6: Hobson’s Choice
I t isn’t necessarily the most pious that most frequently lay hand on the Holy Bible, for that would include those charged in our courts. Keynes’s General Theory of Employment, Interest and Money, is in a somewhat similar position. Far, far more people swear by it, than actually read it. That is a shame, because Keynes has much to teach economists, not only about theory, but about the intellectual honesty that makes possible a theory that really counts. Perhaps his greatest achievement was in eating humble pie, when a whole series of economic theorists whom he had dismissed as “unscientific,” were proved closer to being correct than seemed to him before the Depression. And then the great man, greater for doing so, didn’t hesitate to say that he had been wrong in dismissing them. And by putting their varied contributions together he came up with a an understanding of what was necessary to pull the world out of depression and avoid getting into another one after the Second World War.
There is not only that monumental passage, never ever heard in our editorials or academic halls (The General Theory, p. 32): “The great puzzle of Effective Demand… vanished from economic literature.... It could only live on furtively, below the surface, in the underworlds of Karl Marx, Silvio Gesell or Major Douglas.” Since Keynes himself was literally born into the academic tradition, and for most of his years delivered his heterodoxies from its pulpits, that sentence set a standard of selfless dedication that most of his colleagues did not understand or share. In the same great work whose opaque style bears witness to the urgency of its message, Keynes also pays tribute to J.A. Hobson, who anticipated by a half century an essential part Keynes’s great contribution – the distinction between Saving and Investment. On page 365 of the General Theory, we are treated to this auto-biographical note of Hobson.
“Mr. Hobson has told how his book, The Physiology of Industry came to be written with A.F. Mummery. ‘It was not until the middle eighties that my economic heterodoxy began to take shape. Though the Henry George campaign against land values and the early agitation of various socialist groups against the visible oppression of the working classes, coupled with the revelations of the two Booths regarding the poverty of London, made a deep impression on my feelings, they did not destroy my faith in Political Economy. That came from what may be called an accidental contact. While teaching at a school in Exeter I came into personal relations with a business man named Mummery, known then and afterwards as a great mountaineer who had discovered another way up the Matterhorn and who in 1895, was killed in an attempt to climb the famous Himalayan mountain Nanga Parbat.
A Mental Mountain Climber as Well
“But he was a mental mountain climber as well, with a natural eye for a path of his own finding and a sublime disregard of intellectual authority. This man entangled me in a controversy about excessive saving, which he regarded as responsible for the under-employment of capital and labour in periods of bad trade. For a long time I sought to counter his arguments by the use of the orthodox economic weapons. But at length he convinced me and I went in with him to elaborate the over-saving argument in a book entitled The Physiology of Industry published in 1889. This was the first step in my heretical career, and I did not in the least realize its momentous consequences.
“For just at that time I had given up my scholastic post and was opening a new line of work as University Extension Lecturer in Economics and Literature. The first shock came in a refusal of the London Extension Board to allow me to offer courses of Political Economy. This was due, I learned, to the intervention of an Economic Professor who had read my book and considered it as equivalent in rationality to an attempt to prove the flatness of the earth. How could there be any limit to the amount of useful saving when every item of saving went to increase the capital structure and the fund for paying wages? Sound economists could not fail to view with horror an argument which sought to check the source of all industrial progress. Another interesting experience helped to bring home to me the sense of my iniquity. Though prevented from lecturing on economics in London, I had been allowed by the greatest liberality of the Oxford University Extension Movement to address audiences in the Provinces, confining myself to political issues relating to the working-class life. Now it happened at this time that the Charity Organisation Society was planning a lecture campaign upon economic subjects and invited me to prepare a course. I had expressed my willingness to undertake this new lecture work, when suddenly, without explanation, the invitation was with- drawn. Even then I hardly realized that in appearing to question the virtue of unlimited thrift I had committed the unpardonable sin.”
Sound familiar? On two counts. “Unlimited thrift” these days has taken over all major parties throughout much of the world, and has cowed the minor ones to fear for their lives and even their careers as social reformers – to the point of not challenging the illusion of “paying off the national debt.” Yet, since central government debt is the only legal tender in the world today, that would leave the world moneyless, and reduced us all to living on our credit cards. How long will it be before Visa and Citiorps issue a credit card to the government itself?
And the other bit of a too familiar landscape is the what in polite academic parlance is known as “early retirement” for seditious views, or simple non-employment in the first place.
-- from Economic Reform, October 2004