James E. Meade

Nobel 1977 | Automation and labor markets: How to solve the unemployment problem?

Nobel Laureate James Meade made his move into economics at the end of his second year at Cambridge, having asked to switch to the newly launched course of philosophy, politics and economics. He had never studied mathematics or science, but his instinct and passion for politics and moral philosophy ended up shaping the political agenda of the International Monetary Fund (IMF) and influenced the British parliament.


James E. Meade

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (shared), 1977

At a glance

Born: 1907, Swanage, United Kingdom

Died: 1995, Cambridge, United Kingdom

Field: International Economics

Prize-winning work: Groundbreaking contribution to the theory of international trade and international capital movements

Night-time activities: Read aloud to his wife every night in bed for over 56 years

How strong should government intervention be?

Meade was awarded the prize in 1977 for his role in educating people on how to correctly apply economic theory to a particular political problem, influencing the several fields of economics and politics simultaneously.

According to Meade, there are three main objectives of economic policy. Achieving freedom is the first, equality is the second and the third is efficiency. Despite conflict between these objectives, Meade underlined the importance of government’s role in balancing all three aspects to achieve gains for everyone. He also gave economic reasoning and political advice on how to tackle restrictions to any of them to find the best combination.

How did James Meade apply economic theories to real-world political problems?

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Meade approached and interpreted economic problems differently. Instead of using abstract economic measurements, he focused on understanding the basics of economics and applied these to real-life political problems. He used the international trade theory and international payment theory to answer policy discussions on exchange and inflation rates. “I’m not proud of it, but I’ve read very little of other people’s writings,” he said. “However, I’ve listened to a great deal of discussions. I don’t think that my work on international economics was very original, but I think the IMF found the part on the balance of payments very impressive. They used it when thinking about economic policy of international payments.”

Meade stressed the point that he was not a toolmaker and especially not a tool-user. Rather, he characterized himself as a ‘tool-setter,’ someone who tries to take existing or known theories and applies them to the political context. He described how to use them most effectively and efficiently in international commerce or financial policies. 

What was James Meade's solution to mass unemployment?

While studying at Cambridge and Oxford, Meade entered the field of economics, like many of his fellow students, with the desire to learn more about how mass unemployment was affected by 19th century policies and, ultimately, to find a solution to fix the malfunctioning system.

After years of research, Meade proposed a groundbreaking solution – a policy that would differentiate the pay rates of workers and achieve total employment, meaning ensuring that everyone looking for a job can get one. He said that policies addressing economic problems through education, training and increased investment "are concerned basically with raising the output per head of those who are in employment, rather than the number of heads that will find suitable employment.” He later went on to design the labor capital partnership and the idea of a social dividend.

How to solve the problem of unemployment?

Even though his theory was described as brilliant and paradigm changing, Meade knew the flaws in his own theories.

I’ve always said that a real economist should be ambidextrous because it’s his duty when he gives advice on the best policy to point out all the possible snags.

He recalled an old anecdote from US President Harry Truman, who’d asked for a one-armed economist, because whenever he received economic advice, he’d get the famous answer of, ‘On the one hand, you should do this. On the other hand, you should do that.’

What will happen to jobs when technology and automation take over?

There’s no question that new advancements in technology and automation will dramatically change the way we work and distribute wealth but what will the labor market look like in the future? Some believe that around 40 percent of jobs might disappear in the near future, making our lives very different. Facing these questions, Meade offered a strikingly fitting and novel approach. To achieve full employment with new methods of production in place, there should be a low wage cost and a high return on the machinery. This would mean a revolution in ownership and distribution of income, as our economy would no longer rely on wage rates as the main instrument to distribute wealth.

What happens to people’s wages when robots take over?

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Meade suggested that the government needed to have a long period of considerable budget surplus, raised through taxes, to gradually build up national assets. These would be used to create dividends paid to workers to supplement their income. In effect, he suggested, one could design a society in which the wage rate is rather low but people’s income isn’t because they receive a social dividend and partial benefit from the profits that have been made on machine productivity.

From my point of view, this will be a significant moment in history. It may turn out to be the great moment of history, the moment when everything changes. When we no longer work, but have machinery working for us, having combined the advantages of socialism with the free market.

Why did James Meade compare economic problems to medical problems?

Inspired by Keynes’s theory of international trade, Meade also expressed concern about the specialization going on in the general fields of economics.

“Nowadays, it’s very common for an economist to either be a labor economist, a fiscal policy economist, international theorist, monetary economist or an industrial economist,” he said. “Whereas I think one of the most important things is to look at the economic system as a whole.”

He compared economic problems to treating medical problems. “You have specialized doctors for the heart, the brain, the liver. But to keep the human body in good health, you need one doctor who looks at the interactions.”

He felt that economists needed to follow this approach as well, treating the economic system as a patient.

People who devote themselves to seeing and examining the interrelation between different parts of the economy, will make a very important contribution in the future.

What’s the importance of freedom in an economic system?

Meade often talked about the important component of individual freedom in relation to achieving efficiency and equality in society.

“I believe that democracy and the market go together,” he said. “You have the freedom to vote, freedom to choose your political leaders and freedom in the market. I think in the future, we will see greater development when countries move in the direction of democracy. If this development grows, countries might become more prosperous and much more powerful.”

“We human beings are a strange mixture of selfish individuals and social animals. We’re like ants in some ways and very individualist in others. This is a difficulty that has to be managed when attempting to balance the economic and political account in applying a theory to economic policy.”

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