ABSTRACT
Insuffi cient buying and trade depression In view of the confl icting nature of the statements being made by economists and men of note on the question of whether the present unprecedented extent of unemployment and general trade depression is due to too much or too little buying, it seems advisable that this vital matter should be investigated by the leading economists, that the facts should be ascertained and established beyond controversy, and that national and international policies should be moulded in accordance with these facts. A widely held opinion, perhaps even the orthodox one, is that the present decreased working of factories and increased unemployment of labour are largely attributable to a shortage of capital due to insuffi cient saving; and less spending is, therefore, advocated in order to provide the alleged missing capital. This view, however, is not reconcilable with the facts, because the feature of the situation to-day is abundance of capital in relation to the effective demand for it, and not shortage-the quantity of capital equipment, stocks of goods of all kinds and the supply of money at present available being greater than what can actually be employed at the present time. It is true that many manufacturers and other producers are hard up and that it is diffi cult for them to obtain credit, but this is not due to any general lack of capital. It is due to the fact that they are unable to sell enough. Provide them with the requisite orders, and they will immediately fi nd as much capital as they require. Nor can it be argued in the present case that the trouble is due to the existence of disproportionate quantities of the different kinds of capital equipment and materials in such manner that they are not economically exchangeable with each other, for this implies a shortage of certain kinds of capital equipment or materials, and we know that to-day the common feature in all capital and commodity markets is abundance of supply. Undoubtedly unemployment may be
caused by a shortage of capital and undoubtedly the world does sometimes spend too much, but all the evidence shows that, to-day, it is not shortage of capital that is keeping men and factories idle, but too little buying. That there can be such a thing as too little buying in relation to the general rate at which goods are being produced and brought to market, must be admitted by everybody-even if there are people who, somehow, attribute too little buying to too much spending! But those who realize to what extent debts in one form or another constitute part of the modern economic system, and the way in which the means of making payments open to the debtors are limited by the quantity of goods and services that the creditors are willing to buy from them, will not only admit the possibility of such a thing as too little buying, but will expect it to be the central fact about most general trade depressions. In spite of the fact that both the war itself and the post-war boom were largely fi nanced with borrowed money, the seriousness of the present position as regards international, internal and commercial debts is little appreciated. In the international sphere, a great fi nancier recently said that the debtor countries had to make payments amounting to about $2,000,000,000 annually. For these payments to be made and not merely postponed, the creditor countries must allow the value of their imports to exceed the value of their exports by the same amount. But since all the creditor countries are wildly anxious to resist imports, the fi nancier recommended the only alternative to such increased imports, namely, more loans to the debtor countries. Meanwhile, governments cannot lend any more, investors do not want to lend to countries already overloaded with debts, and those debtor countries that meant to pay do not want to borrow any more. The situation as regards internal and commercial debts is parallel: The debtors (including most of those people who have to make payments in respect of taxes)1 can only pay with money realized on the sale of goods and services; the creditors (including many of those to whom money collected from taxpayers is paid), having already all the goods and services that they want, refuse to employ more services for the production of more goods, and are afraid to go on lending indefi - nitely to the debtors for them to produce for each other. It is true that, in the case of the post-war boom, loans were granted and debts piled up with the utmost freedom, the creditors seemingly being willing to fi nance the debtors indefi nitely. A vast trade was done by selling all kinds of goodsnotably motor cars-on the hire-purchase system; a vast amount of money was borrowed and spent on building and construction by public authorities, by business corporations and by private individuals; and a vast amount of money was borrowed by stock exchange operators which, after being recklessly used for bidding up stock-exchange prices and made to yield hundreds and hundreds of millions of dollars of stock-exchange profi ts, was largely treated as income and spent on goods and services. For instance, the amount of money spent on building and construction in the United States alone rose from about $7,000,000,000 per annum in 1924 to about $9,500,000,000 per annum for the period beginning about the middle of 1925 and ending about the Autumn of 1929. This rise of $2,500,000,000, or 30 per cent, in the amount spent annually on construction may
well represent the difference between a depression and a boom. Again, as regards stock-exchange loans-and the profi ts thereby made and spent-stock-brokers’ loans in the United States reached about $7,500,000,000 in the Autumn of 1929 as against about $4,000,000,000 at the beginning of 1928, whilst a writer in “The Annalist” states that total speculative gains in 1928 in the United States were reported to have amounted to about $5,000,000,000 as against about $300,000,000 in 1918. However, to-day, the instalments of all these international, national and commercial debts are falling due, and the creditors are procrastinating with the dilemma of whether to lend more money or whether to buy more goods and services. Thus, debtors are buying less in order to make payments; creditors are economizing because they cannot get payments; and this decreased buying is aggravating the situation by pulling down prices, wages and profi ts, increasing the debts in terms of goods and services, and rendering the making of payments in money still more diffi cult to effect. Although this enormous amount of borrowing was surely fi nancial madness, this is not to say that the total amount of buying of goods and services effected by this and other means was too great in relation to the supplies that were being produced. The increased buying in the United States, while it lasted, enabled and caused producers to increase their capital equipment and output in the way that only increased buying can, and to this extent it was an important factor in the cause and maintenance of the unprecedented wave of prosperity in that country. Capital and labour alike shared in the prosperity. From the beginning of 1928, to go no farther back, until about the end of September, 1929, the profi ts of producers showed big increases all along the line, whilst, according to the index fi gures of “The Annalist,” employment rose from 92 to 100, and payrolls from 96 to 110, in the same period. Incidentally, this industrial boom in America may well have been the cause of the increase that occurred in British employment during the fi rst nine months of 1929. Moreover, when the acid tests are applied as to whether or not the amount of buying was excessive, the reactions obtained are completely negative: First, the general trend of wholesale commodity prices in the United States, whether reckoned from the beginning of 1925 or only from the middle of 1928, to the end of September, 1929, was clearly downward, which shows that the quantity of goods and services available in the market increased rather more rapidly, even, than the buying. Second, not only no encroachment was made on capital, but, quite the contrary, the permanent wealth of the United States in buildings, factories, railways and equipment of every kind was vastly improved and increased; stocks of raw materials and manufactured goods at the end of the boom were larger than ever; and the amount of capital held in the form of net foreign investments had increased substantially. It is important to observe that the actual defi ciency of buying is by no means a question of insuffi cient gold or insuffi cient currency. It is true that if the output of new gold could at this moment be increased on a vast scale, whereby a vast amount of additional wages and profi ts were distributed to miners and mine owners, the additional buying of goods and services so caused would tend to
neutralize the actual buying defi ciency. It is also true that high interest rates during the major part of 1929 did indicate the possibility of a defi ciency of gold-though some people will argue that the high interest rates were due to over-trading. But to-day, when both the buying of goods and services and the effective demand for credit has greatly decreased, the existing supply of gold bullion exceeds the quantity that can actually be employed by the banking system. Nor is the concentration of gold at the present time in certain countries, such as in the United States and in France, at all the cause of our troubles. It is merely one of the effects or manifestations of the debt problem, which, as already indicated, requires that creditors should either lend more money or buy more goods and services-or be content merely to hoard gold in part payment of what is owing to them and let economic and political events take their drastic course. In this situation there is an important section of opinion in America and in England advocating the necessity of concerted action for the purpose of overcoming the evil of insuffi cient buying whenever it presents itself. It is urged that the credit of the State should be used to combat the buying defi ciency by the employment of labour and materials on extended programmes of public works. But numerous arguments are put forward against such a policy, and althoug most of them are weak, it is a fact that, under existing conditions, the richest countries might not be able to apply it radically, whilst the debtor countries certainly could not afford even to attempt it. The principal diffi culty is that increased buying in any one country would tend to cause its imports to increase in relation to its exports. If, for instance, the United States came out with a large enough buying programme to affect the general situation, whilst England and France maintained a tight buying policy and business as usual, the general effect would be to increase business activity all over the world, but to reduce the net foreign investments of the United States and to increase the net foreign investments of the countries that had directly or indirectly increased their exports to the United States without increasing their imports. In other words, some of the debts to the United States would be paid off, but a certain amount of new debts to England and France and other countries would be created. Nevertheless, it is also true that if the matter were dealt with on an international basis, each country doing according to its means, there would be no question in any country of imports being increased in relation to exports, since both imports and exports of all countries would be proportionately increased. History may yet record an international meeting of creditors to decide, not how little cash the creditors must accept, but how much goods and services-and what to do with them. However, at the moment it is urgently necessary for economists and statesmen to consider the following questions: First, is it true that the world sometimes buys too much and sometimes buys too little? Second, if so, is it enough to increase output per unit of labour and to try to regulate the production of particular kinds of goods in relation to an often unnaturally curtailed demand? Is not regulation of the total quantity of buying also necessary? Third, is it not at all events desirable that steps should be taken to determine the facts in this connection?
