The Return of Cassandra

Last week Britain's No. 1 economist arrived in the U.S. Off the Clipper stepped softspoken, twinkle-eyed, tall (6 ft. 1 in.) John Maynard Keynes, on an undisclosed mission under the Lend-Lease Act. He also expected to see the President, whom he last saw in 1934, when New Deal fiscal policies were in the blueprint stage. Keynes was the intellectual father of many of the New Deal's more radical fiscal policies, notably deficit spending and low interest rates. Since then he has become the father of a war-financing plan for Britain.

An Eton and Oxford man, Keynes represented the British Treasury at the Peace Conference in 1919. With prophetic foreboding he walked out on the Conference, wrote his scathing The Economic Consequences of the Peace, which made him famous overnight. He called Lloyd George a "Welsh witch," and Woodrow Wilson a "nonconformist minister . . . [whose] mind was slow and unadaptable." Most of what he predicted came true and people began calling him Cassandra.

Today at 58, he is still knife-witted, but illness and study have stooped his shoulders, given him the gentle manner of Mr. Chips. Off the job, his chief interest is the ballet. In 1925 he married a Russian ballerina, Lydia Lopokova. An art collector, a member of the potent Bloomsbury group, he is one of Britain's top-ranking intellectuals and business pundits (as chairman of a life insurance company, National Mutual). But to the Government he remained an outsider, like Churchill, until the failures of World War II forced Tories and Labor alike to adopt (in part) his Compulsory Savings Plan.

The Plan assumes that when the ceiling on Britain's capacity to produce consumer goods has been reached the people are left with excess purchasing power, which they will not voluntarily invest in Government bonds. Since only 200 people in England still have incomes (after taxes) exceeding $20,000 a year, most of the excess purchasing power is in the hands of the working class.

^ Instead of taxing away all this excess, Keynes's plan would tax only part of it, impound the rest into savings accounts.' After the war. these compulsory savings will be returned with interest, giving war workers a stake in the Peace and also providing a cushion of consumer spending for the post-war slump. Only alternative, besides runaway inflation, says Keynes, is to peg the price of everything as Germany has done.

All last year this plan was a storm center in Parliament. Sir Robert Kindersley called it a barefaced bribe, said it smelled of totalitarianism. Laborites called it a disguised wage cut. Sir John Simon, then Chancellor of the Exchequer, said that the patriotic motive was enough to make people save. But time proved him wrong. The Exchequer has partially adopted compulsory savings. Next autumn automatic wage deferments (on a complex sliding scale) will begin in Britain.

Mr. Keynes did not intend his plan for the U.S. Last July he wrote in the New Republic that since the U.S. had enormous untapped capacity for consumer-goods production, the defense program, far from causing consumer hardships, would stimu late "a higher standard of life." Those words, he said last week, were written "a long time ago."

The pinch is already on those durable consumer goods (like automobiles) that compete with arms for materials. But Mr. Keynes thinks the U.S. can still avoid both general price fixing and inflation, especially if Leon Henderson keeps a strong hand. "His is the most difficult job," said the mellowed Cassandra. "You must give him every support."

Although the U.S. defense boom had not yet reached the point of retail-price inflation, Keynes's New Deal disciples were already giving his basic idea a startling twist. A few Administration corners buzzed with it. Provoked by 1 ) the problem of U.S. morale, and 2) the perplexing question of what will happen to the economy when defense spending ends, the New Dealers thought about killing both birds with one stone by giving U.S. youth a Keynesian lien on the Peace.

Too extravagant to be mentioned out loud yet, the idea was a sort of prepaid Bonus: to issue bonds to the boys in the training camps. Trainees now receive $30 a month after four months service. But the minimum-wage law puts a floor of around $50 a month under wages. If the trainees were put under the Wage-Hour Law (ignoring the cost of their room & board), all of them would qualify for a pay boost of $20 a month.

Such a $20 pay increase could not be paid in cash, since now is no time for more consumer spending. The boys would get bonds which could not be transferred, but which the Government would redeem--with interest--beginning in five years.

At $20 a month, this would come to $240 a year, or considerably more than most of the trainees (or their families) have been able to save in a year. At the rate of 1,000,000 trainees a year for five years, a cushion of $1,200,000,000 of deferred purchasing power would have been stored up under the economy.

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