Hoisted from Arin Dube's Archives from Four Years Ago: Where are My Liberal-Neo-Liberal Technocrats?

Today's Economic History: Alfred and Mary Marshall on The Confidence Fairy

Alfred Marshall and Mary Marshall (1885), Economics of Industry, Book III: Market Value: Chapter 1: Changes in the Purchasing Power of Money http://tinyurl.com/dl20110818j: "If all trades which make goods for direct consumption...

...agreed to work on and to buy each other's goods as in ordinary times, they would supply one another with the means of earning a moderate rate of profits and of wages. The trades which make fixed capital might have to wait a little longer, but they too would get employment when confidence had revived so far that those who had capital to invest had made up their minds how to invest it.

Confidence by growing would cause itself to grow; credit would give increased means of purchase, and thus prices would recover. Those in trade already would make good profits, new companies would be started, old businesses would be extended; and soon there would be a good demand even for the work of those who make fixed capital. There is of course no formal agreement between the different trades to begin again to work full times and so make a market for each other's wares. But the revival of industry comes about through the gradual and often simultaneous growth of confidence among many various trades; it begins as soon as traders think that prices will not continue to fall: and with a revival of industry prices rise.

[Note: The most plausible of all the plans that have been suggested by Socialists for the artificial organization or industry is on which aims at the 'abolition of commercial risk'. They propose that in times of depression government should step forward and, by guaranteeing each separate industry against risk, cause all industries to work, and therefore to earn and therefore to buy each other's products. Government, by running every risk at once, would, they think, run no risk. But they have not yet shown how government could tell whether a man's distress was really due to causes beyond his own control, nor how its guarantee could be worked without hindering that freedom on which energy and the progress of invention depend.]