2013년 5월 23일 목요일

[발췌: Keynes's] The Economic Consequences of Mr. Churchill (1925)

출처: J.M. Keynes, Essays in Persuasion (1931)
자료: gutenberg.ca

Part III. The Return to the Gold Standard

  1. Auri Sacra Fames (1930)
  2. Alternative Aims in Monetary Policy (1923)
  4. The Speeches of the Bank Chairmen
  5. The Economic Consequences of Mr. Churchill (1925)
  6. Mitigation by Tariff
of which
발췌 (excerpts):
* * *

[22] Written immediately after the Return to Gold.

(ⅰ) The Misleading of Mr. Churchill

The policy of improving the foreign-exchange value of sterling up to its pre-war value in gold from being about 10% below it, means that, whenever we sell anything abroad, either the foreign buyer has to pay 10% more in his money or we have to accept 10% less in our money. That is to say, we have to reduce our sterling prices, for coal or iron or shipping freights or whatever it may be, by 10% in order to be on a competitive level, unless prices rise elsewhere. Thus the policy of improving the exchange by 10% involves a reduction of 10% in the sterling receipts of our export industries.

  Now, if these industries found that their expenses for wages and for transport and for rates and for everything else were falling 10% at the same time, they could afford to cut their prices and would be no worse off than before. But, of course, this does not happen. Since they use, and their employees consume, all kinds of articles produced at home, it is impossible for them to cut their prices 10%, unless wages and expenses in home industries generally have fallen 10%. Meanwhile the weaker export industries are reduced to a bankrupt condition. Failing a fall in the value of gold itself, nothing can retrieve their position except a general fall of all internal prices and wages. Thus Mr. Churchill's policy of improving the exchange by 10% was, sooner or later, a policy of reducing every one's wages by 2s. in the ￡. He who wills the end wills the means. What now faces the Government is the ticklish task of carrying out their own dangerous and unnecessary decision.







  His experts made, I think, two serious mistakes. (1) In the first place, I suspect that they miscalculated the degree of the maladjustment of money values which would result from restoring sterling to its pre-war gold parity, because they attended to index numbers of prices which were irrelevant or inappropriate to the matter in hand. If you want to know whether sterling values are adjusting themselves to an improvement in the exchange, it is useless to consider, for example, the price of raw cotton in Liverpool. This must adjust itself to a movement of the exchange, because, in the case of an imported raw material, the parity of international values is necessarily maintained almost hour by hour. But it is not sensible to argue from this that the money wages of dockers or of charwomen and the cost of postage or of travelling by train also adjust themselves hour by hour in accordance with the foreign exchanges. Yet this, I fancy, is what the Treasury did. They compared the usual wholesale index numbers here and in America, andㅡsince these are made up to the extent of at least two-thirds from the raw materials of international commerce, the prices of which necessarily adjust themselves to the exchangeㅡthe true disparity of internal prices was watered down to a fraction of its true value. This led them to think that the gap to be bridged was perhaps 2 or 3%, instead of the true figure of 10 or 12%, which was the indication given by the index numbers of the cost of living, of the level of wages, and of the prices of our manufactured exportsㅡwhich indexes are a much better rough-and-ready guide for this purpose, particularly if they agree with one another, than are the index numbers of wholesale prices.

  (2) But I think that Mr. Churchill' experts also misunderstood and underrated the technical difficulty of bringing about a general reduction of internal money values. When we raise the value of sterling by 10% we transfer about ￡1,000,000,000 into the pockets of the rentiers out of the pockets of the rest of us, and we increase the real burden of the National Debt by some ￡750,000,000 (thus wiping out the benefit of all our laborious contributions to the Sinking Fund since the war). This, which is bad enough, is inevitable. But there would be no other bad consequences if only there was some way of bringing about a simultaneous reduction of 10% in all other money payments; when the process was complete we should each of us have nearly the same real income as before. I think that the minds of his advisers still dwelt in the imaginary academic world, peopled by City editors, members of Cunliffe and Currency Committee et hoc genus omne, where the necessary adjustments follow "automatically" from a "sound" policy by the Bank of England.


  Mr. Churchill asked the Treasury Committee on the Currency to advise him on these matters. He declared in his Budget speech that their report "contains a reasoned marshalling of the arguments which have convinced His Majesty's Government." Their argumentsㅡif their vague and jejune meditations can be called suchㅡare there for any one to read. What they ought to have said, but did not say, can be expressed as follows:─


"We must warn you that this latter policy is not easy. It is certain to involve unemployment and industrial disputes, If, as some people think, real wages were already too high a year ago, that is all the worse, because the amount of the necessary wage reductions in terms of money will be all the greater.

"The gamble on a rise in gold price abroad may quite likely succeed. But is is by no means certain, and you must be prepared for the other contingency. If you think that the advantages of the gold standard are so significant and so urgent that you are prepared to risk great unpopularity and to take stern administrative action in order to secure them, the course of events will probably be as follows:

"To begin with, there will be greate depression in the export industries. This in itself will be helpful, since it will produce an atmosphere favourable to the reduction of wages. The cost of living will fall somewhat. This will be helpful too, because it will give you a good argument in favour of reducing wages. Nevertheless the cost of living will not fall sufficiently, and, consequently, the export industries will not be able to reduce their prices sufficiently until wages have fallen in the sheltered industries. Now wages will not fall in the sheltered industries merely because there is unemployment in the unsheltered industries, therefore you will have to see to it that there is unemployment in the sheltered industries also. The way to do this will be by credit restriction. By means of the reduction of credit by the Bank of England you can deliberately intensify unemployment to any required degree until wages ^do^ fall. When the process is complete the cost of living will have fallen too, and we shall then be, with luck, just where we were before we started.

"We ought to warn you, though perhaps this is going a little outside our proper sphere, that will not be safe politically to admit that you are intensifying unemployment deliberately in order to reduce wages. Thus you will have to ascribe what is happenng to every conceivable cause except the true one. We estimate that about two years may elapse before it will be sage for you to utter in public one single word of truth. By that time you will either be out of office or the adjustment, somehow or other, will have been carried through."

(ⅱ) The Balance of Trade and the Bank of England


  The efficacy of these two methods for balancing our account is beyond doubtㅡI believe that they might remain efficacious for a considerable length of time. For we start with a wide margin of strength. Before the war our capacity to lend abroad was, according to the Board of Trade, about ￡181,000,000, equivalent to ￡280,000,000 at the present price level; and even in 1923 the Board of Trade estimated our net surplus at ￡102,000,000. Since new foreign investments bring in no immediate return, it follows that we can reduce our exports by ￡100,000,000 a year, without any risk of insolvency, provided we reduce our foreign investments by the same amount. So far as the maintenance of the gold standard is concerned, it is a matter of indifference whether we have ￡100,000,000 worth of foreign investment or ￡100,000,000 worth of unemployment. If those who used to produce exports lose their job, nevertheless, our financial equilibrium remains perfect, and the Governor of the Bank of England runs no risk of losing gold, provided that the loans, which were formerly paid over in the shape of those exports, are curtailed to an equal extent. Moreover, our credit as a borrower is still very good. By paying a sufficiently high rate of interest, we can not only meet any deficit but the Governor can borrow, in addition, whatever quantity of gold it may amuse him to publish in his weekly return.


  Nevertheless, the policy of maintaining money rates in London at a level which will attract and retain loans from New York does not really differ in any important respect from the French policy, which we have so much condemned, of supporting the exchanges with the help of loans from Messrs. J.P. Morgan. Our policy would only differ from the French policy if the high rate of discount was not only intended to attract American money, but was also part of a policy for restricting credit at home. This is the aspect to which we must now attend.


  Now what does this means in plain language? Our problem is to reduce money wages and, throught them, the cost of living, with the idea that, when the circle is complete, real wages will be as high, or nearly as high, as before. By what ^modus operandi^ does credit restriction attain this result?


  This is the so-called "sound" policy, which is demanded as a result of the rash act of pegging sterling at a gold value, which it did notㅡmeasured in its purchasing power over British labourㅡpossess as yet. It is a policy, nevertheless, from which any humane or judicious person must shrink. So far as I can judge, the Governor of the Bank of England shrinks from it. But what is he to do, swimming, with his boat burnt, between the devil and the deep sea? At present, it appears, he compromises. He applies the "sound" policy half-heartedly; he avoids calling things by their right names; and he hopesㅡthis is his best changesㅡthat something will turn up.






  In these circumstances the colliery owners propose that the gap should be bridged by a reduction of wages, irrespective of a reduction in the cost of livingㅡthat is to say, by a lowering in the standard of life of the miners. They are to make this sacrifice to meet circumstances for which they are in no way responsible and over which they have no control.




  The truth is that we stand mid-way between two theories of economic society. The one theroy maintains that wages should be fixed by reference to what is "fair" and "reasonable" as between the classes. The other theoryㅡthe theory of the economic Juggernautㅡis that wages should be settled by economic pressure, otherwise called "hard facts," and that our vast machine should crash along, with regard only to its equilibrium as a whole, and without attention to the chance consequences of the journey to individual groups.

  The gold standard, with its dependence on pure chance, its faith in "automatic adjustments," and its general regardlessness of social detail, is an essential emblem and idol of those who sit in the top tier of the machine. I think that they are immensely rash in their regardlessness, in their vague optimism and comfortable belief that nothing really serious ever happens. Nine times out of ten, nothing really serious does happenㅡmerely a little distress to individuals or to groups. But we run a risk of the tenth time (and are stupid into the bargain) if we continue to apply the principles of an Economics which was worked out on the hypotheses of ^laissez-faire^ and free competition to a society which is rapidly abandoning these hypotheses.

(ⅲ) Is there a Remedy?



  The question is how far public opinion will allow such a policy to go. It would be politically impossible for the Government to admit that it was deliberately intensifying unemployment, even though the members of the Currency Committee were to supply them with an argument for it. On the other hand, it is possible for Deflation to produce its effect without being recognised. Deflation, once started ever so little, is cumulative in its progress. If pessimism becomes generally prevalent in the business world, the slower circulation of money resulting from this can carry Deflation a long way further, without the Bank having either to raise the bank-rate or to reduce its deposits. And since the public always understands particular causes bettern than general causes, the depression will be attributed to the industrial disputes which will accompany it, to the Dawes Schemes, to China, to the inevitable consequences of the Great War, to tariff, to high taxation, to anything in the world except the general monetary policy which has set the whole thing going.


Some people may contemplate this forecast with equanimity. I do not. It involves a great loss of social income whilst it is going on, and will leave behind much social injustice when it is finished. The best, indeed the only, hope lies in the possibility that in this world, where so little can be foreseen, something may turn upㅡwhich leads me to my alternative suggestions. Could we not ^help^ something to turn up?

  There are just two features of the situation which are capable of being turned to our advantage. The fist is financialㅡif the value of gold would fall in the outside world, that would render unnecessary any important change in the level of wages here. The second is industrialㅡif the cost of living would fall ^first^, our consciences would be clear in asking Labour to accept a lower money wage, since it would then be evident that the reduction was not part of a plot to reduce real wages.


  At present the policy of the Bank of England prevents this from happening. I suggest, therefore, that they should reverse this policy. Let them reduce the bank-rate, and cease to restrict credit. If, as a result of this, the "bad" American money, which is now a menace to the London Money Market, begins to flow back again, let us pay it off in gold, or, if necessary, by using the dollar credits which the Treasury and the Bank of England have arranged in New York. It would be better to pay in gold, because it would be cheaper and because the flow of actual gold would have more effect on the American price level. If we modified the rules which now render useless three-quarters of our stock of gold, we could see with equanimity a loss of ￡60,000,000 or ￡70,000,000 in goldㅡwhich would make a great difference to conditions elsewhere. There is no object in paying 4.5% interest on floating American balance which can leave us at any moment, in order to use these balance to buy and hold idle and immobilised gold.

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