The Online Library of Liberty

A project of Liberty Fund, Inc.

• F. A. Harper, Introduction
• Gustavo R. Velasco, On the 90th Anniversary of Ludwig Von Mises
• F. A. Harper, Ludwig Von Mises
• Property and Freedom, Alberto Benegas Lynch
• Technological Progress and Social Resistance, Guillermo Walter Klein
• Principles Or Expediency? F. A. Von Hayek
• Protection For Farmers, Antony Fisher
• For a Philosophy of Choice, Lord Grantchester
• The Surest Protection, Ralph Harris
• Towards the Just Society, Ralph Horwitz
• Size and Well-being, J. Enoch Powell
• Pour Eviter “une Collectivisation Par Annuities”, René Berger-perrin
• En Défense De L'economie Libérale: Réponse à Quelques Objections, Gaston Leduc
• L'occident Pour Son Malheur a Choisi Keynes Contre Mises, Pierre Lhoste-lachaume
• Das Ordnungsdenken In Der Martwirtschaft, Ludwig Erhard
• Unsere Gesellschaftsordnung Und Die Radikale Linke, Edith Eucken-erdsiek
• Privateigentum— Die Für Mitmenschen Günstigste Lösung Bei Den Produktionsmitteln, Wolfgang Frickhöffer
• Macht Oder ökonomisches Gesetz, Ernst Heuss
• The Reliability of Financial Statements, Ulrich Leffson and Jörg Baetge
• Ist Die Inflation Unser Schicksal? Alfred Müller-armack
• Der Reiche Goethe Und Der Arme Schiller, Volkmar Muthesius
• Krise Der Politischen Formen In Europa, Otto Von Habsburg
• The Need to Make Cognizance Available, Ulysses R. Dent
• Ways to Communism, Giuseppe Ugo Papi
• Convergence Theories and Ownership of Property, Kenzo Kiga
• Soaring Urban Land Prices and Market Economy, Toshio Murata
• Jesus and the Question of Wealth, Alberto G. Salceda
• A Program For a Liberal Party, Gustavo R. Velasco
• On the Entrepreneur Andries De Graaff
• La Integracion Economica De America Latina, Romulo A. Ferrero
• Problems of Economic Responsibility and Initiative Re-emerging In Eastern Europe, Ljubo Sirc
• Rent Control In Sweden: Lessons From a Thirty Year Old Socio-economic Experiment, Sven Rydenfelt

The Surest Protection∗
Ralph Harris

There used to be a jibe that if you consulted six economists, you could rely on getting at least half a dozen different answers, but in recent years it looked more as if the growing army of economists in journalism, broadcasting, Penguin Specials, and even in the rival political parties, were unanimous. There was a deafening consensus for central planning, 4% annual growth, universal welfare, brimful employment, the voluntary incomes policy, and most recently, of course, for devaluation.

These articulate publicists were no more representative of the sober profession of economists than “trendy” exhibitionists in Edinburgh or Essex were typical of modern youth; although we all know how difficult it is for the squares to resist altogether the latest extravagance of fashion. There were plenty of economic squares at the Institute of Economic Affairs and elsewhere who warned the politicians against over-egging the pudding.

But politicians are rather like illusionists. Even worse than the over-enthusiastic salesmen they often deride, politicians are always tempted to promise more than can be achieved. How convenient then, when some academic, intellectual-looking specimens came along muttering novel economic spells to work the magic of perpetual abundance. In what passes for democracy, the undoing of most politicians can be summed up in the wise old caution that you can't have your cake and eat it. Politicians, for high moral as well as low electoral purposes, are inevitably inclined to fret against such tiresome limitations. Put simply, they want to have their cake, invest it, export it, hand it round the underdeveloped countries and give it to the old-age pensioners, whilst never of course forgetting the young and generations yet unborn…And today, a large chunk of cake must be earmarked to pay off the debts we have incurred abroad. Is it surprising that politicians are inclined to run out of cake long before they run out of promises?

Ever since the war, governments have tended to spend too much themselves, to stoke up inflation, and then put the financial leeches on the productive, private sector of the economy. Increased purchase tax, credit squeezes, controls over hire purchase-all disrupted the very industries that plan ahead to reduce costs. Little wonder frustrated business men took up the cry against “stop-go.” Most of them never seriously believed in central planning, but they fell for the idea of forced growth - hot-house economics-as a soft option.

The hard option - which in retrospect, looks even more attractive - would have been to run the economy deliberately at a marginally higher level of unemployment - though not as high as the planners have clumsily inflicted on us. It would have meant easing the movement of labour between jobs and areas and phasing out policies of protection and subsidy which give too many unions and managements a comfortable life without needing to exert themselves. Above all, realistic management of the economy would have required bringing the sprawling public sector under firm control. It would have meant applying sensible foresight - if you prefer “planning” for contingencies - to make it easier to apply a “stop” in public spending rather than always purging private expenditure when the need periodically arose.

Alas, over-reacting to the mismanagement of government policy in the late 1950's, the leaders of the establishment meekly enrolled as followers behind a handful of economic pied-pipers who sang their beguiling songs about planning and perpetual economic growth. Without correcting the evident changes in consumer preference - as in central heating or holidays abroad, and a thousand developments which no forecaster or computer can ever predict. We do not have a time machine to explore what lies ahead. The future is unfolded, just one day at a time. Renewed talk like the T.U.C.'s about a second National Plan with “more specific targets” and “a quantified action programme” is either mischievous naivety or the old confidence trick over again. The start of all wisdom in looking ahead is to allow ample margins of safety for the unexpected. Today, we are all uncertainty and no margins.

The more fundamental lesson of our failure goes to the root of our thinking about “the economy” and other aggregates like “exports,” “the labour force,” or “investment.” The truth is there are no such operational animals. We cannot talk sensibly about “scientists” or “engineers” any more than we would lump together all “bachelors” or “dog-owners.” Statistics, on which the central planners feed between meals, are merely skeletons, stripped of flesh, blood or human feeling. Totals necessarily conceal the significant differences in the individual components. So often the central planner gets a onedimensional, black-and-white snap-shot of the perpetually changing, variegated movements that make up the sum total of economic activity. The false perspective and precision of broad economic categories leads in practice to schoolboy howlers. For example, it encourages the pet idea that if what they call “annual investment” in Britain is less than in more prosperous countries, then it's simply a question of installing more equipment. The new Industrial Expansion Act threatens to invest tax-payers' money in risk capital. But if we come down to earth we know that vast amounts of capital are wasted - and not only in nationalised industries - for example, because trade unions won't allow it to be worked efficiently. The essential requirement is to be able to distinguish between profitable and unprofitable lines of investment, and the surest way of doing so is to enforce competition more rigorously so that inefficient firms are driven to make better use of capital or to make way for firms that will.

But such a common-sense approach collides with the dominant philosophy of central planning, which erects national targets, and then expects business men, trades unionists, exporters, and other collectivities to score bulls eyes, guided by “the public interest.” Here is the real parting of the ways. At rock bottom, these economic pundits misjudge or seek to over-ride human nature. How many of us - if we are candid - would claim to comprehend fully, let alone approve, whatever political leaders tell us to be “the national interest?” Even in war, when national survival is indivisible and unites the kingdom, conscription, rationing, direction of labour, confiscatory taxation, and all kinds of compulsions are still necessary to stop people dodging the column.

In peace, this unitary national purpose happily dissolves into an infinite variety of conflicting individual, family, neighbourhood, church and political interests. Constant propaganda about crises and the national interest then takes on a profoundly authoritarian flavour.

In their daily work, some people prefer a quiet life. Others relish the risk and challenge of striving after outstanding achievements. Most of us are somewhere in between. We're prepared to exert ourselves a bit harder if we can see a more or less visible return. There is no shame in this modest, limited, essentially rational view of the good each of us can do. In normal times, it is preferable that people should work for their families and friends, their local church or school, than to allow a Hitler, a Nasser or a Castro to incite them to sacrifice self-interest in favour of some remote, often repugnant, “national purpose.” In his book, appropriately called TWO CHEERS FOR DEMOCRACY, E. M. Forster put his finger on the danger of fattening up our rulers. He said:

“As soon as people have power, they go crooked and sometimes dotty as well, because the possession of power lifts them into regions where normal honesty never pays…The more highly public life is organized,”

he concluded,

“the lower does its morality sink.”

Speaking as one of the parents and plaintiffs in the celebrated legal action over the Enfield Schools, I saw something of this corrupting process at work, in local as well as central government.

I would therefore argue that reliance on economic self-interest is the surest protection of individual freedom, self-expression and other liberal values. Even if idealists question that proposition, they simply have to accept that self-interest is the most pervasive and powerful prime-mover to productive effort of every kind. Even the communist economies, which for a generation or more have used some pretty nasty head-shrinking techniques to implant “service to the state” as the guiding motive, even in Russia, Czechoslovakia and lately Hungary, the economic planners are having to bring back profits, market pricing, personal incentives, in order to encourage effort, efficiency and responsibility. Incidentally, disappointed Indian planners would do well to follow the communists in this one respect.

The failures of recent years were all predictable for anyone familiar with the economic literature. Almost two hundred years ago, Adam Smith described the galvanizing force of individual exertion in these words:

“The uniform, constant and uninterrupted effort of every man to better his condition, the principle from which public and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things towards improvement, in spite of both the extravagance of government and of the greatest errors of administration.”

On that highly contemporary note, let me return to the present ominous talk about restoring Britain's fortunes by raising taxes, penalising the self seekers and pegging wages and other incomes. There is no future in that direction. Taxation on earned income already rises above nineteen shillings in the pound for men of exceptional ability. Despite the well-told Galbraithian fairy stories, it's these pace-makers whose innovations can transform whole industries, as they've done, in retailing, artificial fibres, in plastics, household equipment, in toys and even - pop radio.

If individual drive is to be given its head, legal and institutional barriers to effort and enterprise must be removed - for example, by outlawing absurd trade union restrictions, and by ending such archaic laws as opening hours for shops and pubs. Indeed, drastic reforms are essential throughout the economy. From Adam Smith to Keynes and Robbins, the great economists have taught that the best check against the exploitation of consumers is competition - or even the threat of competition. It's because nationalised coal-mines and railways are shielded from direct commercial challenge that costs get out of hand, and hundreds of millions of pounds are misinvested. As Dr. Erhard - the architect of the German miracle - has emphasised, the welfare state mentality in Britain has been allowed to run amok in the commercial sector. In addition to nationalised industries, state subsidies, government contracts, agricultural marketing boards, and tariffs all restrict competition. All entrench the past against the challenge of the present and the opportunity of the future.

As one who was brought up on a Council estate and used to fetch the weekly shopping from the local Co-op, I've often wondered what would have happened if we'd nationalised retailing 20 years ago, when we nationalised so much else. If the Co-op had ruled the roost (as it did in many working class districts before the war) would we now enjoy the excellence of Sainsbury's and the supermarkets or the unrivalled service of Marks and Spencers and other departmental stores? If the Co-op survives another twenty years, it ought to thank competition for keeping it up to the mark. Wherever competition can be made to work - settle for nothing less.

With the need for more competition and individual striving goes the need to enlarge consumer choice. Hire purchase, advertising, improved consumer goods - all these provide the incentive and means for families without capital to raise their standards of living. And competition is restlessly seeking ever new ways of brightening homes, saving labour, spreading do-it-yourself and other less arduous hobbies.

But what of welfare services which are largely monopolised by the state and paid for by compulsory taxation? Here it is the politician who decides what and how much service our families might enjoy in doctors, hospitals, the so-called “comprehensive” schools, universal pensions and student grants. Under the stress of crisis, politicians are now bolder in talking about selectivity in welfare, but the paltry start with a prescription charge doesn't scratch the surface. We need a transfer of several thousand millions from government expenditure back into the pockets of the individual earner.

Here we're up against a formidable alliance of conservatives from right-wing paternalists, left-wing traditionalists, muddled idealists and that strange race of sociologists who often look as if they have done rather well out of the poor. But we must resist these intellectual vested interests. I agree with Aneurin Bevan - when he described an intellectual vested interest as the most stubborn of all. He said:

“it defends itself against criticism with a morbid self-consciousness. It refuses to yield at any point, because it sees, in every inch it gives up, not so much a concession to reality, as a surrender to its enemy.”

In January, the Cabinet went into a sort of trance to save perhaps one hundred millions a year in expenditure on all forms of welfare running to seven thousand, five hundred million - economies of two or three pennies in the pound of expenditure. No margins here for unforeseen contingencies. We must before long do much better than this if we're to reduce taxes on earnings and still be more generous to those in special need. We should be pressing for charges for State services, more competition from private welfare suppliers, and the growth of family insurance to cover costs of medical care, schools and pension. There is no other way if overstrained welfare services are to match the higher standards we insist upon in domestic consumption, family holidays, and elsewhere. Only in this direction are we sure of increasing total expenditure on welfare and releasing these services from the stranglehold of state monopolies and their unresponsive bureaucracies.

All this may seem a long way to have come from exposing the fallacies of national economic planning. Yet the unholy mess politicians have made of their prime duty of managing the, economy underlines the case of radical reform in welfare.

Some members of the present Cabinet are as able and intelligent as any we can hope to attract into political life. But they are simply not up to the range of tasks they and their predecessors have accumulated over the years. They are floundering, out of their depth in dilemmas. No re-organisation, or change in procedures, will enable them to give proper attention to many essential tasks and human needs which are now neglected in the mountainous, monstrous ragbag of “government business.” Unless we want more disasters, further violent shifts of policy, endless disappointments, and mounting disillusionment with the party system, we must reduce the power which politicians can no longer discharge with credit. And in doing so, we will be restoring responsibility to you and me in the competitive market place.

[∗]Adapted from the author's manuscript, “Return to Reality”