Civitas meeting 2 10 2014 – Should we seek to remain in the EU for trade only? (Robert Henderson)


by Robert Henderson
Civitas meeting 2 10 2014 – Should we seek to remain in the EU for trade only?

Note by Sean Gabb: Robert Henderson is a good writer and generally a penetrating critic of the current order of things. His weakness is Economics. First of all, he denies that Economics is a science of human nature that provides real knowledge about the world. His attack on advocates of laissez-faire includes the following charges: That we are inconsistent in our anti-statism; That our belief amounts to a religion that is immune to falsification; That our belief relies on false assumptions of perfect competition and perfect information and perfect rationality; That free markets lead to monopoly and great and increasing inequalities of wealth and income; Thatour belief is incompatible with the existence of nation states, and requires open immigration. He then derives a set of rather statist policies from alleged historical data. His main practical errors are protectionism, soft money and Keynesian deficit financing.

If I were less idle, or had more time, I’d engage him in argument on these points. For example, I’d point out his assumption that the whole of Economics is contained in the average A Level text, and that he doesn’t seem to have read one of these with much attention. I’d then introduce him to the Austrian analysis of dynamic efficiency, as opposed to productive and allocative efficiency. I’d say something about the various fallacies underlying the case for protectionism and for deficit financing.

Sadly, I am already busy and am about to become even busier. So I will leave Robert’s enlightenment to others on the LA Blog. Please note, however, that I ask for enlightenment rather than point scoring. SIG

Sole speaker Ronald Stewart-Brown (Trade Policy and Research Centre)

Robert Henderson

I knew what a malformed disaster Stewart –Brown’s plan for Britain to have nothing more than a trade relationship the EU was going to be when he started his talk by warning against the Great Satan of Protectionism by citing the example of the protectionist measures taking during the Depression of the 1930s. In fact, it was the protectionist measures taken by Britain, together with Britain moving from the Gold Billion Standard and the Keynsian public spending on things such as council housing which allowed Britain to recover more quickly than other large industrialised nations. (I go into this in more detail in my email to Stewart-Brown which I reproduce at the bottom of this post).

When I challenged him on this, instead of admitting that he had misrepresented the protectionist effects in the Depression, he simply blithely ignored what he had said and feebly added that unemployment had not been cured before WW2. In fact, the level of unemployment in 1939 was around 10 per cent, the type of level it had been at during most of the 1920s when the Free Trade mania was still dominating British politics.

This type of historical ignorance or the wilful denial of historical reality is part of the stock-in-trade of the laissez faire worshippers and makes most of what they say on economics a literal nonsense because the doctrine itself denies reality. Human beings are not the base advantage seeking automata beloved of classical economists; individuals will not normally have anything approaching perfect knowledge of a market. Instead, they will be doing what humans have evolved to do, being social animals who care most about relationships with other humans, raising their children and so on.

Stewart-Brown’s plan was to have Britain effectively leave the EU but remain in a customs union with it. This he advocated because he thought this would (appeal to the British electorate; (2) would avoid the major manufacturers such as those making cars in Britain panicking at the prospect of EU trade barriers being raised against them and (3)reassure the rest of the world that world trade would not be disturbed. ( Strange how we are so often told that Britain is hugely insignificant in the world economy these days by the class of people Stewart-Brown comes from, but when it suits their purposes Britain is suddenly a massive influence on that economy. They make it up as they go along).

The idea that the other 27 members of the EU would fall down at Britain’s feet and agree to such an arrangement is risible, as several of the audience pointed out. But even if it did take place, Britain would not be simply in a trading block because (1) the other EU members would keep introducing new rules and regulations, for example, health and safety legislation, into the remit of the Customs Union administration even though they would have nothing to do with trade and (2) most British politicians would be only too happy to go along with this re-establishment of ever tighter EU tentacles around Britain because they do not want Britain to be detached from the EU. The head of Civitas, David Green also pointed out the incongruity between Stewart-Brown’s plans for a custom’s union and his plea for free trade. This disconcerted Stewart-Brown, and all he could find to say was that he was proposing what he thought was possible.

The nadir of the Stewart-Brown’s address came when he rather curiously claimed that Britain would get what he was proposing because a custom’s union which allowed the EU members’ goods and services to come to freely into Britain would give Britain —wait for it … “the moral high ground”. What does he expect if the other EU members do not fall into line below this, in internationalist eyes, crushing fact? That such malefactors will be, as Michael Wharton delighted in saying, “brought before the bar of world opinion”? It was sublimely naïve. I managed to have a second go at him and pointed out that the whole movement of global politics was away from the unnatural internationalist ideas which had held sway in varying degrees since 1945 towards the natural state of humanity, which is tribal and catered for by the nation state. In particular I cited China as being a and economic and political Goliath which had shown repeatedly in recent times that it would not play the internationalist game, vide its persistent refusal to let the Renmimbi rise in value, despite being pressed strongly by the USA to do so.

Judged by their questions to him the audience was widely unsatisfied with Stewart-Brown’s ideas , which were strong on wishful thinking and very short on realism. Stewart-Brown was also very keen on saying a consultation most be started on this and an investigation begun on that. He struck me as the type who would never come to the point where the end-game would actually begin.

There was one audience contribution which may have more than ordinary significance. The erstwhile Tory MP David Heathcoat-Amory was scathing in his condemnation of Cameron’s negotiating position on the EU, saying it was essential Britain went into the negotiations with the clear intention of asking for a vote to leave if nothing substantial was conceded. He also supported Stewart-Brown’s idea of just being in a customs Union, but only if those negotiating made it made clear Britain would simply walk away from the EU if no agreement was reached. Heathcoat-Amory may represent a strong band of thinking amongst current Tory MPs.

It was all too familiarly depressing, Stewart-Brown is yet another person with some public influence who really is not fit to have any hand in deciding what Britain’s relationship with the EU should be simply because he has been captured by the laissez faire ideology and is, I suspect, an internationalist at heart.

Email sent to after Civitas meeting – I will post any reply here

Mr Ronald Stewart-Brown

Trade Policy and Research Centre

29 Great Smith Street, London SW1P 3BL

Email Ronald

2 10 2014

Dear Mr Stewart-Brown,

A few thoughts on your Civitas talk today. Your commitment to free trade and doubtless free markets generally is a gigantic stumbling block to producing a realistic plan for Britain to remove herself from the EU.

How far you are entrapped within the free trade ideology was shown by your claim that the great mistake in the Depression was to engage in protectionism. In fact, that was what protected Britain from the worst of the Depression years, along with coming off the Gold Bullion Standard, large scale state action which included building 500,000 council houses in the period and the fact that British banks had already undergone considerable consolidation and thereby avoided the horrors that the USA experienced with their huge number of small banks, thousands of which went to the wall. The fact that Britain also had a national welfare system can also be thrown into the mix for it both gave the unemployed an income and making those who feared being unemployed less uncertain. These things probably kept consumption levels significantly higher than they would otherwise have been.

In 1933 the unemployment rate was around 23% of the workforce; by 1939 it was around 10 per cent, the sort of figure incidentally that it had been throughout the 1920s when the free trade mania was still dominating British politics. It is also true that Britain between 1950 and the early 1970s enjoyed a period of considerable growth and very low unemployment behind protectionist barriers and great state involvement in the economy.

The reality of laissez faire economics is it is an intellectually incoherent doctrine – see my “Free markets and “free trade” = elite propaganda” essay below – which does not do what its proponents claim. In fact it leads countries which practice it into dangerously distorting their economies which greatly undermines their self-sufficiency and leave any country unwise enough to go down this path open to manipulation by foreign powers and potentially to shortages of vital goods and services.

To imagine as you do that countries will abide by treaties is dangerously naive. At the present time we are seeing throughout the world a strong movement towards protectionism, whether that be overtly or by covert means such as hideously complex and time consuming bureaucratic procedures or the use of justice systems to intimidate foreign companies – China is a past master at this, but the USA is no slouch either with its laws against trading with certain countries in certain goods and the absurd fines US regulators and courts hand out to foreign companies. In the case of the EU, to believe that your plan would succeed because quote “We shall have the moral high ground” is wishful thinking on stilts. As several people pointed out it only takes one member state to veto a proposal. To expect 27 EU states to all refrain from doing so is wildly improbable.

But there is an even bigger issue. As I pointed out at the talk, there is strong reasons to believe the EU will not remain intact as a group of supposedly democratic states. To begin most of the EU states do not have any great democratic history. The largest apart from Britain – Germany, France, Spain, Italy – all date their present constitutional arrangements in decades not centuries. They and most of the smaller states are naturally democratically fragile. Also, since the current recession stated, it is debatable whether Italy, Greece, Spain and Portugal have been democracies so controlled have they been by ECB diktats. There is also the madness of the EU’s attempt to lure the Ukraine into the Brussels net and the ongoing mess with is the Euro – see my separate email on the Euro. Any of these circumstances could lead to anything from individual members casting aside any pretence at democracy to the entire EU blowing apart. Consequently the path you advocate with the UK still tied into the EU economic process in the shape of membership of a customs union is fraught with danger. Much better that Britain leaves the coils of the EU entirely and makes its way in the world as the vast majority of countries do. That way if the EU blows up we will not have any legal ties and obligations to it.

Finally, there is the question of winning an in/out referendum. The British may not like the EU, but neither do they like globalism. It will be impossible to win a referendum on Britain’s membership of the EU if the electorate know that all they are being asked to do is to swap the overlordship of Brussels for the ideological despotism of free trade and mass immigration. (The laissez faire approach involved in globalisation is those with power enforcing an ideology by refusing to act to protect what the vast majority of human beings regard and have always regarded as the interests of their country and themselves. It is a tyranny caused by the neglect of the rightful use of state power for the common good.) If a referendum is to be won it will have to be on the basis of Britain being master in its own house to stop further mass immigration and to protect strategically important industries.

Yours sincerely,

Robert Henderson

 

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22 thoughts on “Civitas meeting 2 10 2014 – Should we seek to remain in the EU for trade only? (Robert Henderson)

  1. Methinks Sean doth protest too much. I find generally with the laissez faire believers that they are strangely reluctant to debate with anyone who does not subscribed to their religion. I hasten to add that I don’t include Sean amongst such people because we have had many a satisfying debate on the subject over the years.

    The normal repose I get when I make it clear I am going to attack laissez faire is either a refusal to discuss the matter at all – Tim Congdon did this at the recent Bruges Group meeting when he literally shook with rage at the idea of protectionism – or angry abuse.

    Sean summarises my objections to laissez faire neatly, but for those wanting my detailed thoughts on the subject these can be found at http://livinginamadhouse.wordpress.com/2012/04/20/free-markets-and-free-trade-elite-propaganda/

    Nothing wrong with A Level economics incidentally, or at least there wasn’t when I took it in the 1960s, before the subject had become contaminated by gratuitous jargon and mathematics.

    • I don’t think I protest too much. My own commitment to laissez-faire has nothing to do with Pareto efficiency, which is at best an interesting model. It is mostly to do with a dislike of government power and a belief that voluntary cooperation does more or less deliver the goods.

      This being said, I am not, in the short run, an anarchist. I accept certain uses of state power as the least bad option in the world as it is. For reasons I’ve already explained at length, I don’t believe in free migration. I pragmatically accept certain parts of the welfare state, so long as they don’t crowd out voluntary effort and too greatly encourage fecklessness. Put me in power, and I would subsidise domestic agriculture much as was done before 1973 – though as an insurance policy with costs, not for making the country richer. As for free trade, what we currently have is a kind of global dirigism, with certain long distance flows of goods made profitable only by various kinds of indirect subsidy. End these subsidies, and cut out the environmental and health and safety regulations that are uncompensated additions to cost, and there would be some revival of British manufacturing. Again, the world being as it is, some protectionism might need to be discussed – but always with a full consideration of the costs that you tend to overlook. I strongly disagree with your belief that protectionism can make this country richer than it would otherwise be. As with agricultural subsidies, it would depress national wealth, and could only be justified as a policy of making the best of things as they presently are.

      Soft money is a fraud on the people, and leads to an overexpansion of the financial services sector. It also empowers a financial elite that might not exist with a fully convertible gold standard.

      I turn to Keynesianism. This rests on the kind of fallacy exposed by Bastiat – “What is seen and what is not seen.” Every penny of the national income is consumed or invested. When a government taxes and spends, it takes money that would otherwise be used by the people. You measure the number of council houses built and the employment thereby given to the working classes. You do not and cannot measure how it would otherwise have been used. Since I doubt that governments are as efficient at using our money as we are, the effects of public spending are a destruction of wealth. Sometimes, pubic spending may be necessary to avoid a greater destruction of wealth – see above – but it cannot make the country richer.

      Of course, there are panics in which the normal process of converting savings into investment stops, and money is hoarded. This is that happened at the beginnin gof the 1930s, and again in 2008. The answer is not to try increasing G to offset the fall in I or C in the national income equation, but: a) to reduce the chance of panics by not letting the politicians fix interest rates; b) to take whatever steps are needed to restore confidence (which generally means having the Government do nothing positive); c) not to interfere in the necessary liquidation of unwise investments and the necessary realignment of prices and wages.

      However, I said I was busy, and I am. I have just signed up to write another half dozen historical novels. Since these are my bread and butter, you will forgive me if I don’t elaborate at length on these points.

  2. Mr Henderson’s statements that increasing government spending and taxes (and other restrictions) on imports in the 1930s, helped the United Kingdom are incorrect.

    Actually government spending went up far less in Britain than other countries – one reason that Britain did less badly in the 1930s than most other countries. As for trade – free trade was not offer in the 1930s (had it been Britain should have grabbed it with both hands). But certainly Britain’s contribution to the beggar-my-neighbour trade conflicts was not helpful to Britain (or to the world).

    On the “gold standard” – talk of a “standard” is unhelpful as it confuses things (either the gold is the money or it is not the money). The key point of the silly 1925 to 1931 thing in Britain was that it pretended that the Pound was worth X amount of U.S. Dollars (when it was not – due to World War One inflation of the money supply) – the problem was exchange rate rigging (“fixing”).

    As for the European Union – it is not a free trade club (that was EFTA). It is not even a Customs Union (a very different thing from a free trade association) – it is vastly more than that (and was always intended to be – right from the start of the then EEC).

    The European Union is about building a European STATE (a layer of government on top of the other layers) – people who say we should stay in the E.U. for “trade and nothing else” misunderstand what the E.U. is and is about.

    Of course any effort to put taxes (and so on) on the exports of British people to people (say) in Germany or wherever after the United Kingdom leaves the European Union would not only run fowl of the World Trade Organisation (what used to be GATT),, but rather-more-importantly be against the interests of Germany (and so on).

    Even if Germans (and so on) know nothing about economics – the simple point that “we sell them less than they sell us” would be an incentive for them not to start a trade conflict. Only a total idiot would start beggar-my-neighbour politics today – it is the one great mistake of the 1930s that people have (so far) avoided.

    • Pau Marks : it is important to understand that the amounts of money thrown at an economy iin a recession s not the only thing which matters, it is the direction in which it is thrown that is really important. Keynsian style pump priming was generally sensible in Britain in the 1930s, ranging from things such as large amounts of council housing to the building of the Queen Mary.

      Important to understand the difference between the Gold Standard and Gold Bullion Standard. With the Gold Standard any paper money could be converted into gold. With the latter, Band of England notes could only be exchanged for a gold bar which from memory was worth around £400 in 1925, (worth around £21k in today’s money) This meant that exchanging paper money for gold was very restricted .

  3. Rothbard was very good on money and banking – for example…..

    If gold is money and (for some reason) one wants to call this money “Pounds” then one divides the amount of gold one physically has by the number of “Pounds” one issues.

    If this means (for example) that one “Pound” = one grain of gold (because one does not have much gold) that is just too bad. No amount of tap dancing by Governor Norman of the Bank of England is going to do anything – other than make things worse.

    Of course it would be better to do away with these names (“Dollars”, “Pounds” and so on) and just deal in weight and purity.

  4. ” I strongly disagree with your belief that protectionism can make this country richer than it would otherwise be. As with agricultural subsidies, it would depress national wealth, and could only be justified as a policy of making the best of things as they presently are.”

    Sean – I do not say that in purely headline economic terms judicious protectionism would produce a higher GDP at any given point, although over a long period history suggests a protected economy would do better because traumatic economic collapses such as those in the 1930s and in our own time would be unlikely to happen. Try to find in the past 150 years a major recession in Britain which occurred when protectionism was in operation.

    Stability is a great thing in itself and a society without massive differences in wealth such as we have now is impossible where there is free trade and open borders.

    If we had a GDP 10% lower than we have now but material equality close to what obtained in 1970, it would not only be a happier society but the velocity of circulation of money would be substantially increased which would oil the economic wheels much more efficiently.

    A society which has low unemployment with people in full time work able to live without state subsidy is much to be preferred for both social and economic reasons,

    In addition to the social and economic benefits, the more self-sufficient a country is, the more secure it is. Free trade undermines self-sufficiency.

    ” I have just signed up to write another half dozen historical novels.” Phew! You’ll be challenging Barbara Cartland soon:)
    RH

    • Barbara Cartland was a much better writer than the fashionable people insist. If you want to know why she is critically derided, you should remember some of her High Tory pronouncements on the telly.

      As for the Economics, I rather hope I’ve set the entire global libertarian movement on you!

    • Oh, I’m tempted to join in, and probably will if no one else can come up with a civilised debate. If you will pardon a touch of arrogance, you are as often wrong about Economics as you are right about everything else.

  5. Well Sean, we’ve had this argument about a zillion times. The reason protecionism is wrong is so obvious, one runs out of ways to say it. But, with a weary sigh, here is another way of putting it.

    Let us imagine there are two orchestras. One of them is superb orchestra, with the very finest players under a world class conductor, who produce interpretations of classical works of breathtaking beauty. The other is a shoddy affair, with a tone deaf conductor and incompetent musicians, most of whom are drunk, and whose cacophanous recitals are painful to the ear.

    As a consumer, you seek to purchase a ticket for the first orchestra, but at the ticket agency a government employee steps in and orders you to purchase a ticket for the other orchestra. When you ask why on Earth you should be forced to listen to the incompetent rather than the sublime, the government person explains that it is to prevent the Neasden Unharmonic becoming unemployed.

    It is fairly obvious that this process will not produce the best quality music in the economy. This is what is wrong with protectionism. It protects bad producers, at the expense of consumers.

  6. Robert – J.M. Keynes was mistaken (see old refutations such as Henry Hazlitt’s “The Failure of the New Economics” or more recent refutations such as “Where Keynes Went Wrong” by Hunter Lewis).

    However, the basic point is that one does not increase long term prosperity with “demand” – one can not (without evil consequences) lend out more “money” than was ever really saved (whether one this by private banking scams of by government monetary policy).

    On the “gold standard” – I repeat what I have already said. The word “standard” should be dropped – either the gold is the money or it is not (the various forms of “standard” just open the door to fraud – at least as any non establishment person would understand the word “fraud”).

    For example if one has 100 ounces of silver and silver is money then one can not (without eventual bad consequences) issue 101 “silvers” – because one does not have 101 ounces of silver. Efforts to get round this can be very complicated. but all the various methods have one thing in common, they all end badly.

    As for Protectionism.

    People who do not understand economic theory should ask themselves (or others) an historical question.

    “Was President Herbert Hoover correct to accept the increase in American taxes on imports in 1931?”.

    If someone answers “yes he was” – then further discussion is pointless, as they not only do not understand economics, they do not understand basic history either.

    • Paul Marks – You need to argue your case rather than referring generally to works by other people. The facts of the British experience in the 1930s are clear: we recovered from the worst of the depression faster than any other major industrialised nation. Do you dispute that?

      Of course things could have been better. We should have left the Gold Bullion Standard much earlier (better still never have been on it), should not have imposed draconian cuts on public spending, should have been more vigorous with Keynsian pump priming early on and applied the welfare system less harshly.

      On pump priming, it is important to understand that it was not merely the infusion of money into the economy on largely worthwhile projects that was important. It was the moral effect as well which counted. People were desperate in areas of structural unemployment and even in the areas which did well in the 1930s there was a sense of foreboding and shame at the state the country was in. Seeing projects such as the Queen Mary raised the spirits and gave hope.

      Your question on Hoover requires a complex answer. The USA had several disadvantages which Britain lacked. The first was the lack of consolidation in their banking system which meant there were huge numbers of small banks, several thousand of which went to the wall. That created widespread panic and despair. The second was a federal system which still left most things to the states. This created a very diverse economic scene throughout the country and a lack of federal government power to and experience of interfering with state economies or of shifting money from the federal centre to the parts of the country which needed it. This delayed such help for quite some time. Third, there were widely varying systems of social support in different parts of the country – much of the country had no welfare programmes as such – which created considerable population flows from the worst affected areas to the better off places. This was socially and economically disruptive.

      Those were the structural disadvantages but the USA also took far too long to come off the Gold Standard. Had they come off the Gold Standard early on and rectified the structural problems rapidly they would have come out of the recession more quickly, just as Britain did, although probably not as quickly because of the size and diversity of the country.

      In the context of all that Hoover’s imposition of tariffs was at worst peripheral to the severity of the depression. Had the USA addressed the structural problems and the Gold Standard early on, tariffs would have served the same useful purpose as they did in Britain of protecting the domestic market in a time of terrible trouble and threat..

      Finally, there is patently a difference in both practical effect and psychological effect between the Gold Standard and the Gold Bullion Standard. The latter is a fudge and would have seemed remote and unreal to most Britons at the time. The Gold Standard would have seemed real and immediate.

  7. Robert – I have “argued my case” many times. And even on this occasion I notice you just ignore the little bit of information I have given you – such as that Britain increased government spending far LESS than other countries yet had a better economic performance than other countries in the 1930s. Also my historical question concerning Herbert Hoover and 1931 has gone unanswered.

    Still you are clearly NOT a Black Flagger (neither an Islamist or a Fascist or a communal “anarchist” – out to confiscate the “not justly acquired” land and so on of the “capitalists”) so our disagreements are actually quite minor compared to so many of Sean’s friends.

    Actually (apart from on international trade) you are closer in your economic opinions (moderate Keynesian) to Mr Cameron and Mr Osborne than I am (I find I have no common ground, in monetary economics [in their devotion to subsidies for house building) ,,with the supporters of the leaders of my “tribe”) .

    • Paul Marks – I did address the question of the quantity of money used for pump priming in an earlier post , viz: ” it is important to understand that the amount of money thrown at an economy in a recession is not the only thing which matters, it is the direction in which it is thrown that is really important. Keynsian style pump priming was generally sensible in Britain in the 1930s, ranging from things such as large amounts of council housing to the building of the Queen Mary.”

      The fact that Britain spent less than other countries and performed better does not show that Keynsian spending was a bad thing, that Britain did better than other countries because she was less liberal in her Keysnian spending. She may simply have spent the money more wisely. Moreover, every economy is different. For example, Britain had an unusually high degree of political and economic centralisation which allowed central direction of the economy to be managed in a way it could not be other large industrialised states. Her banking industry was already very concentrated . Then there is the question of when a country came off the gold standard. Other countries hung on much longer than Britain.

      What Britain’s example in the 1930s shows that relatively speaking her management of the economy in the Depression was sound when compared with other major nations. .

  8. Robert – I am sorry if I missed your arguments in favour of lending out more money than was really saved (expanding the money supply). As for your specific point on government building houses or subsidising private builders to do so being good for the economy – I disagree (not much more can be said on such a divide).

    Ditto on your view that Herbert Hoover setting off an international trade war (or allowing Congress to do so) being relatively unimportant (I think your word was “tangential” – but I may not be remembering correctly). We disagree – fair enough.

    In all matters of fundamental disagreement discussion is a waste of time for both people – this is not what I believed in my youth, but experience has taught it to me.

  9. Paul Marks – Fair enough Paul, I think we have probably gone as far as we usefully can. Let me commend you for actually debating this subject. I can assure you you are a very rare bird, namely, a free-marketeer who will actually try to defend his position.

    One last point. In coming to an opinion on macro-economics it is vital not to forget what humans are and how they behave, For example, in a consumer led economy it may be necessary to do things in a recession such as building the Queen Mary in Clydebank because of the effect it has on general morale. The loan which the government gave to Cunard to build the ship provided much employment in an area of structural unemployment and the ship when launched was something that all the country could feel proud of.

  10. Robert on morale – I remember thinking that many of the public buildings in Bolton (and other places) built in the 1930s were reasonable looking. We are never going to agree on whether building X is good for the economy or not – but if X is going to be built (a town hall. a library or whatever), it should at least not look terrible (there we can agree). The modern world (post World War II) spends a fortune on building – and what is produced is often vile to look at.

    On the economy being “consumer led” – there you hit the nub of the difference between us.

    I side with J.B. Say (that the economy is production led – not consumption led), not with claimed refutation of Say by Keynes (indeed I believe Lord Keynes actually misstated Say’s Law).

    As you will know the French Liberal School economists were more free market than the British ones tended to be – which makes it ironic that France today is the least free market (the biggest government) country in Western Europe.

    As recently as the 1930s it was the French speaking Cantons in Switzerland that were the low tax Cantons – now it is the German speaking Cantons (and it is not just tax – the French speaking Cantons will tend to vote the statist way on everything, the German speaking Cantons normally the other way).

    This has been a profound cultural change – and I am not sure I understand it.

    • Paul – obviously the existence of any new product or increase in supply of an existing product creates the potential for new demand but it is only potential. Increases in wealth, either real or imaginary where indebtedness is involved, will naturally increase consumer spending, although often what money is spent on lacks either utility or offers any real or lasting satisfaction to the spender.

      I have long held that the trade cycle in a consumer led society works largely through the satisfaction of the practically attainable wants until most people have bought all they can afford. This leads to a drop in consumer demand which leads to a recession and a consequent rise in the propensity to save. As the recession progresses people need to replace essential items which they will do from their savings and this begins the movement out of recession. Of course in an advanced economy such as Britain there are other factors which can disrupt and distort this natural cycle – for example, loose money supply, war, mass immigration and so on – but the cycle of satiation, loss of confidence, increased saving, necessary purchases and a climb out of recession seems to me to be logically sound and meet the general facts of economic history.

      As to why economists in different countries switch between ideologies, there is no mystery there: in economics as everything else their are fashions. Often the economic fashion changes because there has been an economic event which is catastrophically at odds with the ruling ideology. That is what happened in the 1930s in many countries. But there are also frequent changes down simply to different ideologies being espoused by different parties or groups.

  11. Robert my point was not that economists change (actually French economists refused to serve statism in the early 20th century – they held to reason, so the French government created the subject of “Public Administration” to get the sort of statist graduates it wanted). My point was that the populations (the culture) had changed – France was once a smaller government country than Germany (although a bigger government country than Britain), now the default position of the French population (or even of French speakers in Belgium and Switzerland) is to look to the state (most so than it is for most German speakers) – this is a cultural change and I do not understand it.

    As for the idea that increasing the amount of money increasing the amount of wealth – I regard that as a fundamental error (on a par with saying that 1+1=6 or saying that ice is hot), that is why (even as a child) I could not understand why anyone took Lord Keynes (or Major Douglas) seriously.

    But, I admit, I looked at the world very differently from my teachers – even though I (somewhat oddly) I regarded them as the rebels. I kept looking for the strong conservative core of Britain (to be loyal to it), but was never able to find it.

  12. Paul – the public rarely have a say in what economic system is favoured by elites because either the parties all agree on roughly the same system or when real change does take place it then becomes very difficult to reverse it, eg, privatisation, which can and does make all political parties likely to form a government to embrace whatever the status quo is,

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