G. L. S. Shackle, Monetary Policies and Full Employment (June 1947)

G. L. S. Shackle’s signed journal review examines William J. Fellner’s Monetary Policies and Full Employment (1946) as a contribution to the problem of preventing prolonged depression without sacrificing free institutions. The review moves from the political implications of employment guarantees to uncertainty, wage policy, and the financing of government expenditure. Shackle praises Fellner’s originality and practical judgement while questioning his theory of interest-rate determination. His central concern is whether stabilisation can preserve both economic security and the freedom threatened by an unconditional commitment to full employment.

The opening situates Fellner’s Keynesian starting point within the experience of wartime and postwar excess demand. For Shackle, Keynes’s theory has demonstrated its generality by explaining over-employment as well as the depression that prompted it. Neither condition is easily managed: deficient demand leaves productive capacity unused, while excessive demand creates pressures that cannot simply be welcomed as prosperity. Postwar Britain gives Fellner’s central question immediate force:

British experience at this moment, a year and a half after the war, lends insistent realism to the basic question which Dr. Fellner asks and seeks to answer in this book: can we have full employment without regimented lives?

Shackle reconstructs Fellner’s answer as a conditional argument. If effective demand inherently falls increasingly short of full-employment output, government must continually intervene to close the gap. Employers’ and workers’ monopolistic groups, relying on this effective guarantee, can then push prices and wages upward. The resulting choice between inflation and mass unemployment threatens to make compulsory controls the remaining solution. Fellner’s rejection of an incurable secular tendency toward depression is therefore essential to his defence of free institutions. Timely intervention should stop recessions from becoming deep depressions, without promising that jobs will always outnumber workers. Shackle presents this modest objective as a navigable alternative to both unchecked instability and an inflationary employment guarantee.

The review’s most sustained exposition concerns uncertainty in the Knightian sense. Shackle treats this as a major strength of the book because it changes how investment incentives and wage movements should be understood. Where the marginal propensity to consume is below unity, current investment depends partly on an expectation that the additional output it produces will later be absorbed by further investment. The lower the propensity to consume, the greater this dependence on future investors’ decisions. That demand has a different reliability from consumption:

Now people are not bound to invest, but nature and convention insist that they shall consume, at least to some minimum degree. Hence the expectation of investors' demand for investors' goods is less dependable than the expectation of consumers' demand for consumption goods.

The conceptual move is to distinguish the expected size of profits from their dependability. A reduction in money wages may lower wage-earners’ consumption demand more directly than expected investment demand. Profit margins may consequently increase, yet become more dependent on uncertain purchases of investment goods. Higher wages can reverse the trade-off, producing smaller but more assured profits. Shackle thus presents wage policy as dependent on the level and composition of activity, rather than governed by a universal rule that lower wages increase employment:

Thus when national income is high, and the marginal propensity to consume consequently low, so that profits are high but uncertain, an incipient depression may call for a rise of money wage-rates. But when national income and profits are low, but the marginal propensity to consume is high, recovery may perhaps be promoted by a fall of money wage-rates.

The qualifications matter: these are possible responses to different circumstances, not mechanically guaranteed remedies. Shackle also praises Fellner’s discussion of conflicting evidence from family budgets and time series about whether the marginal propensity to consume declines as income rises. Although the review does not reproduce that discussion, its placement reinforces the importance of testing theoretical relationships against evidence rather than assuming that findings from one kind of comparison settle another.

The later chapters appraise specified monetary policies theoretically and statistically. Shackle again commends the treatment of uncertainty, but draws a sharp boundary around his approval:

I cannot feel so happy, however, about his theoretical and diagrammatic treatment of the determination of the interest-rate.

His objections are precise. Fellner appears to confuse ex ante with ex post concepts and to neglect the dependence of planned saving on income, which itself changes with investment. Shackle also argues that Fellner sometimes treats his liquidity function as relating the stock of idle balances to interest, although its stated definition concerns their rate of growth. The criticism therefore addresses both interdependent economic quantities and a distinction between stocks and flows.

Despite these reservations, Shackle reports a clear practical conclusion: deficit spending against depression should be financed by central-bank money creation rather than government borrowing from commercial banks or the public. Borrowing may restrict available finance and raise interest rates, reducing private investment enough to offset much of the additional public spending. The review’s concluding endorsement rests on Fellner’s combination of empirical breadth, imaginative reasoning, and scientific scepticism. Its relevance lies in bringing uncertainty and the institutional consequences of stabilisation into the same analysis: successful policy must attend not only to aggregate expenditure, but also to the reliability of demand, the financing of intervention, and the limits of employment guarantees.