ABSTRACT
§ 1. Cyclical unemployment cannot be attributed to failure of wheat harvests, for (1) statistics show no correspondence between changes in world production of wheat and fluctuation of employment, (2) the effect of a shortage of wheat upon the aggregate employment could not be large. A simultaneous shortage of several important raw materials may appreciably affect employment, but statistical evidence does not indicate such shortage as a chief cause of cyclical unemployment. —§ 2. Machinery or other improvements in an industry may cause an increase or decrease of employment in that trade or related trades, according to ‘elasticity of demand,’ but cannot account at any given time for any large proportion of displacement. —§ 3. For the main cause of unemployment we must look to the action of the ‘unproductive surplus’ in stimulating automatic saving at a higher rate than is needed and can be used to assist in making provision against future consumption. Economic checks on over-saving only operate where much mischief is done. The unemployed problem is that of the existence of a simultaneous excess of all factors of production. —§ 4. Analysis of the course of actual depressions confirms this interpretation. The psychological or ‘credit’ explanation turns ultimately on the known inability of business men to dispose of goods at profitable prices, i.e. the failure of consumption to keep pace with power of production. —§ 5. The existence and amount of over-saving is concealed by the mechanism of investment. In depressed trade over-savings need not stand in a growing pool of idle capital: their owners may invest them, not in setting up new capital forms, but in acquiring property from impoverished owners. —§ 6. This analysis furnishes a test of the efficacy of all remedies or palliatives of unemployment. The validity of remedies depends upon their power to stimulate consumption by increasing the proportion of spending power vested in the workers or in public bodies.
