XI What is trade depression?

Supposing that a group70 of people (which we shall call the Group) were the exclusive holders of all bonds and bills in connection with the entire internal National Debt of Great Britain, and that they, from patriotic or other motives, placed on deposit in their banks £300,000,00071 annually instead of using it for the fi nal-buying of commodities and services. Would the banks be able to fi nd reliable borrowers willing and able to increase progressively each year their loans to the entent of £300,000,000? and would the production of new commodity capital be increased to this extent beyond the normal increase? What, in fact, would be the economic position after ten years of this-if, indeed, it could be continued for anything like so long? Would there not be a complete stoppage of trade, ending in a revolution? Let us take a rapid glance at the features of such a contingency. For the purpose of our example, let us assume that almost the whole of the interest on the internal British National Debt is used for fi nal-buying by those who receive it; and that thus, whatever money is withdrawn from business by taxation for the purpose of paying the interest in question is almost all returned without appreciable delay to producers and distributors in exchange for their wares. But, if in any one year a Group, after collecting all the interest on this internal debt, held £300,000,000 of it on deposit instead of using it for buying, the total income of shopkeepers, merchants, manufacturers and others from whom goods and services would have been bought would be reduced that year by the amount in question, and these producers and distributors would be forced to cut down their private expenses to a considerable extent.72 This would hit more shopkeepers, merchants, manufacturers and others, which again would affect another lot; and so the total loss to business would considerably exceed the £300,000,000 that the Group, in the fi rst instance, merely held on deposit instead of using for buying. There would be a general fall in prices, but it would not be suffi ciently rapid, particularly in respect of wages, rents and the cost of production, to prevent heavy reductions in the quantity and money value of sales, loss of employment by workers, and reduced production; and the shrinkage in the quantity and money value of business would necessarily be accompanied by a shrinkage in the effective demand for loans by producers and distributors, in the volume of bank loans, and incidentally in total deposits. Serious as this would be, business might recover the next year under normal conditions. But, supposing the government proceeded,

year after year, to drag the usual quantity of money out of the pockets of the people, and the Group, by persistently holding the money on deposit instead of using it for buying, continued to prevent these people earning back the £300,000,000 annually, what then? It may be ventured that before ten years had elapsed and the members of the Group had piled up £3,000,000,000 to their credit in the banks, industry and trade would have shrunk to a shadow, a large proportion of the population would be dependent on emergency government relief fi nanced by loans from bankers, and those capitalist classes dependent on industry and trade would be selling and mortgaging property and securities to the banks in order to raise money to keep going. Thus, the new government securities or promissory notes in respect of the emergency relief loan, all other securities and all property, apart from what belonged to the Group and those similarly placed, would come into the possession of the bankers; but, on the other hand, the bankers would be liable to pay £3,000,000,000 in cash to the Group, which is considerably more than the total quantity of gold coin and bullion in the world, and about eight times as much as the total quantity of gold and fi duciary paper money in the country. Assuming always that the government did not intervene to help the bankers, the Group could then force the bankers to suspend payments, and take them over on their (the Group’s) own terms. Probably long before things came to such a pass, the bankers would cease buying securities and granting loans on securities and property. But in this case, the absence or shortage of money in the hands of almost the entire population would enable the Group from time to time to pick up property and stock exchange bargains at panic prices, waiting for the money so paid out to be returned to them via the tax collector; and, in the meantime, the position of the bankers would become desperate, seeing that their investments would become unsaleable except to the Group, whilst their huge liabilities to the Group for deposits would be growing rapidly. This, of course, is a very inadequate picture of the possibilities involved, but it gives some idea of the uncanny power that can be exercised by a group, equipped with a suffi cient quantity of government bonds, merely abstaining from buying. Let us take another imaginary case. Supposing everybody put one-half their total monthly incomes on deposit in the banks each month instead of using the money for buying, what effect would this have upon industry and trade? It is here urged that very soon all trade would come to a standstill, after shrinking in geometrical progression by upwards of 20 per cent. each month; and that total deposits would shrink until all credits become “frozen”—namely, until the repayment of loans, and consequently the destruction of deposits, became impossible. If the banks, as some people believe, have the power to enforce infl ation or prevent defl ation, what would they do to save the situation in face of an excessive and persistent wave of “saving” of this sort? Increased fi nal-buying alone would help matters, and failing increased fi nal-buying by the public it would have to be done by the government. What, by the way, do the advocates of unqualifi ed saving think about the question of middlemen? Does their belief in “saving” force them to press for the abolition of middle-men? It does not seem to occur to people that the continuous

multiplication of middlemen is the logical outcome of the continuous tendency of production to be held up by under-consumption, rendering it a more profi table occupation to help the producer to sell than to help him to produce. The belief is widely held, even amongst economists, that all money not used for the fi nal-buying of consumable goods and non-productive equipment is immediately and necessarily used, directly, through the stock exchange, or through the banking system, for increasing the quantity of commodity capital. But inquiry into the different things that may happen to money income made available by abstinence shows that there is such a thing as excessive abstinence which causes the production of consumable goods, non-productive equipment and productive equipment, alike, to decrease.73 When the velocity of fi nal-buying in a country is insuffi cient in relation to its ready productive capacity, either the velocity of production is to that extent checked, or a stagnant surplus of goods is created-and a stagnant surplus is not even exportable unless, for one reason or another, enough money to buy it is transferred to countries abroad that may be willing but unable to do so.74 It is signifi cant that the largest unexportable surpluses occur in the richest countries, and that these are the countries that suffer most from the intensifi cation of the effects of such surpluses. The United States, the richest country in the world, not only wants no foreign goods, but she cannot even deal with her own goods. She frequently resorts to dumping them abroad and sometimes to destroying them. The cry for “protection” against surpluses of other countries has been raised almost everywhere for years past. We fi nd, in countries where there are millions of people in urgent want, manufacturers and workers alike calling for “protection” against the required supplies, lest their occupations become unnecessary and they themselves become victims of the situation. All countries think that salvation lies in reduced imports and increased exports; but they cannot all be right. In the creditor countries the fear of receiving anything more than paper payments from the debtor countries causes opinion to be divided between “protection” and cancellation of international debts. The diffi culty of selling either at home or abroad is also put down to high prices, particularly by fi nancial interests in the creditor countries, which, seeing increased wealth in lower money prices, have everywhere put the defl ationary process into action to a greater or less extent. On the other hand, everybody as a seller wants higher prices, and they all bring much evidence to show that this is a mere necessity in each of their particular cases. Some talk about over-production and even over-consumption; others say that our economic troubles are the result of transit through the depression patch of the trade cycle-a deplorable thing, but more or less inevitable; and historians and politicians, impressed by the débâcle, but unastonished, tell us that it is the usual thing after a great war. But in the United States it has been called, both by business men and labour men, what it really is, the “buyers’ strike.” It is not generally appreciated that the rich must buy the work of the poor before the poor can buy from the rich, and that lending is only putting off the issue; that, if the creditor countries are unable or unwilling to buy enough from the debtor countries, still less are the debtor countries able or willing to buy enough

from the creditor countries; and that inability of the creditor countries to buy more than they do is due to maldistribution of wealth in these countries, whereby the rich are unwilling, and the poor unable, to buy enough. Selling abroadexporting-by a creditor country is impracticable unless there are people in it able and willing to buy imports in exchange, or unless it is profi table and safe to invest or lend money abroad. Once the rich have bought all they want, selling by them either at home or abroad, except in exchange for more or less distant options to call imports, is impossible. When the rich refuse to buy and the poor cannot buy, all trade stops regardless of political boundaries. Trade depression in a particular trade may be the result of over-production in that trade in relation to production in other trades; but general trade depression is due to under-consumption arising from maldistribution and false economy which passes in the name of “saving.”