Lionel Robbins Theory Model Distribution

Lionel Robbins Macroeconomics, Robbins Theory and Model

Rubbins Distribution

Turning to his views on macroeconomics, these have shown an interesting evolution. Robbins' book The Great Depression (1934) is, he says, 'Something which I would willingly see forgotten'.11 In his Autobiography of an Economist (1971) (a fascinating book which is beautifully written and should be read by all students) he states that he was mistaken in opposing the views of Keynes and his followers that increased public expendi­ture would ease the path away from the bottom of the slump. He also asks himself how he got to his erroneous position in the first place. His answer is one which some economists today might well ponder.

The trouble was intellectual. I had become the slave of theoretical construction which, if not intrinsically invalid as regards logical consistency, were inappropriate to the total situation which had then developed and which therefore misled my judgement. I realized that these constructions led to conclusions which were highly unpalatable as regards practical action. But I was convinced that they were valid and that therefore it was my duty to base recommendations as regards policy upon them.

To this quotation must be added Keynes's famous footnote, 'It is the distinction of Professor Robbins that he almost alone, continues to maintain a consistent scheme of thought, his practical conclusions belonging to the same system as his theory'. It is an interesting philosophical question whether, if theory leads to conclusions which make no sense in practice, the correct response is to be 'so much the worse for theory' or 'so much the worse for practice'.

More seriously there are available two important statements by Lionel Robbins on policy at the macroeconomic level. The first was in his Marshall Lectures, The Economic Problem in Peace and War (1947). The significance of these lectures is mostly seen in his reiteration of the case for the decentralised free-market economy despite the apparently opposite experienced in the war. The lectures still contribute the best short (although not, of course, necessarily valid) modern statement of that position.

But at the macroeconomic level he argues that Keynes and Robertson were right in believing that the decentralised system would need to be supplemented by government actions if aggregate demand is to be maintained at an appropriate level. He says that the government must take an annual look at the relationship between likely aggregate expenditure and desired aggregate expenditure and adjust policy to bring the two into line. The objective he sets for the government is avoiding both inflation and deflation, but he is careful not to put this in terms of a policy of crudely planning for full employment. His argument here is extraordinarily prescient. First, he is worried about the statistical definition of full employment. Secondly, he believes that circum­stances will arise in which unemployment will not be the result of deficient demand. His example is a.remarkable one.

The changes ... in the international conditions of supply and demand to which nearly every community is likely to be exposed, whatever its internal organisation, will not necessarily exhaust themselves without occasionally causing structural unemployment; and we are surely raising false hopes if we claim that measures acting on over-all expenditure will prevent this kind of unemployment or cure it when it occurs.

His third objection concerns wages policy. He says that at high levels of activity wages will rise leading either to unemployment or inflation. 'This theoretical dilemma carries with it a correspond­ing dilemma for policy: in such circumstances are you to allow unemployment to develop, or are you to take steps which, if repeated, will involve a continued depreciation of the value of savings?' In connection with this dilemma, he was not prepared at the time to advocate a thorough-going wages policy but wanted to wait and see what would happen in the next few years.

Subsequently his view developed but, before noting that, it is worth while considering his position on monetary matters, especially in relationship to what is called monetarism. This is best seen in his essay commenting on the Radcliffe Report (Robbins 1963). In that, while not denying the significance of a broad view of liquidity, he asserts that money in its narrower, more conventional sense is important in accounting for inflation and deflation. While money is not everything,

in making this the pretext for relegating the supply of money to a subordinate, and even passive position, the Committee, like the Banking School and many others before them, seem to me to be in danger of an error of analytical perspective no less one­sided in pure theory and even more damaging in practice than that of those —if they exist-who ignore the short period vicissitudes of velocity and trade credit.

Given that, he went on to say that the supply of money was an instrument susceptible of control, and that monetary policy was feasible and useful especially in helping to deal with inflation. He added, however, 'in the strongly inflationary conditions of the post-war period, I am clear that sole reliance on monetary policy would have been both unwise and undesirable'.

It is for that kind of reason that Lionel Robbins cannot be called a 'monetarist' in the technical sense. This can be seen more clearly by examining a more recently published collection of his Speeches to the House of Lords (Robbins, 1979). In these he argues for the necessity of an incomes policy within the public sector and does not rule out an incomes policy more generally as a temporary expedient. But he argues that the main policy weapons must be fiscal and monetary policy. He also reverts to his earlier comments on the inflation-unemployment dilemma, by stating that the government should finance aggregate demand to guaran­tee high employment with low inflation, but not to provide the money for nominal incomes sought beyond that level.

This eclecticism based on good sense was most apparent in his speech on the counter-inflation measures of November 1972. He emphasised both demand-pull and cost-push elements in causing inflation, but drew special attention to the role of the money supply. But as a transitory device he did accept the need for the tough measures introduced by the then government to act directly on prices and incomes. The reason for this was that merely to cut back on effective demand by reducing the rate of growth of the money supply would involve too high a cost in employment and output. To quote him, the serious recommendation of the extreme monetarists, the sort of overtone which emerges when Mr. Enoch Powell makes one of those monolithic pronouncements on the principles of economic liberation (will) . . . usually make me want to stand on a chair and sing 'The Red Flag'. Alas! I do not think that things are as easy as the Powellite pronouncements would suggest. I do not deny . . . that inflation might be stopped by violent measures of this sort; but much else would be stopped as well.

To summarise, Lionel Robbins's views on macroeconomics and policy moved, during the 1940s, close to those of Keynes. In particular, he has taken a broad view of possible instruments and a rather robust view of objectives. He has not been the sort of extremist who has thought that only one instrument was necess­ary and one objective desirable. On inflation, in particular, he has stressed the importance of money without going on to say that limitation of the money supply is all that is necessary. In a curious way, therefore, the views he took in the post-war period were those that Keynes himself might have put forward had he lived.