John Maynard Keynes
"Saving and Spending" |
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"THE PROBLEM OF UNEMPLOYMENT II"
OR
"SAVING AND SPENDING"
(1931)
[The Listener, 14 January, 1931, p.46-47]
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This article was written as a radio talk for a British Broadcasting Corporation (BBC) series on unemployment (Keynes's talk was the second in the series, delivered in 11 January, 1931). It was first published with the title "The Problem of Unemployment II" in The Listener, 14 January 1931, p.46-47. It was re-titled "Saving and Spending" for the 1931 Essays in Persuasion.
[Note on HET version: This version does not contain pagination as we have not obtained a copy of the original version of the publication. As far as we know, this essay is in the public domain. You are free to make use of this electronic version in any way you wish, except for commercial purposes, without asking permission. All comments and corrections of this text are encouraged..]
SAVING AND SPENDING
The slump in trade and employment and the business losses which are being incurred are as bad as the worst which have ever occurred in the modern history of the world. No country is exempt. The privation and - what is sometimes worse - the anxiety which exist today in millions of homes all over the world is extreme. In the three chief industrial countries of the world, Great Britain, Germany, and the United States, I estimate that probably 12 million industrial workers stand idle. But I am not sure that there is not even more human misery today in the great agricultural countries of the world - Canada, Australia, and South America, where millions of small farmers see themselves ruined by the fall in the prices of their products, so that their receipts after harvest bring them in much less than the crops have cost them to produce. For the fall in the prices of the great staple products of the world such as wheat, wool, sugar, cotton, and indeed most other commodities has been simply catastrophic. Most of these prices are now below their pre-war level; yet costs, as we all know, remain far above their pre-war level. A week or two ago, it is said, wheat in Liverpool sold at the lowest price recorded since the reign of Charles II more than 250 years ago. How is it possible for farmers to live in such conditions? Of course it is impossible.
You might suppose - and some austere individuals do in fact believe - that cheapness must be an advantage. For what the producer loses, the consumer gains. But it is not so. For those of us who work - and we are in the great majority - can only consume so long as we produce. So anything which interferes with the processes of production necessarily interferes also with those of consumption.
The reason for this is that there are all kinds of obstacles to the costs and prices of everything falling equally. For example, the wages costs of most manufacturers are practically the same as they were. See how the vicious process works out. The prices of wool and wheat fall. Good for the British consumer of wheat and woollen garments - so one might suppose. But the producers of wool and wheat, since they receive too little for their products, cannot make their usual purchases of British goods. Consequently those British consumers who are at the same time workers who make these goods find themselves out of work. What is the use of cheapness when incomes are falling?
When Dr Johnson, visiting the Island of Skye, was told that twenty eggs might be bought for a penny, he said, 'Sir, I don't gather from this that eggs are plenty in your miserable island, but that pence are few.
Cheapness which is due to increased efficiency and skill in the arts of production is indeed a benefit. But cheapness which means the ruin of the producer is one of the greatest economic disasters which can possibly occur.
It would not be true to say that we are not taking a grave view of the case. Yet I doubt whether we are taking a grave enough view. In the enforced idleness of millions, enough potential wealth is turning to waste to work wonders. Many million pound's worth of goods could be produced each day by the workers and the plants that stand idle - and the workers would be the happier and the better for it. We ought to sit down to mend matters, in the mood of grave determination and the spirit of action at all costs, which we should have in a war. Yet a vast inertia seems to weigh us down. The peculiarity of the position today - to my mind - is that there is something to be said for nearly all the remedies that anyone has proposed, though some, of course, are better than others. All the rival policies have something to offer. Yet we adopt none of them.
The worst of it is that we have one excellent excuse for doing nothing. To a large extent the cure lies outside our own power. The problem is an international one, and for a country which depends on foreign trade as much as we do there are narrow limits to what we can achieve by ourselves. But this is not the only reason why we are inactive. Nor is it a sufficient reason. For something we can do by ourselves. The other principal reason, in my opinion, is a serious misunderstanding as to what kind of action is useful and what kind is not. There are today many well-wishers of their country who believe that the most useful thing which they and their neighbours can do to mend the situation is to save more than usual. If they refrain from spending a larger proportion of their incomes than usual they believe that they will have helped employment. If they are members of town and country councils they believe that their right course at such a time as this is to oppose expenditure on new amenities or new public works.
Now, in certain circumstances all this would be quite right, but in present
circumstances, unluckily, it is quite wrong. It is utterly harmful and misguided
- the very opposite of the truth. For the object of saving is to release labour
for employment on producing capital goods such as houses, factories, roads,
machines, and the like. But if there is a large unemployed surplus already
available for such purposes, then the effect of saving is merely to add to this
surplus and therefore to increase the number of the unemployed. Moreover, when a
man is thrown out of work in this or any other way, his diminished spending
power causes further unemployment amongst those who should have produced what he
no longer can afford to buy. And so the position gets worse and worse in a
vicious circle.
The best guess I can make is that whenever you save five shillings, you put a
man out of work for a day. Your saving that five shillings adds to unemployment
to the extent of one man for one day - and so on in proportion. On the other
hand, whenever you buy goods you increase employment - though they must be
British, home-produced goods if you are to increase employment in this country.
After all, this is only the plainest common sense. For if you buy goods, someone
will have to make them. And if you do not buy goods, the shops will not clear
their stocks, they will not give repeat orders, and someone will be thrown out
of work.
Therefore, O patriotic housewives, sally out tomorrow early into the streets and
go to the wonderful sales which are everywhere advertised. You will do
yourselves good - for never were things so cheap, cheap beyond your dreams. Lay
in a stock of household linen, of sheets and blankets to satisfy all your needs.
And have the added joy that you are increasing employment, adding to the wealth
of the country because you are setting on foot useful activities, bringing a
chance and a hope to Lancashire, Yorkshire, and Belfast.
These are only examples. Do whatever is necessary to satisfy the most sensible
needs of yourself and your household, make improvements, build.
For what we need now is not to button up our waistcoats tight, but to be in a mood of expansion, of activity - to do things, to buy things, to make things. Surely all this is the most obvious common sense. For take the extreme case. Suppose we were to stop spending our incomes altogether, and were to save the lot. Why, everyone would be out of work. And before long we should have no incomes to spend. No one would be a penny the richer, and the end would be that we should all starve to death - which would surely serve us right for refusing to buy things from one another, for refusing to take in one another's washing, since that is how we all live. The same is true, and even more so, of the work of a local authority. now is the time for municipalities to be busy and active with all kinds of sensible improvements.
The patient does not need rest. He needs exercise. You cannot set men to work by holding back, by refusing to place orders, by inactivity. On the contrary, activity of one kind or another is the only possible means of making the wheels of economic progress and of the production of wealth go round again.
Nationally, too, I should like to see schemes of greatness and magnificence
designed and carried through. I read a few days ago of a proposal to drive a
great new road, a broad boulevard, parallel to the Strand, on the south side of
the Thames, as a new thoroughfare joining Westminster to the City. That is the
right sort of notion. But I should like to see something bigger still. For
example, why not pull down the whole of South London from Westminster to
Greenwich, and make a good job of it - housing on that convenient area near to
their work a much greater population than at present, in far better buildings
with all the conveniences of modern life, yet at the same time providing
hundreds of acres of squares and avenues, parks and public spaces, having, when
it was finished, something magnificent to the eye, yet useful and convenient to
human life as a monument to our age. Would that employ men? Why, of course it
would! Is it better that the men should stand idle and miserable, drawing the
dole? Of course it is not.
These, then, are the chief observations which I want to leave with you now -
first of all, to emphasise the extreme gravity of the situation, with about a
quarter of our working population standing idle; next, that the trouble is a
world-wide one which we cannot cure by ourselves; and, third, that we can all
the same do something by ourselves and that something must take the form of
activity, of doing things, of spending, of setting great enterprises afoot.
But I also have one final theme to put before you. I fancy that a reason why people may be a little horrified at my suggestions is the fear that we are much too poor to be able to afford what they consider to be extravagance. They think that we are poor, much poorer than we were and that what we chiefly need is to cut our coat according to our cloth, by which they mean that we must curtail our consumption, reduce our standard of life, work harder and consume less; and that that is the way out of the wood. This view is not, in my judgement, in accordance with the facts. We have plenty of cloth and only lack the courage to cut it into coats. I want, therefore, to give you some cheerful facts to dispose you to take an ampler view of the economic strength of this country.
Let me first of all remind you of the obvious. The great mass of the population is living much better than it ever lived before. We are supporting in idleness, at a higher standard of life than is possible for those who are in work in most other countries, nearly a quarter of our employable population. Yet at the same time the national wealth is increasing year by year. After paying wages which are far higher than, for example, in France or in Germany, after supporting a quarter of our population in idleness, after adding to the country's equipment in houses and roads and electrical plant and so forth on a substantial scale, we still have a surplus available to be lent to foreign countries, which in 1929 was greater than the surpluses for such purposes of any other country in the world, even of the United States.
How do we do it? If the pessimists were right who believe that we are terribly inefficient, over-extravagant and getting poorer, obviously it would be impossible. We can only do it because the pessimists are quite wrong. We are not nearly so rich as we might be if we could manage our affairs better and not get them into such muddle. But we are not inefficient, we are not poor, we are not living on our capital. Quite the contrary. Our labour and our plant are enormously more productive than they used to be. Our national income is going up quite quickly. That is how we do it.
Let me give you a few figures. As compared with so recent a date as 1924, our productive output per head has probably increased by 10 per cent. That is to say, we can produce the same amount of wealth with 10 per cent fewer men employed. As compared with pre-war the increase in output per head is probably as much as 20 per cent. Apart from changes in the value of money, the national income -even so recently as 1929 with a great mass of unemployment (it cannot, of course, be quite so good today) -was probably increasing by as much as ?100 million a year; and this has been going on year by year for a good many years. At the same time we have been quietly carrying through almost a revolution in the distribution of incomes in the direction of equality.
Be confident, therefore, that we are suffering from the growing pains of youth,
not from the rheumatics of old age. We are failing to make full use of our
opportunities, failing to find an outlet for the great increase in our
productive powers and our productive energy. Therefore we must not draw in our
horns; we must push them out. Activity and boldness and enterprise, both
individually and nationally, must be the cure.
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