In 1933, John Maynard Keynes gave the first Finlay Lecture delivered at University College, Dublin, on the subject of “National Self-Sufficiency” (Studies: An Irish Quarterly Review,” June 1933, 22: 86, pp. 177-193). The Irish Free State of 1933 was a transition phase: after the Irish War of Independence that had ended in 1921, but before Ireland officially leaves the Commonwealth in 1949. Under the Fianna Fáil party led by Éamon de Valera, Ireland at this time was pushing along many margins toward greater independence–and one of these margins was a trade war and retaliatory tariffs affecting trade between Ireland and the UK.
The early 1930s were also a time when many nations were exploring a wide array of alternative institutional arrangements: including Communist Russia, Nazi Germany, and Keynes’ own much milder proposals that instead of having the British government just send money to people during the Great Depression, it should be hiring those people to produce long-lasting goods like houses and roads. It’s also a time when the “first age of globalization” from the late 19th and early 20th century has crashed and global trade has contracted.
Thus, Keynes finds himself in his 1933 lecture reflecting on how his beliefs about free trade have evolved since several decades earlier. He begins:
I was brought up, like most Englishmen, to respect Free Trade not only as an economic doctrine which a rational and instructed person could not doubt, but almost as a part of the moral law. I regarded ordinary departures from it as being at the same time an imbecility and an outrage. I thought England’s unshakeable Free Trade convictions, maintained for nearly a hundred years, to be both the explanation before man and the justification before Heaven of her economic supremacy. As lately as 1928 I was writing that Free Trade was based on fundamental truths “which, stated with their due qualifications, no-one can dispute who is capable of understanding the meaning of the words.” Looking again to-day at the statements of these fundamental truths which I then gave, I do not find myself disputing them. Yet the orientation of my mind is changed ; and I share this change of mind with many others.
What form does this re-orientation take? One of the arguments for free trade in the first age of globalization was that it would lead to greater international peace. With the memories of World War I still very fresh, this promise had not been kept. Keynes:
We are pacifist to-day with so much strength of conviction that, if the economic internationalist could win this point, he would soon recapture our support. But it does not to-day seem obvious that a great concentration of national effort on the capture of foreign trade, that the penetration of a country’s economic structure by the resources and the influence of foreign capitalists, that a close dependence of our own economic life on the fluctuating economic policies of foreign countries are safeguards and assurances of international peace. It is easier, in the light of experience and foresight, to argue quite the contrary. The protection of a country’s existing foreign interests, the capture of new markets, the progress of economic imperialism–these are a scarcely avoidable part of a scheme of things which aims at the maximum of international specialisation and at the maximum geographical diffusion of capital wherever its seat of ownership. …
Take as an example the relations between England and Ireland. The fact that the economic interests of the two countries have been for generations closely intertwined has been no occasion or guarantee of peace. It may be true, I believe it is, that a large part of these economic relations are of such great economic advantage to both countries that it would be most foolish recklessly to disrupt them. But if you owed us no money, if we had never owned your land, if the exchange of goods were on a scale which made the question one of minor importance to the producers of both countries, it would be much easier to be friends.
I sympathise, therefore, with those who would minimise, rather than with those who would maximise, economic entanglement between nations. Ideas, knowledge, science, hospitality, travel–these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national. … For these strong reasons, therefore, I am inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation between countries, than existed in 1914, may tend to serve the cause of peace rather than otherwise. At any rate the age of economic internationalism was not particularly successful in avoiding war …
In our own time, it surely feels, from time to time, as if the economic ties between countries–say, between the US and China–are as much a source of geopolitical tension as a force for peace.
But what about the risk of losing the gains from trade? Keynes argues in 1933 that those gains are real, but in many industries not especially large. Thus, trading off some modest degree economic prosperity in exchange for greater freedom for a nation to experiment with its own desired economic/political model might be worthwhile. Here’s Keynes again:
But I am not persuaded that the economic advantages of the international division of labour to-day are at all comparable with what they were. I must not be understood to carry my argument beyond a certain point. A considerable degree of international specialisation is necessary in a rational world in all cases where it is dictated by wide differences of climate, natural resources native aptitudes, level of culture and density of population. But over an increasingly wide range of industrial products, and perhaps of agricultural products also, I become doubtful whether the economic loss of national self-sufficiency is great enough to outweigh the other advantages of gradually bringing the producer and the consumer within the ambit of the same national, economic and financial organisation. Experience accumulates to prove that most modern mass-production processes can be performed in most countries and climates with almost equal efficiency. Moreover, with greater wealth, both primary and manufactured products play a smaller relative part in the national economy compared with houses, personal services and local amenities which are not equally available for international exchange; with the result that a moderate increase in the real cost of the former consequent on greater national self-sufficiency may cease to be of serious consequence when weighed in the balance against advantages of a different kind. National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford, if we happen to want it.
Keynes argues that different countries may wish to with to make “a variety of politico-economic experiments,” based on their own traditions and beliefs, without being held back by pressures related to international trade and finance.
Each year it becomes more obvious that the world is embarking on a variety of politico-economic experiments, and that different types of experiment appeal to different national temperaments and historical environments. The nineteenth century free-trader’s economic internationalism assumed that the whole world was, or would be, organised on a basis of private competitive capitalism and of the freedom of private contract inviolably protected by the sanctions of law–in various phases, of course, of complexity and development, but conforming to a uniform type which it would be the general object to perfect and certainly not to destroy. Nineteenth century protectionism was a blot upon the efficiency and good-sense of this scheme of things, but it did not modify the general presumption as to the fundamental characteristics of economic society.
But to-day one country after another abandons these presumptions. Russia is still alone in her particular experiment, but no longer alone in her abandonment of the old presumptions. Italy, Ireland, Germany, have cast their eyes or are casting them towards new modes of political economy. Many more countries after them, I predict, will seek, one by one, after new economic gods. Even countries such as Great Britain and the United States, which still conform par excellence to the old model, are striving, under the surface, after a new economic plan. We do not know what will be the outcome. We are–all of us, I expect–about to make many mistakes. No-one can tell which of the new systems will prove itself best.
But the point for my present discussion is this. We each have our own fancy. Not believing that we are saved already, we each would like to have a try at working out our own salvation. We do not wish, therefore, to be at the mercy of world forces working out, or trying to work out, some uniform equilibrium according to the ideal principles, if they can be called such, of laisser-faire capitalism. There are still those who cling to the old ideas, but in no country of the world to-day can they be reckoned as a serious force. We wish–for the time at least and so long as the present transitional, experimental phase endures–to be our own masters, and to be as free as we can make ourselves from the interferences of the outside world. Thus, regarded from this point of view, the policy of an increased national self-sufficiency is to be considered, not as an ideal in itself, but as directed to the creation of an environment in which other ideals can be safely and conveniently pursued.
The Great Depression of the early 1930s was a time when it seemed obvious to many observers that capitalism had failed. Looking back on the economic growth and industrial output of World War I, there was also a sense that strong government oversight of the economy–minus the world war–would generate better outcomes.
Keynes argues for a gradualist and experimental approach, which would steer clear of the disasters emerging (in different ways) in Russia and Germany. He argues that Ireland does benefit from its access to selling in British markets (a lesson largely ignored in our own time by those who advocated the Brexit from the European Union). Keynes also suggests that there will be a gap between the rhetoric and reality of those advocating alternative political-economic arrangements. Rhetoric can bring a party to power, but it then needs to govern with a sharp-eyed view to costs and consequences.
Words ought to be a little wild–for they are the assault of thoughts upon the unthinking. But when the seats of power and authority have been attained, there should be no more poetic licence. We have, therefore, to count the cost down to the penny which our rhetoric had despised. An experimental society has need to be far more efficient than an old established one, if it is to survive safely. It will need all its economic margin for its own proper purposes and can afford to give nothing away to softheadedness or doctrinaire impracticability. When a doctrinaire proceeds to action, he must, so to speak, forget his doctrine.
Keynes was correct in 1933 that enormous experiments in what we sometimes now call a “mixed economy” were underway in high-income countries around the world: think of the much larger role of government in a social safety net, the transition from industrial to service-based economies, the evolution of the health care industry, the rise of enviromental and consumer-protection movements, and so on and so forth. Keynes was incorrect that these changes ruled out a new and more powerful wave of globalization, as we have seen in the last half-century. In my own view, Keynes underestimated what the gains from international trade in the future could be. Finally, his admonition that doctrinaires should count costs and practicalities, and moderate their own doctrine when in power, has only rarely been followed.
