German chancellor Merkel on trade: “We believe multilateral cooperation can add value for everyone and that’s why we’re advocating global trade that is as free as possible and which is based on common rules".
Small wonder when almost every second job in Germany is based on the country's exports dependency.
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In 1933 John Maynard Keynes cautioned on free trade. Here a repost from Polyarchy.
John Maynard Keynes
(1933)
Note
With this text Keynes gives a patent of intellectual respectability to the protectionist state, implicitly accepting the policies of economic nationalism (neo-mercantilism) that will lead straight to the Second World War.
I was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt but almost as a part of the moral law. I regarded departures from it as being at the same time an imbecility and an outrage. I thought England's unshakable free-trade convictions, maintained for nearly a hundred years, to be both the explanation before man and the justification before heaven of her economic supremacy. As lately as 1923 I was writing that free trade was based on fundamental truths 'which, stated with their due qualifications, no one can dispute who is capable of understanding the meaning of the words' [JMK, vol. XIX, p. 147].
Looking again today at the statements of these fundamental truths which I then gave, I do not find myself disputing them. Yet the orientation of my mind is changed; and I share this change of mind with many others. Partly, indeed, my background of economic theory is modified. I should not charge Mr Baldwin, as I did then, with being 'a victim of the protectionist fallacy in its crudest form', because he believed that, in the existing conditions, a tariff might do something to diminish British unemployment. But mainly I attribute my change of outlook to something else - to my hopes and fears and preoccupations, along with those of many or most, I believe, of this generation throughout the world, being different from what they were. It is a long business to shuffle out of the mental habits of the pre-war nineteenth-century world. But today, at last, one third of the way through the twentieth century, we are most of us escaping from the nineteenth; and by the time we reach its mid-point it is likely that our habits of mind and what we care about will be as different from nineteenth-century methods and values as each other century's has been from its predecessor's. It may be useful, therefore, to attempt some sort of a stocktaking, of an analysis, of a diagnosis, to discover in what this change of mind essentially consists.
What did the nineteenth-century free traders, who were amongst the most idealistic and disinterested of men, believe that they were accomplishing?
They believed - and perhaps it is fair to put this first - that they were being perfectly sensible, that they alone were clear sighted, and that the policies which sought to interfere with the ideal international division of labour were always the offspring of ignorance out of self-interest.
In the second place, they believed that they were solving the problem of poverty, and solving it for the world as a whole, by putting to their best uses, like a good housekeeper, the world's resources and abilities.
They believed, further, that they were serving not merely the survival of the economically fittest but the great cause of liberty, of freedom for personal initiative and individual gift, the cause of inventive art and the fertility of the untrammelled mind against the forces of privilege and monopoly and obsolescence. They believed, finally, that they were the friends and assurers of peace and international concord and economic justice between nations, and the diffusers of the benefits of progress.
And if to the poet of that age there sometimes came strange feelings to wander far away where never comes the trader and catch the wild goat by the hair, there came also with full assurance the comfortable reaction :
I, to herd with narrow foreheads, vacant of our glorious gains,
Like a beast with lower pleasures, like a beast with lower pains!
II
What fault have we to find with this? Taking it at its surface value - none. Yet we are not, many of us, content with it as a working political theory. What is wrong?
To begin with the question of peace. We are pacifist today with so much strength of conviction that, if the economic internationalist could win this point, he would soon recapture our support. But it does not now seem obvious that a great concentration of national effort on the capture of foreign trade, that the penetration of a country's economic structure by the resources and the influence of foreign capitalists, that a close dependence of our own economic life on the fluctuating economic policies of foreign countries, are safeguards and assurances of international peace. It is easier, in the light of experience and foresight, to argue quite the contrary. The protection of a country's existing foreign interests, the capture of new markets, the progress of economic imperialism - these are a scarcely avoidable part of a scheme of things which aims at the maximum of international specialisation and at the maximum geographical diffusion of capital wherever its seat of ownership. Advisable domestic policies might often be easier to compass, if, for example, the phenomenon known as' the flight of capital' could be ruled out. The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own. But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation.
I sympathise, therefore, with those who would minimise, rather than with those who would maximise, economic entanglement between nations. Ideas, knowledge, art, hospitality, travel - these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible; and, above all, let finance be primarily national. Yet, at the same time, those who seek to disembarrass a country of its entanglements should be very slow and wary. It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction.
For these strong reasons, therefore, I am inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation between countries than existed in 1914 may tend to serve the cause of peace, rather than otherwise. At any rate the age of economic internationalism was not particularly successful in avoiding war; and if its friends retort that the imperfection of its success never gave it a fair chance, it is reasonable to point out that a greater success is scarcely probable in the coming years.
Let us turn from these questions of doubtful judgement, where each of us will remain entitled to his own opinion, to a matter more purely economic. In the nineteenth century the economic internationalist could probably claim with justice that his policy was tending to the world's great enrichment, that it was promoting economic progress, and that its reversal would have seriously impoverished both ourselves and our neighbours. This raises a question of balance between economic and non-economic advantage of a kind which is not easily decided. Poverty is a great evil; and economic advantage is a real good, not to be sacrificed to alternative real goods unless it is clearly of an inferior weight. I am ready to believe that in the nineteenth century two sets of conditions existed which caused the advantages of economic internationalism to outweigh disadvantages of a different kind. At a time when wholesale migrations were populating new continents, it was natural that the men should carry with them into the New Worlds the material fruits of the technique of the Old, embodying the savings of those who were sending them. The investment of British savings in rails and rolling stock to be installed by British engineers to carry British emigrants to new fields and pastures, the fruits of which they would return in due proportion to those whose frugality had made these things possible, was not economic internationalism remotely resembling in its essence the part ownership of the A.E.G. of Germany by a speculator in Chicago, or of the municipal improvements of Rio de Janeiro by an English spinster. Yet it was the type of organisation necessary to facilitate the former which has eventually ended up in the latter. In the second place, at a time when there were enormous differences in degree in the industrialisation and opportunities for technical training in different countries, the advantages of a high degree of national specialisation were very considerable.
But I am not persuaded that the economic advantages of the international division of labour today are at all comparable with what they were. I must not be understood to carry my argument beyond a certain point. A considerable degree of international specialisation is necessary in a rational world in all cases where it is dictated by wide differences of climate, natural resources, native aptitudes, level of culture and density of population. But over an increasingly wide range of industrial products, and perhaps of agricultural products also, I become doubtful whether the economic cost of national self-sufficiency is great enough to outweigh the other advantages of gradually bringing the producer and the consumer within the ambit of the same national, economic and financial organisation. Experience accumulates to prove that most modern mass-production processes can be performed in most countries and climates with almost equal efficiency. Moreover, as wealth increases, both primary and manufactured products play a smaller relative part in the national economy compared with houses, personal services and local amenities which are not the subject of international exchange; with the result that a moderate increase in the real cost of the former consequent on greater national self-sufficiency may cease to be of serious consequence when weighed in the balance against advantages of a different kind. National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford if we happen to want it. Are there sufficient good reasons why we may happen to want it ?
III
The decadent international but individualistic capitalism, in the hands of which we found ourselves after the War, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous - and it doesn't deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed.
Each year it becomes more obvious that the world is embarking on a variety of politico-economic experiments, and that different types of experiment appeal to different national temperaments and historical environments. The nineteenth century free trader's economic internationalism assumed that the whole world was, or would be, organised on a basis of private competitive capitalism and of the freedom of private contract inviolably protected by the sanctions of law - in various phases, of course, of complexity and development, but conforming to a uniform type which it would be the general object to perfect and certainly not to destroy. Nineteenth-century protectionism was a blot upon the efficiency and good sense of this scheme of things, but it did not modify the general presumption as to the fundamental characteristics of economic society.
But today one country after another abandons these presumptions. Russia is still alone in her particular experiment, but no longer alone in her abandonment of the old presumptions. Italy, Ireland, Germany have cast their eyes, or are casting them, towards new modes of political economy. Many more countries after them will soon be seeking, one by one, after new economic gods. Even countries such as Great Britain and the United States, though conforming in the main to the old model, are striving, under the surface, after a new economic plan. We do not know what will be the outcome. We are -all of us, I expect - about to make many mistakes. No one can tell which of the new systems will prove itself best.
But the point for my present discussion is this. We each have our own fancy. Not believing that we are saved already, we each would like to have a try at working out our own salvation. We do not wish, therefore, to be at the mercy of world forces working out, or trying to work out, some uniform equilibrium according to the ideal principles, if they can be called such, of laissez-faire capitalism. There are still those who cling to the old ideas, but in no country of the world today can they be reckoned as a serious force. We wish - for the time at least and so long as the present transitional, experimental phase endures - to be our own masters, and to be as free as we can make ourselves from the interferences of the outside world.
Thus, regarded from this point of view, the policy of an increased national self-sufficiency is to be considered not as an ideal in itself but as directed to the creation of an environment in which other ideals can be safely and conveniently pursued.
Let me give as dry an illustration of this as I can devise, chosen because it is connected with ideas with which recently my own mind has been largely preoccupied. In matters of economic detail, as distinct from the central controls, I am in favour of retaining as much private judgement and initiative and enterprise as possible. But I have become convinced that the retention of the structure of private enterprise is incompatible with that degree of material well-being to which our technical advancement entitles us, unless the rate of interest falls to a much lower figure than is likely to come about by natural forces operating on the old lines. Indeed the transformation of society, which I preferably envisage, may require a reduction in the rate of interest towards vanishing point within the next thirty years. But under a system by which the rate of interest finds, under the operation of normal financial forces, a uniform level throughout the world, after allowing for risk and the like, this is most unlikely to occur. Thus for a complexity of reasons, which I cannot elaborate in this place, economic internationalism embracing the free movement of capital and of loanable funds as well as of traded goods may condemn this country for a generation to come to a much lower degree of material prosperity than could be attained under a different system.
But this is merely an illustration. The point is that there is no prospect for the next generation of a uniformity of economic systems throughout the world, such as existed, broadly speaking, during the nineteenth century; that we all need to be as free as possible of interference from economic changes elsewhere, in order to make our own favourite experiments towards the ideal social republic of the future; and that a deliberate movement towards greater national self-sufficiency and economic isolation will make our task easier, in so far as it can be accomplished without excessive economic cost.
IV
There is one more explanation, I think, of the reorientation of our minds. The nineteenth century carried to extravagant lengths the criterion of what one can call for short the financial results, as a test of the advisability of any course of action sponsored by private or by collective action. The whole conduct of life was made into a sort of parody of an accountant's nightmare. Instead of using their vastly increased material and technical resources to build a wonder-city, they built slums; and they thought it right and advisable to build slums because slums, on the test of private enterprise, 'paid', whereas the wonder-city would, they thought, have been an act of foolish extravagance, which would, in the imbecile idiom of the financial fashion, have 'mortgaged the future' ; though how the construction today of great and glorious works can impoverish the future no man can see until his mind is beset by false analogies from an irrelevant accountancy. Even today we spend our time - half vainly, but also, I must admit, half successfully - in trying to persuade our countrymen that the nation as a whole will assuredly be richer if unemployed men and machines are used to build much needed houses than if they are supported in idleness. For the minds of this generation are still so beclouded by bogus calculations that they distrust conclusions which should be obvious, out of a reliance on a system of financial accounting which casts doubt on whether such an operation will 'pay'. We have to remain poor because it does not 'pay' to be rich. We have to live in hovels, not because we cannot build palaces, but because we cannot 'afford' them.
The same rule of self-destructive financial calculation governs every walk of life. We destroy the beauty of the countryside because the unappropriated splendours of nature have no economic value. We are capable of shutting off the sun and the stars because they do not pay a dividend. London is one of the richest cities in the history of civilisation, but it cannot 'afford' the highest standards of achievement of which its own living citizens are capable, because they do not 'pay'.
If I had the power today I should surely set out to endow our capital cities with all the appurtenances of art and civilisation on the highest standards of which the citizens of each were individually capable, convinced that what I could create, I could afford - and believing that money thus spent would not only be better than any dole, but would make unnecessary any dole. For with what we have spent on the dole in England since the War we could have made our cities the greatest works of man in the world.
Or again, we have until recently conceived it amoral duty to ruin the tillers of the soil and destroy the age-long human traditions attendant on husbandry if we could get a loaf of bread thereby a tenth of a penny cheaper. There was nothing which it was not our duty to sacrifice to this Moloch and Mammon in one; for we faithfully believed that the worship of these monsters would overcome the evil of poverty and lead the next generation safely and comfortably, on the back of compound interest, into economic peace.
Today we suffer disillusion, not because we are poorer than we were - on the contrary even today we enjoy, in Great Britain at least, a higher standard of life than at any previous period - but because other values seem to have been sacrificed and because, moreover, they seem to have been sacrificed unnecessarily. For our economic system is not, in fact, enabling us to exploit to the utmost the possibilities for economic wealth afforded by the progress of our technique, but falls far short of this, leading us to feel that we might as well have used up the margin in more satisfying ways.
But once we allow ourselves to be disobedient to the test of an accountant's profit, we have begun to change our civilisation. And we need to do so very warily, cautiously and self-consciously. For there is a wide field of human activity where we shall be wise to retain the usual pecuniary tests. It is the state, rather than the individual, which needs to change its criterion. It is the conception of the Chancellor of the Exchequer as the chairman of a sort of joint-stock company which has to be discarded. Now if the functions and purposes of the state are to be thus enlarged, the decision as to what, broadly speaking, shall be produced within the nation and what shall be exchanged with abroad, must stand high amongst the objects of policy.
V
From these reflections on the proper purposes of the state I return to the world of contemporary politics. Having sought to understand and to do full justice to the ideas which underlie the urge felt by so many countries today towards greater national self-sufficiency, we have to consider with care whether in practice we are not too easily discarding much of value which the nineteenth century achieved. In those countries where the advocates of national self-sufficiency have attained power, it appears to my judgement that, without exception, many foolish things are being done. Mussolini may be acquiring wisdom teeth. But Russia exhibits the worst example which the world, perhaps, has ever seen of administrative incompetence and of the sacrifice of almost everything that makes life worth living to wooden heads. Germany is at the mercy of unchained irresponsibles - though it is too soon to judge her capacity of achievement. The Irish Free State, a unit much too small for a high degree of national insufficiency except at crushing economic cost, is discussing plans which might, if they were carried out, be ruinous.
Meanwhile, those countries which maintain, or are adopting, straightforward protectionism of the old-fashioned type, refurbished with the addition of a few of the new plan quotas, are doing many things incapable of rational defence. Thus, if the Economic Conference were to achieve a mutual reduction of tariffs and prepare the way for regional agreements, it would be matter for sincere applause. For I must not be supposed to be endorsing all those things which are being done in the political world today in the name of economic nationalism. Far from it. But I seek to point out that the world towards which we are uneasily moving is quite different from the ideal economic internationalism of our fathers, and that contemporary policies must not be judged on the maxims of that former faith.
I see three outstanding dangers in economic nationalism and in the movements towards national self-sufficiency.
The first is Silliness - the silliness of the doctrinaire. It is nothing strange to discover this in movements which have passed somewhat suddenly from the phase of midnight high-flown talk into the field of action. We do not distinguish, at first, between the colour of the rhetoric with which we have won a people's assent and the dull substance of the truth of our message. There is nothing insincere in the transition. Words ought to be a little wild, for they are the assault of thoughts upon the unthinking. But when the seats of power and authority have been attained there should be no more poetic licence. On the contrary, we have to count the cost down to the penny which our rhetoric has despised. An experimental society has need to be far more efficient than an old-established one, if it is to survive safely. It will need all its economic margin for its own proper purposes and can afford to give nothing away to softheadedness or doctrinaire folly.
The second danger - and a worse danger than silliness - is Haste. Paul Valéry's aphorism is worth quoting - 'Political conflicts distort and disturb the people's sense of distinction between matters of importance and matters of urgency.' The economic transition of a society is a thing to be accomplished slowly. What I have been discussing is not a sudden revolution, but the direction of secular trend. We have a fearful example in Russia today of the evils of insane and unnecessary haste. The sacrifices and losses of transition will be vastly greater if the pace is forced. This is above all true of a transition towards greater national self-sufficiency and a planned domestic economy. For it is of the nature of economic processes to be rooted in time. A rapid transition will involve so much pure destruction of wealth that the new state of affairs will be, at first, far worse than the old, and the grand experiment will be discredited.
The third risk, and the worst risk of all three, is Intolerance and the stifling of instructed criticism. The new movements have usually come into power through a phase of violence or quasi-violence. They have not convinced their opponents; they have downed them. It is the modern method - to depend on propaganda and to seize the organs of opinion; it is thought to be clever and useful to fossilise thought and to use all the forces of authority to paralyse the play of mind on mind. For those who have found it necessary to employ all methods whatever to attain power, it is a serious temptation to continue to use for the task of construction the same dangerous tools which wrought the preliminary house-breaking.
Russia, again, furnishes us with an example of the blunders which a regime makes when it has exempted itself from criticism. The explanation of the incompetence with which wars are always conducted on both sides may be found in the comparative exemption from criticism which the military hierarchy affords to the high command. I have no excessive admiration for politicians, but, brought up as they are in the very breath of criticism, how much superior they are to the soldiers! Revolutions only succeed because they are conducted by politicians against soldiers. Paradox though it be - who ever heard of a successful revolution conducted by soldiers against politicians? But we all hate criticism. Nothing but rooted principle will cause us willingly to expose ourselves to it.
Yet the new economic modes, towards which we are blundering, are, in the essence of their nature, experiments. We have no clear idea laid up in our minds beforehand of exactly what we want. We shall discover it as we move along, and we shall have to mould our material in accordance with our experience. Now for this process bold, free and remorseless criticism is a sine qua non of ultimate success. We need the collaboration of all the bright spirits of the age. Stalin has eliminated every independent, critical mind, even when it is sympathetic in general outlook. He has produced an environment in which the processes of mind are atrophied. The soft convolutions of the brain are turned to wood. The multiplied bray of the loud speaker replaces the inflections of the human voice. The bleat of propaganda, as Low has shown us, bores even the birds and the beasts of the field into stupefaction. Let Stalin be a terrifying example to all who seek to make experiments. If not, I, at any rate, will soon be back again in my old nineteenth-century ideals, where the play of mind on mind created for us the inheritance which we are seeking today to divert to our own appropriate purposes.
(The Yale Review, Summer 1933)
