Starting Out
After completing his undergraduate degree, he faced the question of what to do next. As a gifted mathematician, David could have pursued his study in mathematics further. But he was deeply affected by the general unemployment and resulting dire poverty that afflicted the country during the Great Depression.
Government policy of the time was ineffective. So, since further funding was available at Oxford, he enrolled for a Diploma in Economics and Political Science.An influential tutor was Henry Phelps Brown with whom he later formed a lifelong friendship. Phelps Brown recognised the importance of assembling and analysing economic statistics before such information was routinely available and attempted to formulate such mathematical economic constructs as general equilibrium theory for non-mathematical students, albeit with varying success. He had, however, much in common with David's interests in both the economics of unemployment and mathematics. David earned his diploma with distinction.
With the outbreak of war, David applied for active military service but was rejected. He was then approached by Roy Harrod to take a position in the Oxford University Institute of Statistics (much later renamed the Oxford University Institute of Economics and Statistics) which had been founded to promote the use of statistics in social studies. This became an exciting place to work as a group of distinguished European economists, fleeing the Nazis, found their way to Oxford and were employed at the Institute. They were Fritz Burchardt, Ernst Schumacher, Thomas Balogh, Ludwig Lachmann, Kurt Mandelbaum and Michal Kalecki, whose theories about the causes of unemployment paralleled those of Keynes and were a great influence on David's thought.
To gain a sense of perspective about the importance of the “unemployment problem” to so many economists from the 1930s, it is worth looking back to 1929 when the stock market crashed on Wall Street.
There followed an economic collapse in the US which immediately spread to the UK and around the world. The Great Depression lasted until the outbreak of the Second World War. In the UK, the unemployment rate reached 22% at its peak, although it rose as high as 75% in some parts of Northern England. There was dire poverty, malnutrition and illness among many groups.It was in this world that David lived, first as a schoolboy and then as a student of economics. In this decade, Keynes and Kalecki independently developed similar theories that provided answers to the problem of unemployment for government policy. Their solution—to increase government spending— was almost immediately proved correct. Unemployment in England virtually disappeared by falling to 0.5% when the government ramped up to the fullest its expenditure on armaments. After the war, as government spending began to fall, the question arose of whether full employment could be sustained.
The concept of unemployment was itself complicated. Keynes, Kalecki and others focused on “involuntary unemployment” as the correct measure for the health of the economy and as the impetus for government policy. The involuntarily unemployed are those who are willing to work ‘under existing conditions—wage rates, conditions of work and so on' (Harcourt 2012: 1) but cannot find a job. On its face, this would seem clear enough, but the definition immediately raises moral, statistical and policy questions. First, what groups does “willing to work” include?[134] If many unemployed have no work by choice then it can be argued that the social responsibility of society need not include them or be a trigger for government policy. This measure of unemployment would be relatively low.
Economic power is at issue here. In an extreme economic downturn, such as during the 1930s, all sections of society will gain from a government policy of full employment; workers will have jobs, business people (capitalists) will have higher profits, and there will be less social unrest.
Also, if government policy increases public expenditure, as during the war, output will be increased. However, under less extreme national circumstances, as in the decades following the war, the issue will arise whether government expenditure will be maintained at previous levels when higher wages for workers may mean lower profits for capitalists. Also, in a country not at war, but with full employment, inflation is likely to become a problem. So there would be a public policy choice about how to balance inflation and unemployment. Tinbergen’s insight was that you need one policy tool for each objective. Thus to maintain two economic goals, you need two policy tools. David’s answer was that aggregate demand management could keep the economy at full employment and incomes policy could keep inflation under control (see Section 8 below).David became a socialist during his time in Oxford. He joined the Labour Party during the war and helped set up the Oxford branch of the Fabian Society,[135] and for the rest of his life worked to understand and prevent involuntary unemployment. In the 1930s, Keynesian theories had mapped out the course for the government to maintain full employment during peacetime. Towards the end of the war, there was great optimism that economic depression was a thing of the past. In 1944, the BBC boldly broadcast—in a peak listening period on eight evenings over the space of a fortnight—a discussion on full employment. The programme was called “Jobs for All”. David was in the chair.[136] Each participant, from a wide variety of occupations, began by describing his or her background and personal experience, ranging from Donald Carson, ‘a joiner by trade', Mary Lewis, ‘a quarry man's wife', to the academic economist Maurice Dobb, a German, an American, manufacturers, industrialists, up to Sir William Beveridge himself. The discussion was wide- ranging. For example, Carson said, ‘Well, there's just one thing I would like to ask—has the speaker been out of a job himself?' David replied, ‘No, I have to admit I haven't'.
‘I thought not!' was Carson's rejoinder. On occasion, the discussion became so heated that David had to call for order by striking a hammer on the table. The interest aroused among listeners was great and the broadcasts were published in a small book entitled “Jobs for All”, with the royalties being given to the BBC's The Week's Good Cause.At the Institute of Statistics, David published a series of papers about the war economy and he and his colleagues also considered the meaning of Keynesian theories for the post-war economy. The resulting book, The Economics of Full Employment (Burchardt et al. 1944), provided ‘a statement of remarkable clarity and verve, which had no immediate real rivals for its combination of analytical insight and practical application' (Artis 2003: 516).
David's paper in this book entitled “Stability and Flexibility of Full Employment” introduced the idea of a wages policy, which later became more generally “incomes policy”, to control the price level of a full employment economy, and showed him to be a true Keynesian macroeconomist. However, he was not beyond a foray into microeconomics when he published the solution to the consumer's optimisation problem with points rationing as well as income as constraints (see Worswick 1944).
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