Keynes and his Contemporaries

Tradition and Enterprise in the Cambridge School of Economics

Atsushi Komine

• Publisher: Routledge
• Year: 2014
• Print ISBN: 9780415638883
• eBook ISBN: 9781317685210
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

This book examines how the Cambridge School economists, such as J. M. Keynes, constructed revolutionary theories and advocated drastic policies based on their ideals for social organizations and their personal characteristics. Although vast numbers of studies on Marshall, Keynes and Marshallians have been published, there have been very few studies on the 'Keynesian Revolution' or Keynes's relevance to the modern world from archival and intellectual viewpoints which focus on Keynes as a member of the Cambridge School. This book approaches Keynes from three directions: person, time and perspective.

The book provides a better understanding of how Keynes struggled with problems of his time and it also offers valuable lessons on how to survive fluctuating global capitalism today. It focuses on eight key economists as a group in 'a public sphere' rather than as a school (a unified theoretical denominator), and clarifies their visions and the widespread beliefs at the time by investigating their common motivations, lifestyles, values and habits.

1 Robertson and appropriate control of industry

1.1 Democratic control in industry

D. H. Robertson, a ‘perceptive, incisive analyst of events’ (Lee 1963: 312), reviewed Chaos and Order in Industry (1920) by G. D. H. Cole. This book deals with trade union problems regarding the establishment of democratic control in industry, and in his review Robertson criticized Cole for undervaluing ‘brain-work’, or what Marshall called ‘constructive speculation’, such as industrial strategy, the initiation of policy, and the imagining of future states of the market by technicians and managers.

Mr. Cole seems uneasily aware that the more Olympian type of entrepreneur or business man or whatever we like to call him, is not as yet a mere func-tionless excrescence, but that his passing will leave a gap to be filled. Yet is any real provision made for filling it? That seems to be the fatal limitation of Mr. Cole’s policy of dyarchy or ‘encroaching control’.

(Robertson 1920: 539, emphasis in original)

As we shall discuss later, Robertson regards Cole’s type of solution, Guild socialism or worker’s control, as not very effective at reconciling self- government with profit-making. But he did not offer any solutions of his own in this review. Instead, in 1923 he wrote a small book, the fourth volume of the Cambridge Economic Handbooks series, entitled The Control of Industry (hereafter referred to as COI). This concise, easy to understand book makes plain his view of capital-ism¹ and some presumptions that underlie his other writings on economics with regard to industrial fluctuations and money. Robertson must have regarded the diagnosis and remedy presented in this text as universal and enduring, as he made no significant changes in the revised version published in 1960 (Robertson and Dennison 1960 [1923]: xii). In short, control of industry is an important theme which simultaneously reveals both Robertson’s ideals and his theoretical presuppositions.

Section 1.2 examines Robertson’s current understanding of modern capitalism. Three grievances shall be pointed out. Section 1.3 describes four organizations with the potential to reconcile economic efficiency with democratic control. Section 1.4 briefly points out the relationship between what is discussed above and some of Robertson’s other books on economics such as A Study of Industrial Fluctuation (1915), Money (1922), and Banking Policy and the Price Level (1926).

1.2 Three grievances in capitalism

Modern capitalism, Robertson begins, has three main problems that must be addressed: production, distribution, and control or government. The problem of production is to make it possible to support a growing population with a rising standard of comfort. The problem of distribution is to divide the fruits of industrial progress in a manner ‘more productive of human welfare and more consonant with our ideas of justice’ (COI: 1). The third problem identified is, unlike other textbooks, not consumption or exchange, but ‘control’, which in this context means self-directing activities in industry. He asks:

how, if at all, can we ensure that the men and women engaged in industry shall not become mere instruments of production or mere passive receptacles of its fruits, but shall retain … the character of self-directing human beings?

(COI: 1–2)

Here Robertson seems to take up Marshall’s theme of economic chivalry and the standard of life, or enhancement of one’s potentiality. Yet he is not as optimistic about the cultivating of one’s character: instead, he focuses on establishing a system of removing alienation, or monotonous and heavy labour, a Marxian mission.

Robertson characterizes modern large-scale industry as the combined result of standardization (specialization) and integration. ² The principle of standardization means that industrial operations are made uniform and ‘split up as completely as possible into their component parts, and each part is taken over by a separate machine’ (COI: 18). Historically, there is a tendency for production to be conducted on a larger and larger scale (COI: 20). This tendency has enabled industry to progress from the household system to the handicraft system, the merchanting system, and ultimately the factory system. The next step after standardization is the localization of industry, ‘the propensity of particular trades to cling and breed and cluster in particular localities’ (COI: 27). The concentration of industry is ‘bound up with the concentration of its control into a few powerful hands’ (COI: 32). This further tendency connects with the principle of integration, ‘the gathering up into a single hand of functions which have hitherto been separated and specialized’ (COI: 32). There are two types of integration: gathering up under a single control the successive stages of the manufacture of a single product (vertical integration) and the manufacture of a variety of dissimilar components (lateral integration) (COI: 36).

In this way, Robertson apparently attempts to reconcile Marshall’s argument concerning eminent entrepreneurs (economic chivalry) with modern large-scale industry in the twentieth century. He could have then gone on to discuss how the few powerful businesspeople that arise obtain moral enhancement. However, his concern leads him in the other direction: not towards expectations concerning the moral character of eminent businesspeople, but instead towards establishing an optimal organization to overcome the numerous grievances in capitalism. Here he takes three difficulties into account.

First, there is no property of capitalism that effectively coordinates different interests. Although factors like combination, the integration of raw materials and marketing processes, and increasing dominance of industry by financial institutions have highlighted the vision and control of a single intelligence, the power of this kind of intelligent control is still too small in the face of such powerful forces as news reports, knowledge, longstanding habits and customs, faith, and the twin elementals (supply and demand) (COI: 85–86). Thus, capitalism has grave difficulties beyond its great merits of facilitating individual judgment, initiative, and economic efficiency with freedom. The desire of the rich has priority over the stark needs of the poor. Advertising is excessive. Worst of all, large numbers of working people find themselves in enforced idleness and bitter need, ‘with large masses of industrial equipment left stranded and unused’ (COI: 87). The machinery of spontaneous coordination is broken in part and/or at times.

Second, there are a number of examples that violates ‘Capitalism’s Golden Rule’: ‘the proposition that where the risk lies, there the control lies also’ (COI: 89). This proposition represents the compatibility of economic efficiency (incentive) with democratic self-government (control), or, in other words, harmony between profit (remuneration) and effort. Unlike individual enterprises prior to the nineteenth century, at times and in part the Rule does not work in modern capitalism for three reasons: (i) owing to the separation of ownership from management, the shareholders of a joint-stock company are not concerned in management but bear its main risks; (ii) owing to the specialization of risk-taking organizations, some specialists such as insurance companies and speculative dealers assume part of the risks without taking part in management; and (iii) worst of all, there are numerous workers who incur risks (i.e. decreasing demand for the products they make, individual bankruptcy of their company, overall depression) without participating in any management at all. Unemployment is singled out as the worst risk such individuals face. Here, Robertson apparently excludes cases of personal responsibility (such as laziness) for their unemployment. His emphasis is on social causes of unemployment.

Third, there is the distasteful inequality in the distribution of industrial power, the sharpness of the differentiation between those who own, ‘plan, and control and those who execute orders’ (COI: 96). Although small businesses during the nineteenth century had sometimes inspired feelings of personal loyalty and affection between managers and workers, big business and the separation of ownership from management made the fostering of such feelings impossible. Machinery and the factory system had intensified workers’ sense of alienation from the forces that governed their life:

the modern developments of industry render it necessary, if the standard of comfort that they have made possible is to be preserved, that most people should spend the greater part of their working lives in the ceaseless repetition of some one more or less monotonous and soul-destroying job …

(COI: 97–98)

Marshall’s thoughts on the enhancement of workers’ ethical and practical powers start from the side of consumption (from the standard of comfort to the standard of life³). A rise in the standard of life implies an increase in intelligence, energy, and self-respect, instead of physically and morally unwholesome expenses. Such a rise will therefore increase workers’ efficiency and real wages, and ultimately increase the national dividend. For Marshall, the first step was the workers’ own decisions. By contrast, Robertson argues that even if there is a rise in the standard of life, workers cannot become happy if the inequality regarding control over industry remains. He is thus compelled to discuss an optimal organization to restore real control in industry.

1.3 Towards an ideal organization

The next step is to overcome these grievances. Robertson’s basic ideas regarding this issue remained relatively unchanged from the 1920s onwards, in contrast to his dramatically changing views in his main area of study, monetary economics. As he put it in 1947:⁴

the ideas … would be more truthfully summed up in the phrase ‘judicious State intervention’ than in the now fashionable watchword of ‘the planned economy’. We [members of the Cambridge school of economics] were taught to think rather in terms of tinkering at the systems of private property and economic freedom … than of replacing them or even of binding them in chains.

(Robertson 1952: 44, emphasis added)

In spite of sharing their belief in the necessity of tinkering at modern capitalism, in advocating remedies Robertson’s point differed in some degree from those of Marshall and Pigou. Marshall emphasized economic chivalry, the standard of life, and governmental supports in education in particular. Pigou focused on dissolving the gap between social and private costs, for instance by means of taxation.

Robertson stresses the creation of an optimal organization in which democratic decision-making and economic efficiency are compatible, and in which the right of self-determination and social stability coexist. He scrutinizes four possible candidates with ‘Capitalism’s Golden Rule’ in mind.

The first possibility lies in collectivism (i.e. socialism and communism). The former entails the ownership and management of businesses by the state, retaining the capitalist expedients of price and market. The latter employs the same methods as socialism, but without ‘the economic calculus of gain and loss’ (COI: 105). In both cases, public enterprises, run by the state but financed by the public, supply goods and services. The ultimate risk of loss is born by taxpayers. The risks of taxpayers in such scenarios are much larger than those of ordinary shareholders, since the former has unlimited liability (COI: 121); the deficits of public enterprises are to be financed by direct taxation or national debt. Taxpayers bear risks in accordance with their income or wealth, while their only means of controlling public enterprises is their single vote. Thus, there is a disharmony between the distribution of risk and that of the powers of control. In addition, nominal managers of public enterprises are apt to waste taxpayers’ money, or, conversely, pursue an overly timid (low-risk) approach. In summary, Robertson’s attitude towards collectivism is almost completely negative.

The second possible type of organization is one based on workers’ control such as productive cooperation, Syndicalism, and Guild Socialism (COI: 134, 137, 141). Syndicalism, born in France, is a more radical approach to transferring the ownership and control of the means of production to trade unions and taking command of society by way of direct labour demonstrations such as general strikes and acts of sabotage. Guild Socialism, a British movement, is less radical in that medieval masters’ unions control industry while the role of the government remains that of an administrator and producers’ representative. Robertson’s evaluation is negative in both cases for ...

Table of contents

• Cover Page
• Half Title page
• Other Title
• Title Page
• Copyright Page
• Contents
• Figures
• Tables
• Author profile
• Preface and acknowledgements
• Abbreviations
• Introduction Marshall and his disciples
• 1 Robertson and appropriate control of industry
• 2 Two types of dealers in Hawtrey's economics
• 3 The ‘conversion' of Henderson
• 4 Lavington on effectiveentrepreneurship
• 5 Keynes and the revision of the Economics Tripos
• 6 Keynes and women's degrees
• 7 Keynes and semi-autonomous bodies
• Concluding remarks
• Bibliography
• Name index
• Subject index