The Effects of the War on the Concept of National Interest

Extract

Economists of the past century generally believed that, beneath the appearance of social conflict, there was a fundamental harmony, if not identity, of economic interest, and that this harmony of interest existed not only for different social classes and occupational groups, but also for different regions within a nation state and even for different nation states themselves. This belief in a universal community of interest, which led to the notion of a world policy which would serve human welfare conceived as a whole, rested on certain explicit and implied articles of faith, viz. (1) on the proposition derived from Pareto's law, that all social classes benefit from an increase, and suffer from a diminution, of the national real income; (2) on the assumption of mobility of labour and capital within the national state and even across international borders; (3) on the laissez-faire theory of international trade, which invoked the principle of comparative advantage; (4) on the belief that competitive private enterprise, if left alone, naturally achieved the maximization of production along the most economic lines. Competition among sellers led to the adoption of the most efficient processes and the extension of production to the point of least profitability, that is, to the point where the least efficient firm in the industry earned no profits above “normal” interest on capital and average wages of management. Competition among buyers was likewise an operative principle for social good, for it resulted in the allocation of the productive resources so as to satisfy in the order of their importance the most urgent social wants. A final assumption was that social welfare, consisting of the sum of satisfactions, could be measured in pecuniary terms. Thus an addition to the money income of a large group was held more than to offset the real sacrifices of any small group, regardless of the level of subsistence enjoyed by the two groups before the change occurred. The natural corollary of these assumptions was that the test of national policy was its effect on the national real income. But this could not always be determined or, with respect to future policy, accurately predicted. Since, however, profitability was regarded both as the guide to the most urgent in the hierarchy of social wants and as the single stimulus to increased production, it was believed that the anticipation of high profits was a rough and ready indication of an increase in the national real income. Hence profitability was the criterion of welfare and the compass of national policy. In policy so conceived and so directed all classes were held to have a common interest.