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Thoughts on the World Economic Crisis

If there is one thing that can give a layman in the sphere of economics the
courage to express an opinion on the nature of the alarming economic
difficulties of the present day, it is the hopeless confusion of opinions among
the experts. What I have to say is nothing new and does not pretend to be
anything more than the opinion of an independent and honest man who,
unburdened by class or national prejudices, desires nothing but the good of
humanity and the most harmonious possible scheme of human existence. If in
what follows I write as if I were clear about certain things and sure of the truth
of what I am saying, this is done merely for the sake of an easier mode of
expression; it does not proceed from unwarranted self-confidence or a belief
in the infallibility of my somewhat simple intellectual conception of problems
which are in reality uncommonly complex.
As I see it, this crisis differs in character from past crises in that it is based on
an entirely new set of conditions, due to rapid progress in methods of
production. Only a fraction of the available human labour in the world is
needed for the production of the total amount of consumption-goods
necessary to life. Under a completely free economic system this fact is bound
to lead to unemployment. For reasons which I do not propose to analyse
here, the majority of people are compelled to work for the minimum wage on
which life can be supported. If two factories produce the same sort of goods,
other things being equal, that one will be able to produce them more cheaply
which employs less workmen--i.e., makes the individual worker work as long
and as hard as human nature permits. From this it follows inevitably that, with
methods of production what they are to-day, only a portion of the available
labour can be used. While unreasonable demands are made on this portion,
the remainder is automatically excluded from the process of production. This
leads to a fall in sales and profits. Businesses go smash, which further
increases unemployment and diminishes confidence in industrial concerns and
therewith public participation in these mediating banks; finally the banks
become insolvent through the sudden withdrawal of deposits and the wheels
of industry therewith come to a complete standstill.
The crisis has also been attributed to other causes which we will now
consider.
(1) Over-production. We have to distinguish between two things here--real
over-production and apparent over-production. By real overproduction I
mean a production so great that it exceeds the demand. This m4y perhaps
apply to motor-cars and wheat in the United States at the present moment,
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although even that is doubtful. By "over-production" people usually mean a
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condition of things in which more of one particular article is produced than
can, in existing circumstances, be sold, in spite of a shortage of
consumption-goods among consumers. This condition of things I call apparent
over-production. In this case it is not the demand that is lacking but the
consumers' purchasing-power. Such apparent over-production is only another
word for a crisis, and therefore cannot serve as an explanation of the latter;
hence people who try to make over-production responsible for the crisis are
merely juggling with words.
(2) Reparations. The obligation to pay reparations lies heavy on the debtor
nations and their industries, compels them to go in for dumping, and so harms
the creditor nations too This is beyond dispute. But the appearance of the
crisis in the United States, in spite of the high tariff-wall protecting them,
proves that this cannot be the principal cause of the world crisis. The shortage
of gold in the debtor countries due to reparations can at most serve as an
argument for putting an end to these payments; it cannot be dragged in as an
explanation of the world crisis.
(3) Erection of near tariff-walls. Increase in the unproductive burden of
armaments. Political in security owing to latent danger of war. All these things
add considerably to the troubles of Europe, but do not materially affect
America. The appearance of the crisis in America shows that they cannot be
its principal causes.
(4) The dropping-out of the two Powers, China and Russia. This blow to
world trade also does not touch America very nearly, and therefore cannot be
a principal cause of the crisis.
(5) The economic rise of the lower classes since the War. This, supposing
it to be a reality, could only produce a scarcity of goods, not an excessive
supply.
I will not weary the reader by enumerating further contentions which do not
seem to me to get to the heart of the matter. Of one thing I feel certain: this
same technical progress which, in itself, might relieve mankind of a great part
of the labour necessary to its subsistence, is the main cause of our present
troubles. Hence there are those who would in all seriousness forbid the
introduction of technical improvements. This is obviously absurd. But how can
we find a more rational way out of our dilemma?
If we could somehow manage to prevent the purchasing-power of the
masses, measured in terms of goods, from sinking below a certain minimum,
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stoppages in the industrial cycle such as we are experiencing to-day would be
rendered impossible.
The logically simplest but also most daring method of achieving this is a
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completely planned economy, in which consumption-goods are produced and
distributed by the community. That, in essentials, is what is being attempted in
Russia to-day. Much will depend on what results this mighty experiment
produces. To hazard a prophecy here would be presumption. Can goods be
produced as economically under such a system as under one which leaves
more freedom to individual enterprise? Can this system maintain itself at all
without the terror that has so far accompanied it, which none of us
"westerners" would care to let himself in for? Does not such a rigid,
centralized system tend towards protection and hostility to advantageous
innovations? We must take care, however, not to allow these suspicions to
become prejudices which prevent us from forming an objective judgment.
My personal opinion is that those methods are preferable which respect
existing traditions and habits so far as that is in any way compatible with the
end in view. Nor do I believe that a sudden transference of the control of
industry to the hands of the public would be beneficial from the point of view
of production; private enterprise should be left its sphere of activity, in so far
as it has not already been eliminated by industry itself in the form of
cartelization.
There are, however, two respects in which this economic freedom ought to be
limited. In each branch of industry the number of working hours per week
ought so to be reduced by law that unemployment is systematically abolished.
At the same time minimum wages must be fixed in such a way that the
purchasing power of the workers keeps pace with production.
Further, in those industries which have become monopolistic in character
through organization on the part of the producers, prices must be controlled
by the State in order to keep the creation of new capital within reasonable
bounds and prevent the artificial strangling of production and consumption.
In this way it might perhaps be possible to establish a proper balance between
production and consumption without too great a limitation of free enterprise,
and at the same time to stop the intolerable tyranny of the owners of the
means of production (land, machinery) over the wage-earners, in the widest
sense of the term.