Socialist Political Economy in Inter-War Britain and the United States

However, in the post-Great War period decentralised socialism, in its many and varied forms, lost traction. In part this was a consequence of the profound macroeconomic difficulties which characterised the period and that put on the back foot those organisa­tions that were frequently seen as the harbingers of workers’ control.

The inter-war period was one during which, after the economic turbulence of the immediate post-war period and a measure of recovery in the 1920s, Britain, as other industrialised economies, experienced a decade of mass unemployment which called into question the sustainability of the capitalist system. In such circumstances it might have been expected that socialist thinking would flourish and in many respects it did. That said, the 1930s were characterised more by the efflorescence of Marxist rather than non­Marxist political economy, with the work of writers such as John Strachey (1901-63) having a particular purchase on the minds of the Left through works such as The Nature of Capitalist Crisis (1935) and The Theory and Practice of Socialism (1936).

On the social democratic Left, Fabian political economy continued to exert a pro­found influence through writers such as the Webbs, G.D.H. Cole and Barbara Wootton (1897-1988). However, in this period too there emerged a new generation of profession­ally trained socialist economists, often profoundly influenced by the work of Keynes and, in particular, his General Theory of Employment, Interest and Money (1936). Among their number were Hugh Gaitskell (1906-1963), E.F.M.

Not all, of course, derived their inspiration from Keynes, and the influence of the liberal socialist J.A. Hobson (1858-1940) should not be discounted. However, it is also interesting to note that in his analysis of the 1930s’ depression Evan Durbin drew on the work of Hayek, in particular, his Prices and Production (1930). This led him, initially, to the conclusion that expansionary policies if tentatively pursued would do “nothing or very little to improve things”, while if they were pursued more vigorously they would, by generating inflationary pressures, “merely repeat the trade cycle and lead to a new crisis” (Durbin 1933: 163). However, under the influence of James Meade, Durbin jettisoned this negativity, suggesting in The Problem of Credit Policy (1935) that a combination of monetary and fiscal policy would “banish unemployment forever” and “double the standard of living in thirty years” (Durbin 1935: 239-40). This would though require closer public control over the conduct of monetary policy through “the initiation of the fundamental institutions of a Planned Money”. While that need not necessarily entail the nationalisation of the banking system, it would necessitate “a monetary system planned under unified control” (Durbin 1935: 219). As to the specifics of the immediate strategy, Durbin advocated cheap money pursued in conjunction with open market operations to increase the liquidity of the banking system, government guarantees to underpin private investment, public works schemes and direct government investment.

For James Meade the primary influence was that of Keynes and the younger generation of Cambridge economists. Indeed Meade took an important part in the discussion of Keynes’s work that preceded and followed the publication of the General Theory.

Yet if public investment and a cheap money policy could do the trick, what would take effect even more rapidly was an increase of purchasing power in the hands of the populace. Here Meade suggested a contra-cyclical use of the existing unemployment insurance scheme and personal taxation. As to the latter, “consumer credits” would be built up in times of prosperity, when tax revenue exceeded expenditure, to be repaid in less prosperous times to boost consumer demand.

The ideas of both the Keynesian socialists and those of the Fabians raised the issue of how a socialist economy would be organised, which in turn posed the question of whether rational economic planning and decision-making were possible where the market played a negligible or heavily circumscribed role. In relation to this, Ludwig von Mises (1881-1973) had raised the whole problem of “Economic calculation in a socialist commonwealth” in an article published in 1920, arguing that in the absence of the infor­mation gathering and dissemination mechanism of the market such calculation could not proceed on a rational basis: a view that was to provoke a response in Britain from writers such as H.D. Dickinson (1899-1969), Durbin and Meade and, in the United States, from F.M. Taylor (1855-1932). It is beyond the scope of this chapter to trace their contribu­tions to the socialist calculation debate but it was the case that while much of what they wrote would have been unintelligible outside the ranks of professional economists, and had little relevance to the practical task of building a socialist economy, their prepar­edness and their capacity to meet the challenge emanating from Mises, Hayek, Lionel Robbins (1898-1984) and others helped to instil a belief that socialist planning could deliver on its promises for a more ordered and equitable economy than that which char­acterised capitalism.

In the United States too dramatic economic collapse in the aftermath of the Wall Street Crash, with roughly 12-15 million unemployed by 1932, called into question for many both the rationality and viability of capitalism. If this was grist to the mill of American Marxists, it also precipitated a crisis of confidence amongst professional economists as to capitalism’s vitality, with many embracing ideas which, if not avowedly socialist, certainly put them on the centre-left of the political spectrum and led them to adhere to positions not manifestly different from those of British social democracy.

Moreover, it made some economists, such as Lauchlin Currie (1902-1993), Leon Henderson (1895-1986) and Harry White (1892-1948), receptive not just to Keynesian ideas on macroeconomic management and the liberal socialist underconsumptism of J.A. Hobson (1858-1940), but also to indigenous heterodox traditions of institutionalism and progressivism and led them to question the relationship between the state and industry and the nature and future dynamism of industrial corporations. In relation to the latter, Adolf Berle’s (1895-1971) and Gardner Means’s (1896-1988) The Modern Corporation and Private Property (Berle and Means 1932) was also important in articulating the need for greater social control of the modern, monopoly power-wielding private corporation, while the work of Rexford Tugwell (1891-1979), pointed to a greater economic role for the state and looked to the more scientific management of economic activity.

Further, the embrace by writers such as Alvin Hansen (1887-1975) of the notion of “stagnationism”, in part deriving from Keynes’s pessimism about the long-term dyna­mism of capitalism and in part from an indigenous tradition linked to the notion of an exhausted land frontier, led in a similar direction, with those developing this idea looking to the federal government to assume a more active role within the economy in relation to the activities of large corporations and public utilities and to intervene in new areas of economic activity. In effect, as Donald Winch (b. 1935) has put it, the radical reformism of stagnationist political economy meant that “for many it was the American equivalent of the non-Marxist left-wing movements in Europe in the thirties” (Winch 1972: 25).

All this, of course, contributed to the pot pourri of ideas underpinning Roosevelt’s New Deal; itself an attempt to define and redefine the relationship between the state, society and the economy in a period of profound economic difficulty.