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In the nineteenth century, economists believed that there were limits to
human wealth. In their opinion, when one man became richer, another grew
poorer. If a country wished to improve its standard of living, it had to export
more than it imported. So, in Britain, the main argument in those days was
about free trade and protectionism.
The owners of the Lancashire textile factories naturally supported free
trade because they wanted to export as many products as possible. In their
view, it would be better for the country if they sold more goods to other
countries. The landowners and farmers, on the other hand, were afraid of
foreign competition. Free trade won because Britain at that time was able to
buy as many cheap raw materials as it needed from its colonies and sell them
again as finished goods. Import controls would have damaged its position as
the strongest manufacturing nation in the world.
In America, a similar belief in free trade eventually led to a crisis in
economy - the Wall Street crash, in 1929. People in the USA were benefiting
from the expansion of the American economy in the First World War. They
became convinced that money automatically makes more money and
speculative investments are always profitable. When they lost confidence in
the stock market, the effects of the 'crash' were felt all over the world.
Following the Wall Street crash, the economist John Maynard Keynes
introduced a new theory. In simple terms, his solution to the problem was
that there is no fixed limit to human wealth. Factories can always produce
more if people can afford to buy the goods. Therefore, governments must
help factories and create jobs, and the factories must pay good wages. In this
way, every worker becomes a consumer.
For a time, especially after the Second World War, Keynes's theory was
successful. It kept the factories working and maintained full employment. In
the 1970s, however, several unpleasant facts emerged. For one thing, we
began to realise that the world's resources are limited. We cannot go on
producing more and more because we are using up our resources too fast.
Secondly, more efficient production is often achieved with fewer workers and
bigger machines, not the other way round. Above all, the industrialised
nations of the world consume more of the world's resources than they
produce. But it is difficult to make people economise when they think that
they create more unemployment by spending less money
