factors of production; this waste is greater than is required for the normal processes of industrial adaptation. These larger wastes of unemployment are most patent in countries which have entered the era of mechanical industry, and which experience an ever-growing difficulty in finding markets wherein to dispose of their maximum output. As more countries have developed machinery for manufacture and transport, the condition of the industrial world has become one in which it always appears more difficult to sell than to buy. Now the general principles of exchange furnish no adequate solution of this difficulty. A sale of goods for money is merely one-half of the complete exchange of commodities for commodities which is the sole end of commerce; why should this half be more difficult than the other half? The bland assumption that money, or general purchasing power, is naturally preferred to the possession of any single class of goods merely begs the question. If every producer were morally certain that he could find a buyer for his goods at the present market price, he would feel no such anxiety as he now commonly experiences; he would be no more eager to sell than the purchaser to buy. It is his well-grounded belief that in ordinary times the supply of the goods he offers exceeds, or may at any time exceed, the demand at current prices that prompts his anxiety to sell. Now this accepted tendency of supply to outrun

demand is a paradox. Since the whole object of production is consumption, and since with every increase of production is born a corresponding power of consumption, why should there be exhibited this chronic tendency to over-production, congestion of the machinery of production, slackening or stoppage of the machinery, and corresponding waste of capital and labour by unemployment or under-employment? The frequent attempt to explain the booms and slumps of actual industry by references to the financial or book-keeping side of trade, in which "over-confidence" and subsequent collapse of "credit," essentially subjective conditions, are dragged into the chain of objective events as explanations of over-production and industrial collapse, adds new confusion to a complicated matter. "Over-confidence" and "collapse of credit" are but financial reflections of objective industrial facts in relation to quantities of production and consumption of commodities; they are never independent forces or prime causes. If a general fall of prices occurs, accompanied by a slackening of the pace of production, ¿.e. unemployment, the only efficient cause of these phenomena is a refusal of the industrial community to take out of the industrial machine, in their capacity of consumers, as much as they put into the machine in their capacity of producers. In fact, over-production (as distinguished from misproduction, which is a regular necessary waste) only

arises from under-consumption, a refusal of the community to make full use of its consuming power so as to keep fully employed the factors of production.

§ 2. Since the only rational inducement to produce is the desire to consume, we have to find an explanation for the failure of the latter force to function properly, in defective demand for commodities. The possibility of a congestion of the machinery of general production is only intelligible on the supposition that a part of the power to demand goods for present consumption is withheld by some who have the power to consume. The refusal of a full application of the power to purchase and consume is itself only explicable as part of the wider phenomenon of maldistribution of wealth in modern societies.

In a well-ordered society, where distribution of wealth as consuming power was proportioned either to the efforts or the needs of the producers, every increase in the powers of production of the community would automatically be attended by a corresponding rise in the general standard of consumption, effective demand rising to correspond with every increased power of supply. Only where this just "natural" distribution of consuming power exists is there any security that consumption rising with every increase of production will keep taut the reins of industry, and render unemployment or waste of capital and labour, beyond the needs of normal

readjustment, impossible. If, on the other hand, inequality of economic opportunities is such as to impose a grave inequality in the distribution of wealth, some classes getting a power of purchase greater than is required to supply legitimate and pressing needs, other classes getting a power of purchase insufficient to satisfy their needs, we have an economic condition which explains the paradox of over-production, under-consumption, and unemployment. The growth of illegitimate or "luxurious" needs is not such as to give an adequate stimulus to the full use of very large incomes in demand for commodities; from such incomes emanates a great amount of automatic saving, implying a corresponding refusal to demand commodities.1 The irregularity thus introduced into industry obliges other classes of more moderate wealth to secure themselves against anticipated collapses of income by setting aside and saving a larger percentage of their current incomes than would otherwise be saved. From these causes the inequality of distribution of wealth issues in an oversaving on the part of the community, i.e. a saving of a larger proportion of the current income than is

1 The contention that "saving" involves a demand for other sorts of goods, e.g. capital goods, and causes as much production and employment as "spending," is only true so far as the first effect goes. Ultimately over-saving can be shown to check production. A full argument upon this point, here impossible, is presented in the author's The Problem of the Unemployed. (Methuen.)

economically required to assist in the production of sufficient goods to supply current or prospective consumption.

This over-saving seems to be a natural product of maldistribution of wealth, implies superfluous forms of capital which, when put into productive operation with labour, cause over-production and the congestion of markets, which is the preliminary to under-production or unemployment.

§ 3. If this analysis is correct, unemployment can arise only from bad distribution of income, and can be cured only by a better distribution, i.e. by means which place an increased proportion of the general income in the hands of the classes which will use it for the demand for commodities. A greater equalisation of incomes, by cancelling or reducing the "unearned increments" which pass to the rich in the form of "rents," monopoly profits, or excessive salaries, and by raising the wages of the labouring classes, which will be spent in securing a higher standard of comfort,' is the only effective provision against unemployment of capital and labour.

This brief analysis of a difficult subject is essential, because it furnishes a true test for the claims of protectionists to cure unemployment. If Protection is

1 There is, of course, no reason why a working class, having raised its standard of current consumption to the full maintenance of family efficiency, should not contribute its share to the "saving" of the community required to maintain the sufficient growth of capital.