IS UNEMPLOYMENT CURABLE?

Korero (AEWS), Volume 2, Issue 22, 6 November 1944, Page 15

IS UNEMPLOYMENT CURABLE?

A LETTER TO “ KORERO ”

An airman, A.C. 2 W. Rosenberg, writes the comments printed below on the A.E.W.S. Current Affairs Bulletin “Is Unemployment Curable ? ” While we are glad to print his letter, we must draw attention to the last paragraph of Part I, section 3, page 4, in the bulletin. This makes it clear that the bulletin was summarizing the essential points in a white-paper in which the British Government outlines a policy which will, it believes, “prevent mass unemployment from occurring again, and at the same time preserve essential liberties.”

May I congratulate you on this little pamphlet, which is just as lucid and unbiased as the rest of your publications, which many of us here read regularly with the greatest of interest. But would you allow me also to add a few words of what you may call constructive criticism to what has been said in your pamphlet ? The argument of the pamphlet is that, apart from temporarywhat we may call technological—unemployment, unemployment can only be overcome if total expenditure is kept up to a degree that it can absorb all goods purchased. It then proceeds to analyse all forms of expenditure, and arrives at the result that fluctuations in expenditure do not primarily originate in the consumers’ goods industries, but in the producers’ goods or investment goods industries. The great merit of the pamphlet, to my mind, is to have directed the attention of the person unacquainted with modern economic thought to the importance played by the investment goods industries in our scheme of things. It becomes clear as a policy formulated in the pamphlet that the stimulation of investment is the lever to overcome unemployment. So far the pamphlet is excellent and is doing a great service. But is there not a gap in your trend of thought— a jump in the argument ? Why, does common-sense ask, is it necessary to stimulate investment if you want people' to have enough to —when there are sufficient machines and facilities of production to feed them all in abundance ? Well, the reason for this disconnection of thought in your argument lies plainly in the complete omission of the main factor causing unemploymentviz., the

existence of profit in our present form of economy. My criticism of your pamphlet is that the word “ profit ” is not mentioned even once. You are talking of stabilization of prices and wages, but there is nothing in the argument about the stabilization or, rather, elimination of profits. Price stabilization alone does not stabilize profits — for owing to the existence of unused “ overhead ” an increase in sales at stable or even reduced prices will in the majority of cases lead to greater profits. The suggestions which you are putting forward and which may under special circumstances indeed lead to an increase in spending will finally, however, under our present system of production lead to what is commonly called “ profit inflation ” —in fact, this is now commonly thought to have been the cause of the great 1929 slump in America, when prices and wages had been kept comparatively stable for a considerable period but profits had risen to such an extent that prices of stocks and shares on the stock exchange tripled and quadrupled, and when it finally became clear that consumption could not keep up with rising production the whole card house collapsed, with the consequence of World War 11. Why, then, is the existence of profits incompatible with the maintenance of total expenditure ? The reason is simple: while the greater part of incomes consisting of wages is spent in buying, the product which has been appropriated by the entrepreneur in the form of profits is far too large to be consumed by the recipients of these profit incomes—seeing their comparatively small number and also their frequently entirely impersonal character. Company reserves, for

instance, constitute probably the greater part of profits and they will certainly not be spent on consumers’ goods. What has happened is that a vast quantity of consumers’ goods has been produced, but —so —there is no claim for many of these goods because the recipients of profit cannot themselves spend all the money they z have earned on consumers’ goods. What happens next ? The owners of these “ saved ” consumers’ goods now start to distribute them by paying wages to people in the investment goods industries i.e., by creating goods that cannot be consumed. , Therefore, as long as all savings (and that means predominantly profits) are used in the employment of people who are prepared to eat up those savings but do not add to the surplus already in existence, everything produced will be sold and a happy state of affairs exists as described in your pamphlet, Part V—viz., “ the more people who produce things for which there is a sale, the bigger is the demand for everything else, and therefore the more employment there is. It is a sort of two-way transport system in which the inward and outward traffic balance each other.” But it should be clear from the foregoing that this two-way transport system does only work if the savings of the people are completely and regularly invested in capital goods industries. But what is happening in effect ? An entrepreneur who is in business for profit will only order new machines, increase his factory buildings, buy new patents, &c. if he thinks he will be able to sell the more goods so produced at a profit in the future. Now, we have seen

that the only way for this to happen is that he himself creates the demand for his products first by investing his profits and putting people to work. But the entrepreneur cannot possibly look at things from this round-about angle. He only notices that, if other entrepreneurs for some reason or other have reduced investment, demand is going back and there is no sense in him investing money in new machinery that will produce more unsaleable goods. He therefore reduces production —reduces his own —reduces the savings of society by which investment alone can be kept goingreduces employment and then wonders what is wrong with the Government. What is the moral of the story ? Unemployment can only be cured if activities in the investment goods industries are made entirely independent of profit anticipations of entrepreneurs. Let the State build bridges and roads and public parks, machines, railways and air and motor transport, and the people employed in all these State-fostered industries will consume everything that is produced. In fact, production will never be able to keep up with the always increasing demand. Have you ever reflected why there is that general impression of prosperity during wartime ? Here you have the solution. Investment industries — i.e., industries not producing consumers’ goods—are run independently of entrepreneurs’ profit anticipations in the consumers’ goods industries. The two departments of social production are separated and the problem of “Is Unemployment Curable” has . changed into “ Is Absenteeism Curable.”