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Fall 2011

ISSN 0890-913X

Volume 27, Number 1

Categories: Economics | Fall 2011

Private Spending Money for Productive Investment / Spending and Saving Public Works from Rates

D. H. MacGregor, University of Oxford

A. C. Pigou, University of Cambridge

J. M. Keynes,

Walter Layton,

Arthur Salter,

J. C. Stamp,

T. E. Gregory, London School of Economics

F. A. Von Hayek, London School of Economics

Arnold Plant, London School of Economics

Lionel Robbins, London School of Economics

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TheTimes,Monday,October17,1932(p.13)*PrivateSpendingMoneyforProductiveInvestmentACommentbyEconomistsTotheEditorofTheTimesTheJournalofPrivateEnterprise27(1),2011,39–42Sir,—OnOctober10yougaveprominenceinyourcolumnstoaletterinvitingtheopinionofeconomistsontheproblemofprivatespending.Therearealargenumberofeconomistsinthiscountry,andnobodycanclaimtospeakforallofthem.Thesignatoriesofthisletterhave,however,invariouscapacities,devotedmanyyearstotheconsiderationofeconomicproblems.Wedonotthinkthatmanyofourcolleagueswoulddisagreewithwhatweareabouttosay.IntheperiodoftheWaritwasapatrioticdutyforprivatecitizenstocuttheirexpenditureonthepurchaseofconsumablegoodsandservicestothelimitoftheirpower.Somesortsofprivateeconomywere,indeed,moreinthenationalinterestthanothers.But,insomedegree,allsortsofeconomysetfreeresources—man-power,machine-power,shipping-power—forusebytheGovernmentdirectlyorindirectlyintheconductoftheWar.Privateeconomyimpliedthehandingoveroftheseresourcesforavitalnationalpurpose.Atthepresenttime,theconditionsareentirelydifferent.Ifapersonwithanincomeof£1,000,thewholeofwhichhewouldnormallyspend,decidesinsteadtosave£500ofit,thelabourandcapitalthathesetsfreearenotpassedovertoaninsatiablewarmachine.Noristhereanyassurancethattheywillfindtheirwayintoinvestmentinnewcapitalconstructionbypublicorprivateconcerns.Incertaincases,ofcourse,theywilldothisAlandownerwhospends£500lessthanusualinfestivitiesanddevotesthe£500tobuildingabarnoracottage,orabusinessmanwhostintshimselfofluxuriessothathecanputnewmachineryintohismill,issimplytransferringproductiveresourcesfromoneusetoanother.But,whenamaneconomizesinconsumption,andletsthefruitofhiseconomypileupinbankbalancesoreveninthepurchaseofexistingsecurities,thereleasedrealresourcesdonotfindanewhomewaitingforthem.Inthepresentconditionstheirentryintoinvestmentisblockedbylack*ThankstoRachelCopleyforretypingtheselettersfromtheoriginals.39
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40TheJournalofPrivateEnterprise27(1),2011,39–42ofconfidence.Moreover,privateeconomyintensifiestheblock.Foritfurtherdiscouragesallthoseformsofinvestment—factories,machinery,andsoon—whoseultimatepurposeistomakeconsumptiongoods.Consequently,inpresentconditions,privateeconomydoesnottransferfromconsumptiontoinvestmentpartofanunchangednationalrealincome.Onthecontrary,itcutsdownthenationalincomebynearlyasmuchasitcutsdownconsumption.Insteadofenablinglabour-power,machine-power,andshippingpowertobeturnedtoadifferentandmoreimportantuse,itthrowsthemintoidleness.Conductinthematterofeconomy,asofmostotherthings,isgovernedbyacomplexofmotives.Somepeople,nodoubt,arestintingtheirconsumptionbecausetheirincomeshavediminishedandtheycannotspendsomuchasusual;othersbecausetheirincomesareexpectedtodiminishandtheydarenotdoso.Whatitisinanyindividual’sprivateinteresttodoandwhatweightheoughttoassigntothatprivateinterestasagainstthepublicinterest,whenthetwoconflict,itisnotforustojudge.Butonethingis,inouropinion,clear.Thepublicinterestinpresentconditionsdoesnotpointtowardsprivateeconomy;tospendlessmoneythanweshouldliketodoisnotpatriotic.Moreover,whatistrueofindividualsactingsinglyisequallytrueofgroupsofindividualsactingthroughlocalauthorities.Ifthecitizensofatownwishtobuildaswimming-bath,oralibrary,oramuseum,theywillnot,byrefrainingfromdoingthis,promoteawidernationalinterest.Theywillbe“martyrsbymistake”and,intheirmartyrdom,willbeinjuringothersaswellasthemselves.Throughtheirmisdirectedgoodwillthemountingwaveofunemploymentwillbeliftedstillhigher.Weareyourobedientservants,D.H.MACGREGOR(ProfessorofPoliticalEconomyintheUniversityofOxford),A.C.PIGOU(ProfessorofPoliticalEconomyintheUniversityofCambridge),J.M.KEYNES,WALTERLAYTON,ARTHURSALTER,J.C.STAMP
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TheJournalofPrivateEnterprise27(1),2011,39–4241Thereplywaspublishedtwodayslater:TheTimes,Wednesday,October19,1932(p.10)SpendingandSavingPublicWorksfromRatesTotheEditorofTheTimesSir,—Thequestionwhethertosaveorwhethertospend,whichhasbeenraisedinyourcolumns,isnotunambiguous.Itinvolvesthreeseparateissues:—(1)Whethertousemoneyorwhethertohoardit;(2)whethertospendmoneyorwhethertoinvestit;(3)whetherGovernmentinvestmentisonallfourswithinvestmentbyprivateindividuals.Whilewedonotwishtoover-stressthenatureofourdifferenceswiththoseofourprofessionalcolleagueswhohavealreadywrittentoyouonthesesubjects,yetoncertainpointsthatdifferenceissufficientlygreattomaketheexpressionofanalternativeviewdesirable.(1)Onthefirstissue—whethertouseone’smoneyorwhethertohoardit—thereisnoimportantdifferencebetweenus.Itisagreedthathoardingmoney,whetherincashorinidlebalances,isdeflationaryinitseffects.Noonethinksthatdeflationisinitselfdesirable.(2)OnthequestionofwhethertospendorwhethertoinvestourpositionisdifferentfromthatofthesignatoriesoftheletterwhichappearedinyourcolumnsonMonday.Theyappeartoholdthatitisamatterofindifferenceasregardstheprospectsofrevivalwhethermoneyisspentonconsumptionoronrealinvestment.We,onthecontrary,believethatoneofthemaindifficultiesoftheworldto-dayisadeficiencyofinvestment—adepressionoftheindustriesmakingforcapitalextension,&c.,ratherthanoftheindustriesmakingdirectlyforconsumption.Henceweregardarevivalofinvestmentasparticularlydesirable.Thesignatoriesoftheletterreferredto,however,appeartodeprecatethepurchaseofexistingsecuritiesonthegroundthatthereisnoguaranteethatmoneywillfinditswayintorealinvestment.Wecannotendorsethisview.Undermodernconditionsthesecuritymarketsareanindispensablepartofthemechanismofinvestment.Ariseinthevalueofoldsecuritiesisanindispensablepreliminarytotheflotationofnewissues.The
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42TheJournalofPrivateEnterprise27(1),2011,39–42existenceofalagbetweentherevivalinoldsecuritiesandrevivalelsewhereisnotquestioned.Butweshouldregarditaslittleshortofadisasterifthepublicshouldinferfromwhathasbeensaidthatthepurchaseofexistingsecuritiesandtheplacingofdepositsinbuildingsocieties,&c.,wereatthepresenttimecontrarytopublicinterestorthatthesaleofsecuritiesorthewithdrawalofsuchdepositswouldassistthecomingofrecovery.Itisperilousintheextremetosayanythingwhichmaystillfurtherweakenthehabitofprivatesaving.Butitisperhapsonthethirdquestion—thequestionwhetherthisisanappropriatetimeforStateandmunicipalauthoritiestoextendtheirexpenditure—thatourdifferenceswiththesignatoriesoftheletterismostacute.OnthispointwefindourselvesinagreementwithyourleadingarticleonMonday.Weareoftheopinionthatmanyofthetroublesoftheworldatthepresenttimeareduetoimprudentborrowingandspendingonthepartofthepublicauthorities.Wedonotdesiretoseearenewalofsuchpractices.AtbesttheymortgagetheBudgetsofthefuture,andtheytendtodriveuptherateofinterest—aprocesswhichissurelyparticularlyundesirableatthisjuncturewhentherevivalofthesupplyofcapitaltoprivateindustryisanadmittedlyurgentnecessity.Thedepressionhasabundantlyshownthattheexistenceofpublicdebtonalargescaleimposesfrictionsandobstaclestoreadjustmentverymuchgreaterthanthefrictionsandobstaclesimposedbytheexistenceofprivatedebt.Hencewecannotagreewiththesignatoriesoftheletterthatthisisatimefornewmunicipalswimmingbaths,&c.,merelybecausepeople“feeltheywant”suchamenities.IftheGovernmentwishtohelprevival,therightwayforthemtoproceedis,notexpenditure,buttoabolishthoserestrictionsontradeandthefreemovementofcapital(includingrestrictionsonnewissues)whichareatpresentimpedingeventhebeginningofrecovery.Weare,Sir,yourobedientservants,T.E.GREGORY,CasselProfessorofEconomics,F.A.VONHAYEK,TookeProfessorofEconomicScienceandStatistics,ARNOLDPLANT,CasselProfessorofCommerce,LIONELROBBINS,ProfessorofEconomicsUniversityofLondon,Oct.18
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Metadata [hide]
Title Private Spending Money for Productive Investment / Spending and Saving Public Works from Rates
Authors/Creators: D. H. MacGregor, University of Oxford
A. C. Pigou, University of Cambridge
J. M. Keynes,
Walter Layton,
Arthur Salter,
J. C. Stamp,
T. E. Gregory, London School of Economics
F. A. Von Hayek, London School of Economics
Arnold Plant, London School of Economics
Lionel Robbins, London School of Economics
Year: 2011
Volume: 27
Number: 1
Pages: 39 - 42
Publisher: The Association of Private Enterprise Education
ISSN: 0890-913X
Document Type: Articles
Keywords: Private spending, Public spending, War, Government policy, Money, Savings, Public enterprises
Citation:
MacGregor, D. H.; Pigou, A. C.; Keynes, J. M.; Layton, Walter; Salter, Arthur; Stamp, J. C.; Gregory, T. E.; Von Hayek, F. A.; Plant, Arnold; Robbins, Lionel / 2011. "Private Spending Money for Productive Investment / Spending and Saving Public Works from Rates." The Journal of Private Enterprise, 27(1): 39-42.
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Title	Private Spending Money for Productive Investment / Spending and Saving Public Works from Rates
Authors/Creators:	D. H. MacGregor, University of Oxford A. C. Pigou, University of Cambridge J. M. Keynes, Walter Layton, Arthur Salter, J. C. Stamp, T. E. Gregory, London School of Economics F. A. Von Hayek, London School of Economics Arnold Plant, London School of Economics Lionel Robbins, London School of Economics
Year:	2011
Volume:	27
Number:	1
Pages:	39 - 42
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	Private spending, Public spending, War, Government policy, Money, Savings, Public enterprises