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"National
Self-Sufficiency"
John Maynard Keynes*
I was brought up, like most Englishmen, to respect free trade
not only as an economic doctrine which a rational and instructed
person could not doubt, but almost as a part of the moral law.
I regarded ordinary departures from it as being at the same time
an imbecility and an outrage. I thought England's unshakable free
trade convictions, maintained for nearly a hundred years, to be
both the explanation before man and the justification before Heaven
of her economic supremacy. As lately as 1923 I was writing that
free trade was based on fundamental "truths" which,
stated with their due qualifications, no one can dispute who is
capable of understanding the meaning of the words."
Looking again to-day at the statements of these fundarmental
truths which I then gave, I do not find myself disputing them.
Yet the orientation of my mind is changed; and I share this change
of mind with many others. Partly, indeed my background of economic
theory is modified; I should not charge Mr. Baldwin, as I did
then, with being "a victim of the Protectionist fallacy in
its crudest form" because he believed that, in the existing
conditions, a tariff might do something to diminish British unemployment.
But mainly I attribute my change of outlook to something else--to
my hopes and fears and preoccupations, along with those of many
or most, I believe, of this generation throughout the world, being
different from what they were. It is a long business to shuffle
out of the mental habits of the prewar nineteenth-century world.
It is astonishing what a bundle of obsolete habiliments one's
mind drags round even after the centre of consciousness has been
shifted. But to-day at last, one-third of the way through the
twentieth century, we are most of us escaping from the nineteenth;
and by the time we reach its mid point, it may be that our habits
of mind and what we care about will be as different from nineteenth-century
methods and values as each other century's has been from its predecessor's.
It miy be useful, therefore, to attempt some sort of a stocktaking,
of an analysis, of a diagnosis to discover in what this change
of mind essentially consists, and finally to inquire whether,
in the confusion of mind which still envelops this new-found enthusiasm
of change, we may not be running an unnecessary risk of pouring
out with the slops and the swill some pearls of characteristic
nineteenth century wisdom.
What did the nineteenth-century free traders, who were among
the most idealistic and disinterested of men, believe that they
were accomplishing?
They believed--and perhaps it is fair to put this first--that
they were being perfectly sensible, that they alone of men were
clear-sighted, and that the policies which sought to interfere
with the ideal international division of labor were always the
offspring of ignorance out of self-interest.
In the second place, they believed that they were solving the
problem of poverty, and solving it for the world as a whole, by
putting to their best uses, like a good housekeeper, the world's
resources and abilities.
They believed, further, that they were serving, not merely the
survival of the economically fittest, but the great cause of liberty,
of freedom for personal initiative and individual gift, the cause
of inventive art and the glorious fertility of the untrammelled
mind against the forces of privilege and monopoly and obsolescence.
They believed, finally, that they were the friends and assurers
of peace and international concord and economic justice between
nations and the diffusers of the benefits of progress.
And if to the poet of that age there sometimes came strange desires
to wander far away where never comes the trader and catch the
wild goat by the hair, there came also with full assurance the
comfortable reaction--
I, to herd with narrow foreheads, vacant of our glorious gains,
Like a beast with lower pleasures, like a beast with lower pains!
What fault have we to find with this? Taking it at its surface
value--none. Yet we are not, many of us, content with it as a
working political theory. What is wrong? We shall discover the
source of our doubts, I think, not through a frontal attack, but
by perambulation--by wandering round a different way to find the
place of our political heart's desire.
To begin with the question of peace. We are pacifist today with
so much strength of conviction that, if the econornic internationalist
could win this point, he would soon recapture our support. But
it does not now seem obvious that a great concentration of national
effort on the capture of foreign trade, that the penetration of
a country's economic structure by the resources and the influence
of foreign capitalists, and that a close dependence of our own
economic life on the fluctuating economic policies of foreign
countries are safeguards and assurances of international peace.
It is easier, in the light of experience and foresight, to argue
quite the contrary. The protection of a country's existing foreign
interests, the capture of new markets, the progress of economic
imperialism--these are a scarcely avoidable part of a scheme of
things which aims at the maximum of international specialization
and at the maximum geographical diffusion of capital wherever
its seat of ownership. Advisable domestic policies might often
be easier to compass, if the phenomenon known as "the flight
of capital" could be ruled out. The divorce between ownership
and the real responsibility of management is serious within a
country, when, as a result of joint stock enterprise, ownership
is broken up among innumerable individuals who buy their interest
to-day and sell it to-morrow and lack altogether both knowledge
and responsibility towards what they momentarily own. But when
the same principle is applied internationally, it is, in times
of stress, intolerable--I am irresponsible towards what I own
and those who operate what I own are irresponsible towards me.
There may be some financial calculation which shows it to be advantageous
that my savings should be invested in whatever quarter of the
habitable globe shows the greatest marginal efficiency of capital
or the highest rate of interest. But experience is accumulating
that remoteness between ownership and operation is an evil in
the relations among men, likely or certain in the long run to
set up strains and enmities which will bring to nought the financial
calculation.
I sympathize, therefore, with those who would minimize, rather
than with those who would maximize, economic entanglement among
nations. Ideas, knowledge, science, hospitality, travel--these
are the things which should of their nature be international.
But let goods be homespun whenever it is reasonably and conveniently
possible, and, above all, let finance be primarily national. Yet,
at the same time, those who seek to disembarrass a country of
its entanglements should be very slow and wary. It should not
be a matter of tearing up roots but of slowly training a plant
to grow in a different direction.
For these strong reasons, therefore, I am inclined to the belief
that, after the transition is accomplished, a greater measure
of national self-sufficiency and economic isolation among countries
than existed in 1914 may tend to serve the cause of peace, rather
than otherwise. At any rate, the age of economic internationalism
was not particularly successful in avoiding war; and if its friends
retort, that the imperfection of its success never gave it a fair
chance, it is reasonable to point out that a greater success is
scarcely probable in the coming years.
Let us turn from these questions of doubtful judgment, where
each of us will remain entitled to his own opinion, to a matter
more purely economic. In the nineteenth century the economic internationalist
could probably claim with justice that his policy was tending
to the world's great enrichrnent, that it was promoting economic
progress, and that its reversal would have seriously impoverished
both ourselves and our neighbors. This raises a question of balance
between economic and non-economic advantage which is never easily
decided. Poverty is a great evil; and economic advantage is a
real good, not to be sacrificed to alternative real goods unless
it is clearly of an inferior weight. I am ready to believe that
in the nineteenth century two sets of conditions existed which
caused the advantages of economic internationalism to outweigh
disadvantages of a different kind. At a time when wholesale migrations
were populating new continents, it was natural that the men should
carry with them into the New Worlds the material fruits of the
technique of the Old, embodying the savings of those who were
sending them. The investment of British savings in rails and rolling
stock to be installed by British engineers to carry British emigrants
to new fields and pastures, the fruits of which they would return
in due proportion to those whose frugality had made these things
possible, was not economic internationalism remotely resembling
in its essence the part ownership of a German corporation by a
speculator in Chicago, or of the municipal improvements of Rio
Janeiro by an English spinster. Yet it was the type of organization
necessary to facilitate the former which has eventually ended
up in the latter. In the second place, at a time when there were
enormous differences in degree in the industrialization and opportunities
for technical training in different countries, the advantages
of a high degree of national specialization were very considerable.
But I am not persuaded that the economic advantages of the international
division of labor to-day are at all comparable with what they
were. I must not be understood to carry my argument beyond a certain
point. A considerable degree of international specialization is
necessary in a rational world in all cases where it is dictated
by wide differences of climate, natural resources, native aptitudes,
level of culture and density of population. But over an increasingly
wide range of industrial products, and perhaps of agricultural
products also, I have become doubtful whether the economic loss
of national self-sufficiency is great enough to outweigh the other
advantages of gradually bringing the product and the consumer
within the ambit of the same national, economic, and financial
organization. Experience accumulates to prove that most modem
processes of mass production can be performed in most countries
and climates with almost equal efficiency. Moreover, with greater
wealth, both primary and manufactured products play a smaller
relative part in the national economy compared with houses, personal
services, and local amenities, which are not equally available
for international exchange; with the result that a moderate increase
in the real cost of primary and manufactured products consequent
on greater national self-sufficiency may cease to be of serious
consequence when weighed in the balance against advantages of
a different kind. National self-sufficiency, in short, though
it costs something, may be becoming a luxury which we can afford,
if we happen to want it.
Are there sufficient good reasons why we may happen to want it?
There are many friends of mine, nurtured in the old school and
reasonably offended by the waste and economic loss attendant on
contemporary economic nationalism in being, to whom the tendency
of these remarks will be pain and grief. Yet let me try to indicate
to them in term's with which they may sympathize the reasons which
I think I see.
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. In
short, we dislike it, and we are beginning to despise it. But
when we wonder what to put in its place, we are extremely perplexed.
Each year it becomes more obvious that the world is embarking
on a variety of politico-economic experiments, and that different
types of experiment appeal to different national temperaments
and historical environments. The nineteenth-century free trader's
economic internationalism assumed that the whole world was, or
would be, organized on a basis of private competitive capitalism
and of the freedom of private contract inviolably protected by
the sanctions of law--in various phases, of course, of complexity
and development, but conforming to a uniform type which it would
be the general object to perfect and certainly not to destroy.
Nineteenth-century protectionism was a blot upon the efficiency
and good sense of this scheme of things, but it did not modify
the general presumption as to the fundamental characteristics
of economic society.
But to-day one country after another abandons these presumptions.
Russia is still alone in her particular experimerit, but no longer
alone in her abandonment of the old presumptions. Italy, Ireland,
Germany have cast their eyes, or are casting them, towards new
modes of political econamy. Many more countries after them, I
predict, will seek, one by one, after new economic gods. Even
countries such as Great Britain and the United States, which still
conform par excellence to the old model, are striving, under the
surface, after a new economic plan. We do not know what will be
the outcome. We are--all of us, I expect--about to make many mistakes.
No one can tell which of the new systems will prove itself best.
But the point for my present discussion is this. We each have
our own fancy. Not believing that we are saved already, we each
should like to have a try at working out our own salvation. We
do not wish, therefore, to be at the mercy of world forces working
out, or trying to work out, some uniform equilibrium according
to the ideal principles, if they can be called such, of laissez-faire
capitalism. There are still those who cling to the old ideas,
but in no country of the world to-day can they be reckoned as
a serious force. We wish--for the time at least and so long as
the present transitional, experimental phase endures--to be our
own masters, and to be as free as we can make ourselves from the
interferences of the outside world.
Thus, regarded from this point of view, the policy of an increased
national self-sufficiency is to be considered, not as an ideal
in itself, but as directed to the creation of an environment in
which other ideals can be safely and conveniently pursued.
Let me give as dry an illustration of this as I can devise, chosen
because it is connected with ideas with which recently my own
mind has been largely preoccupied. In matters of economic detail,
as distinct from the central controls, I am in favor of retaining
as much private judgment and initiative and enterprise as possible.
But I have become convinced that the retention of the structure
of private enterprise is incompatible with that degree of material
well-being to which our technical advancement entitles us, unless
the rate of interest falls to a much lower figure than is likely
to come about by natural forces operating on the old lines. Indeed,
the transformation of society, which I preferably envisage, may
require a reduction in the rate of interest towards vanishing
point within the next thirty years. But under a system by which
the rate of interest finds a uniform level, after allowing for
risk and the like, throughout the world under the operation of
normal financial forces, this is most unlikely to occur. Thus
for a complexity of reasons, which I cannot elaborate in this
place, economic internationalism embracing the free movement of
capital and of loanable funds as well as of traded goods may condemn
my own country for a generation to come to a much lower degree
of material prosperity than could be attained under a different
system.
But this is merely an illustration. It is my central contention
that there is no prospect for the next generation of a uniformity
of economic system throughout the world, such as existed, broadly
speaking, during the nineteenth century; that we all need to be
as free as possible of interference from economic changes elsewhere,
in order to make our own favorite experiments towards the ideal
social republic of the future; and that a deliberate movement
towards greater national self-sufficiency and economic isolation
will make our task easier, in so far as it can be accomplished
without excessive economic cost.
There is one more explanation, I think, of the re-orientation
of our minds. The nineteenth century carried to extravagant lengths
the criterion of what one can call for short "the financial
results," as a test of the advisability of any course of
action sponsored by private or by collective action. The whole
conduct of life was made into a sort of parody of an accountant's
nightmare. Instead of using their vastly increased material and
technical resources to build a wonder city, the men of the nineteenth
century built slums; and they thought it right and advisable to
build slums because slums, on the test of private enterprise,
"paid," whereas the wonder city would, they thought,
have been an act of foolish extravagance, which would, in the
imbecile idiom of the financial fashion, have "mortgaged
the future"--though how the construction to-day of great
and glorious works can impoverish the future, no man can see until
his mind is beset by false analogies from an irrelevant accountancy.
Even to-day I spend my time--half vainly, but also, I must admit,
half successfully--in trying to persuade my countrymen that the
nation as a whole will assuredly be richer if unemployed men and
machines are used to build much needed houses than if they are
supported in idleness. For the minds of this generation are still
so beclouded by bogus calculations that they distrust conclusions
which should be obvious, out of a reliance on a system of financial
accounting which casts doubt on whether such an operation will
"pay." We have to remain poor because it does not "pay"
to be rich. We have to live in hovels, not because we cannot build
palaces but because we cannot "afford" them.
The same rule of self-destructive financial calculation governs
every walk of life. We destroy the beauty of the countryside because
the unappropriated splendors of nature have no economic value.
We are capable of shutting off the sun and the stars because they
do not pay a dividend. London is one of the richest cities in
the history of civilization, but it cannot "afford"
the highest standards of achievement of which its own living citizens
are capable, because they do not "pay."
If I had the power to-day, I should most deliberately set out
to endow our capital cities with all the appurtenances of art
and civilization on the highest standards of which the citizens
of each were individually capable, convinced that what I could
create, I could afford--and believing that money thus spent not
only would be better than any dole but would make unnecessary
any dole. For with what we have spent on the dole in England since
the war we could have made our cities the greatest works of man
in the world.
Or again, we have until recently conceived it a moral duty to
ruin the tillers of the soil and destroy the age-long human traditions
attendant on husbandry, if we could get a loaf of bread thereby
a tenth of a penny cheaper. There was nothing which it was not
our duty to sacrifice to this Moloch and Mammon in one; for we
faithfully believed that the worship of these monsters would overcome
the evil of poverty and lead the next generation safely and comfortably,
on the back of compound interest, into economic peace.
To-day we suffer disillusion, not because we are poorer than
we were--on the contrary, even to-day we enjoy, in Great Britain
at least, a higher standard of life than at any previous period--but
because other values seem to have been sacrificed and because
they seem to have been sacrificed unnecessarily, inasmuch as our
economic system is not, in fact, enabling us to exploit to the
utmost the possibilities for economic wealth afforded by the progress
of our technique, but falls far short of this, leading us to feel
that we might as well have used up the margin in more satisfying
ways.
But once we allow ourselves to be disobedient to the test of
an accountant's profit, we have begun to change our civilization.
And we need to do so very warily, cautiously, and self-consciously.
For there is a wide field of human activity where we shall be
wise to retain the usual pecuniary tests. It is the state, rather
than the individual, which needs to change its criterion. It is
the conception of the Secretary of the Treasury as the chairman
of a sort of joint stock company which has to be discarded. Now,
if the functions and purposes of the state are to be thus enlarged,
the decision as to what, broadly speaking, shall be produced within
the nation and what shall be exchanged with abroad, must stand
high among the objects of policy.
From these reflections on the proper purposes of the state, I
return to the world of contemporary politics. Having sought to
understand and to do full justice to the ideas which underlie
the urge felt by so many countries to-day towards greater national
self-sufficiency, we have to consider with care whether in practice
we are not too easily discarding much of value which the nineteenth
century achieved. In those countries where the advocates of national
self sufficiency have attained power, it appears to my judgment
that, without exception, many foolish things are being done. Mussolini,
perhaps, is acquiring wisdom teeth. But Russia to-day exhibits
the worst example which the world, perhaps, has ever seen, of
administrative incompetence and of the sacrifice of almost everything
that makes life worth living to wooden heads. Germany is at the
mercy of unchained irresponsibles--though it is too soon to judge
her. The Irish Free State, a unit much too small for a high degree
of national self-sufficiency except at great economic cost, is
discussing plans which might, if they were carried out, be ruinous.
Meanwhile those countries which maintain or are adopting straightforward
protectionism of the old-fashioned type, refurbished with the
addition of a few of the new plan quotas, are doing many things
incapable of rational defense. Thus, if the World Economic Conference
achieves a mutual reduction of tariffs and prepares the way for
regional agreements, it will be matter for sincere applause. For
I must not be supposed to be endorsing all those things which
are being done in the political world to-day in the name of economic
nationalism. Far from it. But I bring my criticisms to bear, as
one whose heart is friendly and sympathetic to the desperate experiments
of the contemporary world, who wishes them well and would like
them to succeed, who has his own experiments in view, and who
in the last resort prefers anything on earth to what the financial
reports are wont to call "the best opinion in Wall Street."
And I seek to point out that the world towards which we are uneasily
moving is quite different from the ideal economic internationalism
of our fathers, and that contemporary policies must not be judged
on the maxims of that former faith.
I see three outstanding dangers in economic nationalism and in
the movements towards national self-sufficiency, imperilling their
success.
The first is Silliness--the silliness of the doctrinaire. It
is nothing strange to discover this in movements which have passed
somewhat suddenly from the phase of midnight high-flown talk into
the field of action. We do not distinguish, at first, between
the color of the rhetoric with which we have won a people's assent
and the dull substance of the truth of our message. There is nothing
insincere in the transition. Words ought to be a little wild--for
they are the assault of thoughts upon the unthinking. But when
the seats of power and authority have been attained, there should
be no more poetic license.
We have, therefore, to count the cost down to the penny which
our rhetoric has despised. An experimental society has need to
be far more efficient than an old-established one, if it is to
survive safely. It will need all its economic margin for its own
proper purposes, and can afford to give nothing away to soft-headedness
or doctrinaire impracticability. When a doctrinaire proceeds to
action, he must, so to speak, forget his doctrine. For those who
in action remember the letter will probably lose what they are
seeking.
The second danger--and a worse danger than silliness--is Haste.
Paul Valery's aphorism is worth quoting: "Political conflicts
distort and disturb the people's sense of distinction between
matters of importance and matters of urgency." The economic
transition of a society is a thing to be accomplished slowly.
What I have been discussing is not a sudden revolution, but the
direction of secular trend. We have a fearful example in Russia
to-day of the evils of insane and unnecessary haste. The sacrifices
and losses of transition will be vastly greater if the pace is
forced. I do not believe in the inevitability of gradualness,
but I do believe in gradualness. This is, above all, true of a
transition towards greater national self-sufficiency and a planned
domestic economy. For it is of the nature of economic processes
to be rooted in time. A rapid transition will involve so much
pure destruction of wealth that the new state of affairs will
be, at first, far worse than the old; and the
grand experiment will be discredited. For men judge remorselessly
by results, and by early results, too.
The third risk, and the worst risk of all three, is Intolerance
and the stifling of instructed criticism. The new movements have
usually come into power through a phase of violence or quasi-violence.
They have not convinced their opponents; they have downed them.
It is the modern method--but very disastrous, I am still old-fashioned
enough to believe--to depend on propaganda and to seize the organs
of opinion; it is thought to be clever and useful to fossilize
thought and to use all the forces of authority to paralyze the
play of mind on mind. For those who have found it necessary to
employ all methods whatever to attain power, it is a serious temptation
to continue to use for the task of construction the same dangerous
tools which wrought the preliminary housebreaking.
Russia, again furnishes us with an example of the crushing blunders
which a régime makes when it has exempted itself from criticism.
The explanation of the incompetence with which wars are always
conducted on both sides may be found in the comparative exemption
from criticism which the military hierarchy affords to the high
command. I have no excessive admiration for politicians, but,
brought up as they are in the very breath of criticism, how much
superior they are to the soldiers! Revolutions only succeed because
they are conducted by politicians against soldiers. Paradox though
it be--who ever heard of a successful revolution conducted by
soldiers against politicians? But we all hate criticism. Nothing
but rooted principle will cause us willingly to expose ourselves
to it.
Yet the new economic modes, towards which we are blundering,
are, in the essence of their nature, experiments. We have no clear
idea laid up in our minds beforehand of exactly what we want.
We shall discover it as we move along, and we shall have to mould
our material in accordance with our experience. Now for this process
bold, free, and remorseless criticism is a sine qua non of ultimate
success. We heed the collaboration of all the bright spirits of
he age. Stalin has eliminated every independent, critical mnd,
even those sympathetic in general outlook. He has produced an
environment in which the processes of mind are atrophied. The
soft convolutions of the brain are turned to wood. The multiplied
bray of the loud-speaker replaces the soft inflections of the
human voice. The bleat of propaganda bores even the birds and
the beasts of the field into stupefaction. Let Stalin be a terrifying
example to all who seek to make experiments. If not, I, at any
rate, will soon be back again in my old nineteenth-century ideals,
where the play of mind on mind created for us the inheritance
we to-day, enriched by what our fathers procured for us, are seeking
to divert to our own appropriate purposes.
*The Yale Review, Vol. 22, no. 4 (June
1933), pp. 755-769.
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