‘To suggest social action for the public good to the City of London is like discussing The Origin of Species with a bishop 60 years ago … An orthodoxy is in question, and the more persuasive the argument, the greater the offence,’ wrote the economist John Maynard Keynes in 1926, in an essay titled ‘Can Lloyd George do it?’
While the bishops have recovered their wits, the reaction of the City, unfortunately, has spread to the public at large, most significantly to politicians who make decisions on our behalf. Mainstream economic theory has never liked government ‘meddling’ in private sector production. Keynes, in The End of Laissez-faire, traces the negative view of industrial intervention to economic theory with its philosophy of individualism.
Individualism is now foundational. The social dimension, which is the cornerstone of the case for concerted action for the public good, has no place when it is assumed that economic agents are isolated ‘atoms’. This assumption removes not only the social dimension but also the question of power, since these ‘atoms’ are too small to exercise any (this in the face of the giant companies we today observe following programmes of environmental destruction, gouging their clients, manipulating finance and other not exactly powerless activities).
Even worse than this assumption of asocial atoms is the hidden and almost never acknowledged assumption of perfect knowledge. Since it is believed that ‘the market’ has this knowledge into the indefinite future, there is nothing government can do but make things worse. The market knows best; leave it alone. Mainstream economists have been dripping this poison into politicians’ ears for nearly 50 years, and the public that votes them into power believes it too.
The heart of the matter is the public good, for which private profit is an inappropriate criterion. In the late 1920s Keynes spoke of many corporations of his day as paying little attention to the profit motive and, though privately owned, seeing themselves as acting in the public interest. By 1933 he took a different view.
‘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,’ he wrote in National Self-Sufficiency. Once again the profit motive roused him to deep anger: ‘The 19th century carried to extravagant lengths the criterion of financial results … The whole conduct of life was made into a sort of parody of an accountant’s nightmare … We are capable of shutting off the sun and the stars because they do not pay a dividend.’
These matters come to a head in The General Theory, published in 1936. Here he advocates the ‘socialisation of investment’, since government can take a longer view, and satirises the Treasury’s insistence on applying the profit criterion when spending money for the public good in the famous, but often misunderstood, passage about digging holes in the ground and filling them in again to stimulate the economy. People forget the punchline: ‘It would indeed be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, [digging holes] would be better than nothing.’ He blames ‘the education of our statesmen on the principles of the classical economics’. The same is true today.
In the government’s 2017 green paper on industrial strategy there is not a single mention of the public good or public purpose. The only ‘public good’ envisaged is the growth of the economy, though its regional distribution is given prominence. The prime minister, in her foreword, mentions ‘a fairer society’ and pledges to ‘move beyond short-term thinking’ but the ‘ten pillars’ of the policy that follow are entirely about ‘increasing productivity and driving growth across the whole country’.
There is no consideration of the possibility of prosperity without growth, where the economy is organised around our collective well-being, as explored by Professor Tim Jackson in a book originally published as a report for the government’s Sustainable Development Commission. The focus is entirely on successful business (ie. profit) rather than what is for the common good: what will help us live ‘wisely, agreeably and well’. What is to be produced and how is not questioned. Anything will do as long as it turns a profit.
Economics is not the whole of life, never has been, and should not be treated as such. The ‘econocracy’, described in detail by founding members of the Post-Crash Economics Society in a recent book of the same name, must be overthrown and public purpose placed at the heart of government.
Victoria Chick is emeritus professor of economics at University College London