Economics and Society

I just learnt more about economics from two pages of the biography of Jennie Lee than I ever have in school/university/life.

This passage relates the Independent Labour Party's (and Jennie Lee's) stance on economics, in the late 1920s/early 1930s. (formatting my own, paraphrased in places)

The crisis of capitalism came from the lack of effective demand in the economy, and that was due to a maldistribution of income.

The wealthy saved, when instead the working class should spend. The state should therefore use taxation to check saving and encourage spending.

A call for a living wage, butressed by family allowances and higher unemployment benefits, to be financed by redistributive taxation.

This would inject greater purchasing power into the economy as well as into working class homes.
It was an ethical as well as economic argument. A living income would mitigate poverty, inequality and unemployment, all at the same time.

From Marx's theory of surplus value: workers were exploited as producers.
From Hobson's critique of underconsumption: workers were impoverished as consumers, and laissez faire capitalism must destroy itself.

Capitalist production concentrated wealth in the hands of the few, while at the same time the market economy required purchasing power to be diffused among the many. It was not only perverse, but wrong that wealth which was socially produced should be privately appropriated.

State planning could mimic the market, could match production and consumption, so that from each according to their abilities, to each according to their needs.

It is futile to rely on Britain regaining a greater share of world trade as the path to prosperity; instead, they sought to stimulate the domestic market by reflation and a mix of public-work schemes funded by budgetary deficits, devaluation of the pound, cheap money policies, and tariff protection - all ways of reducing unemployment by increasing the demand for British made goods.

Hobson and Keynes agreed that over-saving depressed effective demand. But:

Hobson: Over-saving meant underspending.
Keynes: Over-saving meant under-investment.

Hobson: promote spending by increasing working class incomes.
Keynes: Increase investment by public-works programmes, increasing working-class jobs.

Hobson: Finance private spending by redistributive taxation.
Keynes: Finance public works by borrowing and by expanding credit.

Preference was for taxing the rich now, rather than tax future generations by raising loans to cover deficit finance.

Source: Jennie Lee, A Life, Patricia Hollis, 1997, p46-7

It makes complete sense. And yet somewhere in the intervening 80 years, we have twisted and bastardised it away from all recognition....following an illogical path.

Doomed capitalism vs new socialism - did we ever opt for socialism? Did we really reach it? Even the late 1940s under Labour can be seen as still working like a war economy? Or have we continued to patch up broken capitalism, following Keynesian ideas of borrowing to their illogical, twenty-first century end? What's next? The ultimate "tax on future generations"; the future generation being us, and the tax being a complete breakdown/erosion of our public services, especially those deemed 'non-frontline' and 'non-essential' - but which people have come to rely on on a daily basis.

Ripe for discussion? Where do Tory ideas of 'Big Society' fit into this? Will we need a 'big society' to fill the hole left by experts no longer on payroll? How does it link to "there's no such thing as society"...
are they essentially the same thing?

"I think we've been through a period where too many people have been given to understand that if they have a problem, it's the government's job to cope with it. 'I have a problem, I'll get a grant.' 'I'm homeless, the government must house me.' They're casting their problem on society. And, you know, there is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It's our duty to look after ourselves and then, also to look after our neighbour. People have got the entitlements too much in mind, without the obligations. There's no such thing as entitlement, unless someone has first met an obligation."

Prime minister Margaret Thatcher, talking to Women's Own magazine, October 31 1987

I want to extend and deepen the argument I made in my party conference speech this year, that the size, scope and role of government in Britain has reached a point where it is now inhibiting, not advancing the progressive aims of reducing poverty, fighting inequality, and increasing general well-being. Indeed there is a worrying paradox that because of its effect on personal and social responsibility, the recent growth of the state has promoted not social solidarity, but selfishness and individualism...The first step must be a new focus on empowering and enabling individuals, families and communities to take control of their lives so we create the avenues through which responsibility and opportunity can develop. This is especially vital in what is today the front line of the fight against poverty and inequality: education.

David Cameron, extract from speech given on November 10th 2009. 

- is it just another way to distance the party now from the party-old, even though their ideas are essentially the same?

(I didn't intend this to be a criticism or Conservative policy, but my thoughts have progressed whilst writing.)

(also a facebook note)