¹ Unless otherwise specified, factual information for the following section has been gleaned from the reports and surveys of the Organization for European Economic Co-operation in Paris and the European Economic Commission in Geneva.

² Redistributive finance makes real incomes less unequal by manipulating taxes and public expenditure in an equalitarian direction. On the revenue side, the level of taxation and the progressiveness of its structure are the determinants. On the expenditure side, redistribution takes the forms of direct transfer payments (unemployment benefits, pensions, cash benefits from health insurance), indirect transfers (subsidies on food and housing), and expenditures on certain kinds of public consumption (especially free education and health services). Direct controls over price, production, and consumption, chiefly in the forms of price controls and rationing, do not involve the expenditure of public funds except for covering the costs of administering these controls. Although subsidies involve the expenditure of public funds, for some purposes they are more conveniently considered with direct controls, for like these they affect the price and the market conditions of individual goods and services.

³ In 1937, less than thirteen per cent of the British national income was transferred from those earning more than to those earning less than £250 per annum, and the latter group paid in taxes very nearly as much as it received from public expenditures. The cost of postwar food subsidies and increased health and education expenditures is covered by additional payments made by the working class in indirect taxes (especially increased tobacco and beer taxes) while higher direct transfers received by it are met by higher direct taxes levied on this group. (Weaver, Findley, “Taxation and Redistribution in the United Kingdom,” Review of Economics and Statistics, XXXII, No. 3 (August 1950), p. 201.CrossRefGoogle Scholar) Another indication of this trend is that, while only 3.8 million people paid income tax in 1938–39, 14.8 million paid income tax in 1948–49. (Economist, Nov. 18, 1950, p. 830.)

For data on the Scandinavian countries, see Friis, Henning (ed.), Scandinavia between East and West, Ithaca, Cornell university Press, 1950, pp. 359–61.Google Scholar

⁴ Ellis, Howard S. (ed.), The Economics of Freedom, New York, Harper, 1950, pp. 277–82, 313.Google Scholar

⁵ The tax reforms, for example, reduced income tax rates especially in the higher income brackets and allowed generous deductions for saved income. See Menders-hausen, Horst, “Prices, Money and the Distribution of Goods in Postwar Germany,” Ameri can Economic Review, XXXIX, No. 3 (June 1949), pp. 646–72Google Scholar; Heller, Walter W., “The Role of Fiscal-Monetary Policy in German Economic Recovery,” Papers and Proceedings of the American Economic Association, XL, No. 2 (May 1950), pp. 540–41.Google Scholar

⁶ This is a legacy of Fascism which the present Italian government largely ignores by not actively exercising its control.

⁷ Thus, the labor supply is increased by reducing the number of workers and working days lost through illness, by lengthening the working life of the laboring population, and by releasing women from housework in marginal cases. Education and training facilities tend to increase labor mobility.

⁸ Americans rarely realize that the hereditary principle is in this respect a more powerful determinant in Europe than in the United States.

⁹ There is, of course, also the economic problem of which marginal rates of new investment in physical and human resources bring about optimum increases of productive capacity.

¹⁰ Americans are not sufficiently aware of this difference although it has now been acknowledged in an official document. Report to the President on Foreign Economic Policies, Washington, Govt. Printing Office, Nov. 10, 1950, pp. 34–35.

¹¹ Contrary to expectation, price control and rationing were administered far more adroitly and successfully in World War II than in World War I. In the United States, for example, most economists rejected general price control at the beginning of the war because they believed it unworkable. Cf. Galbraith, J. K., “The Disequilibrium System,” American Economic Review, XXXVII, No. 3 (June 1947), pp. 289 ff.Google Scholar It is also of interest in this respect, and hardly a coincidence, that precisely in the welfare states of western Europe the civil service has attained standards of efficiency and incorruptibility which the liberal countries cannot match. In France and Italy these standards have never been reached. In western Germany, which formerly did possess an efficient and honest civil service, fourteen years of Nazi rule and its final debacle left deficiencies that cannot be overcome in a short period of time.

¹² The indeterminacy of the problem is lucidly discussed in Eucken, Walter, The Foundations of Economics, London, Hodge, 1950Google Scholar, chap. ii.

¹³ Hicks, J. R., A Contribution to the Theory of the Trade Cycle, Oxford, Clarendon Press, 1950.Google Scholar

¹⁴ Chester, D. N., “Organization of the Nationalized Industries,” Political Quarterly, XXI, No. 2 (April-June 1950), pp. 123–28.Google Scholar

¹⁵ For an intelligent discussion of the criteria of efficiency in nationalized industries, see P. Sargant Florence and Walker, Gilbert, “Efficiency under Nationalization and its Measurement,” Political Quarterly, XXI, No. 2 (April-June 1950), pp. 197–208.Google Scholar

¹⁶ The industries which the British Labour party has nationalized, including steel, correspond faithfully to the list which has for many years defined the objectives of the Labour party. Regarding socialist objectives in the Scandinavian countries, see Friis, op. cit. pp. 16–17, 52, 60.

¹⁷ In 1949, net investment in fixed capital per head of the population exceeded the 1938 rate by 44 per cent in Norway, by 24 per cent in the Netherlands, and by 20 per cent in Britain.

¹⁸ United Nations, Dept. of Economic Affairs, Economic Survey of Europe in 1949, Geneva, 1950, p. 46.Google Scholar

¹⁹ For example, Harrod, Ray, Are These Hardships Necessary?, London, Hart-Davis, 1947, pp. 73 ff.Google Scholar

²⁰ With the exception of the nationalization of the steel industry, nearly all observers agree that there is little fundamental difference between the policy programs of the Labour and Conservative parties in Britain. And even on the steel issue, public disagreement is said to fall short of party disagreement. The Conservatives attack the symbols of the welfare state but not its essence. Being out of office, their main line is that they could do better what the present government is doing.

²¹ Sturmthal, Adolf, “Democratic Socialism in Europe,” World Politics, III, No. 1 (October 1950), p. 105.Google Scholar

²² Communist weakness in western Germany results from several special factors such as the lingering antidote of Nazi propaganda, the wartime opportunity of many German workers to inspect personally the Soviet Union, and the familiarity with conditions in the Soviet zone of Germany.

²³ These views are most forcefully expounded, for example, in The Neiv States man and Nation, which is representative of the militant left wing of the British Labour party. These views are not, of course, representative of the Labour party as a whole or of the Labour government.

²⁴ It is conjectural whether past association of notable portions of business and professional elites in Germany, Italy, and, to a much lesser extent, France with antidemocratic movements of the right is indicative of such a danger.

²⁵ This point is made forcefully by Lionel Robbins. Even if the limits on consumers’ sovereignty are formally decided through democratic procedures, the fact is that elections are hardly ever fought on particular ways of limiting the consumers’ choice and that actual decisions are therefore left to the bureaucracy. Even if such democratic control were feasible, it would still mean that minority preferences are overridden, a result which is rare when the consumers’ “vote” is registered through the market. (The Economic Problem in Peace and War, London, Macmillan, 1947, pp. 11–12.)

²⁶ Even as staunch a socialist as Cole, G. D. H. stresses this preference. (Socialist Economics, London, Gollancz, 1950, p. 87.)Google Scholar

²⁷ See, for example, Mannheim, Karl, Man and Society in an Age of Reconstruction, New York, Harcourt, Brace, 1948, pp. 335–45.Google Scholar

Karl Polanyi observes that what is needed are new juridical defenses of specific individual liberties. But he fails to demonstrate how these defenses could be made effective. (The Great Transformation, New York, Farrar and Rinehart, 1944, pp. 255–56.)

See also Lippman, Walter, The Good Society, Boston, Little, Brown, 1937, pp. 271–72, 282–93, 300–01.Google Scholar

²⁸ Hayek, F. A., The Road to Serfdom, London, Routledge, 1944, p. 46.Google Scholar

²⁹ However, Professor Hayek's reference to the evolution of Fascism in Germany and Italy is unconvincing. Because two things happened at the same time or in succession does not necessarily mean that they are causally related.

³⁰ At the time when the franchise was made universal, many liberals and conservatives were fully aware of the danger which popular democracy involved for the then prevailing form of capitalism. Only if democratic reform had stopped at the stage when the franchise was restricted on the basis of exacting property qualifications could the economic system be safely maintained which the propertied classes most desired. Cf. Durbin, E. F. M., Problems of Economic Planning, London, Routledge and Paul, 1949, p. 104.Google Scholar

³¹ Admittedly, a successful performance of the welfare state abroad may not be in the interest of American groups fighting the spread of welfare-state practices at home. It is assumed here that the interest of the nation should predominate when security problems are in question.

³² This is surprisingly recognized in an official statement of the British Labour Party: “…in its social and economic policy western Europe as a whole would stand to the right of the U.S.A., not between America and Russia. Outside Britain and Scandinavia there is no government with a more progressive domestic or foreign programme than the present U.S. Administration. Ever since 1931 America has pursued more advanced policies than most of the European countries.” (European Unity, a statement by the National Executive Committee of the British Labour Party, London, 1950, p. 9.)