16 AUGUST 1930, Page 8

Unemployment : Its Logical Solution—I

[The writer of this article, which will be followed by a second next week, has had special opportunities of contact with manufac- turers and traders. His views are heterodox to the ordinary Free Trader, and we are sceptical of the value of logic in these matters, but at a time like this we feel that any coherent system of remedies deserves a hearing.—ED. Spectator.]

THEN Mr. Winston Churchill, speaking at Oxford on June 19th, said: "The root problem of modern world economics is the strange discordance between consuming and producing power. We are faced with the Curse of Plenty," he accurately diagnosed the funda- mental cause of world-wide unemployment and de- pression, but he gave no indication of how this " Curse " could be transmuted to a Blessing.

While this fundamental cause of Britain's unemploy- ment is ignored, would-be doctors of the ill accuse high taxation, over-population, declining foreign trade and high—or shall we say not sufficiently low--wages as the germs which are causing the disease. In the complexity of modern civilization the undeniable axiom that industry exists for the sole purpose of producing goods and services to be consumed by the community is apt to be forgotten. Every investment of capital, whether it be devoted to the construction of roads, bridges, factories or the develop- ment of land, is finally intended to further this end. If consumption does not keep pace with production, in- dustry is forced to slow up ; in this process workers are discharged and salaries cut ; purchasing power being reduced, consumption is still further restricted and so the bad effect is cumulative.

Now the difficulties of to-day are not a matter of pro-

duction ; there is scarcely an industry in the country in which the capacity for production is not well in excess of effective demand and if the whole energy of our would- be doctors of industry, now wasted in chasing will-o'-the- wisps, was concentrated on bridging this difference between producing and consuming power, unemployment would disappear.

This discordance between producing and consuming power is not so strange after all. The War gave enor- mous impetus to the growth of new factories all over the World ; more land has been brought under cultivation in backward countries ; new inventions have speeded up production, and rationalization has greatly increased the output per man. The result is, raw materials are in abundance ; apparently there is too much wheat, too Much rubber, too much metal ore, too much coal. Fac- tories arc standing idle or working part-time. Capital is unused and wasting for want of employment. Over two million British workers are walking the streets unable to put their willing hands to use. Manufactured goods stack the shelves of the warehouses, unable to find a market. Thus, there is a superabundance of every necessity for the production of useful commodities. All this is really to the good, it means that the volume of commodities available for distribution to the community is enormously increased, but the trouble arises from the curious fact that it is so good that we cannot believe it ! We arc so firmly convinced that poverty and want arc indigenous to modern civilization that when we have at last achieved El Dorado we refuse to accept it and choose rather to close our factories alternate weeks or shut them down altogether, and to let our arable land tumble down to all but useless pasture. We speak of over-production, and yet how dare we use that word while there remains a single man, woman or child who is in want ?

How this discordance has arisen is easily explained. Approximately ten per cent. of the population of Great Britain are the property-owners ; they therefore control the distribution of the products of the labour of the other ninety per cent. The share of the propertyless class of the nation is controlled, not by the amount of production available for distribution, but by the law of supply and demand for labour. Since the advent of improved machinery must invariably result in a certain lag in employment, the effectual working of this law in the labour market continually tends to reduce wages to the bare subsistence level and prevents this same law from operating in the distribution of the commodities produced. There is an adequate supply of goods, and at the same time a hungry demand for them amongst nine-tenths of the population ; but by allowing this law full play in the labour market we have prevented its operation in balancing consumption with production, with disastrous consequences. No industry is capable of solving this problem on its own, as the failure of the Trade Unions to raise real wages by any adequate amount, has shown. Its solution is really a world problem.

The net result of this situation is, that however great the productive capacity of the nation becomes, nine- tenths of the population derive practically no benefit. The other one-tenth has a limited capacity for consump- tion ; when this is saturated the effective demand for more goods is not there, factories cannot work to capacity, workers arc discharged and widespread unemployment is the result. The usual proposal is that this surplus of production should be sold abroad, and developing from the dogma that nine-tenths of the population should never receive more of the production of the community than will provide for bare subsistence has grown up the belief that this surplus notst be sold abroad, which in

return results in the myth that the very life of the country depends on foreign trade !

The fact, however, must be faced that Britain will never regain her former ascendancy in foreign markets for the simple reason that in our eagerness in past years to make profits, instead of to improve the standard of living and well-being of the nation, we have accumulated more capital than was necessary to renew plant in our own factories or to build new ones. Since profits must immediately be spent on new capital enterprise, if they are to bring in dividends, much of this capital has been exported to build factories in foreign countries, which we now find competing against ourselves. Should we attempt by reducing wages still further to engage in cut-throat competition with other foreign countries, they can go as far or further than we can in that direction. Low wages and longer hours of work to a country, as to an individual firm, may afford a temporary advantage in the market, but the competitor will soon reduce wages to the same level. The only lasting result then is that the consuming power of the world is still further reduced, and the last state is worse than the first.

But does the very life of the nation depend upon foreign trade ?

The value of the total imports into the United Kingdom in 1929 was, in round figures, £1,221,000,000, of which £334,000,000 consisted of articles wholly or mainly manufactured, including £19,000,000 of machinery, £25,000,000 of iron and steel and manufactures thereof ; £16,000,000 of woollen yarns and manufactures ; £20,000,000 of wearing apparel. Does the very life of the nation depend on the importation of these and many other manufactures in the production of which our own capital and unemployment could be utilized ?

In agriculture our position is not so helpless as many would have us believe. Even under their present dis- abilities home farmers supply the country with 57 per cent. of its consumption of beef, 51 per cent. of its con- sumption of mutton and lamb, and 21 per cent. of its consumption of wheat. Unquestionably by adopting a reasonable agricultural policy farm production could be enormously increased. In 1929 the value of our exports totalled £729,000,000. It is therefore conceivable that were our exports to be reduced by 25 per cent., by snaking ourselves half the manufactures we usually import, and by a very slight increase in our agricultural pro- duction, we should not be one penny the worse off; in fact, some of our vast army of unemployed now supported in unwilling idleness at the expense of the nation would be at work. (Not that this is the true solution of unemployment.)

It is a curious fact that because it is often advantageous to exchange commodities, there has grown up the belief that there is a certain virtue in exchange itself. 1 may grow peas in my garden, exchanging half for my neigh- bour's potatoes, but I get no advantage from this exchange ; I should be wiser to grow half potatoes and half peas and supply my own needs. It is possible that my neighbour may decide he prefers beans, in which case I am left with too many peas and a debt for potatoes ! Of course, should he have a greenhouse and grow tomatoes, there is a definite advantage in exchange.

No one will condemn foreign trade or contend that anything but an increase is desirable, but to sacrifice the standard of living and the well-being and physical and mental health of the nation on the altar of foreign trade is disastrous.

What then is to be done with this so-called surplus of production ? How is this " strange discordance between consuming and producing power " to be eliminated ? The answer is so obvious that it is curious that it has received so little attention. It is to take the determination of wage-rates or purchasing power of nine-tenths of the population out of the law of supply and demand for labour, and allow this law to operate in the larger field of supply and demand for commodities. Wage-rates must be fixed, not at the lowest rate at which it is possible to engage labour, but at the highest at which the supply of commodities is equal to the demand. This cannot be accomplished by individual firms or even individual industries ; it is really a world problem. Unfortunately the world is not ready to act as a unit and bring this logical solution of the unemploythent problem into force, and the question re/mina : can this country, acting independently, solve the problem for itself and so set an example which the rest of the world would be eager enough to follow ? Most certainly it can, and if it is to be saved from economic disaster, it must !

Purchasing power in the form of wages of the nine- tenths or under-consuming portion of the population must be raised until consumption approaches the capacity for production. This will not make the other one-tenth one penny the poorer, nor will it limit the accumulation of savings for the renewal of plant and the erection of new capital equipment. The principles which should guide us in handling this problem and the practical steps to be taken to eliminate unemployment and raise this country to a standard of prosperity which has never previously been known, without dislocating the existing machinery of trade in any way, imply no revolutionary doctrine nor any departure from established precedent.