How toOrganize aWave ofProsperitypronbybyJohn Maynard KeynesPaul chan2008
In the springof every yearthere is aseasonalrecovery ofcertainindustrieswhich havebeen heldback by thewinter. Thiscomes handyfor the annualspeeches ofthe chairmenof the bigbanks and fortheChancellor oftheExchequerintroducinghis Budget. Soat each oftheir annualcelebrationstheprofessional
optimistsassure us, onthestrength ofthe springtrade, thatat last therevival is athand.By July wealways knowthat we havebeen had again.This yearparticularlyso. It iscertainthat tradeon the whole isbad. There are200,000 moreunemployedthan atthis date ayear ago.Indeed,there are asmanyunemployed asin any July inthe last sixyears exceptduring thegreat strike.The railwaytrafficsconfirmthesefigures. Sodoes thecondition ofthe stapleindustriesconsideredseparatelycoal, agriculture,cotton,shipbuilding,iron andsteel,motors, andmoredoubtfullybuilding andconstruction. A small
increase incertainclasses ofexports isthe onlyfavourablefeature.In short,both profitsandemployment aredisastrouslypoor. Moreover,the moresuccessfulthe effortswhich are beingmade torestore themargin ofprofits byrationalisation, the greaterthelikelihoodatfirstanyhowofincreasingunemployment.And the moresuccessfulthe effortsof theTreasury, inthe pursuit ofsocalledEconomy, todamp down theforms ofcapitalexpansionwhich theycontroltelephones, roads,housing,etc., againthe greaterthecertainty ofincreasingunemployment.The postwarbuilding
differentthings asthough theywerepracticallythe samething, theydid nothesitate tocommit us to adeflation ofcostswithouthaving any ideaor any plan as tohow it was to bebroughtabout. Yet,as I pointedout when theymade thecommitment, it isextraordinarily difficultto deflatecosts.Broadly,there arethree ways ofdoing it.The first is ageneral assaulton the level ofmoney wages.The coallockout of1926represented anattempt alongthis line ofadvance, andif theemployers hadbeen allowed topress hometheiradvantagesafter thedefeat of theGeneralStrike somesuccess mighthave beenachieved. ButMr Baldwindecided quiterightlytha
s there is forthem noalternativeto pressing onwithrationalisationwhich islikely,moreover, toachieve someeconomies andincreasedefficiencieswhich werealready overdue. But thisis bound toaggravate,rather thancure, theproblem ofunemployment.The thirdway ofdeflatingcosts is totakeadvantage ofthe economiesof successfulboldenterprise andthe working ofplant andproductiveresources to ahundred percent ofcapacity.Industrymight affordthe higherwages imposed onit if it couldwork at fullsteam. Thewastefulnessof plantemployed 10 or20 or 30 percent belowcapacity isextreme.Moreover, theincreased
purchasing powerof a workingpopulation infullemploymentwould reactquickly andcumulativelyon theprosperity ofnumberlessindustriesandoccupations.Probably,even so, itwould beimpossible tobridge theexisting gapbetweencosts andpriceswithout theassistance ofsomeinflation ofthe latter.In any case,to organise a waveof prosperitywhich shallsweep us out ofthe pool ofstagnation inwhich we aredecaying isextremelydifficult,involves somerisks, andmight beunsuccessful. But it oughtto be tried.Unfortunately, it liesentirelyoutside thepower ofindividualbusiness mento take theinitiative.The firststeps can be
taken only bythe Bank ofEngland andtheChancellor oftheExchequer.Yet theconsequencesof their policyso far has beento ensurethatbusinessesshall beunprofitableand thatthe level ofunemploymentshall not fallbelow themillion level.Nevertheless, it is well torecognisesquarely thenature of therisks whichstand in theway of anydeparture fromthe Bank ofEnglandspresentpolicy.Unemployment will notdecline unlessbusiness menhave theincentive ofplentifulcredit, highhopes and aslightlyrising level ofpricesa slightinflation ofprices but notof costs.The newlyemployed menwill needincreasedimports of rawmaterials to
work on, and astheir earningsimprove theirconsumptionwill increase.Yet owing tothe length ofthe period ofproduction,they will nothave much toshow for it forsix monthsor a year, and,if they areproducingcapital goods,adjustments of thecapitalmarket will berequired. Inthe meantimeone wouldexpect thevisiblebalance oftrade to moveagainst us.Thus theprocess ofgetting moremen to work iscalculated tocause a drain onthe resourcesof the Bank ofEngland,just as thedepression hasraised itsresources to arecord level.The practicalsteps whichought to betaken if wereally want toreduceunemploymentare, I suggest,the followingFirst, as MrMcKenna hasconsistentl
ymaintained,the Bank ofEnglandmust graduallyincrease thereserveresources ofthe jointstock banksup to say,£I0,000,000above theirpresentfigureanaugmentationof the basisof creditwhich willensure thatno worthybusinessborrower will beturned downby his bank.Secondlysince this wouldgreatly reduceand perhapsavoidaltogetherthe risks oftheexperimentthe Governor ofthe Bankmust inducehis colleaguesthroughoutthe world tochange theirtune when hechanges his,instead ofhis encouraging ageneraldeflationaryatmosphere byinsisting onevery statebank in Europelocking up itsgold againstnote issueswhich do notneed it.
Thirdly,theChancellor oftheExchequermust removeand reversehis pressureagainst publicspending oncapitalaccount.Every publicdepartmentand every localauthorityshould beencouraged andhelped to goforward withall goodprojects forcapitalexpansionwhich theyhave ready orcanprepareroads,bridges,ports,buildings,slumclearances,electrification,telephones,etc., etc.When we haveunemployedmen andunemployedplant and moresavings thanwe are using athome, it isutterlyimbecile to saythat wecannotafford thesethings. Forit is withtheunemployedmen and theunemployed
plant, andwith nothingelse, thatthese thingsare done.To have labourand cementand steel andmachineryandtransportlying by, andto say thatyou cannotafford toembark onharbour worksor whatever itmay be is thedelirium ofmentalconfusion.For severalyears pastthese policieshave notlacked powerfuladvocates whohave some claimto wisdom andexperienceMrMcKenna,LordMelchett,Sir JosiahStamp, forexample,amongstbusinessauthorities,Mr Lloyd Georgeand LordBeaverbrookamongst publicmen, andmanyeconomistsandjournalists.I do notbelieve thattheChancellor oftheExchequer is
naturallyunsympathetic to thisoutlook. Buthe hassuccumbed,just as MrSnowden didbefore him,to thetimiditiesand mentalconfusions ofthe socalledsoundfinance,whichestablishesas an end to beworshippedwhat shouldonly be pursuedso long as it issuccessful as ameans to thecreation ofwealth andthe usefulemployment ofmen andthings.According tothe census ofproduction,the averagenet output ofan employedperson in thiscountry is£220.Therefore,the output of amillionpersons overfive years is £1,100.000,000.It is verypossible,therefore,that thepolicy of theBank ofEngland overthis periodhas reduced
the wealth ofthe countryby not lessthan£500,000,000.The nature ofthe errorcommittedwill never beexactlyunderstoodby thepublic. Butitsconsequenceswill have aprofoundeffect onthe generalelection andon the futuregovernment ofthiscountry.