There was a Soviet joke in circulation some time ago, which gains point with every year that passes—Question: What is the greatest problem facing the President of the United States? Answer: Is it possible to have capitalism in one country?

For us the question is, do we really want to continue to keep the United States company? Are we satisfied with latter-day capitalism? Until the other day, it seemed that the public, including the great bulk of the Labour Movement, would answer with an emphatic affirmative, but recently old doubts seem to have been reviving and new ones breaking surface. The Wall Street slump struck an ominous note. No great consequences have yet followed, but it may well be that May, 1962, will be looked back to as the date when it began to be noticed that the post-war capitalist miracle was only a confidence trick after all.

The strong case for the defence, of course, rests on full employment. Post-Keynesian capitalism is different. The generation that remembers the Thirties is constantly, thankfully, amazed at how different it is. To the generation that did not experience the Great Depression, such monstrously stupid, unnecessary misery seems scarcely credible. In 1944, when Beveridge wrote his Keynesian tract, Full Employment in a Free Society, it seemed Utopian to proclaim that the British economy could be run, when the war over, with an average unemployment, one year with another, of 3 per cent; that is, with the figure for unemployment fluctuating fairly evenly between 1 per cent and 5 per cent. Since the war, statistical unemployment has barely touched 2 per cent. Whatever our present discontents, this is by no means to be despised. The worst part of heavy unemployment was not the waste of potential wealth (and, as we shall argue in a moment, its removal has not been achieved mainly by avoiding waste) but the rotting of individual lives, the damaged self-respect, the desperate egoism and cringing fear on one side and the smug self-deception on the other. Certainly we live now in a cleaner, more human country. But however thankful we should be for these blessings, it is too soon to claim that full employment vindicates latter-day capitalism.

First of all we must ask how it has been achieved. Keynes’ opponents tried to mock him by saying that he advocated curing unemployment by setting men to dig holes in the ground and fill them up again. He turned the mockery the other way. If men were paid wages for digging holes, they would spend them on bread and boots—real income would be increased all round. To point up the paradoxes of the system, Keynes even argued that useless investments were more effective than useful ones.

Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely, pyramid-building as well as the search for the precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York.footnote1

When effective demand falls off as the openings for profitable investment are filled, then:

Even a diversion of the desire to hold wealth towards assets, which will in fact yield no economic fruits whatever, will increase economic well-being. In so far as millionaires find their satisfaction in building mighty mansions to contain their bodies when alive and pyramids to shelter them after death, or, repenting of their sins, erect cathedrals, and endow monasteries or foreign missions, the day when abundance of capital will interfere with abundance of output may be postponed. “To dig holes in the ground,” paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.footnote2