Fund alone we are now paying out £50,000,000 a year; and this is not the whole of the cost of supporting the unemployed.

  In the second place, the savings of individuals do not necessarily materialise in investments. The amount of investment in capital improvements depends, on the one hand, on the amount of credit created by the Bank of England; and, on the other hand, on the eagerness of entrepreneurs to invest, of whom the Government itself is nowadays the most important. So far from the total of investment, as determined by these factors, being necessarily equal to the total of saving, disequilibrium between the two is at the root of many of our troubles.

  When investment runs ahead of saving we have a boom, intense employment, and a tendency to Inflation, When investment lags behind, we have a slump and abnormal unemployment, as at present.

  It is commonly objected to this that an expansion of credit necessarily means Inflation. But not ^all^ credit-creation means Inflation. Inflation only results when we endeavour, as we did in the war and afterward, to expand our activities still further after everyone is already employed and our savings are being used up to the hilt.

  The suggestion that a policy of capital expenditure, if it does not take capital away from ordinary industry, will spell Inflation, would be true enough if we were dealing with boom conditions. And it would become true if the policy of capital expenditure were pushed unduly far, so that the demand for savings began to exceed the supply. But we are far, indeed, from such a position at the present time. A large amount of deflationary slack has first to be taken up before there can be the smallest danger of a development policy leading to Inflation. To bring up the bogy of Inflation as an objection to capital expenditure at the present time is like warning a patient who is wasting away from emancipation of the dangers of excessive corpulence.

  The real difficulty hitherto in the way of an easier credit policy by the Bank of England has been the fear that an expansion of credit might lead to a loss of gold which the Bank could not afford.

  Now if the Bank were to try to increase the volume of credit at a time when, on account of the depression of home enterprise, no reliance could be placed on the additional credit being absorbed at home at the existing rate of interest, this might quite well be true. Since market rates of interest would fall, a considerable part of the new credit might find its way to ^foreign^ borrowers, with the result of a drain of gold out of the Bank. Thus it is not sage for the Bank to expand credit unless it is certain beforehand that there are ^home^ borrowers standing ready to absorb it at the existing rates of interest.

  This is the reason why the Liberal plan is exactly suited to the fundamentals of the present position. It provides the necessary condition for an expansion of credit to be safe.

  It is, of course, essential that the Bank of England should loyally co-operate with the Government's programme of capital development, and do its best to make it a success. For, unfortunately, it would lie within the power of the Bank, provided it were to pursue a deflationary policy aimed at preventng any expansion in bank-credit, to defeat the best-laid plans and to ensure that the expenditure financed by the Treasury ^was^ at the expense of other business enterprise.

  Thus we accept Mr. McKenna's contention that an expansion of credit is the key to the situation. But if we were simply to increase credit withoug providing a specific use for it at home, we should be nervous that too much of this extra credit would be lent to foreigners and taken away in gold. We conclude, therefore, that, whilst an increased volume of bank-credit is probably is ^sine qua none^ of increased employment, a programme of home investment which will absorb this increase is a ^sine qua none^ of the safe expansion of credit.

  The third source of the funds required for the Liberal policy will be found by a net reduction of foreing lending.

  An important part of our savings is now finding its outlet in foreign issues. Granted that a big policy of national development could not be financed wholly out of the existing expenditure on unemployment and out of the savings which are at present running to waste, granted that, to meet the borrowing demands of the State other borrowers must go without, why should we assume that these other borrowers must be British business men? The technique of the capital market makes it far more probable that they would be some of the overseas Governments or municipalities which London at present finances on so large a scale. It is the bond market that would be principally affectd by a British Government loan.

  Now anything which served to diminish the volume of foreign issues would be welcomed by the Bank of England at the present time for its own sake. The exchange position is uncomfortable and precarious; the recent rise in bank-rate is proof of that. A diminution of foreign investment would ease the strain on the exchanges. Why, it is only a year or two since the Bank of England, with this end in view, was maintaining a semi-official embargo on foreign issues. But the need which that embargo was designed to supply still remains, if in a less acute degree. In relation to our less favourable balance of foreign trade, we are investing abroad dangerously much; and we are investing abroad to this dangerous extent partly because there are insufficient outlets for our savings at home.

  It follows, therefore, that a policy of capital expenditure, in so far as it might go beyond the mere absorption of deflationary slack, would serve mainly to divert to home development savings which now find their way abroad, and that this would be a welcome result in the interests of the Bank of England.

  It has been objected that if we lend less abroad, our exports will fall off. We see no reason to anticipate this. Immediately, as we have said, the reduction in ^net^ foreign lending will relieve the pressure on the Bank of England's stock of gold. But, ultimately, its main effect will be realised, not in a reduction of exports, but in an increase of imports. For the new schmemes will require a certain amount of imported raw materials, whilsts those who are now unemployed will consime more imported food when they are once again earning decent wages.

  Here, then, is our answer. The saving which Mr. Lloyd George's schemes will employ will be diverted, not from financing other capital equipment, but partly from financing unemployment. A further part will come from the savings which now run to waste through lack of adequate credit. Something will be provided by the very prosperity which the new policy will foster. And the balance will be found by a reduction of foreign lending.

  The whole of the labour of the unemployed is available to increase the national wealth. It is crazy to believe that we shall ruin ourselves financially by trying to find means for using it and that "Safety First" lies in continuing to maintain men in idleness.

  It is precisely ^with^ our unemployed productive resources that we shall make the new investments.

  We are left with a broad, simple, and surely incontestable proposition. Whatever real difficulties there may be in the way of absorbing our unemployed labour in productive work, an inevitable diversion of resources from other forms of employment is not one of them.


Our whole economic policy during recent years has been dominated by the preoccupation of the Treasury with their departmental problem of debt conversion. The less the Government borrows, the better, they argue, are the chances of converting the National Debt into loans carrying a lower rate of interest. In the interests of coversion, therefore, they have exerted themselves to curtail, as far as they can, all public borrowing, all capital expenditure by the State, no matter how productive and desirable in itself. We doubt if the general public has any idea how powerful, persistent, and far-reaching this influence has been.

  To all well-laid schemes of progress and enterprise, they have (whenever they could) barred the door with, No! Now, it is quite true, that curtailing capital expenditure exerts some tendency towards lower interest rates for Government loans. But it is no less true that it makes for increased unemployment and that it leaves the country with a pre-war outfit.

  Even from the Budget point of view, it is a question whether the game is worth the candle. It is difficult to believe that, if this question were considered squarely on its merits, any intelligent person could return an affirmative answer. The capital market is an international market. All sorts of influences which are outside our control go to determine the gilt-edged rate of interest; and the effect which the British Government can exert on it by curtailing or expanding its capital programme is limited. Suppose which is putting the case extremely high, that the effect might be as much as 0.25%. This, applied to the £2000 millions o War Loan, which are ripe for conversion, would represent a difference in the annual debt charge of £5 millions annually. Compare this with the expenditure of the Unemployment Fundㅡover £50 millions last year.

  Moreover, in the course of (say) ten years it is not unlikely that a situation will ariseㅡas used to happen from time to time before the warㅡwhen for world reasons the rate of interest will be abnormally lowㅡmuch lower than we could possibly hope for by Treasury contrivances in the exceptionally unfavourable environment of abnormally high world rates. This will be the moment for a successful conversion scheme. Even, therefore, if the Treasury could convert to-day at a saving of 0.25% or 0.5%, it might be extremely improvident to do so. A premature conversion for an inconsiderable saving would be a grave blunder. We must have the patience to wait for the ideal conjuncture of conditions, and then the Chancellor of the Exchequer of the day will be able to pull of something big.

KHNW some lacking point pp. 40-60: {
  But apart from budgetary advantages and disadvantages, there is a deep-seated confusion of thought in hindering on these grounds the capital development of this country. The rate of interest can fall for either of two opposite reasons. It may fall on account of an abundant supply of savings, i.e. of money available to be spent on investments; or it may fall on account of a deficient supply of investments, i.e. on desirable purposes on which to spend the savings. Now a fall in the rate of interest for the first reasons is, obviously, very much in the national interest. But a fall for the second reason, if it follows from a deliberate restriction of outlets for investment, is simply a disastrous method of impoverishing ourselves.

  A country is enriched not by the mere negative act of an individual not spending all his income on current consumption. It is enriched by the positive act of using these savings to augment the capital equipment of the country.

  It is not the miser who gets rich; but he who lays out his money in fruitful investment.

  The object of urging people to save is in order to be able to build houses and roads and the like. Therefore a policy of trying to lower the rate of interest by suspending new capital improvements and so stopping up the outlets and purposes of our savings is simply suicidal. No one, perhaps, would uphold such a policy expressed in so many words. But this, in fact, is what the Treasury has been doing for several years. In some cases, the pressure of public opinion or of other Government Departments or Local Authorities has been too much for them. But whenever it has been within their power to choke something off, they have done so.

  The futility of their policy and the want of sound reasoning behind it have been finally demonstrated by its failure even to secure a fall in the rate of interest. For, as we have seen above, if outlets for investment at home are stopped up, savings flow abroad on a scale disproportionate to our favourable balance of trade, with the result that the Bank of England tends to lose gold. To counteract this position, the bank-rate has to be raised.

  So in the end we have the worst of all worlds. The country is backward in its equipment, instead of being thoroughly up to date. Business profits are poor, with the result that the yield of the income tax disappoints the Chancellor of the Exchequer, and he is unable either to relieve the taxpayer or to push forward with schemes of social reform. Unemployment is rampant. This want of prosperity actually diminishes the rate of saving and thus defeats even the original object of a lower rate of interest. So rates of interest are, after all, high.

  It is not an accident that the Conservative Government have landed us in the mess where we find ourselves. It is the natural outcome of their philosophy:

  "You must not press on with telephones or electricity, because this will raise the rate of interest."
  "You must not hasten with roads or housing, because this will use up opportunities for employment which we may need in later years."
  "You must not try to employ every one, because this will cause inflation."
  "You must not invest, because how can you know that it will pay?"
  "You must not do anything, because this will only mean that you can't do something else."
  "Safety First! The policy of maintaining a million unemployed has now been pursued for eight years without disaster. Why risk a change?"
  "We will not promise more than we can perform. We, therefore, promise nothing."

  This is what we are being fed with.

  They are slogans of depression and decayㅡthe timidities and obstructions and stupidities of a sinking administrative vitality.

  Negation, Restriction, Inactivityㅡthese are the Government's watchwords. Under their leadership we have been forced to button up our waistcoats and compress our lungs. Fears and doubts and hypochondriac precautions are keeping us muffled up indoors. But we are not tottering to our graves. We are healthy childrean. We need the breath of life. There is nothing to be afraid of. On the contrary. The future holds in store for us far more wealth and economic freedom and possibilities of personal life than the past has ever offered.

  There is no reason why we should not feel ourselves free to be bold, to be open, to experiment, to take action, to try the possibilities of things. And over against us, standing in the path, there is nothing but a few old gentlemen tightly buttoned-up in their frock coats, who only need to be treated with a little friendly disrespect and bowled over like ninepins.

  Quite likely they will enjoy it themselves, when once they have got over the shock.

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