6:  Hobson’s Choice

William Krehm

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.

William Krehm

-- from Economic Reform, October 2004

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