89R. M. S. <Biskett> to Harrod, 5 August 1925 [a]

The author replies to a request of information, addressed to Sir William Larke on 31 July, regarding existing international cartels in the Iron and Steel Trade. The only example of international arrangement is the International Railmakers Association, whose resuscitation was currently under discussion. [1]

  1. 1. In 1925, the British (from 1927 Royal) Institute of International Affairs set up an Economic Group for the research on the economic aspects of international affairs, with particular regard to the depression Britain was suffering. Harrod was the secretary of the Group: he later recalled that it was Lionel Curtis (one of the honorary secretaries of the BIIA) who offered him the secretaryship of this research committee (the episode is recalled in Harrod, The Prof., 1959, p. 128; see also letter 134 , [jump to page] . Harrod was explicitly referred to as secretary of the Group only in some documents dated 1926. However, indirect evidence supports Harrod's memory. Among the documents he preserved relating to the activities of the Group, there are some minutes in his own handwriting relating to the first recorded meeting, held on 29 June 1925).

    The other members of the Group were R. H. Brand, Josiah Stamp, W. T. Layton, H. D. Henderson, Hugo Hirst, H. M. Andrews (on 20 January 1926, Andrews thanked Harrod for giving him the opportunity "of being present at a conclave of the pundits", HPBL Add 71613/193-94), Philip Snowden, Hilton Young, C. R. S. Harris, William Clark, Edward Crowe, H. B. Butler, E. F. Wise, P. Horsfall, Owan Fleming, Dudley Ward, J. M. Keynes, D. Spring Rice, Arthur Salter, Guy Locock, Albert Stern, C. I. Bosanquet, and W. L. Hichens. Other attendants to the meetings of the group, although non-members of the BIIA, were R. T. Nugent, R. Glenday, A. Pugh, F. Hodges, R. G. Hawtrey, H. W. Coates, Lord Weir, Percy Ashley, William Larke, Norman Wyld (Industrial Institute), A. Flux, and P. J. Hannon (this list, which seems the most complete and includes people who rarely attended--if at all--and people who joined it at a later stage, is based on the invitations to the meetings of 24 November 1926 and on a list sent from F. B. Bourdillon on 15 February 1927: see letters 124 R and 136 R).

    The first document relating to the activities of the Economic Group is a memorandum (three pages TS, not signed, accompanied by an unsigned circular letter, sent from Chatham House on 22 June, in HP V-114), probably written by Harrod (some minutes of the meeting are drafted in his hand at the end of one of the accompanying documents), prepared for the meeting to be held on 29 June 1925. It seems to have had a purely introductory function: it outlined the purpose of the group, and proposed a line of approach to the problem of the economic difficulties of Britain in terms of its international position in trade.

    In the initial intention, the purpose of the Group was "to follow and consider the economic aspect of international affairs, especially as they affect British Trade and world peace." The memorandum attributed the international causes of the present depression in Great Britain mainly to the war (inflation, fluctuation of exchanges, shortage of capital for world development, contraction of markets, and the effects of war debts) and to the withdrawal of Russia, China and other parts of Europe from the world trade. The problem to be discussed was whether Britain, or any other country, could solve its economic problems by itself by trying to increase its competitive force, without this policy resulting suicidal for everyone.

    Two solutions were considered:

    1) The competitive, and short-term, method which consists in "cutting costs by reducing wages. Probably the principal reason for the appalling conditions in Great Britain in the earlier era of the industrial revolution was the fact that individual employers were able to compete against one another in cheapening labour costs. Each gained a momentary advantage in the struggle to the ultimate loss of national efficiency. This evil has been largely abolished by national legislation and the growth of National Trade Unions." The memorandum suggested that "between nations we may be reaching the same condition."

    2) The second aspect resides in the fact that nations try to be self-sufficient, attempting to reduce imports and increase exports as much as possible. Economic nationalism, "if carried too far [...] must obviously lead to very serious internal friction and to tremendous waste. Is every state to have not only a complete manufacturing industry, but a mercantile marine, marine cables, an international banking system, a navy and coaling and oil stations of its own all over the world?"

    Being therefore fruitless to try to solve the economic problems along these lines, the memorandum suggested that "The right course is to try to make everyone realise that economic nationalism must be balanced by an intelligent appreciation of the economic needs of the world as a whole."

    The practical solutions advanced all regarded elimination of these frictions, and consisted in: (a) finding an appropriate balance between self-containedness and necessity of raw materials, world manufacturing, and so on; (b) grading up (through the International Labour Office) a minimum standard of wages and hours; (c) studying the international streams of capital movement, so as to know whether it is going to "produce a fair balance of trade or [it is] inevitably leading up to under production in one line, over production in another, unemployment in one area, scarcity of labour in another."

    In the discussion, attention seems to have concentrated on the suggestion of an international economic conference, the utility of which raised some scepticism, and on the question of cartels. Hawtrey pointed out the advantage cartels bring for stabilization, while Salter condemned them. The latter question eventually channelled the focus of the Group, as it was resolved to discuss how far the injury on trade due "to international competition in wage reduction" and due to "the ambition of relatively backward nations to build up their own industry" could be overcome by international cartels. (It should be remembered that at the time Britain was experiencing a relatively low degree of cartelization, and in important branches of industry British companies were still out of international agreements.)

    It would seem that Harrod's first duty was to gather information on international cartels. On 8 August he wrote to H. B. Butler at the International Labour Office, asking for information on international cartels (in LoN 10/46955/46955). He received in reply a list of publications, sent by W. J. Ellison, on 25 August, prepared by the League of Nations secretariat (Ellison had forwarded Harrod's letter to A. Loveday, and wrote again to Loveday on 26 September. A member of the staff at the League of Nations sent on 30 September, in Loveday's absence, a list of publications concerning cartels which were found on Loveday's desk. All this correspondence is filed in LoN 10/46955/46955), and some additional references by Butler on 29 August (in HP V-114). On 8 October, Butler replied to two further requests of information by supplying additional references (in HP V-114). Meanwhile, on 12 August Harrod received a reply from an unidentified correspondent from London, to a request of information regarding international cartels in the rail makers' industry (in HP V-114). Two letters from A. H. D. R. Steel-Maitland of 3 and 5 November are also extant, concerning information from the Ministry of Labour on trusts and combinations (in HP V-114 and HPBL Add 71617/30, respectively).

    1. a. TLS, one page, from the National Federation of Iron & Steel Manufacturers, London # , addressed to Kings College, Cambridge, in HP V-114.


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