Economics

An Awkward Corner

Joan Robinson

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315439105
• Edition: 1
• Topic: Volkswirtschaftslehre
• Subtopic: Vergleichende Wirtschaftswissenschaften

Originally published in 1966, this book has enduring validity. In analysing the economic situation of the late 1960s Joan Robinson discusses the contradictions which arise from the need to readjust the organisation of society to the fantastic capacity for producing material wealth that capital accumulation and progress in technology have made possible. She maintains that the late twentieth century economic system is just an awkward corner in a continuing process of historical development.

NOTES

INTRODUCTION

^a Economic Consequences of the Peace, pp. 16–17.

¹ I use laisser faire in a broad sense to mean the complex of ideas and policies that grew up with the ‘remarkable system’ that Keynes described. Its principle tenet was that the sole duty of government in economic affairs was to preserve the value of money at home and abroad by balancing the budget and maintaining convertibility of the currency with gold.

The expression has become naturalized; in what follows it is printed without italics.

I INCOMES AND PRICES

² Total consumer’s expenditure (including rent) reckoned at prices ruling in 1958 was £13,106 million in 1950 and £18,943 million in 1964, an increase of about 45 per cent. In this period, the resident population rose by about 8 per cent, so that there was an average increase in consumption per head, man, woman and child, of about 34 per cent.

(National Income and Expenditure, 1965 and Statistical Abstract, 1965).

^b This view of the determination of prices is based on the theory first formulated by Michael Kalecki in Essays in the Theory of Economic Fluctuation, 1939. It has been supported by statistical observations in Wages and Employment in the Trade Cycle by R. R. Neild, 1963.

^c See below, p. 53.

³ In 1965 it appears that the prices of manufactures rose less than wages, while prices of materials were more or less constant, as follows:

	1958 = 100
	1964	1965
Earnings per head	137·5	146·1
Price of manufactures	111·5	116·7

(National Institute of Economic and Social Research, Economic Review, May 1966.)

On the other hand, prices do not always fall with costs.

The Cohen Council in 1959 (see below note 5) was reporting on the aftermath of the first recession since the war that had raised unemployment to more than 2·5 per cent. Wages had risen very little over the preceding year and raw material prices had fallen. The Council deduced that for many industries costs must have fallen and strongly urged that prices should be cut. The spokesmen of industry, however, thought this a strange doctrine.

There are ambiguities in its suggestion that industry should reduce prices. It is one thing to reduce prices and thereby expand demand and output; it is another to hold prices below their market level with the object of curbing profits or dividends.

(A statement by the Federation of British Industries reported in The Times, August 7th 1959).

It is possible that since that date the industrialists have grown more sophisticated.

⁴ The following appeared in The Times, January 23, 1943 :

Unemployment in a private-enterprise economy has not only the function of preserving discipline in industry, but also indirectly the function of preserving the value of money. If free wage-bargaining, as we have known it hitherto, is continued in conditions of full employment, there would be a constant upward pressure upon money wage-rates … In peace-time the vicious spiral of wages and prices might become chronic.

(Joan Robinson, Collected Economic Papers, Vol. I, p. 85.)

⁵ The White Paper of 1944 on Employment Policy (Cmd 6527) marked the official acceptance of the view that it was possible and necessary for government action to maintain a ‘high and stable level of employment’. It was not until 1957 that doubts about the orthodox view of prices led to the appointment of the Council on Prices, Productivity and Incomes (the Cohen Council). Its first two reports, however, supported orthodoxy. The third, in 1959, when Professor Phelps Brown had succeeded Sir Dennis Robertson as the Council’s economist, seeks to analyse the determination of prices in terms of costs and profit margins.

In the same year the Report of the Radcliffe Committee on the Workings of the Monetary System undermined belief in orthodoxy by showing how weak was the control of the authorities over the monetary system, and how uncertain the effects of monetary policy in the economy. In 1961 a National Economic Development Council, and a National Incomes Council (Neddy and Nicky), were set up. These were the first tentative and rudimentary attempts to produce new organs for economic planning in this country. They provide a symbol of official recognition of the end of laisser faire.

Neddy still survives, but is now overshadowed by the Department of Economic Affairs. Nicky was wound up by the Labour Government in 1964 and superseded by the Prices and Incomes Board.

^d See J. C. R. Dow, The Management of the British Economy 1945–60, p. 403.

^e See U. N. World Economic Survey 1964, Part II, p. 42. This section of the Survey gives an account of the general state of opinion on the question of incomes policy in the industrial nations.

^f Cf. Barbara Wootton, Social Foundations of Wage Policy, especially chapter II, ‘Some Economic Curiosities of the British Wage Structure.’

II THE BALANCE OF TRADE

^g A summary and analysis of the various factors retarding British exports is given by M. Panic and T. Seward, The Problem of UK Exports, Oxford Institute of Statistics, Bulletin, Vol. 28, No. 1, 1966. The behaviour of imports is described and the need for import-saving investment argued in ‘Re-thinking Foreign Trade Policy,’ by Austin Robinson (Three Banks Review, Dec. 1963.)

⁶ In 1964 expenditure on armaments was £2,000 million, about 7 per cent of gross national product. In the same year gross private investment in plant, machinery and vehicles was £1,800 million. The whole of gross investment in fixed capital (including the purchase price of sites) was £5,800 million.

Expenditure on the health service was £1,100 million and on education £1,400 million.

(National Income and Expenditure, 1965)

⁷ The categories, income account, long-term capital account and counterbalancing monetary movements, are not clear cut; each shades into the other at the edges. Different countries publish their accounts in different forms. For instance, the US Department of Commerce includes in monetary movements some items that in the UK accounts appear as capital. The treatment of re-investment on the spot of profits accruing abroad is partly included in the us outflow of capital, but not for the UK.

However, for purposes of the present discussion, we need only consider the broad headings. The income account is made up of receipts and payments for imports and exports (visible trade), receipts and payments for services for shipping, insurance, etc., and receipts and payments for interest and profits from overseas assets (the invisible items).

In the accounts, governments military expenditure overseas appears as an invisible import. In setting out the accounts here and in note 11 below this is shown as a separate item.

Long term capital account consists of purchases of foreign securities, private and government loans and direct investment in enterprises overseas.

The position of the UK balance of payments for 1964 as follows:

	£ million
eficit on income account	—138
Overseas military expenditure	−274
Net capital outflow	−344
Errors and omissions	+ 35 _____
Balance of monetary movements	721 _____

(Errors and omissions is the balancing item which reconciles the records of the income account with records of monetary movements.) (National Income and Expenditure, 1965)

The increase in exports necessary to achieve balance if there were no cuts in outflows would be a little less than 3 per cent of gross nation product. Something more would be required to repay the credits used up during successive crises.

⁸ See Phyllis Deane and W. A. Cole, British Economic Growth, 1688–1959, pp. 33–8 for a summary of history of the balance of payments. The surplus on income account was at its height in the decade before 1914. The balance dwindled after the war and turned negative in the thirties.

^h The locus classicus for the economists’ myth is the Cunliffe Report of 1918. See ‘A Note on Bank Rate,’ Joan Robinson, Collected Economic Papers, Vol. II.

⁹ The GATT agreement made an exception for preferential arrangements that were intended to lead to a customs union or free trade area.

¹⁰ There were special circumstances in 1931 which made depreciation of sterling unquestionably advantageous to the British economy. The currencies of our principal rivals remained pegged to gold until the dollar was devalued in 1933 and the franc in 1936, so that we had an advantage in exports, while our principal suppliers of raw materials kept their currencies aligned with ours (this was the original meaning of the ‘sterling area’) so that we did not suffer a rise in home prices. There ...