U N E M P L O Y M E N TArthur Kitson
A REPLY TO Mr. KITSON.
(By the City Editor of The Times.)
MR. ARTHUR KITSON, in a characteristically assertive effort, has attempted to prove that the solution of the unemployment problem is so ridiculously simple that the average schoolboy ought to be able to furnish a satisfactory answer. My endeavour will be to show that he has not only signally failed in that self-imposed task, but incidentally has also revealed the fact that he himself has not mastered the problem which he seeks to solve.
After studying with great care the six articles in which he promised to disclose his practical solution for the avoidance of poverty and unemployment, the most easily avoidable of evils, I am forced to confess that I have groped in vain for the promised solution among a wilderness of words and startling assertions, masquerading as arguments. The latter may have been intended to disintegrate and scatter to the winds awkward facts, for one frequently had an uneasy suspicion that Mr. Kitson realized that there were serious gaps in his reasoning, and that he was endeavouring to propel himself and the reader across them with the momentum of an accelerated flow of verbal denunciation of finance, of which he has a vast consuming hatred and contempt.
This was well exemplified in the drawing of an oil engine which appeared in his first article. The illustration reveals clearly the limitations of Mr. Kitsons vision. It breaks off at the most interesting pointnamely, at the public supply main. Mr. Kitson says that the working of the oil engine depends upon the ability of the public to purchase the oil as fast as it is produced. Obviously. But he does not proceed to explain how this ability to continue to purchase the oil is to be maintained. That is the vital question. He says this ability depends upon production. Yes, but not upon the production of oil. For the purpose of his illustration, Mr. Kitson ignores the whole problem of exchange, by which alone value is created. By ignoring the complications of a subject it is possible to see any problem very simply. But that means not seeing the problem at all.
THE PREDOMINANT FALLACY.
There are three outstanding fallacies in Mr. Kitsons articles. The predominant fallacy is that the real problem is to discover some method of selling goods as fast as they are produced. He proceeds to show that by this he means that goods should not necessarily be sold at all, but issued to someone in return for money, and that the money should be provided by the banks or the Government, or both. The real problem, of course, is not to exchange goods for money, but to exchange them through the medium of money for other goods. Money is a medium of exchange ; if the problem could be solved by merely printing money it could be solved here and now.
A famous elephant hunter tells a story that is worth repeating of how he came to realize the limitation and function of money. He learnt his lesson by the sun-scorched shores of an African lake, where he came within an ace of starvation with 100 golden sovereigns in his pocket. A paltry penny trinket, which he exchanged for food with a native, alone saved him and his followers from starvation. That trinket had an exchangeable value, but the sovereigns had not.
It is true that there can be no over-production of commodities in the broad sense of the term, but there is frequently a temporary over-production of certain commodities. No civilized person can produce all the commodities he needs, but must produce a sufficiency of products which other people need, to be able to exchange them for those he requires. This country produces each year a surplus of manufactured goods which it desires to exchange for food and raw materials produced by other countries. If we require a higher price (i.e., a larger amount of food or raw materials) for these surplus manufactured goods than, say, Germany requires for the same kind of goods, we are unable to exchange our goods, and there is consequent overproduction and unemployment. We should not solve the unemployment problem by compelling the makers of motor-cars to exchange their motor-cars for other motor-cars, or the makers of rails their rails for other rails. Neither should we solve the unemployment problem by sending these rails and motor-cars to, say, Russia, in return for paper money.
INFLATION WITH NO EFFECTS.
Mr. Kitson is obsessed with the notion that all that is required is a sufficient outturn of money, for he says in the second article :
If wages, salaries, and dividends could be doubled or trebled without raising the level of prices, our mills and factories could be kept continuously running.
He therefore proposes that we should convert the whole of the £1,300,000,000 of floating debt into Bradburys.
What, however, would be the effect of inflating the currency in this manner ? Let us assume that we have at present about £500,000,000 of legal tender money ; and for the sake of argument we will assume also that we have 1,000,000,000 units of commodities. This ratio gives to each unit a money value of 10s. If we add £1,300,000,000 to the stock of money, we get a total of £1,800,000,000, but as the price of each unit of commodities is to remain at 10s., how can the £1,300,000,000 extra currency be used ? Prices must rise ; otherwise the money could not be spent. Mr. Kitson may reply that the increase in the supply of Bradburys would have to be regulated by the supply of goodsnamely that for every two additional units of commodities produced a £1 note only would be issued. But what sort of commodities would he issue money against ? If currency were issued against the production of more motor-cars and other things that we are unable to use ourselves, and foreigners do not wish to purchase from us, the issue of the extra currency would merely force up the price of commodities such as were saleable, or if these were held down then the extra currency could not be spent. You cannot have inflation without having its effects, any more than it is possible to have a war without death and destruction, or eat a cake and have it too. Mr. Kitson, however, says that finance is concentrated upon production instead of consumption, and that consumptive power would be increased by the issue of money. How would Mr. Kitson issue the money to increase consumptive power ? By giving notes away gratis ? If notes were not issued on this Bolshevist principle, how could they be issued, and how could the Virginian cotton-grower be compelled to accept notes in payment for his product ?
THE REAL PROBLEMEXCHANGE.
Mr. Kitsons statement of the unemployment problem is so crude and so inadequate as to lead nowhere. We can best illustrate Mr. Kitsons fallacy by pointing out that an oil tank fully charged could not be made to absorb more oil by enlarging the conduit pipe (the medium of exchange, money, representing the pipe).
In the last paragraph of the second article Mr. Kitson himself gets a glimpse of the fallacy of his earlier proposal by saying that increased production must be accompanied by a fall in prices or an increase in the volume of purchasing power ; otherwise its tendency must be to increase unemployment. But here again Mr. Kitson confuses an exchange into money with an exchange into goods. If we produce 1,000,000 motor-cars for our own use and another 1,000,000 for the use of foreigners, how are we going to sell the second million unless somebody not only has the cash to buy them but also wants them ?
In his third article Mr. Kitson asks to what extent does the average citizen participate in the profits of the legacy of past inventions and chemical discoveries. The answer is, obviously, in the more efficient production of goods which enables him to sell his product to other nations at a lower cost in labour than would otherwise be the case. Without the aid of the steam engine, the makers of Nottingham lace would not be able to exchange their product for New Zealand mutton with the same facility as at present, since the transportation of it to New Zealand and the bringing back of the sheeps carcass would be infinitely slower.
EVADING THE QUESTION.
Mr. Kitson wonders why we should wait for foreigners to purchase our cotton goods and boots ; he says we should sell them to the thousands of English people who have shabby boots and clothes. Provide these people, he says, with bits of paper and they will be able to buy the boots and clothes and give employment to the cotton and boot operatives. What use the pieces of paper would be to the latter when they want to buy wheat from Argentina, raw cotton from Virginia, and hides from India, Mr. Kitson wisely refrains from explaining. Requested to show how the making of cotton goods for Thomas, the sentimental poet, will enable the cotton-spinner to pay for the raw cotton, Mr. Kitson airily evades the issue by saying that we are quite capable of paying for the cotton. He asserts that that is the answer to the question. But he has still to answer, if the public is to be induced to take his ideas seriously.
A DANGEROUS PROPAGANDA.
What is the meaning of Mr. Kitsons phrase that our present system of distribution, which makes the existence of vast masses of people of all countries entirely dependent upon the demand for their services in productive operations, must sooner or later be displaced by something more rational?
It seems to suggest that Mr. Kitson has in mind a wonderful system, which no other brain has conceived, which will make the exchange of all goods produccd automatic that all the poems produced shall find a ready exchange into other commodities ; that all carrots, chimney-pots, dolls, speeches, political writings, shall find an immediate market. But if he has any such wonderful scheme, then he ought immediately to reveal it to a sorely tried and hungry world. If he is merely playing with the public, and stirring up false hopes amongst the ignorant, he is guilty of carrying on a dangerous propaganda. Mr. Kitson attributes the difficulties of exchanging goods to the stranglehold which finance maintains over industry, which, he alleges, is due to the monopoly of credit issues and the interest (usury) system. In an earlier passage he says purchasing power is increased by the payment of interest, but in the fourth article he says this payment is impossible.
AN EXTRAORDINARY FALLACY.
We will pass over this inconsistency, among others, to deal with this extraordinary fallacy. He says, if manufacturers or merchants borrow £1,000,000,000 for one year at Bank Rate, they must refund £1,070,000,000, or £70,000,000 more credit than is issued. That, he says, is impossible. Far from being impossible, it is done every day, as any bank manager will testify. Last year, although our supplies of currency amounted to about £500,000,000, the turnover of money and cheques at the London bankers clearing house amounted to £39,000,000,000. The manufacturers and merchants when they spend £1,000,000,000 in the manufacture of goods receive back more than £1,000,000,000 ; otherwise they would not borrow the money. The ability of the borrower to repay his loan of £1,000,000,000 depends upon his ability to exchange the goods he produces at prices above the cost to himself.
THE PRIMARY CONDITION OF CREDITA REAL SALE.
A bank when it is confronted with a demand for a loan for the production of commodities asks, first of all, if the goods have been sold. If the answer is in the affirmative the borrower may be sure of obtaining his loan. If the goods have not been sold then the banker in granting the loan is influenced by his estimate of the probability of the borrower selling the goods he proposes to make. If the mere production of goods was sufficient to warrant creation of credit then there would be no necessity to sell the goods ; prices would have no meaning ; a poet would only have to write a poem to obtain money. A restriction of credit is necessary to ensure that goods are not produced in excess of effective demand. Credit, says Mr. Kitson, is a communal property. Such an assertion is palpably absurd. Credit is a private property ; a States credit is derived from its power to tax the property of its citizens. A person who saves must deprive himself of the use of money or credit in purchasing commodities or services. If he lends it to someone else, and the money is used to buy a sack of wheat to feed a man while he makes, say, a mowing machine, the latter will obviously not sell the mowing machine for a sack of wheat, but for something more ; perhaps two sacks of wheat. The lender will naturally demand something more than a sack of wheat in return for the sacrifice he made in transferring the use and energy value of the wheat to another person.
Mr. Kitson also makes the foolish assertion that the cost of constructing new plants, processes, tools, &c., furnishes little additional purchasing power to the public, though the latter has to pay for this capital expenditure in the price of the goods produced. The money spent on capital works furnishes the receivers of the money with just as much purchasing power as money spent on the manufacture of the goods produced. By increasing our productive facilities, he says, we are decreasing the public power to buy, though in the first article he says that public power to buy depends upon the publics power to produce ! Capital expenditure is obviously an aid to production, and renders the rapidity and efficiency of modern production possible.
Mr. Kitson finally winds up his amazing effort by repeating that unemployment is the inevitable result of a system which failed to distribute sufficient producing power to enable the public to purchase goods as fast as they are produced. Thus he gets embogged once more in his original fallacy regarding the function and purpose of money. All that his statement means is that if people produce more goods than can be exchanged for other goods there is an over-production of those goods. But Mr. Kitson says print more money. The question Mr. Kitson must answer is how the making of more goods when there are more goods than can be sold will produce buyers, and how the issue of bits of papex will enable the Indian planter to be paid for his tea. If motor-cars are in over-supply, the making of more motor-cars will not sell more motor-cars, but create a still larger supply of unsaleable cars. If credit were made available in unlimited quantities there would be no check on the production of unwanted articles ; it would simply entail the sale of all the articles produced to the banks as the lenders of credit. If production alone was all that was needed for a man to obtain credit, then no one need trouble to find a buyer.
Down the vast perspective of the past we see the wake of the unemployment problem. It is as old as the hills, and no schoolboy has yet been born who has been able to solve this Sphinx-like riddle. Progress itself makes unemployment, and it is an inherent feature of the economic organism. The unemployment problem is the problem of exchange. If the world can devise a system for ensuring that an exchange of commodities or services shall be a compulsory, continuous process, then there will be less unemployment. If a man produces carrots when the world is surfeited with carrots, unemployment will ensue unless the world ordains that the people shall be compulsorily fed with carrots. If a man produces poems when the world wants bread, the population must be compelled to fit its stomach to derive animal nourishment from poems instead of bread, to avoid unemployment of the poet.
The solution of the unemployment problem lies not in the manufacture of money, but in the regulation of complementary production. The causes of unemployment and the methods by which it may be kept at a minimum were stated with much clarity of thought by Major Ewart Scott Grogan, D.S.O., in that rather forbidding abstraction entitled The Economic Calculus.
The causes of unemployment are many and various. Major Grogan divided them into three classes : epidemic, endemic, and sporadic. A plague of caterpillars in an agricultural county will produce unemployment ; or a late frost ; or a rush of farm hands to a goldfield. A little reasoning will reveal the connexion at once. Let us suppose that Argentina has planted seed to produce 2,000,000 quarters of wheat and that, owing to a visit of some destructive parasite, the whole of the wheat is destroyed. The Argentine farmers, instead of sending wheat to this country and taking agricultural machinery, motors, clothes, and champagne in payment, go without. The makers of these goods are therefore thrown out of employment. If Mr. Kitson wishes to avoid unemployment he must arrange that there shall be no frosts, no parasites, no storms, no change of habits, no strikes, no deviation from wants, a readiness to consume all that is produced whether it is wanted or not ; no wars, no civil commotions, no inventions that shall lessen work, no enterprise, no ambition, and no idling on anyones part. All these and many other things are necessary to ensure a perfect automatic exchange of all products produced. But he may tinker until Doomsday with the financial machinery, and all he will achieve is great disaster and great discontent throughout the length and breadth of the land.