CH. 23

339

NOTES ON MERCANTILISM, ETC.

alike . 1 And finally, a policy of trade restrictions is atreacherous instrument even for the attainment of itsostensible object, since private interest, administrativeincompetence and the intrinsic difficulty of the taskmay divert it into producing results directly oppositeto those intended.

Thus, the weight of my criticism is directed againstthe inadequacy of the theoretical foundations of thelaissez-faire doctrine upon which I was brought up andwhich for many years I taught;—against the notion thatthe rate of interest and the volume of investment are self-adjusting at the optimum level, so that preoccupationwith the balance of trade is a waste of time. For we,the faculty of economists, prove to have been guilty ofpresumptuous error in treating as a puerile obsessionwhat for centuries has been a prime object of practicalstatecraft.

Under the influence of this faulty theory the City ofLondon gradually devised the most dangerous tech-nique for the maintenance of equilibrium which canpossibly be imagined, namely, the technique of bankrate coupled with a rigid parity of the foreign exchanges.For this meant that the objective of maintaining adomestic rate of interest consistent with full employ-ment was wholly ruled out. Since, in practice, it isimpossible to neglect the balance of payments, a meansof controlling it was evolved which, instead of pro-tecting the domestic rate of interest, sacrificed it tothe operation of blind forces. Recently, practicalbankers in London have learnt much, and one canalmost hope that in Great Britain the technique ofbank rate will never be used again to protect the foreignbalance in conditions in which it is likely to cause un-employment at home.

Regarded as the theory of the individual firm and

1 The remedy of an elastic wage-unit, so that a depression is met by areduction of wages, is liable, for the same reason, to be a means of benefitingourselves at the expense of our neighbours.