UNEMPLOYMENl ifflrft 1 ARTHUR KITSON Hntt (InUcge of ^Agriculture At (SiotneU Itttitietsitg SItbtart) Cornell University Library HD 5767.K5 Unemployment, the cause and a remedy, by A 3 1924 013 903 145 Cornell University Jbrary The original of tliis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013903145 UNEMPLOYMENT The Douglas Credit Scheme Economic Democracy By Major C. H; Douglas Second and Revised Edition. Cr. gro. cloth. 6/- net. Credit Power and Democracy With a DRAFT SCHEME for the MINING INDUSTRY By Major C. H. Douglas Second and Reviled Edition. ' Cr. 8vo. cloth. 7/6 net. With a commentary on the included Scheme ' by A, R. ORAGE CECIL PALMER UNEMPLOYMENT The Caase and a Remedy By ARTHUR KitSON Author oi THE MONEY PROBLEM TRADE FALLACIES A FRAUDULENT STANDARD ETC. LONDON CECIL PALMER Oakley House, Bloomsbury Street, W.C.I. FIRST EDITION 19 2 1 COPY RIGHT ARTHURS PRESS LIMITED PRINTERS GLOS. Foreword. IN the month of February last the writer of the following articles was a guest at a dinner party in London at which several well-known financiers and merchants were present. The con- versation soon turned upon the question of the . counliry's industrial paralysis and each member was asked to express his opinion as to the cause and to suggest a remedy. The first speaker, a merchant, said that periods of trade depression and unemploy- ment are the result of liatural laws and have occurred every 10 or 12 years for the past century and are unavoidable. - Another quoted with approval the statement of the Prime Minister that the crisis is the result of thje war and that unemployment is inevit- able and irremediable. A third member, a financier, said that our troubles were the direct consequence of currency inflation and the creation of paper money. He added, "If we had stuck to gold, all these difficulties might have been avoided." His remedy wais to return to the gold-standard. A fourth attributed the cause to the unreasonable demands of labour. " We must first reduce wages,'' he said, " and so bring about a fall in prices if we are to escape from the presenT morass into which the Government has driven us by its foolish panderings to labour '' ! A ■fifth member held the Government responsible by reason of their haying retained so many restrictions upon trade since peaces was declared. "Fre^and unrestricted trade, he added, " is the only, remedy." UNEMPLOYMENT One or two remaining members agreed with one or other of the opinions already given. The writer's turn came last and he expressed himself as being in entire disagreement with every member present. Not one of the reasbns so far urged for our industrial woes would st^uid even the most superficial investigation, and consequeiiily the remedies suggested were not only worthless bat foolish. To begin with, for at least 15 months aher the war had ended the country, eiljoyed a period of great industrial activity and trade prosperity. The war left the world with a vast shortage of goods of every description an^ consequently no sooner had the guns ceased firing than orders began pouring in from every quarter of the globe. Factories were, rapidly converted from the meinufacture of war munitions to that of life-sustaining commodities, and extensions were soon made to cope with the extraordinary demand. Hundreds of thousandis of men from our demobilised armies were absorbed into the various industries. New enterprises sprang into existence and the demand for money and credit for productive work grew proportionately. Every condition favourable to a long period of prosperity existed. j_ , In spite^f the foolish bonded-debt policy which- our Government — under the influence of the Trea- sury biiiciak and the professional money-lending classes, — had adopted throughout the war, Great Britain emerged from the conflict far wealthier so far as her productive ability and facilities are con- cerned than when she entered upon the great struggle. And it only required a comparatively short period, s£ty ten years, of this pro:>perity which had then started to enable her to rid herself entirely of h«r national debt Now if there' were any triitn UNEMPLOYMENT in the opinions just expressed such as the war hav- ing been the cause of the present trade slump, or natural laws, or the demands of labour, or trade restrictions, or an inflated currency, why did these so-called . causes which existed in 1919 and 1920 fail to operate until about the beginning of last summer? Why were they dormant for over 15 months ? Such flimsy reasons wouldn't satisfy the curiosity of a child. But now let us see what happened just about 12 months ago, viz., March 1920. After this brief period of prosperity the country was startled by the sudden announcement by the Chancellor of the Exchequer (Mr. 'Austen Chamberlain) that the Government had " set its heart upon gradually deflating the currency" and he called upon the bankers to assist him in restricting credit. The bank rate was advanced to 7 per cent, and the game of squeezing industry for the benefit of bond-holders and money-lenders commenced. It vras no mere coincidence that the trade slump started the very day this amazing speech of the Chancellor was published. Realising that this deflation policy meant the slaughter of all values^ the destruction of all enterprise, a drastic fall in prices and wholesale bankruptcy, the country took alarm and played for safety.- No one cares to buy goods on a falling market. Orders began to be cancelled ! Stocks were offered at prices below cost. The public de- mand commenced to slacken! Many workmen were put on short time whilst thousands more were discharged. And with the decrease in wages the public ability to buy goods also decreased. The idea that a policy of this nature could be under- taken without a diseister to trade and industry, that, UNEMPLOYMENT deflation might be proceeded with so gradually as to do the country no harm, could only emanate from a mind wholly ignorant of trade, commerce and history ! The writer madntained that industrial and social conditions would necessarily grow worse until this policy of credit contraction vras reversed. He -ven- tured to call attention to the numerous warnings he had sounded in the daily and weekly press and in various pamphlets and books published during and since the war as to the dangers of attempting to contract the currency after peace vras dedared.' Many similar warnings have also been uttered, no- tably by Lord Milner in the House of Lords, by Lord Leverhulme and by Mr. McKenna, the Chairman of the London Joint City and Midland Bank, and others. In spite of these warnings the Chancellor and his Treasury, officials, aided by the Bank of England, persisted in their mad course of raising the Bank rate and contracting the money and credit supplies with the terrible results we are now witness-r : ing. Bankruptcies have increased more than 100 Eer cent, over those of 1919, whilst unemployment as risen to the ihcredible number of 3,000,000! The Coal Strike — the direct result of wages dispute and therefore of the Governme;nt's dearTnloney policy^ — is further evidence of the ruin wrought !. In short, we are now beginning to experience A repetition of that terrible period following the Napoleonic Wars commencing about 1820 and cul- minating in the "hungry forties" for which Lord Liverpool, SirvJlobert Peel and his chief adviser. Lord Overstone (Chairman of Lloyds Bank) were-- by reason of their currency deflation policy— directly responsible. ^ 6 UNEMPLOYMENT _ Precisely the same results are being experienced m the United States and from a similar policy of currency contraction for which certsun financiers of German and Hebrew origin are said to be th* authors. According to the Manufacturers Record (a widely r6ad American Trade Journal) this currency contraction has thrown out of employment , some 4 million operatives and has cost the Ameri- can people over £6,000,000,000 during the year of 1920 alone! The writer's estimate of the appalling losses which this country has experienced directly as the result of Mr. Austen Chamberlain's policy for the past year is equivalent to l/6th of the estimated wealth of this country in January 1920 which then stood at £30,000.000,000 ! Hence the loss stands at hilly £5,000,000,000 ! Now let us look at the other side of the question ! The German Govern- ment refused to enslave their people during or since' the war by borrowing from the world's money- lenders to the extent and in the manner our Government have done. They used and are still using their own national credit in the form of paper money instead of borrowing the credit of others, and, they were not afraid of meeting the usurers bogey - in^f ton / What have been the results? Although they suffered a terrible military defeat and are compelled to pay a war indemnity, they are to-day the most prosperous industrial nation in Europe. They have escaped the ruinous interest char- ges with which we and France are burdened ! Their factories are running full time and they have but a very small percentage of unemployed — far, far less than any of the allied nations. Their industries are earning fabulous profits. They realise by experience diat their cheap currency gives them an enormous advantage in trade competition over their rivals who UNEMPLOYMENT are still deluded by the gold-standard dear-currency theories ! Hence they are capturing the world's markets as fast as their factories are able to tarn ojit the goods. In short, whilst our orthodox Econom- ists, financiers and Government officials are doing their best to strangle British enterprise by reviving their old and exploded financial theories, our sworn foe is invading our markets, capturing our trade and that of our allies by adopting the very policy our orthodox Economists have condemned as im- practicable and ruinous ! In regard to periods of trade stagnation and un-' employment, the writer said that not only was there a remedy but he considered the mere assertion that these evils were "unavoidable and irremediable," was a disgrace to the Government that made it and ought to be sufficient to disqualify every member for ever holding a public office again. Political,, social and economic events are the results of political, social and economic caused and there is no need or excuse for attempting to lay the blame for these evils upon Providence or Natural laws. Pre- cisely the same assertions were made by the religious bigots of the middle ag^s regarding diseases with which whole communities were occasionally destroyed. These were all said to be visitations of an angry Providence and unavoidable until a num- ber of intelligent men began to investigate the nature of these diseases and trace their origin.. After further discussion the writer was finally challenged by his opponents to furnish a remedy for unemployment and industrial depression. Hence these articles which recently appeared in the wefekly trade supplement of the London Times. At the re- quest of very many of the Times readers and UNEMPLOYMENT through the kindness of the Times Publishing Co. and of the Editor of the Times Trade Supplement they are now reproduced together with the criticism of the Times City Editor. These articles constitute the third set of a series on |rade and finance contributed by the writer dur- ing and since the war. The first articles appeared in "Land and Water" during the year 1916 and were published the following year under the title of "Trade Fallacies'' by Messrs King & Son. The second set appeared in the Times Trade Supple- ment in 1918 and 1919 and were republishedto- gether with a criticism by Mr. Hartley Withers (Editor of the Economist] last year by Messrs. Dolby Bros. (Stamford) under the title of "Money Prob- lems." In addition to the above series in 1918 " A Fraudulent Standard " (which is an exposure of the fraud underlying the so-called " gold-stemdard") was also published by Messrs. King & Son, (London) and "A Criticism of the First Report of the Currency Committee presided over by Lord Cun- liffe " (Dolby Bros.) appeared the same year. These writings, which have entailed a vast amount of labour and considerable expense to one whose normal working hours are and have been for years fully taken up with inventions and engineer- ing work of an absorbing character, were undertaken solely from a desire to save England especially, and the world generally from the dangers and perils with which we are now encompassed, and against which the writer has been warning the Government and the public in the writings above mentioned as well £is in scores of letters to the press, in magazine arti- cles and at numerous public meetings throughout the country for the paist 6 or 7 years. Blinded by UNEMPLOYMENT ignorance and conceit the Government has persisted in its ruinous course of wanton extravagance, crush< ing taxation and currency deflation— a three-fold policy which if continued * would bankrupt any Empire even if it comprised the wealth of the world! The British public are beginning to ex- perience the truth- of the statement ma^ by the writer in 1916 that of our two greatest dangers— the one being our foreign foe, Germany, and the other our governing permanent officials- the latter would eventually prove to be the more costly and dan- ferous ! " A state can be laid low just as effectively y wrong ideas as by an invading army " says Lord Inchcape. " There is " he adds, " no agency of de- struction known to the chemists that is half as for> midable as the T.N.T. of bad economics." And since the advent of the present Coalition Government we have been deluged with " bad economics." One of the most deplorable results of the Government's financial policy, which the writer foretold in 1917 would happen, is the abandonment one by one of all the reconstruction plans recommended and promised by the Government during the war ! Just now there is an agitation on foot for including a course of elementary economics in our ordinary public school education. This is very desirable provided the course is based upon facts and not as IS now the case in most of our Colleges and Schools of Economics upon fiction. Our present plight is directly traceable to our orthodox economic Pro- fessors and their teachings. It was a Cambridge Professor who urged the adoption of the high bank rate which has proved so terribly disastrous to our trade by adding to the costs of production, by restricting credit and killing enterprise. It was a London University . Professor who added to the UNEMPLOYMENT gnitty o{ nations by seriously proposing to prosecute the Chancellor of the Exchequer for issuing oiir one Npoiind Treasury notes because they were of less value than the gold contained in the sovereign ! We are now reaping the fruits of the iiolicy ad- Vised by the Cunliffe Currency Comihittee, by Pkofessor Pigou, by Mr. Basil Blackett of the Trea- sury Dept, by Sir John Anderson, formerly of the inland Revenue Dept., by the Governors of the Bank of England, by the City Editors of the Times, the Daily Mail, and the Morning Post, and all the other advocates of dear money! The ruinous ad- vice tendered by these gentlemen is the product of our orthodox school teachings. As for the public fenerally, to them Economics is like their religion. 'h6y take it on faith, believing in the authority of their teachers, viz., the Financial Editors of their daily papers. It there is one truth which experience has' taught the industrial world more theih any other, it is that a dear scarce currency is disastrous to tr^de whilst a cheap currency limited only by needs of commerce, is advantageous. The orthodox school has in its criticisms of these articles, declared itself bankrupt. 'It' has nothing to oilFer as a remedy or preventative for these economic disasters. One has only to read the replies of the Times City Editor in this discussion and that of Mr. Hartley Withers in " Money Prob- lems" — both acknowledged "authorities" — to retdise that there is nothing to hope for from their school of thought. Sut a solution to the riddle must he found or else civilisation will perish! The really amazing feature in these discussions is the fact that there is apparently no desire on the part of die orthodox school to find a remedy for our present U N E M P L O Y M E N T ei^ls. On the contrary they make it a principle to denounce, ignore or throw contempt upon any proposed remedy. Representing merely the interests of the money lending classes who are quite satisfied with a system under which they reap enor- mous profits regardless of whether trade is good or bad, and by which in times of panic the Government protect them and throw all the risk on the public's shoulders, there is no reason why they should advo> cate any change. _ But a change is inevitable. Our present situation is transitional and we shall witness shortly either a radical change of policy or a complete collapse ! In setting forth Major Douglas' plan as a remedy for unemployment I was influenced by what struck me as its remarkable simplicity and its avoidance of anything aipproaching disorder, claf trltde and industry. ^ " ■ I UNEMPLOYMENT One event which is well worth noticing is the fact that the deAation policy which is responsible for the great wave of industrial depression is wholly confined to the allied and English speaking coun- tries ! Surely this is something more than a mere coincidence ! In conclusion it is only fair to say that since the publication of these articles, all the members present at the dinner referred to, at which the -writer was challenged to furnish a solution of this great problem, have written acknowledging that they consider the terms of their challenge have now been fully satisfied. Stamford, Lines., ARTHUR KiTSON. May 20th, 1921. (3) «j Unemployment _, IS THERE A REMEDY ? I.~ROOT CAUSES Recently a number of financial and commercial expertt, mfter discussing unemployment, came to the conclusion that there was no remedy. Mr. Arthur Kitson, who was present, demurred, with the result that he was challenged to publish a ^ solution of the problem. The challenge was promptly accepted, and as we can conceive no subject likely to be of greater interest to our readers we gladly acceded to o request to give publicity to his views. — Editor of The Times Trade Supplement. IS there a remedy for unemployment, or is the problem, as stated by the Government and its 'experts," insoluble? My answer is that not only is there a practical remedy, but the problem itself, when properly understood, is so ridiculously simple that the average schoolboy ought to be able ^to furnish a satisfactory answer. There are many obstacles to human progress arising from natural causes over which man has little or no control. There are others which are by far the more numerous, and entirely the result of UNEMPLOYMENT man's stupidibr, superstition, ignorance, preiuclice,t and greed. These obstacles can be removed as soon as the causes are generally known— provided the majority of the people are determined to remove them. Of all these evils the most unnecessary, those which any free and intelligent Government could^ if it really desired, most easily avoid, are poverty and unemployment. That the Government of a country which has had more than two centuries' experience in indus- trialism should have the temerity to admit that they know of no method by which the national industrial machine can be kept busy when myriads are perish- ing for lack of goods is one of the most disgraceful confessions any body of intelligent men could possibly make! Yet, during the past few weeks, we Bnd the leaders of every political party-states- men, financiers. Labour members, economic pro- fessors, journalists, and divines — ^publicly acknOw-^ ledging that in their judgment . unemployment is beyond human control — an acknowledgmefnt of ignorance and stupidity which ought to brand them as utterly unfitted to hold any public office ! If it were true that, in spite of the enormous development in invention which has increased man's productive resources a thousand fold, poverty and starvation— the attendants of unemployment- are unavoidable, one could oi^ily pray^ as the late Professor Huxley once said, that some friendly comet might speedily collide with our planet and put an end to all this misery ! i6 UNEMPLOYMENT Simple Problem. Fortunately the problem is not only capable of solution, but is so simple that future generations will read the writings and speeches of present day "authorities" with the same amusement and astonishment as that with which schoolboys read the essays of a certain doctor of science of 50 years ago in which he sought to prove that no vessel built oi steel or iron could possibly float ! "Considered as a branch of the science of a statesman or' legislator, political economy," wrote Adfun Smith, ' proposes two distinct objects : — First, to supply a plentiful subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves ; 'secondly, to supply the State or Commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the Sovereign." " How happens it then," asked Proudhon, the French iconoclast, "that in spite of so many mira- cles of industry, science, and art, comfort and culture have not become the inberitance of a]l? How liappens it that in Paris and London, centres of social wealth, poverty is as hicleous as in the days of Caesar and Agricola?" For the hundredth time or more the social Sphinx propounds the self-same riddle, and cries, " Answer or perish ! " One is naturally inclined to ask why, if the riddle is so easy, no answer has been given through- out all these years? My reply is, firstly, that •7 UNEMPLOYMENT answers to the problem have already been made, bat as these can only become effective through their adoption by the Government, it rests with our rulers to say whether unemployment shall or shall not continue. Secondly, there is reason to beli^eve that Governments are not, and have never been, particularly eager to find a remedy. Had they been really in earnest, one would have expected that every possible avenue which promised salvatioit - woul^ have been explored and that subi^antial re- wards would have been offered to the discoverer of the^ great secret. If it pays private firms to offer prizes for inventions for overcoming certain techni- cal difficulties encountered in their businesses, surely it would pay any Government to discover a panacea for the evils of trade' depression. Yet since remedies have been offered and remain neglected,^ the infer- ence is plain that so far as Goverijments are con- cerned either they do not wish to try them, or else they imagine the remedies_may prove worse than the disease. Government "Experts." Of one thing we may feel assured. Since our Government * experts " nave stated that the prob- lem is incapable of solution, they are. not likely to allow themselves to be persuaded to swallow their own words, no matter how plausible a remedy may be offered. Our experts are not of the type who would ever acknowledge fallibility in their -economic pronouncements. .Hence, no matter how serious our industrial affairs,^may become, it is quite certain that no remedy will be permitted to interfere with the present order of things so long as we are govr erned by the present set of permanent officials. i8 UNEMPLOYMENT Let us state the problem in simple terms. The industrial world, comprising agriculture, mining, and manufacture, is engaged in producing goods neces- sary for human existence and comfort, and — thanks to inventions and discoveries — is able to produce goods of every description in such abundance and with such comparatively little effort that periodically the markets and warehouses are glutted and the channels of trade become so congested as to cause a slowing down of the whole machinery of produc- tion and the consequent wholesale discharge of operatives. Meanwhile, the vast masses of the population are in want of those very goods, the apparent over-production of which clogs and retards the wheels of industry. At all times wealth- producers find greater difficulty in disposing of ifoods than in producing them. The real problem is, therefore, to discover some method of selling goods as fast as they are created. It is in search of an answer to this problem that all nations are ransacking the earth for fresh markets. It is for this reason that international commercial competition has of late years become so keen and so dangerous. Unless a correct solution is found and adopted the resuh will be endless future wars. The problem can be made very simple by means of the following illustration : — Imagihe an engine operating a pump connected to an oil well raising the liquid Irom the well to an overhead reservoir for supplying the public. The engine is supplied with oil by a tube from the reservoir. This tube has a valve fitted at the top which closes automatically with the weight of oil in the reservoir, to prevent overflowing. Another pipe »9 UNEMPLOYMENT PabticSttpBly Main Mr. Kitsou's Homely Illustration. runs from the reservoir to the main and supplies the public demand. Now it is quite evident that sq^ long as the engine and pump remain in good work- ing order, the continuous running of the plant will' depend upon two things— (1) the supply of oil in the well; (2) the consumption of oil by the public at the same rate at least as the reservoir is supplied. Any slackening in the rale of consumption would soon tend to slacken the speed of the plant and finally stop the pump. -Further, any increase in the efficiency of the plant by which the supply of oil fo the reservoir is increased would also tend to stop the plant unless the public consumption be increased in the same proportion. UNEMPLOYMENT Let us translate this illustration into the terms of our present economic condition. Our oil well corresponds to the earth — nature and raw material, the mines, fields, and forests. The engine and pump correspond to labour and capital engaged in converting the raw material into finished products. The reservoir indicates our markets and warehouses where finished goods are sent. The public oil main represents our transportation system. The supply tube from the reservoir to the engine represents the proportion of the products which must be continu- ally supplied to labour and capital to keep our wage-earners and maintain our factories and plants in working order. By an unbiassed jperson the following truths will scarcely be questioned :-^ 1. The employment of labour and capital is dependent upon {a) constant supplies of raw material ; (h) the ability of the public to purchase commodities as fast as they are produced. 2. Any curtailment of consumption by the public below the rate of production (whether by reason of saving or for £my other cause) must neces- sarily tend to check production and cause unem- ployment. 3. Since the public power to purchase goods depends chiefly upon the wages, salaries, and divi- dends paid in the process of producing commodities, any slackening in the rate of production must tend to reduce the effective demand for goods. R— PURCHASING POWER AND PRICES THE ability of the public to buy goods depends upon (a) the quantity and rate ol flow of purchasing power into the public's pockets; r their surplus goods, what then? Must our people starve or emigrate because the foreigners will not buy our goods? Our governing ofRcials actually see no other alternative. Hence the Prime Minister's suggestion to ship our unemployed to the Colonies ! Hence his feverish anxiety to effect a trade agreement with Russia I For this reason also our Government "experts," whilst advising the curtailment of purchasing power to the British pub- lic, Jire recommending the grant of credit loans to our late enemies! If these "experts" are to be believed, we are confronted with the extraordinary »4 UNEMPLOYMENT paradox of being able to produce unlimited goods which we are unable to use or distribute ! And hence our workers must starve whilst goods lie rotting 1 It is a case of " water, water everywhere, but not a drop to drink ! " < Again, the fixing of prices, although of the utmost importance to the public, is the result of conditions on which they have little or no influence. Costs of production necessarily form the lower price level, whilst the higher is determined by the effec- tive demand for goods. Between these two extremes prices oscillate. Yet since effective demand depends upon the amount of currency available, it will be seen that the control of currency means con- trol not only of prices, but of trade, industry, em- ployment^ in short, it means the control of our national existence ! This control, as I have said previously, has been given, through our banking and currency laws, to those controlling our financial institutions. It is because of this that for the past quarter of a centuify I have been calling the atten- tion of the public, and of the members of the industrial world in particular, both here and abroad, to the terribly dangerous and rapidly increzising power which ibe monetary laws of all nations have placed in the hands of any few irresponsible indi- viduals who may happen to secure control of the world's banks and credit institutions. A New Menace. Less than a century ago the problem of produc- ing goods in sufficient quantities to meet the world's demands was all-important Inventions and economic methods 'of production were eagerly 25 UNEMPLOYMENT sought ; the hours of labour were necessarily long. The industrialists, the manufacturers, were the leading citizens and were rapidly superseding the great landowners as the controllers of economic power. The past 35 or 40 years have witnessed another revolution. No loriger are we menaced with a shortage of goods ! The world is threatened with a surf eit of manufactures ! An American efficiency expert stated not Jong since that, taking the productive facilities of^the United States as a whole, including skilled and ordinary labour, machinery, tools, &c., the quantity of goods produced in a given time did not represent more than 5 per cent, of their industrial efficiency ! This means that with a slightly increased effort America might readily treble and quadruple her present output ! And with a very determined efFort this output could be increased tenfold ! The cry is now not so much for production as for consumption. . The man of the moment is not the producer, but the buyer. The present " Lord of Creation " is not the creator of goods, but the creator and controller of credit— the man who has the power to say who may and who may not receive financial accommo- dation, to whom even kings and statesmen bow the knee in acknowledgment of his supremacy in the world's aifairs. Now the chief characteristic of our modern industrial system is this, that it depends for its operation largely upon the purchasing power given to employees, owners, and investors in the process of production. Wages, salaries, and dividends com- prise the methods by which the bulk of the money and credit available for buying goods reaches the 26 UNEMPLOYMENT public, and these can only be paid whilst produc- tion continues. Stop production and the ability to purchase and, therefore, to consume is destroyed — except by some system of Government doles — not- withstanding that the country is full of goods deteriorating rapidly. It is true that we have another field for dispos- ing of our products, viz., foreign markets, and as will be shown later, owing to the insufficient amount of purchasing power given by our industrial system to those engaged in production, and the prices at which goods are offered to the public, our own markets are unable to absorb more than a fraction of British-made goods, and we are therefore com- Eelled to depend upon our Colonial and foreign uyersi. This does not mean that our own people are unable to consume more British-made goods if they had enough money to buy more. On the contrary, if wages, salaries, and dividends, for example, could be doubled or even trebled, without raising the level of prices, our mills and factories might continue running year after year without our having to be quite so much at the mercy of foreign buyers as we are at present. Further, through opening our ports to the free entrance of competitive goods " made in Germany " and elsewhere, we naturally reduce the effective demand for our own products, which also tends to foster unemployment. Ideal Economic Condition. Now the ideal economic condition of any indus- trial nation is to be self-contained^i.e., to be able to produce every necessity and as many of the luxuries of life as possible sufficient for supporting »7 UNEMPLOYMENT the population. The United States is probably the best example of a self-contained nation. The British Empire, federated and controlled on similar lines, could also provide its inhabitants with equally enviable conditions. Foreign trade would then become an altogether secondary consideration. The United States could provide an abundance o{ goods of almost every description for evexy one of its inhabitants, provided it utilized its productive resources to a sufficient degree of efficiency, and also introduced a credit system which would enable every one to purchase his share of the goods pro- duced. To a somewhat less extent, Great Britain heis also the facilities for producing sufficient of all the necessaries of life to maintain her population in a state of comfort and well-being at a far hidtier general level than has ever yet been attained. The achievement of this depends upon the introduction of a proper system of distribution. Can this be accomplished under our present economic system ? The answer is " Not without some very considerable changes and modifications." Indeed, the solution of our problem requires the abandonment of some of our most securely entrenched ideas and theories. In fact, the problem of unemployment is insoluble by any process which would receive the sanction of any orthodox economist. "Heterodox" Methods. The hope of the world lies in the direction of innovation, heterodoxy. That is why the "experts" selected from the professional classes by the Govern- ment as its advisers since the war, are proving such 28 UNEMPLOYMENT a source of clanger to the nation. Nea»ly every measure adopted by the Government during the past two years with reference to foreign trade, finance and taxation, has been injurious to our industries, and has resulted in the present trade crisis and general unemployment. Yet it was such heterodox schemes as paper currency, food and material rationing, and other compulsory measures that saved us and our Allies and brought us through to victory. The reader who is really interested with the writer in finding an answer to the problem must therefore not be surprised if the conclusions lead through a somewhat different route from what he expected. Let us suppose that in all our industries engaged in producing goods required by our island popula- tion the voKime of money distributed annually in the shape of wages, salaries, and dividends is at least equivalent to the total value of all the goods produced at the prices offered. So that an equation is formed as follows :— Wages + salaries + divi- dends = X goods X y prices. This would mean that if the British public so desired, they could buy all the goods they produce. Suppose further, that the production of all these goods kept all able- bodied persons in the country who wanted work employed at a remuneration sufficient to enable them'to live in decency and comfort. Suppose, for the sake of argument, that we are an entirely self- contained nation, producing every article we need for use and consumption. So long as all these prime factors, land, labour, and capital, were avail- able and maintedned their normal efficiency we 29 UNEMPLOYMENT should then have a perfectly automatic system of production and distribution, reproduction and re- distribution, which might' continue indefinitely. The growth of the population Airould necessarily have to be accompanied by a proportional increase both in production and in the currency required for distributing the products. Involuntary idleness would be unnecessary. In short, poverty and un- employment as we now know them would be practiczdly abolished. Suppose, however, that after a year or two of such satisfactory running an inventor or an efficiency expert introduced an improvement by which pro- duction was greatly accelerated. What would be the result ? Products of all kinds would naturally increase in volume and the markets would be soon overstocked. If no change was made in prices nor in the volume of purchasing power distributed, nor in the hours of labour, there would soon be so targe an accumulation of unsold goods that to avoid un- lemployment they would have to be shipped abroad or destroyed ! In short, every improvement which tends to facilitate production must be accompanied by a fall ih prices or an increase in the volume of purchasing power, otherwise its tendency must be to increase unemployment. 30 Ill— NEED FOR BETTER DISTRIBUTION EVERY attempt to solve the problem of unem- ployment by increasing the efficiency of pro- duction is not only doomed to failure, but must actually tend to aggravate the disease unless accompanied by an improved system of distribution. It is not without reason that the working classes have regarded labour-saving devices with a certain amount of disfavour. If we of the present day are the heirs of all past ages, the legacy has not been fairly distributed. For instance, it was the belief of our legislators who first conceived the idea of granting patents to inventors that, whilst they were fairly entitled to the monopoly of their discoveries, such a monopoly could only be granted for a certain definite number of years, andvtthat it would be against the public interests to continue the monopoly iiidefinitely. Our financial system has opened a way by which such monopolies may be continued long after the patents have expired. _ The Trust and the Combine are now recognized as far more powerful for protecting and maintaining a manufacturing and trading monopoly than all the patent laws that have ever been devised. Patents are now regarded in commercial circles as of quite secondary importance, and the ambition of every U N E MPL OYM ENT inventor is to become associated with some strong financial group. A few years prior to the war, at a meeting of the leading German manufacturers in Berlin, they decided not to buy any more patents but to use any invention they might consider to be of advantage to them and challenge the patentees to attack them. They found by experience that it paid them better to fight an inventor than to pur- chase his patent rights. The average inventor is either a poor man or a man of moderate mean^, and is not in a position to undertake the ruinous costs of fighting a patent action. The result of all this is that the discoveries and inventions of the past, as well as of the present, axe being controlled more and more by those who control the world's credit, and the benefits which these discoveries and inventions were expected to confer upon mankind generally have been acquired on very much the same principle as the public lands of Great Britain were acquired by private landowners during the 17th and 18th centuries. A Nation's Credit. Now the credit of a nation depends upon what its people can furnish in the way of goods or services, and is proportional to its productive faciH- ties and efficiency. These, again, are dependent,, upon the mechanical and chemical discoveries and inventions, the commercial and financial methods employed, and even the moral qualities of the people themselves, all of which form a portion of the great national legacy handed down ^|^S| the past This great asset forms the basis of our national wealth, and is the chief means of enabling 3» UNEMPLOYMENT our industries to turn out goods at the present rate, but it is entirely monoi>olized by those who control financial credit. To what, extent does the average citizen participate in the profits of this wonderful legacy? It is evident to anyone who has given much thought to the subject that our present system of distribution, which makes the existence of the vast masses of the people of all countries entirely dependent upon the demand for their services in productive operations, must, sooner or later, be dis- placed by something far more rational, in order that mankind may escape the inevitable catastrophe which must otherwise ensue — viz., the complete collapse of civilization. It. is quite certain that the need for labour must become less and less with the growth of iriventions and the increase in industrial efficiency. Indeed, the real problem we have to solve is not so much that of finding constant em- {>loyment for our people as of supplying them with ife's necessities and comforts out of the abundance of the goods created. Even to-day the labour of less than 10 per cent, of the population will readily suffice to maintain the entire inhabitants of this country in a high state of comfort. '1^ Suppose discoveries and inventions during the next half-century result in the displacement of all manual labour by machinery. Must the bulk of the world's inhabitants then perish? I once asked a well-known economist what would happen if some modern genius should discover a way of training monkeys to undertake industrial operations. Would the displacement of, men by moiikeys mean the survival of the ape as the fittest? He replied that 33 UNEMPLOYMENT he preferred not to cross a bridge before he reached it. But the bridge is actually in sight. The demand for labour is declining, and must continue to decline as productive efficiency incresises. At present the statesman's only escape from the dilemma is war- fare and wholesale destruction ! Are the fruits of human intelligence— inventions and discoveries — merely weapons for human destruction ? Are our efficiency experts raising a Frankenstein that will some day destroy us ? The answer is "Yes, unless the same intelligence is allowed to be employed in improving our methods of wealth distribution." Finance and Industry. Our present industrial plight is the result of limiting the field of invention to wealth production. Imagine lyhat might have been accomplished if the field of finance, instead of being carefully protected by barbed-wire legal entanglements, had been left free for exploration and experiment! We are trying to distribute the world's produce by th€ medieval methods of transportation. We are coup- ling the motor-car to the bullock wagon, with the bullock in front. Industry is always striving to satisfy the natural wants of mankind, whilst finance is perpetually holding it in check. Industry says : " I can supply all the needs and desires of mankind provided I am given sufficient scope." Finance says : " You shall only supply those which it pays me to supply." One of the things our statesmen have to learn is that there exists a vast and unsatisfied demand for British-made goods within the British Isles, and until this demand is satisfied it is unnecessary to 34 UNEMPLOYMENT explore the earth for fresh markets in which to sell these same goods. For a nation to sit still and starve because foreigners are unable to buy its products — -the use of which would bring health and prosperity to its* people — ^is the very acme of stupidity. A visitor from Mars would surely view with amazement the spectacle of a Leicester or Northampton shoe manufacturer incurring the ex- pense of sending travellers to the North Pole and the Far East^ and advertising in foreign journals, whilst hundreds of thousernds of English people are going about half-shod, and millions more are striving to make one pair of shoes do the work of two pairs. Similarly, he would wonder at the shabby costumes of myriads of women who throng our manufacturing towns, whilst the Lancashire and Yorkshire mills were either closed down or running on half-time. He would naturally inquire, why this eagerness on ~ the part of the British merchant and manufacturer to satisfy the needs and desires of the Hindoo, the Jap, the Chinaman, the Hottentot, the Zulu, in fact, any and every foreigner, whether civilized or barbarian, whilst ignoring the needs of millions of his own countrymen? He would then learn that this desire was not founded upon any particular love for the foreigner, nor the neglect of his own countryman upon any dislike of the British as such, but is due merely to the fact that the foreigner is able to offer something in return and the other is not. Is Further Inflation Desirable? This " something," he would learn, is anything that enables him to satisfy his banker, and might be merely an inexpensive piece of paper issued by 35 U N E MP LOYMENT the Government or a piece of yellow metal acci- dentally discovered in some remote region. Yet what would puzzle our visitor most of all would be to leam that the power to convert the natural de- mand of these millions at home into an effective demand which would enable them to buy all the goods they require, and would sjtart the mills and factories running full time as effectively as a similar demand from foreign lands, rests entirely with the Government, who at present are engaged, not in increasing but in diminishing the public's power of buying. His admiration for a people who can so easily create all the good things oi life would be changed to one of astonishment that we have no proper method of distributing these things for our own benefit £md enjoyment Now the first thing one realizes after a close examination of the subject is, that the costs of the production of any manufactured goods are much in excess of the purchasing power distributed in the process of manufacture. For costs cover not only wages, salaries, and dividends, but other charges, such as depreciation of plant, interest, etc., and since prices must at least cover costs, tt foQows that the total money that is distributed in every produc- tive undertaking is quite insufficient to buy the total products. How then do we manage to dispose of the great bulk of our commodities ? The answer is, partly in our home markets and largely abroad. The nome market is only able to absorb the quan- tity it does by the creation of additional credit from time to time over that distributed in the course of production. Those who seek to reduce the costs of production by reducing the amount of purchas- ing power so distributed, viz., by lowering wages 36 UNEMPLOYMENT atid salaries, are working entirely at the vnrone end. If the aim is to render production and distribution regular, continuous and automatic, anything which fe^ens the power of the public to buy goods will defeat that- object by reducing the speed and efficiency of the whole system. It must not be forgotten that the consumption of goods is essential to reproduction and should be regarded quite as important a part of the economic system as production itself. Other things being equal, high wages are far more beneficial to a coun- try than low wages. America's rapid growth in wealth emd population is very largely cme to the high rates of wages paid, and it is due mainly to her protective tariff that her working classes have been enabled to enjoy a much higher level, of comfort than that prevailing in any other industrial country. It has enabled her to develop her home markets to such an extent as to make her almost independent of foreign trade.' On the. other hand, our free trade system has- exposed our workmen tq the direct com> petition of the lowest paid and cheapest labour in the world, and has, in conjunction with our inter- national gold monetary system, assisted in making us so dependent on foreigners, that Mr. Kellaway, of the overseas trade department, recently stated that " our home trade^ could not support one half of our population alive ! " He added, ' Unless we can sell in foreign markets we are on the straight road to national suicide I " Paradoncal as it may appear, the extravagant measures of govi6mments have often saved their people from wholesale bankruptcy. The United States Pension Bill, which distributed over one 37 UNEMPLOYMENT thousand millions of dollars annually among the survivors and the dependents of those who fought in their Civil War, did more to revive American trade (which had been so badly injured by the silver deflation policy of 1893-97) than anything else. If instead of burdening taxpayers with extra rates and taxes to support our pensioners and unemployed, the Government were to issue fresh currency, this would tend temporarily to relieve the present indus- trial depression — although not permanently. The real and permanent remedy for our troubles will be shown in the next articles. J« IV.— INSUFFICIENCY OF CURRENCY BY increasing the effective demand for our own products in our home markets we do not in any sense lessen the foreign demand for them. On the contrary, by adding to the total effective demand, our manufacturers would be enabled to produce in larger quantities and so cheapen the costs of production. The German and American producers would not be able so readily to dump their goods on our markets at prices less than we can produce them for, were they to follow our example and sacrifice their home markets by sharing them with their rivals. They first control their own and then take advantage of our folly by annexing ours. German writers have already admitted that the prodigious growth of their trade and industries in pre-war days was due very largely to our philanthropic free trade system coupled with our free gold and credit market. This enabled German manufacturers to borrow British credit at |ow rates of interest and build up rival industries with which to cripple ours. As our politicians have learned nothing from the war, they are permitting our late enemies to resume the same methods of " peaceful penetration," and, in conse- quence, we have already lost several industries built up during the war. Now, since we are not yet a self-contained nation, as we are still dependent upon others for certain raw materials, we are forced to cultivate our foreign trade. But diis should not 39 * UNEMPLOYMENT lead us to the other extrone of neglecting bur own markets and leaving than Altogether faree for foreign invasion. Foreign trade is a system of indirect barter. We buy our cotton, for example, from America, and pay for it ultimately in manufactured cotton and other goods and services. Our produc- tive facilities are quite capable of satisfying all the wants of our own people as well as the needs of vzurious foreign markets in certain lines — certainly to the extent of paying for all the foreign-grown raw material we may require. This answers the queiy in the Editor's footnote to my article in last week^ issue. Finance and Industry. The strangle-hold that finance maintains over industry (Capital and Labour) is the result of two conditions: — (1) the monopoly of credit issues by Governments and bankers; (2) the interest (usury) system. All business nowadays is done with borrowed money. Some of it is subscribed by the Eublic, upon which ^nly the interest or dividends ave to be paid. But very much consists of_ bank overdrafts which have to be repaid periodically, together with interest charges. Suppose, for example, the banks loan to manufacturers and mer- chants £1,000,000,000 for one year at the bank rate. The borrowers must then return to their banks £1,070,000,000, that is, £70,000,000 more credit than has been issued. How are diey to get it ? The industrial world does not " make money." It makes goods. But bankers and moneylenders do not receive goods in settlement of money debts. They demand payment in their own coin, which nobody else is permitted to issue. And this is true UNEMPLOYMENT of all loans and of all business undertakings outside of financial institutions. Industry is thus given an impossible task which results periodically in whole- sale bankruptciep. The system can only work during short periodsT'so long as the lenders of money exercise fofbeeurance. Fortunately loans do not all become due at the same time. If diey did, or if any large proportion fell due and settlement was demanded at any given time, we should experi- ence results similar to those which would ensue if the owners of 10 per cent, of our bank depositors were to attempt to withdraw their balances on a certain day. Let me put the matter in a nutshell. The currency and credit with which debts can be p2ud is furnished by the banks. The public cannot increase. this. They cannot return more than they receive. But our interest system demands more. Hence industry has become the absolute slave of finance. Prometheus is securely bound to his rock, from which there is no chance of escape under our present system. To make ma^tets much worse, the Government impose taxes of colossal proportion which are also payable in currency, but they fail to provide anything like the amount necessary to enable the public to g^y ^ith. Hence the banks have been compelled to increase overdrafts exten- sively to save the country from utter collapse. If we add to all this the amount "oKrates and other charges inflicted upon the unfortunate British tax- payer, as well as the high scale of prices, the utter impossibility of our present financial system will be readily realized. It is safe to say that the demands upon the average business man's financial resources are four times those of pre-war days, whilst the cash and credit available is scarcely more than twice the UNEMPLOYMENT pre-war supply ! Yet, in face of this disproportion, we find the Treasury and Bank of England officials advocating a further reduction of the debt-paying media, and there are people who wonder what can be the cause of our present industrial paralysis ! The Remedy. What, then, is the remedy for our present Slight? The first thing is to make it possible for usiness men and taxpayers to meet their obliga- tions. The present public burdens must either t>e removed or sufficient, financial strength given them to enable them to carry on. The gigantic National Debt created by our ignorant politicians need not and ought never to have been incurred. The Government cannot expect -to continue collecting £1,000,000,000 a year in credit and currency un- less it increases the volume in circulation. Such a huge sum drains the channels of trade and com- merce and leaves them exhausted. Neither can industry flourish under a 7 per cent. Bank rate. It would be a thousand times better to adopt the German plan of cheapening— or as our professors delight to term it "debasing " —cur currency than to go to the other extreme. Germany to-day is about the only industrial country whose industries are flourishing. I^er " debsised^ ' currency is one of the main causes. Moreover, it has saved her from being crushed by taxation as we are. As an immediate, although temporary, measure of relief for the present trade paralysis, the Gov- ernment might with perfect justice and safety convert the Treasury's floating debt by degrees into UNEMPLOYMENT legal currency. The payment of Treasury bills in Treasury notes could oe spread over a reasonable period so as to avoid any serious or sudden advance in prices. This would not only revive trade ahd start the wheels of industry, but it would get rid of the burden of interest charges on this particular debt. It is an astonishing fact that no member of Parliament has ever challenged the Government-to furnish reasons for burdening the country with interest charges on borrowed bank credit whilst they already controlled an unlimited volume of credit of a higher order, the use of which would have cost the nation nothing. Our old friend Euclid tells us that the whdle is greater than a part. And the National Credit comprises that of all the citizens and institutions of Great Britain, including the banks. For the past six years the basis of au our currency has been the nation's credit. The credit behind a Treasury bill is the same as that behind a Treasury note. In fact, a Treasury bill can be settled with Treasury notes. Yet our Treasury officials exchange the superior credit of the nation for the inferior credit of a bank and compel the taxpayers to pay over £60,000,000 annually for the accommodation ! Relation, to Foreign Currencies. A further advantage gained would be to bring •our currency nearer to the currencies of those countries with whom our merchants wish to trade. Our statesmen give as a prime cause of our declin- ing foreign trade the inequality in the rates of exchange. Yet they are doing all in their power to ihake this inequality still greater. Our Indian trade has become demoralized owing to the fall in the 43 UNEMPLOYMENT purchasing power of the rupee. Had our pound fallen in the same ratio, our trade with all Eastern countries might have continued. Similarly with our European Allies. Why the Treasury should seek to increase the rate of exchange between France, Belgium, Italy, and even between Germany, and ourselves is somewhat of a mystery. If ""the object is to get us deeper into debt by msJcing it easier for us to buy foreign goods and harder to sell our own products abroad, their dear-money-deflation policy can be readily understood. Otherwise it is incom- prehensible. The remedy for industrial stagnation will be found along the line of a cheaper and increased currency. There is a general insufficiency of pur- chasing power throughout the country. To establish an industrial system which will continually provide for all the needs- of all the people without these periodical trade crises, one which will get rid of poverty and involunteury idleness,' a system whidi will be automatic in producing goods in abundance aind distributing them, vrill require that the public shall have some control over both credit and prices. It is quite evident that so long as producers are free to raise prices with every fresh issue of currency such issues can be of little permanent advantage to the consumer. What the averstge consumer wants is to secure a larger proportion of all Ae ^^p(iliEh& needs.- He can only get this either by a fall 'M prices whilst receiving the same income or by receiving a larger income whilst prices remain the same. Further, to enable the public to buy all the goods offered, to be able to sell goods as fast as they are produced — ^which is the ideal condition for 44 UNEMPLO-YMENT employment and tirade prosperity — there must be enough money circulating with which the public c&a purchase. This means the establishment of a »ystem which causes a constant flow of purchasing power to the consumers and a return flow to the Sroducers. Now there are various methods em- odying these conditions which one might propose. But by far the most carefully thought out system, yet suggested is that described by Major Douglas^ (Royal Air Force) in his remarkable books entitled "Economic Democracy " and "Credit Power and Democracy," the latter being the joint product of Major Douglas and Mr. A. R. Orage. The system described would, in my judgment, effectively solve th« whole problem of unemployment, trade depres> sion, and all tlieir attendant evils, and if adopted universally remove the causes which have been so fruitful in provoking wars and which if not speedily removed must soon give rise to fresh and more desolating wars than any yet waged. _ In the next article I hope to give an outline of Major Douglas's scheme. 4$ V._REAL AND FINANCIAL CREDIT THE evidences that our present economic system is doomed and is tottering to its fall are so apparent and so numerous that only the blind and the ignorant would attempt to deny it. A system that defeats its main object and increases human suffering in proportion as it becomes more and more efficient, one to which the gift of goods or the payment'of an indemnitj^ by a foreign nation appears as a national disjist^r, is evidently founded upon some egregious fallacies. How much longer its victims will submit to the eviljs and injustice it has inflicted it is difficult to say. It may last another few months or a number of years, but that its end is rapidly approaching is beyond question. Whatever the motives of the Government and its advisers may have been, their policy of currency - and credit contraction, which Mr. Austen Chamber- lun announced a year or so ago, has done more to hasten its downfall than all the Socialist and Bolshevist propaganda of the past few years. This policy is mainly responsible for throwing out of employment over 1,000,000 operatives and inflict- ing losses upon the British public during the past year of at least £2,500,000,000 ! During the same Seriod, according to the Manufacturers' Record, of ahimore (a widely' read American trade journal), the same policy of deflation pursued by the United States bankers has resulted in the discharge of 47 UNEMPLOYMENT 3,500,000 workmen and the loss of 25,000,000,000 dollars— a suni much in excess of the whole cost of the war incurred by the American Government ! Orthodox Political Economy. In all countries we find the same conditions of general uhrest, dissatisfaction, and desire for better conditions, due to the failure of their economic methods to achieve the desired ends. Orthodox political economy has broken down and has had to acknowledge its failure. And as all our statesmen and governing officials, professors, and writers on finance know little or nothing outside the orthodox books, they are all equally at sea and powerless to save humanity. All industrial nations are experi- encing the same difficulties, for the reason that all are modelled on the same general principles. These principles have created what may be termed the pyramidal form of economic control. At the apex sits Finance, securely entrenched, dictating to Industry its commands-^-commands which on the whole are impossible of fulfilment. Industry is ordered to breathe into the inanimate the breath of life and make it a living soul, to make fruitful a thing which, as Aristotle told us ages ago, is by its very nature essentially barren. Finance hands over to Industry a sum of money, and says, "Take this and increase it. ' Make it grow. You cannot labour, you cannot produce, you cannot even trade without it, thanks to the world's money laws. Here is £1,000,000,000. I lend it you on condition that you return me for its use one-twentieth part of it every year, and the whole of it in addition to the interest whenever I choose to call in the loan ! " 48 UNEMPLOYMENT If Industry had ever possessed one fraction of the intelligence proportional to its physical strength it would long since have made reply in some such terms as these : — " I am incapable of performing miracles. I cannot put your money in the ground and make it blossom and bring forth harvests of coins or bank notes. If you give me seeds or pleints containing the germ of life, I can plant them and .raise crops and return you far more plants and seeds than those you gave me. But when you lend me £1,000,000,000 arid ask me to pay you £50,000,000 per annum, I cain only do this for a period t>f 20 years. By that time I shall have returned all you gave me, and as ^ou alone control the issue, and since I have no power of getting more without your consent and help, you are asking me to do the impossible ! Further, this credit, which you alone control, on what is it really based ? Evidently upon my work and upon my achieve- ments. But for me and my energies, where would you be? The credit of which special laws have given you control is the credit pf the whole nation, and due to its productive capacity. You have done nothing to create or increase it. All you do is to biiild on and profit by my labours. Yet you pre- sume to dictate to me, to limit my power, to embarrass and torture me with your foolish restric- tions, and cause endless friction, contention, . and disorganization between my associates, capital and labour!" Industry a " Bond Slave." To which Finance — ^were it frank and honest — would reply, "Quite so! You are my bond slave. Nationallaws have made you and all nations wholly 49 UNEMPLOYMENT subject to my despotism. You can never escape the bondage of deot whilst the principle of usury lives. The best and wisest of men, from Confucius to John Ruskin, have been preaching this gospel-^ but with little or no effect! I have no fear that mankind will ever awaken to the truth ! " The most important question for the existing generation is — What sort ot system is to take the place of the old and decaying one? Are we to exchange it;— bad as it is and has been — for a worse ? For let us admit that with all its fallacieis, follies, and injustices, there are and have been systems far worse — Bolshevism, for example, and the Socialism of the German Jew, Karl Marx. There is some danger that much more vigorous, efforts will yet be made to establish one or other of these systems in this and other countries them any yet attempted. Unless another and better systeiA is provided by the more intelligent cleisses it is quite certain that something of a far worse character may be established by the ignorant masses. The £ity of it all is that our present system, shorn of its kUacies, its financial restrictions and credit monopoly, and improved in one or two other features, might have developed into a scheme as efficient and as conducive to human welfare as it is possible to conceive. Eliminate those evils which are almost entirely confined to the financial side, and our indi^strial, and consequently most of our international and social troubles, will disappear. Now it is towards the accomplishment of this end and to save civilization from bankruptcy that Major C. H. Douglas and his colleague have evidently directed their efforts in the tvro books 50 UNEMPLOYMENT previously mentioned — " Economic Pemocracy " and "Credit Power and Democracy." It was, I understand, whilst engaged in costings for the Government during the war that Major Douglas, a member of the Royal Air Force, became convinced that the present economic system was inherently defective and could not survive the extraordinary strains imposed upon it by the war, and particularly by the supreme folly of our war debt. Apart from the intrinsic merit of these works, to me the most interesting feature connected with them is the fact that their authors arrive at the same general con- clusion that I and one or two other investigators haye done, although we have all reached it by different routes. This conclusion is, that the root cause of the world's economic evils is the irrational and fraudulent financial systems which the monetary and banking laws of all nations have established. The Usury Principle. A queurter of a century ago I pointed out, in my first monetary work, that the usury principle neces- sarily caused a general break-down of the industrial system every few years, because the claims of usury were impossible of fulfilment. I showed that, taking industry as a whole, it could no more settle the claims of the banks when called upon to do so within any short period than the banks could settle the claims of their depositors in gold within a similar time. The creation of legal tender and bank credit does not keep pace with the growth of the interest charges, taxes, and other debts which have to be paid in legal currency, after providing for the ordinary financial needs of trade! Industry being always in debt to Finance is always within sight of 5' UNEMPLOYMENT bankruptcy, and any extraordinary event, whether natural, political, or financial, which creates general alarm is sufficient to start a panic resulting in general liquidation and bankruptcy, followed by a period of industrial depression! This was and is still in my judgment the real explanation of those decennial crises which Professor Jevons attributed to sunspots and other writers to natural and equally irrelevant causes. I showed that although money is the life of trade, our restricted money supplies encompassed its death. Major Douglas found, by a system of costing, that the purchasing power distributed to the public by the industrial system in all countries could iiot possibly enable them to purchase more than a small proportion of the goods made, even if these were offered at the minimum price of bare costs. The chief reason of this is that credit is only issued on the usury principle, and therefore only tho^e en- gaged in operations which appear profitable— i,e., enabling the borrower to return the sum loaned plus interest charees — can secure bank overdrafts. Hence every borrower is compelled to seek some profitable employment, to stimulate production, to , adopt new inventions, &c. This necessitates the constant employment of armies of men engaged solely in constructing new plants, processes, tools, &c. And the cost and upkeep of all this additional capital, although it furnishes little in the way of additional purchasing power to the public, is actually incorporated in the prices of the ultimate goods offered for sale and for the manufacture of, which the extra capital was created. In short, the public is made to pay for every addition to the pro- ductive plant and machinery through the system of 5» UNEMPLOYMENT costings which is added to the prices of the ultimate goods sold. ^ Hence by increasing our productive facilities we are decreasing the public power to purchase goods and are thus diminishing our markets. The system is therefore inherently suicidal ! Object of Industry. Major Douglas sets out with the statement that the object of a nation's industrial system is to pro- duce goods for the benefit of the people comprising that nation, and not to provide employment for workmen nor to "make money" for any particular class. Employment may be a necessary condition for producing goods, but it is merely a means and not the end. Further, the distribution of goods ought not to be based merely upon a system of rewards for labour done. For this spells stjurvation to thope whose labour is no longer needed. Our industrial system is the result of the inventions and discoveries, the experiences, the efforts and labours of past generations. About 95 per cent, of all production is the result of tools and processes which .form the cultural inheritance of the community— not as workers, but as a community. Every person born into such a community should, by right of birth, be entitled to a share in this great legacy. Major Douglas proposes that the wage system shall be gradually replaced by the dividend system. He divides credit into two classes, viz., real (produc- tive) credit and financial (money) credit. Real credit is the correct estimate of ability to deliver goods as, when, and where reqiiiredi, Financial credit is the correct estimate of ability to deUver money as, when, and where required. Real credit S3 UNEMPLOYMENT is concerned with the supply of goods, whilst financial credit is based upon money (legal tender). The real credit of Great Britain can be increased almost indefinitely and is already so enormous that at no time — not even during the war — has it ever been employed to its full capacity. Yet although financial credit is based upon money and demands only money in return for its use, it depends ultimately upon the productive credit of the. nation both tor its existence and for its growth. This growth, however, is purely arbitrary and depends upon the sanction of the bankers and financiers who have acquired a monopoly of the use of the nation's financial credit. Indeed, this monopoly is so flag- rant and so powerful that the rate at which money may be loaned to the public (to whom it rightfully belongs) is actually dictated week by week by half* a-dozen men representing a private trading com- pany called the Bank of England— over whose deliberations and actions the Government and the public have no more control than over those of any private business concern in Great Britain ! Produc* tion. and therefore employment, are made depend- ent upon industry's ability to satisfy the arbitrary demands of the numerically insignificant class who hold this control, and as there is no law by which these credit controllers can be compelled to issue credit or assist trade, both labour and capital are entirely at thdr mercy. 54 VI.— CONSTRUCTIVE PROPOSALS THE author .of " Credit Power and Democracy " calls attention to the fact that the consumer is as essential to any economic system as the pro« ducer, and that the value of a productive plant is due as much to the market facilities for the disposal of its products as to its efficiency. In this light, it will be seen that an economic system which does everything to encourage production and little or nothing ta assist the consumer to acquire goods is bound to fail. The author also demolishes the much-cherished socialistic theory that all wealth is labour's creation. On the contrziry, he shows that labour's contribution is comparatively small, probably less than 5 per cent., and is a necessarily decreasing quantity. The won- derful productivity of modern industrialism is due to the researches and patient toil of scientists and inven- tors who bequeathed their discoveries to humanity. In virtue of this rich legacy, every member of society should be entitled to a share of the product. The po- tential wealth of this country is far beyond the dreams of avarice, and under a system of co-operation and good-will everyone might, by contributing a trifling amount oi labour, receive a share of all the good things of life sufficient for his well-being, con- tentment, and happiness. Every member might thus receive an income from the State instead of being taxed. By gradually replacing the wages system with a system oi dividends, by giving a share to each and Si . UNEMPLOYMENT every member engaged in an industry in that partic- ular undertaking, the evils now resulting from unemployment would disappear. A Novel Scheme. To meet the discrepancy between prices and purchasing-power distributed. Major Douglas pro- poses that producers shall sell their products below cost at a price which shall bear the same ratio to cost as the total national consumption of all commodities does to the total national production of credit. The difference between such prices and costs of produc- tion is to be made good by a draft from the Treasury on the national credit account. Under this scheme, price, instead of being as now a function of money, becomes a function of production. Hence any over- issue of money cannot affect prices, and the evils resulting from inflation under our present System are therefore eliminated. Major Douglas has drawn up a plan embodying his propsals for dealing with the coal industry, as an illustration of how the present chaotic system can be replaced by an intelligent and practical method and which if successful, might be extended to other industries throughout the country. He calls it : — "A Practical Scheme for the Establishment OF Economic and Industrial Democracy." "The following exemplary scheme, drawn up for special application to the mining industry, is designed to enable a transition to be effected from the present state ot industrial chaos to a state of economic demo- cracy, with the minimum amount of friction and the maximum results in the general well-being." 56 UNEMPLOYMENT 1. (1) For the purpose of efficient Operation each geological mining area shall be considered as auto- nomous administratively. (2) In each of these areas a branch of a bank, to be formed by the Miners' Federation of Great Britain, shall be established, hereinafter referred to as the producers' bank. The Government shall recognize this bank as an integral part of the mining industry regarded as a producer of wealth, and representing its credit. It shall ensure its affiliation with the Clear- ing House. (3) The shareholders of the bank shall consist of all persons engaged in the mining industry, ex officio, whose accounts are kept by the bank. Each share- holder shall be entitled to one vote at a shareholders* meeting. (4) The bank as such shall pay no dividend. (5) The capital already invested in the mining properties and plant shall oe entitled to a fixed return of, say, 6 per cent, and, together with all fresh capital, shall continue to carry with it all the ordinary privil- eges of capital administration other than price-fixing. Depreciation shall be set against appreciation. (6) The boards of directors shall make all pay- ments of wages and salaries direct to the producers' bank in bulk. (7) In the case of a reduction in cost of working, one-half of such reduction shall be dealt with in the national credit account, one quarter shall be credited to the colliery owners, and one quarter to the pro' ducers' bank- 57 UNEMPLOYMENT (8) From the setting to work of the producers' bank all subsequent expenditure on capital account shall be financed jointly by the colliery owners and the producers* bank in the ratio which the total dividends bear to the total wages and salaries. The benefits of subh financing done by the producers' bank shall accrue to depositors. II. (1) The Government shall require from the colliery owners a quarterly, half-yearly or yearly state- ment, properly kept and audited, of the cost of pro- duction, including all dividends and bonuses. (2) On the basis of this ascertained cost, the Government shall by statute cause the price of domes- tic coal to be regulated at a percentage of the ascertained cost. (3) This price (of domestic coal) shall bear the same ratio to cost as the total national consumption of all descriptions of commodities does to the total national production of credit, i. e.. Cost : Price :: Production : Consumption. Price per ton = Cost per ton x * Cost value of total consumption Money value of total production (Total national consumption includes capital depreciation and exports. Total national production includes capital appreciation and imports.) (4) Industrial coal shall be debited to users at cost plus an agreed percentage. S8 UNEMPLOYMENT (5) The price of coal for export shall be fixed from day to day in relation to the world market and in the general interest (6) The Government shall reimburse to the colliery owners the difference between their total cost incurred and their total price received, by means of Treasury notes, such notes being debited, as now, to the National Credit Account. For a complete exposition of this scheme I must refer to the book and particularly to the appendix and commentary by Mr. Orage. Causes of Unemployment. To recapitulate, I have endeavoured to show that unemployment is the inevitable result of our present economic system, which fails to distribute sufficient purchfising power to enable the public to purchase goods as fast as they eure produced and as they are needed. ElRective demand therefore bears no coherent relation to natural demand. A rational system would offer employment so long as labour is essential for producing goods, to supply the wants of the employees as well as the general public. Thanks to inventions and dis- coveries, goods can be' produced in such quantities and with so litde labour that the real problem is how to distribute goods to the public regardless of the amount of labour required for their production. Economic systems are made for the benefit of man- kind ; men are not created to be the slaves of any economic system. The radical defects in our system are an insufficiency of purchasing power and an inequitable system of distribution. 59 UNEMPLOYMENT I have endeavoured to show that what has been called from time immemorial the usury system is the enemy of civilization, and is the disease germ of every economic system now existing. No system can pos- sibly function satisfactorily or beneficially for all or for the majority ot the members of any community that is based upon this principle. One has only to calculate what the interest charges of- any sum of money aggregate over an extended period of time to realize what an impossible system it is. Not long since an American humorist wrote to Mr- John D. Rockefeller, the well-known American millionaire, suggesting a scheme by which he could enrich posterity- He proposed that Mr- Rockefeller should set ziside one-half of his wealth on interest at 5 per cent, and leave instructions that the interest should be re-invested on a 5 per cent, basis for a period of 500 years. By that time the income trom usury would have become so vast that every United States Citizen could draw an income of a million dollars per annum, supposing that the population by that time had grown to 10 times the present population ! The truth is that usury can only flourish over a limited period of time, and only to the extent of a certain small proportion'ot the capital created. It is very similar to a system of gambling. For every one who gains there are scores Who must be losers. The Remedy. To remedy these evils, some such plan as that suggested by Major Douglas will have to be started. The consuming public must have some control 6o UNEMPLOYMENT over prices as well as over the volume of purchasing power that is created. These are the two objects to which special attention must be paid and a complete change from the present system established. Of course, the conclusion reached and the pro- posals suggested in these articles will doubtless cause consternation in the minds of some and amusement in others. They will be pooh-poohed by most of the orthodox philosophers, and all the fogeys will hold up their hands in horror. But on the ground of truth, I venture to say that, though they may be challenged, they cannot be permanently subverted. We have only to wait until the intelligent public have had time to digest them thoroughly, and the present system has reached the final goal towards which it is rapidly hastening. 6i Unemployment. A REPLY TO Mr. KITSON. (By the City Editor of " The Timet.") 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 schooU boy 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 unem- ployment, "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 reason- ing, and that he was endeavouring to propel hiih- self 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. 63 UNEMPLOYMENT This WM well exemplified in the drawing of an oil engine which appeared in his first article. The illustration reveals clearly the limitations of Mr. Kitson's vision. It breaks off at the most interesting point — ^namely, 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 illustra- tion, 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. Kitson's 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 Govern- ment, 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. 64 UNEMPLOYMENT 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 pro- duce all the commodities he needs, but must pro-, duce 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 coods, we are unable to ex- change our goods, and there is consequent over- production 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 probleih by sending these rails and motor-cars to, say, Russia, in return for paper money. 6s UNEMPLOYMENT Inflation with no Effects. Mr. Kitson is obsessed with the notion that all that is required is a sufficient outturn of money, (or 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 coii- tinuously 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 goods — namely, that for every two additional units of commodfities produced a £1 note only would be issued. But what sort of com- modities 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 pur- chase from us, the issue of the extra cufren^jt would 66 " •■, :' UNEMPLOYMENT 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 Problem— Exchange. Mr. Kitson's statement of the unemployment problem is so crude iand so inadequate as to lead nowhere. We can best illustrate Mr. ""Kitson's 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 ; other- wise its tendency must be to increase unemploy- ment. 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 67 UNEMPLOYMENT 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 chemi- cal 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 sheep's 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 ihem to the thousands of English people who have shabby boots and clothes. Provide these people, he says, with bits of pap^ 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 68 UNEMPLOYMENT capable of paying for the cotton. He asserts that that is the answer to the question. But he has still to answer, if the piiblic is to be induced to take his ideas seriously. A Dangerous Propaganda. What is the meaning of Mr. Kitson's 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 produced automatic — that all the poems pro- duced shall find ^ ready ejfchsuige into other com- modities; 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 ignordnt, 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. 69 UNEMPLOYMENT 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 im> possible. Far from being impossible, it is done every day, as any bank manager will testify. Last ^ear, 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 manukcture^s and merchants when they spend £1,000,000,000 in the manufacture of goods receive back moie than £1,000,000,000; .tifherwise 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 Credit— A 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 niere production of goods was sufficient to warrant creation of credit then there would be no necessity to sell the goods ; prices would have no 70 UNEMPLOYMENT meaning ; a poet would only have to write a poem to obtain money. A restriction of credit is neces- sary to ensure that goods are not produced in excess of effective demai^. Credit, says Mr. Kitson, is a communal propef(y. Such an assertion is palpably absurd. Credit is a private property; a State's 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 mow- ing 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 u^e and energy value of the wheat to another person. Mr. Kitson also makes the fooUsh 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 pro- duced. The money spent on capital works furnishes the receivers of the money with just as much pur- chasing power as money spent on the manufacture of the goods produced. By increasing our produc- tive faciUties, 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 public's power to produce ! Capital expenditure is obviously an aid to production, and renders the rapidity and efficiency of modem production possible. 7» UNEMPLOYMENT Mr. Kitson finally winds up his amazang effort by repeating that unemployment is the inevitable result of a system which ia^^d 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 regard- ing 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' paper will enable the Indiein 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 produc- tion 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 m2in to obtain credit, then no one need trouble to find a buyer. Down thQ 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 unemplojrment problem is the problem ot exchange. If the world can devise a system for ensuring that an exchange of commodities or services shall be a 7» UNEMPLOYMENT compulsory, continuous process, then there will be less unemployment If a man produces carrots when the world is surfeited with carrots, unemploy- ment 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. Complementary Production. The solution of the unemployment problem lies not in the manufacture of money, but in the regula- tion 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 hrost; or a rush of farm hands to a goldfield. A little reasoning will reveal the connexion at once. Let us suppose that Argentina has plemted seed to produce 2,000,000 Quarters of wheat and that, owing to a visit of some estructive parasite, the whole of the wheat is destroyed. The ^gentine farmers, instead of send- ing wheat to this country and taking agricultural machinery, motors, clothes, and champagne in payment, go without. The makers of these goods 73 UNEMPLOYMENT are therefore thrown out of employment. If Mr. Kitson wishes to avoid unemployments he must arrange that there shall be no frosts, no partisites, 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 anyone's part. AH 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. 7* Unemployment. REPLY TO CITY EDITOR'S CRITICISM. % (BY ARTHUR KITSON.) I HAVE been engaged for a good portion of my life in political, economic, and scientific discussions, some of which have been of a highly contentious character, but 1 cannot remember ever having read any criticism so unfair or so misleading as that offered by my present opponent. Let me give one or two exeunples. Under a heading entitle " Evading the Question," my opponent says : " Mr. Kitson wonders why we should wait for foreigners to purcl^ase 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." By the substitution of the terms " bits of paper ' * and 'pieces' of paper" (which I have never even mentioned) for Treasury notes my opponent seeks to arouse prejudice and to convey the impreission that I 75 UNEMPLOYMENT am advocating the adoption of an entirely worthless currency. Moreover, the question of buying goods from these countries has no bearing on the proposals made. One has but to insert the words "British Treasury notes " in place of " bits of paper " and the* prejudice and difficulties raised by my critic vanish into thin air. Everyone knows that our Treasury notes will purchase bank drafts upon Argentina, India and America without the slightest difficulty, and con- sequently their holders C2ui readily purchase wheat, cotton, and hides from these countries. Us not the point rather that Treasury notes would not purchase drafts any more than Russian notes if they were indefinitely increased in number ?;—Ed.1 Treasury notes. Bank of England notes. Bills of Exchange — in short, over 90 per cent, of the assets of every bank— ma^ be vulgarly classified as "bits of paper,'! '^"^ ^^ ^^^ Editor had ho intention ^ conveying this idea because by doing so he would destroy the pr^udice he wishes to foster against this one particular form of currency which I have endorsed! Foreign Commerce. It will be remembered that in a footnote to my third article (March 19) the Editor of The Times Trade Supplernent asked me to explain how the increased sale of goods in our home market would enable us to pay for the raw material such as cotton, which is not grown in these islands. To this I replied in my next article in substance as follows : — Our control of our home markets would enable us to produce goods in much larger quantities than at present, and consequently at less cost, and since 76 UNEMPLOYMENT foreign trade is a system of indirect barter by which we exchange services and manufactured goocB for imported raw matei^ial,'we should naturally be in a better position with such control than otherwise. And this is how the City Editor misinterprets it : — " 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 sasring that we are quite capable of paying for the cotton. He asserts that thfit is the answer to the question. But he has still to answer if the public is to be induced to take his ideas seriously " ! In the fourth, fifth, and sixth articles I outlined various remedies for industrial stagnation and unemployment. In the fourth article under the heading "The Remedy," I stated how immediate relief could be given to our trade and industries, whilst in the last article I reproduced the entire scheme originally suggested by Major Douglas in his recent work entitled Credit Power and Democracy." The City Editor says :— " 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 argu- ments." Major Douglas's Plan. Not one single word in criticism of Major Douglas's plan has the City Editor attempted to offer. Ev- idently incapable of offering any intelligent criticism, he deliberately puts the telescope to his blind eye and 77 UNEMPLOYMENT brazenly asserts that I have offered no solution! This Nelsonian touch may be advantageous at times in warfare, but it is very foolish when it is attempted in a discussion of this sort, the object of which is to arrive at the truth. [Our City Editor wait not called upon to deal with Major Douglas's hook but with Mr Kitson's remedy. —Ed.] The City Editor puts to me this poser, which he says I must answer— vit- :— " How the making odi more goods when there are more goods than can be sold will produce buyers, and how the issue of bits of Eaper will enable the Indian planter to be paid for is tea?" His question is not quite complete, and I must first inquire whether the cause of such over-pro- duction is due to the public having become surfeited with all these goods, or merely because a foolish finan- cial system has so contracted the volume of purchasing power that there is not sufficient to enable those desiring such goods to buy with ? Over-produc- tion can occur for only one of twocatises — ^viz., because the wants of all are satisfied, or because of an insuffi- ciency of purchasing power in the pockets of the public. Our present stagnation is due to under-con- sumption. Or does the City Editor imagine that the {>resent paralysis of trade is due to the fact that very ew people Are in need of goods? If some magician could present 10 legal pounds to every poor person in this realm, is it not certain that within a few days or weeks every factory would be running full time and every unemployed and employable person could be able to find a job? As to the Indian tea planter, so long as Treasury notes are convertible into rupees or drafts upon the banks of India, he need not worry 78 UNEMPLOYMENT about not being paid (or his tea. The exchanges would then gradually fall in India's favour and enable trade to be resumed, which was destroyed by the politicians who have been tinkering with the cur- rencies of both countries. Again, in my first article I said :— "there are many obstacles to human progress arising from nat- ural causes over which man has little or no controL There are others which are by far the more numerous, and entirely the result of man's stupidity, superstition, ignorance, prejudice, and greed." In spite of this custinction which 1 made between the uncontrollable forces of nature and those forces which are remedial, my critic says: — "It Mr. Kitson wishes to avoid unemployment he must arrange that there will be no frosts, no parasites, no storms," &c. The City Editor also objects to my diagram of the oil engine, because he thinks it is not sufficiently' comprehensive. Here again my critic coolly ignores the object of the illustration, which was merely to show by analogy that continuous production (and therefore employment) depends upon continued con- sumption at a sufficiently rapid rate to avoid the condition known as over-production. The extension of the public oil supply main in the diagram which he suggests would have added nothing whatever to- wards illustrating the above fact. Goods or Money ? My opponent says that there are " three outstand- ing fallacies " in my articles, the predominant one being that "the real problem is to discover some method of selling goods as feist as they are produced." 79 UNEMPLOYMENT He says — " The real problem is not to exchange goods for money, but to exchange them through the medium of money ior other goods." My answer it , that so long as I can exchange goods for monkey I can always buy the goods I need with the money. I laSf to see any " problem " in this. [The experience of Russia seems to be against Mr. Kitson. — Ed.] Again he says : — " Money is the medium ol exchange ; if the problem could be solved by merely ~ printing money it could be solved here aiid now. A Daniel come to judgment ! This is my contention. It was by printing Ireasury notes that our banks, our industries, in fact pur country was saved in August, 1914, just as we and other natioiis have been saved by a similar measure during similar crises. And those who are now sneering at these so-called " bits of paper," were the very first to acclaim them when everything was in the melting pot. [Is hot the point that this temporary expedient cannot he indef^ initely continued ? — Ed.] I am admonished both by the City Editor and Mr. De Segundo that 1 am carrying on a dangerous propaganda by raising false hopes. One would have - supposed that the tragic events of the war and the failure of our pre-war economic methods would have taught our politicians and City Editors the folly of imagining that the world could be put back into the old ruts in which things moved prior to the great upheaval. The real danger lies in the attempts to carry out such an insane policy. These attempts are already responsible for most of the present unrest. 'So UNEMPLOYMENT The attempt of the Treasury officials to put into force the preposterous proposals of the Cunliffe Cur> rency Committee has cost the country already untold millions of wealth and has resulted in the closing of hundreds of factories and the dischsurge of hundreds of thousands of operatives. " The unemployment problem is a problem of exchange," says our City Editor. True, and " exchange " has developed into " a problem *' merely because Governments have granted to a few individuals the monopoly of credit — the media of exchange. There are numerous other points in my oppo- nent's reply to which exception might be taken, but I think 1 have said enough to show that his " reply " has very little bearing upon the proposals that I have made as a remedy for unemployment, which proposals he has deliberately ignored. One word in reply to Mr. De Segundo. " By in- creasing our productive facilities we are debasing the public power to pureru5al of tbis volume compels agreement with Mr. , Francis Stop- ford's expression in the Prefacp, that ' those who are satisfied with British currency and banking:, and that her trading and industrial conditions are all that th^y should be, will be well advised' to forswear this volume^ for their prepossessions will' be shocked.' A shock would, however, do a 'great deal of good to matiy, and we advise such to read the book." Nottingham Guardian^' Mr. Ki'son, UVe many other economists of to-day, is an out-and-out advocate of the aationalization of our banking system, so that banking facilities may be brought within easier reach of all' classes for the stimulation of industrial enterprise, and his chapters on the financial factor in business and the .fetish we make of the gold standard well repay close and attentive perusal. To the financial expert the ground icovered and the argfuments used will be familiar, 'but to the reader who has not made a study of these matters they offer a «Iear and well informed statement, in which the case from opposite points of view is impartially pre- sented ; his general conclusion being very strongly in favour of a thorough reform." Hardware Trade Journal.—" There is much that -is of burning interest in this thoughtful collection of essays, biit fhat which makes the strongest appeal to the writer by reason of its novelty is the concluding chapter on the psychology of the workshop. . . Readers who are t^rJcing out these problems will find much in this volume that is at once stimulating and instructive." Sunday Chronicle.—" The author draws a inost seri- ous indictment against what he terms ' our mediaeval banking methods.' , He holds the Bank Charter Act as the chi^f obstacle to our industrial progress." Aberdeen Journal.—" " Trade Fallacies " deserves careful study" by employfers and workers, and by all who have been giving serious thought to the industrial pro- lems which will arise after the war." , ,