Beveridge on Economic General Staff:from economic adviser to social designer

Atsushi KOMINEFaculty of Economics

Niigata Sangyo University945-1393, Niigata Japan

komine@econ.nsu.ac.jp

17 January 2004

Preliminary versionNot to be quoted

Seminar: “Beveridge’s Economic Thought and After”31 January 2004, Hitotsubashi University, Kanda, Tokyo.

Key Words: Beveridge, Economic General Staff, Haldane, Beatrice Webb, Keynes, Economic Planning, Welfare State

AbstractAn Economic General Staff, a think-tank in government, was proposed by Beveridge in 1923/24 for the first time, who was inspired by the Haldane Committee (1917/18). Keynes, first copied the original, developed the concept in 1929. His main focus was interchange between Whitehall and university economists. As the war approached, Beveridge transformed his concept of the Staff, from economic adviser to comprehensive social designer. Being disappointed with present advisory bodies, Beveridge himself served committees as if he were an Economic General Staff. Besides the outer development

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above, the inner evolution regarding the concept of the Staff was crucial. Beveridge shifted the idea from economic adviser to social designer, because he came to prefer “planned” economy in order to solve economic difficulties from a social viewpoint.

Contents Section 1 Introduction　　　　Section 2 Haldane’s Prelude in 1917/18　　　　Section 3 Beveridge’s Advocating in 1923/24　　　　Section 4 Dissemination during the 1920s　　　　Section 5 Metamorphosis in the 1930s　　　　Section 6 Scepticism during the War　　　　Section 7 Completion in 1942/44　　　　Section 8 Gaps Remain　　　　Section 9 Concluding Remarks

Section 1 INTRODUCTION

The purpose of this paper is to demonstrate the importance of a concept in William Henry Beveridge’s (1879-1963) economic thought. The concept is the Economic General Staff, which is an advisory body to the Cabinet. The Staff, consisting of a few, permanent civil servants, includes professional economists. This think-tank in government should exclusively research, and propose programmes from broader and longer-term viewpoints. This consideration is significant in at least two points. First, it contributes to an understanding of the (inner) evolution in his economic thought. Indeed, we will conclude that Economic General Staff is the key to properly connect his ideas in his early years (on unemployment)1 with the ones in his later days (on social security)2.

1 We have discussed Beveridge on unemployment. See Komine (2004).2 Harris (1997) provides the most comprehensive arguments.

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In particular, “planned” economy3, which Beveridge was finally convinced of, is carried out by the Staff. The Staff, as a powerful planner, realises a world uniting economy and society. Second, the concept also helps us to grasp the (outer) evolution in others. This means Beveridge’s impact on other economists and the repercussions which led to the creation of advisory bodies. This route is by no means a straightforward one. The subject is so complicated that we must disentangle the multidimensional influences of forerunner and followers, and of economic knowledge and policy formation4. We will reach the conclusion that four steps are necessary to understand this dynamic process.

Broadly speaking, as a result of economists’ concerns, since the beginning of economic science, with the legitimate role of the state in economic life5, employing economists in government is now an accepted fact6. Then, who in the twentieth century was the origin of discourse and realisation of economics as a branch of scientific knowledge that should be applied to policy-making? Our answer is Beveridge. Other studies7 have also agreed up to this point. However, little is known about the relationship between Beveridge as a pathfinder and primitive thinkers (Richard B. Haldane and Beatrice Webb), and subsequent repercussions (John Maynard Keynes and others)8. In other words, we would like to ascertain the dynamic 3 Booth and Pack (1985, ch. 7) considers in full details the Webbs and Beveridge on economic planning. 4 For further details, see Furner and Supple (1990, p. 4) and Booth (1985).5 Winch (1969, p. 13) and Blaug (1992/1980, preface 22).6 Booth and Coats (1980, p.177).7 See Daalder (1961, pp. 293-294), Howson and Winch (1977, p. 10), Booth and Pack (1985, p. 162), Cairncross and Watts (1989, p. 4), Moggridge (1992, p. 459), and Skidelsky (1992, p. 343). Coats (1981, pp. 27-66) and Middleton (1998, pp. 64-103) thoroughly examines economists in government or the market for economic advice, but there is no reference to Economic General Staff. 8 A notable exception is Booth and Coats (1980), which deals with several economists (Keynes, Robbins, Henderson, Meade, Jewkes, and et al) in the 1940s. Our paper will focus rather on economists before

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processes as to the development of the concept of Economic General Staff. To clarify these points efficiently, this paper is constructed as follows, mostly in chronological order: Section 2 describes the background of the idea of the Staff. Sections 3 and 4 deal with the advocating and spreading of the idea in the 1920s. Sections 5 and 6 examine changing the characteristics of the idea and Beveridge’s increasing dissatisfaction in the 1930s and 1940s. Sections 7 and 8 explain how the idea was realised and that gaps between polemicists remained. Finally, Section 9 summarises the main arguments.

Section 2 HALDAEN’S PRELUDE IN 1917/18

First of all, we must take up the Haldane Committee on the Machinery of Government (1917-18). Richard B. Haldane (1856-1928), a Liberal M. P., and founder of the Imperial General Staff (1906) and the Territorial and Army Volunteer (1908), was closely associated with the Webbs9 and Beveridge10. He set up the above committee under the Ministry of Reconstruction, to give counsel on the improvement of State functions. This Committee was exclusively crucial for both Keynes and Beveridge.

The first importance is on the side of Beatrice Webb and Keynes. Beatrice, as a dominant member of the seven, had an idea to reconstruct the machinery of government into 14 divisions, including

1929.9 Sidney Webb and Haldane were the chief contrives of the constitution for the University of London (1900). The Webbs and Haldane found each other by mutual magnetism of intellect. In 1929, he still kept “up the most warm friendship with the Sidney Webbs”. See Beveridge (1955, p. 187), Johnson (1968, p. 43), and Haldane (1929, p. 114) respectively.10 When Beveridge went to Berlin in August 1907 to investigate the German labour exchanges, most important for him was a letter to the Embassy from Haldane. See Beveridge (1955, p. 56).

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“Research”11. Research was important because “Knowledge, too, advances in all departments of life -- even in the art of administration”. It meant not only the collection of information, but also “systematic research, discovery, and invention”, namely, “the creation of new knowledge”12. Beatrice consulted Keynes when she prepared a draft on the machinery of government. She sent him a confidential letter (11th February 1918) with Paper 1813 and asked his opinion on the functions of finance and research in particular14. Keynes replied “with a great deal of interest” and commented on the Treasury system only. Contrary to Beatrice, Keynes praised its “prestige” and blamed politicians on not adhering to the principle of sound finance, saying “the fundamental conception of the nature of Treasury control which has come down to us from Victorian times seems to me to be sound”15. At this stage, therefore, Keynes had no comments on research or scientific knowledge in government. He held fast to balanced budget and had no particular ideas on the application of specialists’ knowledge to policy making. Thus, Beatrice (and Haldane) preceded Keynes in 1918 on this aspect.

The second pivot is on the facet of Beveridge’s development of his thought. He later admitted that the Haldane committee was unconsciously a great hint when in 1923 he stumbled on the concept of the Economic General Staff. Three pieces of evidence can be shown. Firstly, Haldane himself pointed out that “the General Staff

11 Beatrice from the beginning paid attention to continuous enquiry and deliberate thinking for the improvement of Government. She demanded “a nucleus staff of a few able permanent officials attached to the Privy Council”. PP, 13/2, pp. 369-370, “Sub-Committee on Functions of Government Departments, Memorandum by Mrs. Sidney Webb”, July 1917.12 PP, 4/11, Paper 18, page 20.13 Passfield Papers (hereafter as PP), LSE, 4/11, Paper 18, “Memorandum on the Distribution of Business between Government Departments”, pp. 1-26, February 1918.14 Keynes Papers (hereafter as KP), Cambridge, PP/45/339, a letter from Beatrice to Keynes, 11th February 1918.15 KP, PP/45/339, a letter from Keynes to Beatrice, 11th March 1918.

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organisation, which treats the task of thinking as separated from that of administration”, should be extended “equally to civilian services and to industry”16. It would serve “the systematic study of questions before action is taken”. The staff required the most highly skilled ability. Secondly, the Committee of Economists, one of the other reconstruction committees, made the term “Economic General Staff” clear for the first time in its report. The Committee consisted of ten economists, including S. J. Chapman (Chairman), W. J. Ashley, E. Cannan, J. H. Clapham, and A. C. Pigou. Its aim was to consider the probable state of industry after the war, with special reference to employment. The report, divided into 16 sections, indicated to set up an economic general staff forthwith17, in order “to prepare for and supervise the transition from war conditions to peace”18. To avoid the danger of friction, overlapping, and divided counsels, measures of control would be needed. Thirdly, Beveridge himself, having served with the Ministries of Munitions and Food19, connected with some of the reconstruction committees and appeared as a witness before the Haldane Committee20.

The final report21 of the Haldane Committee was along the lines of

16 PP, 13/3, Paper 16, “Machinery of Government Committee, Memorandum by Lord Haldane”, page 2, 11th January 1918. 17 However, there were no further arguments on the Staff in this report.18 Beveridge Papers (hereafter as BP), LSE, 3/48, page 23, (microfilm Series Two, Part 1, Reel 9), “General Report of the Committee of Economists”, May 1917. Curious enough, Japanese “Economic General Staff” in the 1930s should function in the transition from peace conditions to war. See Komine (2002, appendix).19 As early as April 1916, Beveridge proposed to found a committee, regulating the distribution of public work. The system was necessary to consider demobilization of soldiers (men) and munition plants (women). PP, 13/1, pp. 93-96, “Memorandum by Beveridge to Llewellyn Smith”, 26th April 1916.20 See Howson and Winch (1977, p. 10).21 Public Record Office (hereafter as PRO), London, MUN/5/27/263/22, “Report on the Machinery of Government Committee”, pp. 1-78, Cd. 9230, 1918.

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Haldane and Beatrice. It classified the business of Government into 10 divisions. The most notable and longest section was Division 4, Research and Information. The report concluded that the central Government should be extended to organise a branch of enquiry and research22. Officials were necessary “whose duty is to study the future, and work out plans and advise those responsible for policy”23. Haldane and Beatrice were eager about “scientific research with a view to its application to trade and industry”24. Nonetheless, note also that “scientific” did not always mean “economic”. Anyway, as a close friend with Haldane and the Webbs, Beveridge’s ideas evolved under the experience of reconstruction meetings and discussions25.

Section 3 BEVERIDGE’S ADVOCATING IN 1923/24

Haldane’s ambition collapsed26 under the disorder following the war. For example, the Geddes Committee on National Expenditure27 (1921) nipped the embryonic developments (a research branch) in the Board of Trade in the bud. However, the Labour Party, coming to power, changed the direction of discussions. At the very period between the General Election (December 1923) and the formation of a cabinet (January 1924), Beveridge’s papers were released in The Nation and Athenaeum28. His claim was as follows.

22 PRO, MUN/5/27/263/22, Part 2: Chapter 4: para. 1.23 PRO, MUN/5/27/263/22, Part 1: para. 13.24 PRO, MUN/5/27/263/22, Part 2: Chapter 4: para. 45.25 As to the importance of the Haldane Committee, see Howson and Winch (1977, p. 7) and Johnson (1968, p. 500).26 The only surviving, albeit symbolic, position was Chief Economic Adviser: Llewellyn Smith (1919-27) and Chapman (1927-32).27 Along with the May Committee (1931), there were no economists among the members.28 A Liberal organ, edited by H. D. Henderson, controlled by Keynes. Since Beveridge, A. L. Bowley, Henderson, and Keynes were in 1923 members of the executive committee of the London and Cambridge Economic Service, they knew well each other. See Moggridge (1992, p. 383).

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No parties have a concept of “an Economic General Staff, as an integral part of our machinery of government and administration”29. We have no organ for the systematic study of economy and society. A very few officials have economic training and even the few experts that exist are departmental. Consequently, they cannot properly deal with economic problems, such as unemployment, currency, agriculture, population, tariffs, and trade fluctuation30. Apart from political considerations, economic calculations are necessary. Therefore, we need to “set up a standing Economic Committee, which should include not only members of the Cabinet, but also certain permanent officials”31. The latter part is to be called an Economic General Staff. The chief of the Staff should be an authority in the science of economics and a person with much experience in the public service. The Staff needs two or three responsible experts, a few computers, and clerks. The experts should be recruited from universities, which would guarantee several different viewpoints. The Department of Scientific and Industrial Research (founded in 1915) has been inappropriate because it precludes economic science. Note that the Staff will have no responsibility for final decisions on policy. The Staff merely prepares plans for all eventualities32.

Here, Beveridge’s argument was quite significant and jumped ahead of previous ideas. Indeed, discussions among reconstruction committees (including Haldane’s) had been beneficial. Nevertheless, they were only catalytic, because past arguments had never touched the domain of economics. Beveridge, on the other hand, moved one step ahead and proposed a permanent advisory body based on economic expertise. Moreover, his advocacy prevailed very quickly. For example, Thomas Jones, a veteran secretary to Prime Ministers, recorded two cases. In January 1924, Clifford Allen (Chairman of the

29 Beveridge (1923, p. 485).30 Beveridge (1923, p. 486).31 Beveridge (1924a, p. 509).32 Beveridge (1924a, p. 510).

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Independent Labour Party) and Lord Esher (a former Liberal M. P.) respectively, influenced by Beveridge’s articles, were strongly in favour of putting an Economic General Staff into the Cabinet Office33. This was rather an astonishing effect of Beveridge. He made the concept of the Economic General Staff famous and filled the term with meaningful content.

Section 4 DISSEMINATION DURNG THE 1920S

As soon as the first Labour cabinet34 collapsed, Beveridge’s proposal seemed to go under. However, besides the above effect on Labour, his approach was becoming accepted even by Conservatives. Industry and the State (1927), by four Conservative M. P. s, was a typical example35, which emphasised “the necessity of setting up [...] an Economic General Staff [...], to advise and to assist the Government of the day in dealing with the complicated issues which arise in connection with industry”36. They lamented the State’s lack of a wide knowledge of economic facts, even the Government had to mediate labour and capital.

All the same, Beveridge’s impact was blossoming more in the Liberal camp. The answer was in Britain’s Industrial Future (1928, Yellow Book). The title of Chapter 10 is “An Economic General Staff”. 33 Jones (1969, pp. 263, 268). Allen wanted economists who drew up plans for nationalisation.34 Haldane, as Lord Chancellor in 1924, influenced MacDonald and Treasury officials. Responding to a Treasury Memorandum on economic enquiry, the next Conservative Government organised the Committee of Civil Research in 1925. See Howson and Winch (1977, pp. 10-12) and Chester and Willson (1968, p. 322).35 But reviewers were all astonished, calling them “socialists in conservative disguise” (Daily Mail, 1st April 1927), or saying “the Conservative Party is honeycombed with Socialism” (Sunday Pictorial, 3rd April 1927).36 Boothby et al (1927, p. 57). One of the four was Harold Macmillan (later Prime Minister), who was a leader of the progressive Conservatives. His elderly brother, Daniel, was Keynes’s friend at Eton.

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Although any policies affected industry, -- such as currency crashed abroad, return to the gold standard, tariffs, agriculture, the staple export trades, foreign loans, the housing problem, and unemployment37--, the Cabinet had no body of skilled advice. There was a vital need to create a thinking department within the administration, at the elbow of the inner ring of the Cabinet38. The Yellow Book proposed “the creation of what, following Sir William Beveridge, we may call an Economic General Staff”39. The aim was to study continuously, to complete statistic information, and to suggest to the Government plans for solving economic difficulties. The Chief, holding office for five years at a time, should keep his dignity, so “he must be a considerable officer of the State”40. The Economic General Staff should consist of the Chief and the Deputy of the Staff, the Permanent Secretary of the Treasury, and top officials from the Board of Trade, the Ministries of Labour, Health, and Agriculture. Furthermore, the Staff would facilitate with the establishment of a Committee of Economic Policy (a Standing Committee of the Cabinet), consisting of Prime Minister and the five ministers of the above ministries. The Chief of the Staff should act as Secretary to this Committee41.

These ideas came mostly from Keynes, who was greatly influenced by Beveridge. We have three pieces of evidence. First, by 1926 at the latest, Keynes recognised Beveridge’s articles of 1923/24 and agreed completely with his proposal. When Keynes published The End of Laissez-Faire in 1926, the Westminster Gazette reviewed it, pointing out the necessity of a body advocated by Beveridge. Keynes replied quickly, saying regarding “the appointment of [...] the Economic General Staff proposed some little time ago by Sir William Beveridge”, “I am sure that this is right. [...] the modern statesman needs to be 37 Yellow Book (1928, p. 117).38 Yellow Book (1928, p. 116).39 Yellow Book (1928, p. 117).40 Yellow Book (1928, p. 118).41 Yellow Book (1928, p. 119).

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supplemented by something additional to a little different from the Civil Service”42. Second, Keynes drafted most of Book 243, including Chapter 10, of the Yellow Book. To be sure, the book was a joint work by Layton, Henderson, Simon, Rowntree, and so on. However, Keynes’s contribution was substantial. In fact, he proposed three new ideas, one of which was an Economic General Staff44. Moggridge maintains that Keynes “collaborated with Sir William Beveridge on chapter 10”45. Third, the contents of both propositions were the same. Their advisory body was divided into two groups: one was a policy committee consisting of ministers, the other was a research staff of respected civil servants, most of whom were specialists. Taking the above three pieces of evidence into consideration, up to 1928 at the earliest, Keynes had merely borrowed his idea on the Economic General Staff from Beveridge.

In June 1929, the Labour Party, whose pledge included the setting up of a National Economic Committee46, was elected to office. MacDonald decided to investigate the outcome of the Committee of Civil Research, and invited several economists47, business and union leaders to dinner. Some of them later handed in memorandums on the Economic General Staff. Above all, Keynes’s memo48 was the most important. This note was not only obviously based on Chapter 10 of the Yellow Book, but also indicated Keynes’s evolved thought.

Although the basic expressions in the memo were the same as Britain’s Industrial Future, three parts were, drastically in a sense,

42 Keynes (1981, vol. 19, p. 567), a letter to the Editor of the Westminster Gazette, 17th July 1926.43 Moggridge (1992, p. 458).44 Moggridge (1992, p. 459).45 Moggridge (1981, Keynes, vol. 19, p. 731).46 Chester (1982, p. 130).47 Henry Clay, Keynes, G. D. H. Cole, Sir Josiah Stamp, J. A. Hobson, and Layton.48 PRO, PREM 1/70, P. M. C. 10, “Economic General Staff, Note by Mr. J. M. Keynes”, pp. 41-47, 10th December 1929. This note is also contained in Keynes (1981, vol. 20, pp. 22-27).

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changed or added. To begin with, the Staff’s aim and agenda were extended. Along with the development and organisation of industry, national finance and the distribution of wealth were added to the topics of study. Besides the development of national resources, chronic49 unemployment, the export trades, and rationalisation were added to the list of problems to be solved. Then, Keynes gave 18 detailed examples50 of the contents of proposed research, some of which had been not seen before; credit and industry, the rating system on industry, the coal industry, population growth, a high level of direct taxation, labour conditions, trade union restrictions, the public concern, and the direction of investment. In comparison with the previous diagnosis, these problems were deep and complex. Finally and most essentially, Keynes transformed the Staff’s characteristics from permanent civil servants into temporary ones, who must keep “touch with the latest academic work”51. In other words, he preferred “scientific economists”52 as the member of the Staff.

In December 1929, Keynes established his own view on the advisory body. Some of the significant elements were in sharp contrast to the original (1923/24), which had reflected Beveridge’s own experience as a civil servant for ten years (1908-19). Keynes had a taste for pure academicians trained in economics. Beyond that, he evidently envisioned a revolutionary change led by an Economic General Staff, stating:

For it would mark a transition in our conceptions of the functions and

purposes of the state, and a first measure towards the deliberate and

purposive guidance of the evolution of our economic life. It would 49 Keynes added the adjective “chronic”, compared with the 1928 report. 50 PRO, PREM 1/70, P. M. C. 10, p. 42.51 PRO, PREM 1/70, P. M. C. 10, p. 46.52 PRO, PREM 1/70, P. M. C. 10, p. 42.

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be a recognition of the enormous part to be played in this by the

scientific spirit. (PRO, PREM 1/70, P. M. C. 10, p. 47)

Section 5 METAMORPHOSIS IN THE 1930S

The Economic Advisory Council, established in January 1930, was a mixture of failure and success. It was a failure not only because it became split between technocrats and representatives53, but also because real policy makers (bureaucrats and politicians) often offered a stubborn resistance to advice by economists. In spite of that, it was a success on the grounds that economists, led by Keynes54, cultivated small but certain channels to convey academic knowledge into Whitehall in the making of policy. In particular the Committee of Economists and the Committee on Economic Information, both sub-committees of the Council, played a major role. In this sense, Keynes must have been, partly at least, satisfied with those advisory bodies.

Nevertheless, Beveridge was not gratified with the Council. On 5th March 1935, he spoke on BBC radio; the title was “Economic General Staff”. In the talk he supported Lloyd George, who offered counsel to MacDonald regarding the establishment of a permanent advisory body. Beveridge judged that there had never existed such a function in the Cabinet, although the Haldane Committee and his articles suggested the creation of the function. He criticised the Chief Economic Adviser and the Economic Advisory Council. The former played a too restricted role, whereas the latter was even worse, as the members, temporarily appointed, were too busy. What was needed was to organise skilled and impartial specialists (full-time 53 This point is from Howson and Winch (1977, p. 154).54 Keynes himself was proud of the Council, saying in 1942 there were “few passages [...] more valuable [...] than that which took place among economists in the ten years”. See Howson and Winch (1977, p. 164).

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officials), who could think about economic problems55. Beveridge’s dissatisfaction even modified his own concept on the

Economic General Staff. In July 1937, he made the address “Planning under Democracy”. His claim was as follows: if you wanted planning and were interested in public issues, you needed to make sure that you have an appropriate organ to think and forecast, that is, an Economic General Staff56. The Economic Advisory Council did not work well, simply because members acted as if it were a part-time job. The Economic General Staff, with a maximum of 5 persons, must serve as civil servants. They should not have to engage in daily administration, nor should they travel on business. All they had to do was to think. Plenty of money and time would make it possible for them to only research. They must make economists in universities recognise the “real” world. Even laissez-faire needed a kind of observation. Everyone may approve of intervention and conscious planning to some extent. Planning under democracy was likened to breathing under water. We cannot live without breathing (planning). Likewise, we cannot get rid of water (democracy). Inevitably, we must learn how to survive under water. An Economic General Staff would make it possible to draw up a plan for survival57. At this stage, Beveridge’s concept broadened. The Staff, only a maximum of 5 persons in the UK, must have strong power and dignity. Here he altered the concept from economic adviser to comprehensive social designer.

Four episodes are worthy of notice. First, as Chairman of a Sub-Committee on Food Rationing, Beveridge wrote the final report with an Annex in October 1936. His concern was rather food control as a whole, not microeconomic food rationing. A Minister took an interest in his Annex and invited him to be an official. However, W. Fisher, a top official in the Treasury, got in the way. Beveridge was

55 Beveridge (1935, p. 57)56 Beveridge (1937, p. 141).57 Beveridge (1937, p. 143).

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disappointed58 and said: I had hoped, once I was inside the Government thinking machine,

to become, by hook or by crook, an Economic General Staff for

planning the civilian side of war. (Beveridge, 1955, p. 243)

Second, the Unemployment Insurance Statutory Committee was significant. As Chairman (1934-44), Beveridge reconstructed the Committee as an “organ of Government entirely new in type”59. He transformed the Committee “from an annually reporting watch-dog intended to keep the fund decently in balance, [...] into a policymaking body with a long-term plan relating to the whole problem of unemployment in relation to public finance”60. In other words, this Committee had been on a merely routine work basis. Beveridge recognised its potential and changed its characteristics. He predicted a trend of unemployment and changed an amount of the fund to counteract boom and depression. His leadership61 went beyond collecting data, and extended to the role of a designer of long-term economic plans. Third, in 1940 Beatrice Webb described him as follows: Poor Beveridge was in a state of collapse. I have never seen him so

despondent about public affairs. [...]. What is even more personally depressing is that he has been ignored; his services as an administrator have not been requisitioned. [...] What is more interesting is that

58 In October 1939, Beveridge again argued that an Economic General Staff and a War Cabinet would both be necessary, for the whole economy must be planned. The Times, 3rd October 1939. See Addison (1977, p.64).59 Stocks (1970, p. 167).60 Stocks (1970, p. 168).61 One more (unsuccessful) example is the Royal Commission on the Coal Industry (1925-26). Beveridge, one of the four members, urged to reducing wages. The report could not mediate labour and capital. Subsequently, the General Strike occurred in 1926. Beveridge (1955, pp. 220-221).

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Beveridge realizes that if the war is to be won, [...] planned production

and consumption has to be undertaken. [...] He agrees that there must be a revolution in the economic structure of society; but it must be guided by persons with training and knowledge – i. e. by himself and those he chooses as his colleagues. (Addison, 1977, pp. 117-118 and Webb 1985 p. 458, 11th August 1940, italics in original)

The above sentence in her dairy came after the withdrawal from Dunkirk in June and before the London air strike in August. The deterioration of the war situation forced Beveridge to swing in favour of stronger planning62. Finally, Beveridge appealed to Churchill for his excellence, stating: My dear Prime Minister, Now perhaps in view of our old association I may write this and may add that if there is anything at all useful for me to do for the country, I am available to do it. My special experience has lain, as you know, in devising new types of government machinery (like unemployment insurance and food rationing) for dealing with new problems. With the phase of war that’s uppermost at this moment, that sort of thing is’nt [sic, isn’t] perhaps immediately relevant, but it may become important later; passing over to complete economic planning will raise many new problems. Of course, I’m ready to do anything useful and I’m free to go anywhere. I had, (and I believe I still have) speed for emergencies, knowledge of how Government Departments work in war and peace and, for the moment, a mind untired by doing things (BP, 2b-39, a letter from Beveridge to Churchill, 23rd May 1940)However, unlike the case of 1908, Beveridge’s zeal did not reached Churchill, who just replied briefly, saying “I do not at the moment know of any way in which your services could be utilised”63. By 1940, it became clear that Beveridge’s meaning of the Economic General Staff differed from others’. Consequently, the role of the Staff as adviser to the State that he envisioned was naturally dissimilar to 62 Addison (1977, p. 117) and Laybourn (1988, p. 100).63 BP, 2b-39, a letter from Churchill to Beveridge, 25th May 1940.

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theirs. Economists supposed a simpler application of economics to policy-making. It was based on specialised but restricted knowledge or economic “models”, such as reciprocal demand and supply curves in the field of international economics, general or partial equilibrium approach to taxation or labour market, and monetary theory of trade cycles. On the other hand, Beveridge conceived of a complex union of economy and society. As an illustration, he had had an idea to create a complete labour market when he established the system of labour exchanges in 1908. Likewise, Beveridge came to emphasise “the connection between income and responsibilities, between continuous earning and eating”64 when he wrote the pamphlet “Insurance for All and Everything” in 1924. Unemployment was a vice, because of the possible interruption of continuous earning. In the 1920s and 1930s, his focus was gradually forced to shift from unemployment itself to the social conditions surrounding unemployment. Beveridge’s “economy” or “economic” science became broader than that of the economists. It follows from the above four episodes that Beveridge was clearly dissatisfied with the advisory role in government at that time. Two types of dissatisfaction added to the shift of emphasis. First, Beveridge’s expertise had been ignored. Second, he believed that the current advisory bodies were incomplete. The best solution to this was that he himself was going to be an Economic General Staff, the Saviour for resolving economic and political difficulties65. Section 6 SCEPTICISM DRUING THE WAR

As World War 2 approached, there were again loud calls for the

64 Beveridge (1924b, p. 4).65 See the following comment: “the creation of an EGS was, for Beveridge, an essential means of cutting through the Gordonian Knot of decrepitude, ineptitude and shortsightedness embodied in the politicians!” Booth and Pack (1985, p. 162).

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creation of an Economic General Staff66, including from Sir Arthur Salter67. In response to such demands, the Stamp Survey was organised in 1939, and subsequently the Central Economic Information Service was founded, which in 1941 was divided into the Central Statistical Office and the Economic Section68. The initiative69

on economic policy frequently derived from the latter70 where several academicians were employed. Economists in government produced great benefits, for they brought a fresh outlook71. Even Sir Richard Hopkins, of the Treasury, admitted that “economists [...] often played a leading part in their contriving”72.

Even witnessing those “successes”, Beveridge was not satisfied at all. His irritation reached a climax when he testified in the official committee on the Machinery of Government in October 194373. He maintained as follows: the economic system should become State-controlled in the interests of full employment, though this was not socialisation. A Minister should have wide powers in the economic sphere, absorbing the present Treasury and controlling all aspects of economic policy. This Department would include a strong team of expert economists74. In contrast, the report of the Committee 66 Cairncross and Watts (1989, p. 10).67 One of the Old Dogs, which Keynes called themselves. BP, 2b-39, a letter from Keynes to Beveridge, 15th April 1940. The other four were Keynes, Layton, Henderson, and Beveridge. They had all worked in civil service during World War 1, but were no responsible positions in Government yet. See also Beveridge (1955, p. 268).68 Chester and Willson (1968, p. 325). Booth (1986, p.674), after examining interrelationship between human ideas and historic events, points out that economists in government were then collectively able and had good channels to the minister in charge (in this case, Sir John Anderson) and officials.69 Specialists’ advice became more realistic in the Economic Section. See Chester (1951, p. 16).70 Tomlinson (1987, p. 26).71 Chester (1951, p. 32).72 Hopkins (1951, p. 2).73 PRO, CAB, 87/72, M. G. O. 32, “The Role of the Economists in the Machinery of Government, Report”, pp. 1-10, 15th November 1943.74 PRO, CAB, 87/72, M. G. O. 32, para. 17.

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concluded75: We reject the conception of an Economic General Staff. It is impracticable as well as undesirable, because economists with immense power to dictate policy are alien to any form of Parliamentary Government. Beveridge’s proposal was so far-reaching that top bureaucrats and politicians regarded it as quite dangerous to democracy. It is clear now that Beveridge’s concept was not single policy adviser, but integral social designer. Thus, high-ranked policy makers completely turned down his grandiose concept. Besides, professional economists, including Keynes and Robbins, only thought of efficient interchange between Whitehall and the Universities. Keynes put stress on comprehensive advice from a macroeconomic point of view, such as employment as a whole. He preferred to set economists in the Cabinet or the Treasury, that is, and again to temporary appointment of university men76. Robbins, as Head, entreated the Economic Section to survive as such77. Beveridge’s unhappiness stemmed mostly from the Cabinet’s coldness to him. It is well known that he alone signed the final version of Social Insurance and Allied Services (December 1942), as a result of the resignation of all other members from ministries. What is worse, the Cabinet’s attitude turned from ignoring Beveridge into boycotting him78. This situation was led by Churchill79, who wanted to concentrate on “present and clear” battles, not on “future and magnificent” schemes. Indeed, the Prime Minister banned any exchange of views on full employment with Beveridge in February 1943, and the Chancellor of the Exchequer (or, to be strict,

75 PRO, CAB, 87/72, M. G. O. 32, para. 7, 19.76 PRO, CAB/87/72, M. G. O. 9, “The Role of the Economists in the Future Machinery of Government, Notes by Lord Keynes”, pp. 1-4, 9th April 1943.77 PRO, CAB/87/72, M. G. O. 1, “Note on the Role of the Economists in the Future Machinery of Government, Memorandum by Professor Robbins”, pp. 1-9, 25th January 1943.78 See Beveridge (1955, p. 323).79 It is ironical that Chruchill himself scouted Beveridge for the Board of Trade in 1908 through the good offices of Beatrice Webb.

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Hopkins) banned80 it again in a similar way in November 1943.

Section 7 COMPLETION IN 1942/44

Nonetheless, the tense situation changed drastically when Beveridge published Full Employment in a Free Society (1944), after the “White Paper Chase”. He reviewed the White Paper “Employment Policy” in his postscript:

the Paper [...] is the practical proof that the central machinery of Government in Britain at last includes an organ capable of expert study of general economic problems [...]. That is to say, the machinery of Government includes what a Committee of Economists appointed to

consider reconstruction problems in 1917 propounded as their first andmost emphatic recommendation -- an Economic General Staff. The same recommendation has been urged on many occasions since then by many people, including myself in 1924 in a spirit of unwarranted hopefulness about the first Labour Government. Now after a quarter of a century and the outbreak of a second World War it has been accepted. Whatever be thought of the name “Economic General Staff”, the thing is there [...]. (Beveridge, 1945/44, p. 260)

Beveridge bestowed his highest possible praise on the White Paper for two reasons. First, both reports had an eye on full employment, an indispensable presupposition to abolish “Want”. Second, both projects would be executed by an Economic General Staff, a reliable able body.

Although this may be true in his understanding, and indeed analysis in the two books was based on effective demand as a whole, there are

80 Keynes, now in the Treasury since August 1940, was forced to refuse to send even a letter to Beveridge. Beveridge (1955, p. 330). G. L. Watkinson, the Board of Trade, protested as follows: I must add that I have the strongest personal objection to treating Sir William Beveridge with discourtesy. PRO, BT/64/3393, 9th November 1943. Five newspaper cuttings, which criticised this ban, are collected in this file.

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distinct differences81. For the White Paper, high and stable employment should be obtained through “managed” demand led by the State. Policies were matters of timing for public works. For Beveridge, full employment was needed by “planned” demand. Full employment was more than an economic condition; namely, unemployment should “not last for a length of time exceeding that which can be covered by unemployment insurance without risk of demoralization”82. Such policies would inevitably be accompanied by enlarging roles of government. Planned economy needed a designer. The designer was an Economic General Staff. The stance of the White Paper was incomplete and obscure on this point. Since Beveridge noticed the differences in their social philosophies83, his view in the above quotation is a little strange to us. Beveridge somehow misunderstood the stance of the White Paper regarding an Economic General Staff.

Section 8 GAPS REMAIN

Being the strongest evangelist of an Economic General Staff, Beveridge had been discontented with the present advisory role in government, served by mainly university economists. Thus, there existed clear-cut gaps between Beveridge’s concept and those of others, regarding the Economic General Staff. We should consider two reasons for these gaps: the first is related to the science of economics. The second concerns individual experience. Beveridge strongly wanted to establish economics as a branch of human scientific knowledge. His ambition was distinct when he addressed “Economics as a Liberal Science” in 1920, and “The Place of the Social Sciences in Human Knowledge” in 1937. According to these addresses, social sciences, typically economics, politics and

81 See Tomlinson (1987, pp. 73-75). 82 Beveridge (1945, p. 20).83 Beveridge (1945, p. 274).

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sociology, were “the study of society and of man as a member of society”84. As Thomas Huxley suggested, social sciences should be based on “an inductive method of observation, nearer to biology than to mathematics or philosophy”85. Its method must be along the same lines as the natural sciences: observation, experiment, establishing general propositions, deduction and verification86. Economics had typical topics, such as cyclical fluctuation, unemployment and a stable measure of value. Nevertheless, as far as it included a study of man and of society, economists, as well as political scientists and sociologists, must have intimate co-operation with biologists, anthropologists and psychologists87. Economics in particular was good at dealing with man and his (changing) environment, and was necessary for public administration and business organization. In this sense, economics was also suitable to a liberal education in universities, for liberal arts pointed to the training of the mind and the understanding of one’s environment so as to be in harmony with it88.

In short, Beveridge and other economists, typically such as Robbins89, Hicks, Meade, and Hayek90, are most different in style and scope of economics as science. Following Huxley’s empirical biology, Beveridge set great stone on collecting, generalising, and verifying data. By contrast, professional economists operated only armchair theories, by managing impractical concepts91. Beveridge even blamed

84 Beveridge (1921, p. 3).85 Beveridge (1955, p. 247).86 Beveridge (1921, p. 7).87 Beveridge (1955, p. 251).88 Beveridge (1921, p. 15).89 Robbins, once as Assistant for him in 1923/24, ridiculed Beveridge’s capacity to follow analytical arguments. See Robbins (1971, pp. 136, 158). 90 Hayek also despised Beveridge, saying “he was completely ignorant of economics whatever”, which, we are sure, reflected ideological hostility. See Hayek. (1994, p. 83).91 Economics as science was first programmed by Marshall, who had been engaged in a professionalisation of economics since 1885. Afterwards, the trend, ironically, evolved at LSE from the late 1920s.

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Keynes’s 1936 book for starting not from any fact, but from definition of a concept, and for announcing his conclusions without verification92. Therefore, he did not intend to, and actually could not, catch up with the forefront of economics, for instance when he organised a study group of protecting free trade and published Tariffs in 1931, helped by Robbins, Hicks and et al. In the course of developing economics as an established branch of the academic world, the gaps of style between the two camps widened. At the same time, scope of economics differed. As is typical in Pigou, economists tended to quibble, using merely two variables (such as real wage and employment). As is also typical in Robbins, economists became accustomed to defining economics as the study of human behaviour as a relationship between various ends and scarce means93. This characteristic narrowed the scope of economics, albeit it was the inevitable road to professionalisation. Beveridge harshly criticised this situation, because, for him, economics was an interdependent, not independent, branch of human knowledge, and must be constructed from a broader viewpoint. More wide-ranging topics, such as population, a national minimum principle, social security, creation of new markets (by labour exchanges for instance), and a relation between market and government, should be included in economics. In recent terms, social policy is included in economic policy in Beveridge’s thought.

As for scope, it should be noted that “comprehensive” was Beveridge’s key word. In every proposal, he considered a wide-view plan, consisting of a main unit, a subordinate unit, and a complement. We have three examples. First, by 1909 Beveridge accomplished a theory and remedy on unemployment. The remedy consisted of three parts: labour exchanges (main), which would create a new labour market and be an arbitrator between the unemployed and employers; unemployment insurance (sub), which would temporarily mitigate the 92 Beveridge (1955, p. 253).93 See Robbins (1935/1932, p. 16).

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situation for the remainder; and counter-cyclical public works and evening wages among seasons (complement). Second, the Beveridge Report (1942) offered a comprehensive programme based on the National Minimum. Social security consisted of three sets again: compulsory social insurance for all (main), which needed a flat rate of contribution and subsistence benefit; public aid for the excepted (sub), which needed strict screenings of means tests; and private savings (complement), which encouraged self-help above the subsistence level. Third, Social Insurance and the Allied Services (1942) had to be combined with the subsequent two reports: Full Employment in a Free Society (1944) and Voluntary Action (1948). Full employment was one of the three prerequisites in the Beveridge Report. Chronic unemployment could not sustain social insurance and would demoralise ordinary (able) people. Thus, a policy for full employment and a system for social insurance should be united in a free society. However, this was not complete. Not only an agenda for government, but also an agenda for people was called for. Hence, Beveridge finally wrote a book on people’s motives for acting, especially in mutual aid and philanthropy. He regarded plural private groups as important agents of welfare. Therefore, the trilogy finished his comprehensive design for the coming world. Nevertheless, the above reason (style and scope) is not enough. For Keynes, as a member of the older generation, once expressed his view on economics in correspondence with Harrod in 1938: “as against Robbins, economics is essentially a moral science and not a natural science. That is to say, it employs introspection and judgments of value”94. “I might have added that it deals with motives, expectations, psychological uncertainties”95. Keynes’s opinion was in sharp contrast with other younger economists. He was rather similar

94 Keynes (1987, vol. 14, p. 297), a letter from Keynes to Harrod, 4th July 1938.95 Keynes (1987, vol. 14, p. 300), a letter from Keynes to Harrod, 16th July 1938.

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to Beveridge in that both thought of economics as one of the other branches of science, and of necessity of closely connected to them. Of course, the directions of the two men were different: Keynes paid attention to motives whereas Beveridge mainly took notice of human organisations. But, there is something more needed to explain the difference between the two on the Economic General Staff.

Hence, the second reason we should examine is with regard to individual experiences. Keynes preferred temporary economic advisers who were university specialists. It was temporary because the economic advisers should come back home (universities) again. Beveridge wanted social designers serving as full-time civil servants. It was permanent because the social designers should remain their neutral position in government, in order to devise clever plans. This reflected the experiences of each in their careers. Keynes’s service in the Treasury was always temporary during the wars. On the other hand, Beveridge served on the Board of Trade and other ministries for ten years. He never became a university lecturer in a normal sense, although he held a close connection with the academic world as Director or Master. A way to relate with the war economy in Whitehall is a mirror of their own concept of the Staff. What is more, the reason Beveridge preferred powerful designers is explained as follows: To be sure, they shared very similar careers; witnesses in Royal Committees, persuaders towards the public, government officials and politicians, supporters of the Liberal Party, statesmen in the House of Lords, writers and editors for magazines, contributors to academic journals, university teachers, Presidents of the Royal Economic Society, and civil servants. Nonetheless, one career, that is, investor or entrepreneur, was omitted in Beveridge’s life. Keynes had been closely associated with the City, whereas Beveridge was, if anything, less indifferent to private individual enterprises96, and more interested

96 However, Harris (1997, pp. 305-306) claims that in the 1920s Beveridge was influenced by City men and his visits to North America, and this was one of the reasons why he advocated an Economic

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in business organisation as a whole or the relationship between business and government. This difference in experience created the one in concept. Beveridge trusted private owners of enterprise less than Keynes, thus jumped at “planned” investment and consumption controlled by the State. On the contrary, Keynes was so acquainted with merits and demerits of private companies that he did not say anything more than to advocate the “socialisation of investment”, which meant collecting and free access to investment information.

Section 9 CONCLUDING REMARKS

So far we have outlined the way in which economics as a scientific knowledge was applied to policy-making, by keeping our focus almost entirely on Keynes and Beveridge. Both were persistent evangelists for an Economic General Staff, as the Saviour of the evolving market economy in a free society. In alignment with their advocating, a number of advisory bodies, albeit insufficient, were founded in the 1930s and 1940s. Thus, this was a great success, in the sense that policy makers (bureaucrats and politicians) were able to recognise how professional economists thought and what correct reasoning concluded from an economic point of view. This was the great beginning, for in the modern welfare state, managed economy and social security naturally combined through some power of programmer, projector, or conductor. This role fitted an Economic General Staff. Consequently, it was quite natural for both Keynes and Beveridge, who can be regarded as founders of the modern managed economy and social security respectively, to put forward a new concept of adviser or designer.

Actualisation of an Economic General Staff, however, did not proceed in a straight line. As Table 1 indicates, we can sum up four

General Staff, which could deal with financial and commercial intelligence. Our paper only provides a comparison with Keynes.

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steps, which went forward in zigzag fashion97. (1) Beveridge became the first

step

year Beveridge others

(1) 1917/18

1923/24

plagiarised EGS unconsciously98

first advocating of EGS (permanent officials)

Haldane and Beatrice concerned scientific research, whereas Keynes had no interests

(2) 1928 Keynes copied Beveridge’s EGSEGS prevailed among others

(3) 1929

1937

persistent insistence on EGSEGS as social designer

Keynes developed his own EGS (temporary specialists based on university men)Beatrice’s love to Soviet

(4) 1942/44 Beveridge became EGSTable 1

proponent in 1923/24, and his proposal pointed to “economic” research. Indeed, his advocating was inspired by Haldane and Beatrice of 1917/18, who bore general scientific research in mind. According to correspondence between Beatrice and Keynes, the latter did not pay attention to research applied to policy. Hence, Beveridge was one step ahead of them. (2) The concept rapidly prevailed. A number of leading economists and politicians, from Conservatives, Liberals, to Labour, took up a role of evangelist. Keynes was the most influential among them, persuading the Prime Minister to set up a 97 The above zigzag is very similar to a case of unemployment, as we have discussed in other papers. Beveridge was one of the firsts that paid attention to unemployment from an industrial viewpoint. Economists, such as Pigou and Keynes, succeeded to his analysis and remedies afterwards. However, in the course of evolved theories, Beveridge could not catch up with the forefront of pure economic theories. Finally, he became a founder of labour exchanges (one of the solutions for unemployment) in 1908. See Komine (2004).98 See Beveridge (1930, p. 410).

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new advisory body in 1929. As late as 1926, Keynes reacted to Beveridge’s proposal seriously and copied it at this stage. (3) In spite of that, a conflict developed between Beveridge and others, as the Economic Advisory Council got started (partly) successfully. Keynes finally developed his own concept of the Staff, which meant university economists working on a temporary basis (like able dentists). Politicians were satisfied with a National Council to iron out the differences of interests. Beveridge’s Staff was to be made up of considerable full-time officials. As the war approached in particular, Beveridge had dreams of creating comprehensive social designers99. Planned economy was unavoidably necessary to protect something liberal. The widening gaps between Beveridge and others mainly stemmed from two categories: one was the content of economics as science. The other seemed to be the differences of their experiences. (4) Finally, Beveridge himself had dreams of being an Economic General Staff, and became it. The examples were a member of the Royal Commission on the Coal Industry (1925-26), a chairman of the Unemployment Insurance Statutory Committee (1934-44), and a chairman of the Beveridge Report (1942). In the committees, he exhibited his leadership to submit comprehensive programmes. Together with a subsequent report on full employment (1944) and Volunteer Action (1948), the writer of the trilogy definitely acted as an Economic General Staff. The creation of an Economic General Staff is a milestone against the birth of the modern welfare state. The Welfare State stands on a subtle mixture of two concepts: managed economy (mainly produced by Keynes), and social security (generated by Beveridge). Each is a presupposition as well as a consequence of the other. It is a little strange coincidence that these two men of great calibre developed the concept of an Economic General Staff. It is worthwhile clarifying

99 Harris (1997, p. 305) describes that “he became markedly less ‘bureaucratic’ and more ‘technocratic’ in his approach to public policy”.

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the similarities and differences between the two, in the light both of the birth of the Welfare State and of the history of economic thought.

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