Book Review: Economics as part of the human condition
Robert Skidelsky
Financial Times | Thursday, January 12, 1995

Capitalism with a Human Face
By Samuel Brittan
 
Edward Elgar, £49.95
 
This collection of essays by the UK's leading financial journalist ranges widely, from studies in utilitarian ethics to technical macroeconomics. Samuel Brittan is as much at home with John Rawls as he is with Milton Friedman.
 
He brings to them the humanity, individualism and undogmatic outlook which have marked his weekly Economic Viewpoints in this newspaper since 1967, and the same passion to explain and argue. For Brittan, economics is a 'moral science' in the Cambridge tradition. It requires a specialised technique, but is always part of a wider discussion of the human condition.
 
'What has gone wrong with economics,' he writes in his introductory intellectual autobiography, 'is the over-emphasis on technique as opposed to underlying ideas'.
 
His own main underlying idea is 'non-paternalism'. His case for free markets is based not on their efficiency properties but on his overriding belief in people being allowed to 'do their own thing'.
 
This has given him a lonely, but distinctive voice. Rightwing intellectuals champion economic freedom, but reject permissiveness; leftwing intellectuals champion permissive life-styles, but reject the market economy. Brittan has no more time for 'moral authoritarians' than for 'economic collectivists'.
 
Brittan's attractive openness is exemplified in his sane and balanced treatment of the ferocious disputes that have wracked macroeconomics during his career. He was trained as a Keynesian at Cambridge and published a book in 1964, The Treasury under the Tories, which accepted the conventional wisdom of the 'balance of payments constraint' and praised Reginald Maudling's 'dash for growth'.
 
During the 1970s, he made 'my only big conscious U-turn' and, with Peter Jay, achieved fame as one of the 'terrible twins of monetarism'. But his purpose since then has been to marry the insights of Friedman and Keynes.
 
He took from Friedman not his monetary transmission process but the 'natural rate of unemployment' doctrine - the view that there is only one rate, or range, of unemployment consistent with price stability, and that any attempt to reduce unemployment below this by monetary expansion leads to accelerating inflation. This knocked out 'unreconstructed Keynesian demand management' of the kind tried in the Barber boom of the early 1970s, but it did not disprove Keynes's contention that a shock to demand might drive unemployment above its natural rate for a long time.
 
Brittan's reconciliation is for governments to use financial policy to stabilise money GDP - total cash spending on domestically produced goods and services. This will be equivalent to a price level target if the economy is inherently stable, as Friedman believes, but it allows for discretionary policy to maintain total spending if unemployment rises. It is not easy to 'hit' a money GDP target, and the problem is compounded by Brittan's desire for an international target to overcome the breakdown of hegemonic monetary systems like Bretton Woods and the ERM. But it is the most hopeful objective for financial policy available.
 
The reduced role for demand-management gives wage flexibility a more important role in keeping up employment. This offers Brittan the chance to restate his argument for a guaranteed basic income. Originally devised to give an affluent society choices between work and leisure hitherto confined to the rich, he now applies it to the case where the market-clearing wage for the unskilled may be too low to keep them out of poverty.
 
Brittan is always stimulating, but not always convincing. His main weakness is an aversion to sociological argument. Individuals are his only units of analysis. This is a pity, since much of this book is concerned with the moral prerequisites of capitalism. He shares the mainstream UK economists' belief that capitalism lacks a theory of legitimate property rights and inclines to a pattern of distribution of income and life-chances suggested by John Rawls's 'veil of ignorance'. But I doubt whether Rawls's ideal of distributive justice corresponds closely to most people's notions of fairness, or that its absence from actual social arrangements has been an important cause of popular opposition to capitalism. Keynes was closer to the mark in identifying the disruption of settled relativities and expectations as the most potent cause of discontent.
 
As to how the virtues necessary for free markets are to be maintained, Brittan's response seems to be: it is in people's self-interest to be virtuous. As an answer to the claim that capitalism undermines the customs, rules, habits and institutions it needs, this is surely defective. But to recognise that people are socialised into virtue by families and group loyalties raises an awkward problem for his ideal of 'free choice in personal matters'.
 
Brittan's sociological blindspot leads him into a spectacular misreading of Margaret Thatcher's famous remark: 'There is no such thing as society. There are individual men and women and there are families.' Brittan interprets this to mean that 'people should first try to solve their own problems, then help their families ...' Did Thatcher really mean that parents should think of themselves first, and then their children? Methodological individualism is a useful barrier against treating collectives as 'persons' with 'rights', but it offers a limited explanation of behaviour, and is a flimsy basis for morals.
 
Brittan makes no claims to originality. Here he sells himself short. In today's world, to transcend academic boundaries so effortlessly and gracefully is itself a form of originality, much to be treasured.