“The greatest financial reform of modern times”

What a wonderful thing a secondhand bookshop is. This is from the preface to the English edition of Socialistic Fallacies by Yves Guyot translated from the French and published in 1910 which I picked up off the shelf on the day before Christmas. I have linked to an online edition.

Until 1906 the Liberal and Democratic party in Great Britain placed in the forefront of its programme the relief of the taxpayer by the reduction of the National Debt and the decrease of taxation. It prided itself on its sound finance. . . .

That was until 1906. But then there was this.

From the time when the Socialists try to make the State provide for the livelihood and the happiness of all, the Liberal Government bases its existence upon the increase of expenditure. The Budget shews a deficit. So much the better! Taxation is no longer imposed solely for the purpose of meeting expenditure incurred in the general interest. It is looked upon as an instrument for the confiscation of the rents paid to landlords and of the interest paid to holders of stocks and shares, as a means of absorption by the State of unearned income and unearned increment. . . . [My emphasis]

Lloyd George is the Liberal leader but he can see the fiscal handwriting on the wall. So this is what we get.

The Budget for 1909-1910 introduced by Mr. Lloyd George is an application of this portion of the Socialist programme. No doubt he states that the scale of taxation proposed by him is a modest one, but he is placing the instrument in the hands of the Socialists. When they have once grasped it, they will know how to use it. . . .

And do they not know it. This is not just anyone but the opening speaker to the TUC Congress who has recognised how fiscal disciplines have now been loosened so that even more than a century later, we still see the same policies as one of the core elements of socialist policy.

Mr. Shackleton, M.P., in opening the Trade Union Congress on September 6th, 1909, referred to it as ‘a Budget which will rank as the greatest financial reform of modern times.’ [My emphasis again]

The interest to me was to find that deficit finance has been in the socialist playbook going well back before Keynes. And it is interesting to see that it was identified as a socialist idea as far back as 1910. I had somehow always assumed that it was an innovation of the depression that had followed the use of deficit financing during World War I. Not so. It is instead the very essence of socialist policy making and goes back to Lloyd George’s Liberal budget of 1909-10. Keynes was himself a Liberal. What Keynes did was provide an economic rationale, as flimsy as it might be, for the policies that were anyways one of the cornerstones of socialist policy. He thus introduced into economic theory one of the essential elements of the left.

It has always been something of a puzzle how impossible it is to debate deficit financing and the value of public spending amongst economists. Public sector spending and the related deficits are sacrosanct. Economic theory is permeated with a left agenda (see Free Market Economics, Chapter 15) which is why such debates take on a religious character rather than being a straightforward discussion of what works and what does not. The Keynesian faith-based community will virtually forbid any of this to be discussed and so such thoughts persist and continue even though the evidence is now overwhelming that public spending and deficit finance cannot and do not achieve what they are supposedly intended to achieve.

But if such policies are “looked upon as an instrument for the confiscation of the rents paid to landlords and of the interest paid to holders of stocks and shares, as a means of absorption by the State of unearned income and unearned increment”, then it is clear that such policies work very well indeed.

An interesting sidelight on Mr Shackleton, M.P. whose name must have been familiar to all when the book was written. This is from Wikipedia:

Shackleton became chairman of the Trades Union Congress in 1906, maintaining his powerful position in the trade union movement. In 1910, Winston Churchill invited him to join the civil service and Shackleton left Parliament. He quickly rose to the rank of Permanent Secretary in the new Ministry of Labour and is considered the first man from a working class background to rise to such a senior position.