(c) crown copyright
Catalogue Reference:cab/66/45/23
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THIS DOCUMENT I S T H E PROPERTY OF H I S BRITANNIC M A J E S T Y ' 8 GOVERNMENT Printed
for
the War
Cabinet.
January
1944.
Copy N o .
SECEET.
W . P . (44) 2 3 .
13th January,
1944.
WAR
C A B I N E T ^Si
EMPLOYMENT
MEMORANDUM
BY T H E
X
POLICY.
PAYMASTER-GENERAL.
T H E two a t t a c h e d m i n u t e s o n e m p l o y m e n t policy, p r e p a r e d for t h e P r i m e
M i n i s t e r , a r e c i r c u l a t e d a t h i s suggestion.
C.
13th January,
1944.
(1)
EMPLOYMENT
POLICY
IN
THE
TRANSITIONAL
PERIOD.
T H E best w a y t o a p p r o a c h t h e s e problems is to s t u d y w h a t h a p p e n e d a f t e r
t h e last w a r . (See c h a r t I.)
A f t e r a f e w m o n t h s of u n e m p l o y m e n t , w h i l e i n d u s t r i e s w e r e s w i t c h i n g over
from w a r t o peace, t h e r e w a s a brief b u t violent boom (which r e a c h e d i t s p e a k i n
t h e s u m m e r of 1920) w h i l s t stocks w e r e b e i n g rebuilt, w a r a r r e a r s of m a i n t e n a n c e
m a d e good, a n d t h e p e n t - u p d e m a n d s of f o r e i g n c o u n t r i e s satisfied. U n e m p l o y ­
m e n t w a s very low, a n d p r i c e s a n d w a g e s soared. W h e n d e m a n d a t h o m e a n d
a b r o a d b e g a n t o slacken a n d p r i c e s t o s l u m p , t o w a r d s t h e end of 1920, t h e r e w a s
a g r e a t i n c r e a s e i n u n e m p l o y m e n t , w h i c h r e a c h e d 1\ m i l l i o n a b o u t t h e m i d d l e of
1921.* F r o m t h i s figure u n e m p l o y m e n t g r a d u a l l y recovered to t h e n e i g h b o u r h o o d
of 1^ million a n d ( a p a r t f r o m the coal d i s p u t e i n 1926) s t a y e d a t a b o u t t h i s level
from 1923 t i l l 1929. W i t h t h e onset of t h e g r e a t d e p r e s s i o n a t t h e e n d of 1929,
u n e m p l o y m e n t mounted, to over 2-J m i l l i o n i n j u s t over one y e a r a n d d i d n o t fall
below t h a t figure u n t i l t h e m i d d l e of 1933, a f t e r w h i c h w e had, a s t e a d y decline,
to u n d e r 1-1 m i l l i o n i n t h e m i d d l e of 1937.
W e m a y e x p e c t a s o m e w h a t s i m i l a r t r e n d of events w h e n t h i s w a r e n d s — a t
a n y r a t e for t h e first few y e a r s — u n l e s s steps a r e t a k e n to check t h e t e n d e n c i e s
a t work.
I n t h e first p e r i o d ( p e r h a p s s i x to n i n e m o n t h s ) t h e r e w i l l be h u n d r e d s of
t h o u s a n d s s e e k i n g w o r k before t h e f a c t o r i e s a r e p r e p a r e d to t a k e t h e m .
I n t h e second p e r i o d , w h e n t h e f a c t o r i e s a r e r e a d y , t h e r e w i l l be m o r e d e m a n d
for labour t h a n c a n be met.
I n t h e t h i r d p e r i o d , w h e n r e - s t o c k i n g is complete, m a i n t e n a n c e a r r e a r s a r e
m a d e good, w a r s a v i n g s a r e spent, a n d f o r e i g n d e m a n d slackens ( w i t h t h e com­
p l e t i o n of r e c o n s t r u c t i o n a n d r e - s t o c k i n g a b r o a d , a n d t h e recovery of o u r
i n d u s t r i a l c o m p e t i t o r s ) , t h e r e will be a t e n d e n c y to s l u m p a n d u n e m p l o y m e n t .
T h e v a r i o u s lines of a c t i o n w h i c h seem a p p r o p r i a t e t o t h e c h a n g i n g c o n d i t i o n s
w h i c h a r e to be e x p e c t e d a r e set f o r t h below i n b r o a d o u t l i n e .
* This figure does not include the million miners who stayed on strike for three months, but
the strike aggravated unemployment in other industries.
First Period.
W e h a v e to-day a b o u t 22 million people g a i n f u l l y employed.
Of these 5 m i l l i o n a r e in t h e Services a n d Civil Defence, nearly
5 m i l l i o n a r e on G o v e r n m e n t w o r k i n the m u n i t i o n s i n d u s t r i e s , nearly
2 m i l l i o n a r e employed d i r e c t l y by n a t i o n a l a n d local Govern­
ment authorities,
and
3 m i l l i o n a r e on o t h e r G o v e r n m e n t w o r k ( d i r e c t a n d i n d i r e c t )
in c l o t h i n g , b u i l d i n g , t r a n s p o r t , m i n i n g , a n d
o t h e r i n d u s t r i e s a n d services.
Total
...
15 million on G o v e r n m e n t work.
T h i s leaves only 7 million employed on civil a n d e x p o r t w o r k ( a l t h o u g h some
of t h e 15 million w o r k i n g for the G o v e r n m e n t a r e not, of course, d o i n g s t r i c t l y
w a r work).
T h e p r o b l e m of d e m o b i l i s a t i o n is to t r a n s f e r , say, a b o u t 10 of the 15 m i l l i o n
back to civil a n d e x p o r t w o r k . T h e r e m a i n i n g 5 million w i l l r e m a i n on Govern­
m e n t w o r k or r e t u r n to t h e " u n o c c u p i e d " category.
F o r some of these 10 millions t h e t r a n s f e r w i l l be h a r d l y noticeable, e.g., i n
t r a n s p o r t a n d m i n i n g . M a n y , especially i n t h e m u n i t i o n s i n d u s t r i e s , w i l l be r e ­
employed b y the s a m e firm as soon a s the m a c h i n e r y , & c , c a n be a d a p t e d for civil
work, e.g., motor vehicles. B u t m a n y w i l l h a v e t o c h a n g e t h e i r o c c u p a t i o n s . T h e s e
include demobilised m e m b e r s of the forces,* w o r k e r s employed on w o r k to w h i c h
t h e r e is no peace-time p a r a l l e l , such a s shell filling, a n d t h e m e n a n d w o m e n w h o
will h a v e to go back to t h e i r old jobs t o m a k e room for t h e r e t u r n i n g service m e n .
T h e r e will t h u s be a g i g a n t i c t u r n - o v e r of labour, a n d t h e r e is b o u n d to be
some u n e m p l o y m e n t : —
(a) w h i l e people move f r o m one job to a n o t h e r ; ip) w h i l e f a c t o r i e s a r e t u r n e d over to peace work, a n d possibly (c) if t h e r e is a s h o r t a g e of coal, t r a n s p o r t , skilled l a b o u r or
materials, as happened after the last war.
imported
B u t t h i s " f r i c t i o n a l " u n e m p l o y m e n t should n o t be a c c e n t u a t e d by any
g e n e r a l s h o r t a g e of d e m a n d , since
(i) T h e m a n - p o w e r a v a i l a b l e f o r civil w o r k w i l l be well below the p e a c e - t i m e
level for some time, especially d u r i n g t h e J a p a n e s e w a r a n d t h e p e r i o d
of o c c u p a t i o n of G e r m a n y ;
(ii) t h e r e will be a g r e a t e r d e m a n d f o r civil goods t h a n in peace-time, since
consumers w i l l w i s h to restock t h e i r w a r d r o b e s , k i t c h e n s , & c , a n d
will h a v e p l e n t y of money to s p e n d o u t of s a v i n g s , businesses will
w a n t to r e b u i l d t h e i r w o r k i n g stocks, to c a r r y o u t m a i n t e n a n c e
a n d e x t e n s i o n s p o s t p o n e d d u r i n g t h e w a r , a n d to a d a p t t h e i r p l a n t
to peace-time p u r p o s e s , t
A f t e r t h e l a s t w a r u n e m p l o y m e n t rose to over a m i l l i o n i n A p r i l 1919 a n d
t h e n fell s t e a d i l y to only 300,000 i n the s u m m e r of 1920. T h i s t i m e w e should
be able to do b e t t e r if, a s a r e s u l t of a t w o - s t a g e e n d i n g of t h e w a r , demobilisa­
tion c a n be slowed down, e.g., if we t r a n s f e r 5 m i l l i o n u p to t h e e n d of the
J a p a n e s e w a r a n d 5 million t h e r e a f t e r .
If, however, we go all o u t u n t i l the
end of t h e J a p a n e s e w a r , l t h e p r o b l e m m a y be even m o r e difficult t h a n l a s t time,
since t h e r e h a s been a f a r h i g h e r d e g r e e of m o b i l i s a t i o n in t h i s w a r .
* These have a legal right to reinstatement in their old jobs for six months. Although
there are certain safeguards it seems that this obligation may lead to difficulties.
f The following table, giving estimates of civil production in 1942 as a percentage of peace­
time supplies, affords some idea of the depletion and deterioration of civil stocks t h a t m u s t have
taken place after four years of war: —
Footwear
...
Clothing
...
Books
Perambulators
Bicycles
...
Pottery
...
P o t s and pans
Glassware
...
$ On present plans
...
...
...
...
...
...
...
the
70
45
40
35
32
30
25
20
5 + 5
Towels, bed linen, cutlery, cameras, fountarn pens, sports goods and toys
...
Furniture
...
Fancy goods and jewellery
...
...
Motor bicycles
...
...
...
...
V a c u u m cleaners, wringers, refrigerators,
wireless sets, motor cars
...
...
Carpets, linoleum, wallpaper
...
...
seems likely to be nearer 3 + 7.
15
12
5
1
Spare parts only
Nil
T h e m e a s u r e s we m u s t t a k e (and p r e p a r e for now) a r e :—
(a) see t h a t firms a r e p r e p a r e d to s w i t c h over t h e i r c a p a c i t y t o p e a c e - t i m e
p r o d u c t i o n as q u i c k l y a s possible;
(&) find o u t in a d v a n c e w h e r e skilled labour w i l l be r e q u i r e d , a r r a n g e for
a n y necessary t r a i n i n g , if possible g e t key-men o u t of t h e forces
quickly, or p e r h a p s second t h e m for d u t y on a r m y pay, a n d p e r h a p s
r e t a i n t h e E s s e n t i a l W o r k O r d e r a n d d i r e c t i o n of labour, so t h a t
skilled w o r k e r s c a n be p u t or k e p t w h e r e t h e y a r e most n e e d e d ;
(c) e n s u r e , a n a d e q u a t e s u p p l y of coal a n d t r a n s p o r t (which m e a n s , a m o n g
o t h e r t h i n g s , t h e absence of s t r i k e s such a s a r e a p t to occur i n these
periods) a n d of r a w m a t e r i a l s from overseas. W e shall also h a v e to
r e t a i n t h e m a c h i n e r y for a l l o c a t i n g these t h i n g s t o w h e r e t h e y a r e
most needed;
(d) give a longish p e r i o d of leave to demobilised soldiers if n e c e s s a r y ;
p e r h a p s even u n t i l a job is offered t h e m ;
(e) p r e v e n t the u n d u e inflation of t h e official u n e m p l o y m e n t s t a t i s t i c s ,
a s seems to h a v e h a p p e n e d l a s t t i m e w h e n m a n y w o m e n a p p e a r to
h a v e r e g i s t e r e d a t t h e e m p l o y m e n t e x c h a n g e s i n o r d e r to g e t t h e
out-of-work d o n a t i o n , a l t h o u g h t h e y w e r e n o t r e a l l y s e e k i n g w o r k .
Second P e r i o d .
I n t h i s p e r i o d t h e r e should be l i t t l e difficulty i n p r o v i d i n g w o r k for
everyone. T h e m a i n p r o b l e m ( w h i c h w i l l also have to be faced i n t h e first p e r i o d )
w i l l be t o p r e v e n t a r a p i d r i s e i n prices, for, as h a s been shown, t h e p e n t - u p
d e m a n d for goods w i l l t e n d to exceed t h e s u p p l y . A p r i c e boom w o u l d a g g r a v a t e
t h e t e n d e n c y to a s u b s e q u e n t s l u m p i n t w o w a y s : i t w o u l d l e a d to artificial
speculative prices; and it would dissipate in higher prices the w a r savings we
w i s h to hold back u n t i l t h e s l u m p t h r e a t e n s .
T o p r e v e n t an inflation i t w i l l not be e n o u g h t o k e e p d o w n t h e cost of l i v i n g
by subsidies. W e s h a l l also have to c o n t i n u e to d a m p d o w n excessive d e m a n d ,
or, r a t h e r , postpone i t u n t i l t h e t h r e a t of a s l u m p gives the s i g n a l for i t to be
u n l e a s h e d . F o r t h i s p u r p o s e t h e following m e a s u r e s seem a p p o s i t e :—
(a) p o s t p o n i n g G o v e r n m e n t e x p e n d i t u r e on b u i l d i n g , & c , save in u r g e n t
cases;
(6) p o s t p o n i n g p r i v a t e e x p e n d i t u r e on b u i l d i n g s a n d o t h e r c a p i t a l e q u i p ­
m e n t , except for t h e e x p o r t t r a d e a n d o t h e r u r g e n t w o r k , by l i c e n s i n g
a n d by a l l o c a t i n g r a w m a t e r i a l s , labour, & c . ;
(c) r e g u l a t i n g t h e i n c r e a s e of r a t i o n s of m a n u f a c t u r e d goods, such a s
clothing, to c o r r e s p o n d w i t h t h e i n c r e a s e i n p r o d u c t i o n (the speed
a t w h i c h we c a n i n c r e a s e our food r a t i o n s w i l l d e p e n d m o r e on
overseas s u p p l i e s ) ;
(d) p o s t p o n i n g r e d u c t i o n s in i n d i r e c t t a x a t i o n , a n d if possible t h e release
of p o s t - w a r c r e d i t s , so as to p r e v e n t too r a p i d a rise i n t h e money
s p e n t on c o n s u m p t i o n ; our t a x policy should, however, a i m a t
e n c o u r a g i n g e n t e r p r i s e a n d c o m p e t i t i v e p o w e r , above all in t h e e x p o r t
t r a d e s , e.g., by r e d u c i n g E . P . T .
A i l these m e a s u r e s will u n f o r t u n a t e l y be m o s t u n p o p u l a r a n d very good
p r o p a g a n d a w i l l be r e q u i r e d to m a k e t h e m acceptable.
B e f o r e t h i s p e r i o d e n d s w e m u s t g e t r e a d y c o u n t e r - m e a s u r e s t o p r e v e n t the
t h r e a t e n e d s l u m p . W e m u s t p r e p a r e a d e t a i l e d t e c h n i q u e for r e v e r s i n g t h e
m e a s u r e s (a), (b), (c) a n d (d) quickly, a n d we m u s t have schemes of p u b l i c
e x p e n d i t u r e r e a d y to s t a r t i m m e d i a t e l y t h e s l u m p t h r e a t e n s . T h i s m e a n s t h a t
c e n t r a l a n d local g o v e r n m e n t a u t h o r i t i e s a n d p u b l i c u t i l i t i e s m u s t p r e p a r e p l a n s
well in a d v a n c e .
W e m u s t also t a k e a d v a n t a g e of t h e p o s t - w a r p r o s p e r i t y to diversify, as
f a r as possible, i n d u s t r y in a r e a s w h i c h a t p r e s e n t d e p e n d too m u c h on one or a
few i n d u s t r i e s . T h i s m e a n s t h a t we m u s t give p r e f e r e n c e to such a r e a s in
l i c e n s i n g n e w factories a n d t h e like a n d i n d e c i d i n g w h i c h m u n i t i o n f a c t o r i e s a r e
to be k e p t p e r m a n e n t l y in peace-time.
W e m u s t p r e p a r e a s t a t i s t i c a l t e c h n i q u e for f o r e c a s t i n g t h e s t a t e of d e m a n d
a few m o n t h s i n a d v a n c e , by g e t t i n g r e t u r n s of o r d e r s on t h e books of businesses,
t h e i r p r o j e c t e d c a p i t a l i n v e s t m e n t , &c.
Third Period.
W h e n t h e s t a t i s t i c s described above forecast a s l u m p we m u s t begin to reverse
t h e r e s t r i c t i v e m e a s u r e s o u t l i n e d above a n d t r y to increase e x p e n d i t u r e on both
c o n s u m p t i o n a n d c a p i t a l goods. T o d o t h i s we c a n —
(a) e n c o u r a g e local a u t h o r i t i e s , p u b l i c u t i l i t i e s a n d p r i v a t e u n d e r t a k i n g s
to go a h e a d w i t h t h e i r b u i l d i n g a n d o t h e r c a p i t a l p r o g r a m m e s , a l l of
w h i c h w i l l h a v e been well p r e p a r e d i n a d v a n c e ;
(b) free p o s t - w a r c r e d i t s , in so f a r a s it h a s been p o l i t i c a l l y possible to hold
these back d u r i n g t h e t r a n s i t i o n a l p e r i o d ; t h e y a m o u n t to a b o u t
£ 4 0 0 m i l l i o n t o - d a y a n d m a y rise to £ 5 0 0 m i l l i o n or m o r e by t h e end
of the w a r ;
(c) abolish a n y r a t i o n i n g t h a t m a y still be i n f o r c e ;
(d) r e m i t t a x a t i o n (the m e t h o d of d e d u c t i n g income t a x weekly or m o n t h l y
should m a k e it easier to do t h i s quickly, a n d i t should a l s o be possible
t o c h a n g e t h e t a x e s on d r i n k , tobacco,
fairly quickly);
(e) reduce social s e c u r i t y c o n t r i b u t i o n s .
( U n d e r t h e B e v e r i d g e p l a n t h e t o t a l c o n t r i b u t i o n by w o r k e r a,nd
employer is 7s. Qd. a week, a n d i t is reckoned t h a t a v a r i a t i o n by 2s. Qd.
i n e i t h e r d i r e c t i o n would h a v e a d i r e c t a n d i n d i r e c t effect on t o t a l
d e m a n d of £ 2 5 0 million a year, w h i c h r e p r e s e n t s well over h a l f a
m i l l i o n workers.) Such a r e d u c t i o n in c o n t r i b u t i o n s could be r e g a r d e d
a s financially sound since a l a r g e s u r p l u s w i l l h a v e been b u i l t u p
during, the w a r a n d transitional periods.
I f possible these m e a s u r e s should be intensified in a r e a s t h a t t h r e a t e n to
become p a r t i c u l a r l y depressed.
I t is i m p o r t a n t t h a t t h e c o u n t r y should be given a clear view of t h e unemploy­
m e n t position. J u s t a s cancer is considered m u c h m o r e p r e v a l e n t t h a n f o r m e r l y
l a r g e l y because d i a g n o s i s is more a c c u r a t e , so t h e reason people a r e a p t to t h i n k
u n e m p l o y m e n t is m u c h worse t h a n f o r m e r l y m a y be in part,, a t a n y r a t e , because
o u r s t a t i s t i c s of t h e a b s o l u t e n u m b e r s u n e m p l o y e d a r e m o r e comprehensive.
Even an improvement - in the unemployment position in the post-war years
m a y well a p p e a r in t h e o p p o s i t e l i g h t if absolute figures a r e quoted,
s i m p l y because w i t h t h e r i s e in t h e w o r k i n g p o p u l a t i o n a n d t h e e x t e n s i o n of
u n e m p l o y m e n t i n s u r a n c e to n e w classes, c u l m i n a t i n g in t h e B e v e r i d g e scheme,
w e shall be i n s u r i n g a f t e r t h e w a r a b o u t h a l f as m a n y people a g a i n a s in the e a r l y
t h i r t i e s . U n l e s s t h e G o v e r n m e n t is to be u n f a i r l y blamed, c a r e s h o u l d be t a k e n
e.g., by q u o t i n g u n e m p l o y m e n t in p e r c e n t a g e s of t h e i n s u r e d p o p u l a t i o n , to see
t h a t a t r u e p i c t u r e of t h e p o s i t i o n is given.
E m p l o y m e n t problems a r e p a r t i c u l a r l y difficult to h a n d l e because t h e r e m e d i e s
h a v e to be a p p l i e d before t h e s y m p t o m s a r e obvious. A n e a r l y a p p l i c a t i o n of
t h e b r a k e c a n p r e v e n t a n u n h e a l t h y boom. Conversely a t i m e l y t o u c h o n t h e
accelerator c a n s t o p a s l u m p d e v e l o p i n g ; if t h e A m e r i c a n s h a d a d o p t e d in 1930
t h e i n f l a t i o n a r y m e a s u r e s a p p l i e d i n 1933 t h e s l u m p w o u l d never h a v e r e a c h e d
such u n m a n a g e a b l e p r o p o r t i o n s . B u t a G o v e r n m e n t a c t i n g i n t h i s w a y w i l l
a l w a y s r i s k b e i n g accused of blocking p r o s p e r i t y j u s t w h e n t h e c o u n t r y is t u r n i n g
t h e c o r n e r or, conversely, of i r r e s p o n s i b l e e x t r a v a g a n c e j u s t w h e n f u t u r e p r o s p e c t s
are bad.
T h i s n o t e does n o t a t t e m p t to go beyond t h e T h i r d P e r i o d , w h i c h should
c a r r y u s t h r e e y e a r s o r m o r e beyond t h e e n d of t h e G e r m a n w a r .
Thereafter
a d d i t i o n a l c o n s i d e r a t i o n s will, of course, h a v e to be t a k e n i n t o a c c o u n t in
d e t e r m i n i n g policy.
2Qth October,
1943.
LONG-TERM EMPLOYMENT
POLICY.
SUMMARY.
T h e p u b l i c w i l l d e m a n d full e m p l o y m e n t a f t e r t h e w a r . T h e e x p e r i e n c e of t h e l a s t e i g h t y y e a r s shows :— I.
II.
T h e cyclical n a t u r e of u n e m p l o y m e n t .
A r i s e i n t h e a v e r a g e level of u n e m p l o y m e n t since t h e last w a r .
I . Cyclical
Unemployment.
1. T h e vicious circle.
2. T h e scale of t h e p r o b l e m is n o t u n m a n a g e a b l e .
3. T h e i m p o r t a n c e of stabilising
e x p o r t s a n d of t h e A r t i c l e V I I discussions.
4. I n t e r n a l policy.
(a) T h e t i m i n g of p u b l i c i n v e s t m e n t .
(b) V a r i a t i o n s i n t a x a t i o n .
(c) " B l a c k s p o t s . "
I I . The Average Level of
Unemployment.
1. T h e i m p o r t a n c e of p r e v e n t i n g a n o t h e r permanent
2. I n t e r n a l policy.
(a)
(6)
(c)
(d)
fall in e x p o r t s .
T h e o r y of " g l u t " rejected.
I n c r e a s i n g t h e m o b i l i t y a n d v e r s a t i l i t y of labour.
E n c o u r a g i n g n e w firms a n d i n d u s t r i e s .
Offsetting a possible excess of s a v i n g s in r e l a t i o n t o t h e d e m a n d
for c a p i t a l .
I I I . The Need for Speedy
Administrative
Action.
U n e m p l o y m e n t h a s been r e d u c e d by t h e h a r s h necessities of w a r from t h e
1 to 3 millions of peace t i m e to a b o u t 100,000. A f t e r 6 to 10 y e a r s of full employ­
m e n t d u r i n g t h e w a r a n d t h e p o s t - w a r boom, t h e B r i t i s h p e o p l e w i l l n o t t o l e r a t e a
r e t u r n to t h e old figures. T h e y w i l l d e m a n d t h a t t h e G o v e r n m e n t p r o d u c e a
p r o g r a m m e for a c h i e v i n g c o m p a r a b l e r e s u l t s i n peace.
T h e electors w i l l n o t be c o n t e n t w i t h t h e a n s w e r , a l b e i t reasonable, t h a t i n
- w a r t i m e 5 m i l l i o n p e o p l e a r e i n t h e forces; t h a t t h e S t a t e ' s d u t y t o feed, clothe,
e q u i p a n d m a i n t a i n t h e m m a k e s i n s a t i a b l e d e m a n d s for l a b o u r ; t h a t by
d i r e c t i n g l a b o u r f r o m one j o b t o a n o t h e r , or even from one r e g i o n to a n o t h e r , a n d
conversely by s i t i n g f a c t o r i e s to s u i t l a b o u r c o n d i t i o n s , t h e G o v e r n m e n t i n w a r
t i m e can r e d u c e t o n e g l i g i b l e p r o p o r t i o n s t h e l a r g e n u m b e r n o r m a l l y o u t of w o r k
moving f r o m j o b to job, or w h i l e w a i t i n g for t h e i r p a r t i c u l a r job t o come b a c k
to t h e m ; a n d t h a t a c c e l e r a t i n g inflation w o u l d be h a r d t o avoid u n l e s s full
employment w e r e a c c o m p a n i e d by r a t i o n i n g , a l l o c a t i o n of m a t e r i a l s , t h e e s s e n t i a l
w o r k o r d e r , c o m p u l s o r y s a v i n g s , &c. W e m a n a g e d to m a i n t a i n full e m p l o y m e n t ,
they will say, by d r e s s i n g o n e - t e n t h of t h e p o p u l a t i o n u p i n u n i f o r m s a n d g e t t i n g
t h e m to fire a w a y v a s t q u a n t i t i e s of v a l u a b l e m u n i t i o n s ; surely t h e r e is no
p a r t i c u l a r v i r t u e i n t h e h o m i c i d a l a s p e c t ; a n d , if not, w h y c a n n o t w e o b t a i n t h e
same r e s u l t i n p e a c e ? T h e y will, of course, w a n t t o g e t r i d of controls, a n d i n
r e t u r n will, n o d o u b t , a c c e p t some m e a s u r e of ' ' f r i c t i o n a l ' ' u n e m p l o y m e n t (say,
2—J million) w h i l s t p e o p l e a r e m o v i n g from one j o b to a n o t h e r . B u t figures over
a m i l l i o n w i l l be r e p u d i a t e d . T h e problem, t h e r e f o r e , w i l l be, w i t h o u t h u g e
defence e x p e n d i t u r e a n d w i t h a m i n i m u m of w a r - t i m e controls, t o e n s u r e employ­
m e n t figures a t a n y r a t e c o m p a r a b l e w i t h t h o s e of to-day.
I shall n o t e n d e a v o u r to e x a m i n e i n d e t a i l the a d m i n i s t r a t i v e a n d p o l i t i c a l
i m p l i c a t i o n s of t h e v a r i o u s m e a s u r e s w h i c h , i n t h e i r different w a y s , w o u l d be
effective. M y object is to set o u t t h e v a r i o u s lines of a p p r o a c h a n d i n d i c a t e h o w
they w o u l d o p e r a t e . B u t i t seems to me u r g e n t t h a t these m a t t e r s should be
e x a m i n e d f r o m t h e p o i n t of v i e w of p r a c t i c a b i l i t y , b o t h a d m i n i s t r a t i v e a n d
political, so t h a t a p r o p e r G o v e r n m e n t p r o g r a m m e c a n be p u t f o r w a r d a t a n
early d a t e .
C h a r t I I shows a p p r o x i m a t e u n e m p l o y m e n t figures from 1860 to t h e p r e s e n t
day. E v e n a superficial e x a m i n a t i o n shows clearly t w o i m p o r t a n t p o i n t s . T h e
first is t h e obvious cj^clical n a t u r e of e m p l o y m e n t , w h i c h is, of course, g e a r e d to
t h e well-known t r a d e cycle. T h e second is t h a t , w h e r e a s u n e m p l o y m e n t from
1860 to 1914 oscillated about a m e a n level i n t h e n e i g h b o u r h o o d of 5 p e r cent.,
a f t e r 1918 i t seems to have oscillated a b o u t a figure in t h e r e g i o n of 13 p e r cent.
T h o u g h t h e e x a c t p e r c e n t a g e s m a y be q u e s t i o n e d , since t h e older s t a t i s t i c s a r e
n o t sufficiently comprehensive or c o m p a r a b l e t o l i n k on to our m o d e r n d a t a
a l t o g e t h e r q u a n t i t a t i v e l y , t h e r e seems no d o u b t t h a t t h e a v e r a g e level of u n e m ­
ployment a f t e r t h e G r e a t W a r w a s very m u c h h i g h e r t h a n before.
I t w i l l p r o b a b l y be convenient to c o n s i d e r these t w o o u t s t a n d i n g p h e n o m e n a
in turn.
I.—Cyclical Unemployment.
1. W h a t e v e r i t s o r i g i n , t h e d i s a s t r o u s effect of t h e t r a d e cycle is d u e to t h e
w e l l - k n o w n vicious circle of f a l l i n g d e m a n d s c a u s i n g r e d u c e d employment, t h e
loss of w a g e s a n d profits c r e a t i n g , i n t u r n , fresh falls i n d e m a n d , a n d so on.
Clearly, if t h e o r i g i n a l r e d u c e d d e m a n d s could be offset by increased d e m a n d s
for goods elsewhere, i n s t e a d of r e d u c e d d e m a n d s o w i n g to loss of w a g e s a n d
profits, t h i s vicious circle w o u l d be checked. I n d e e d , b r o a d l y s p e a k i n g , a s l u m p
could not develop if d e m a n d could be m a i n t a i n e d , a n d d e m a n d w o u l d be m a i n ­
t a i n e d if e i t h e r t h e G o v e r n m e n t o r t h e p u b l i c w e r e in a p o s i t i o n to buy. I t is, I
t h i n k , g e n e r a l l y a g r e e d t h a t , if money could be p u t into c i r c u l a t i o n w h e n a
d e p r e s s i o n began, and if the very n a t u r a l r e a c t i o n of both G o v e r n m e n t a n d
people to cut down e x p e n d i t u r e because t i m e s were b a d could be overcome, w e
should h a v e gone a long w a y to solve o u r p r o b l e m . T h i s w a s t r i e d i n t h e s l u m p
of the t h i r t i e s , b u t the m e t h o d a d o p t e d , n a m e l y , to i n c r e a s e t h e s u p p l y of money
i n t h e b a n k s a n d reduce r a t e s of i n t e r e s t i n t h e hope of p r i m i n g t h e p u m p by
f o s t e r i n g t h e d e m a n d for c a p i t a l goods, w a s , to say t h e least, slow i n o p e r a t i o n .
T h o u g h t h e b a n k s w e r e stuffed full of money, it d i d not g e t i n t o c i r c u l a t i o n . W e
m u s t t h e r e f o r e consider i n w h a t o t h e r w a y s w e c a n force t h e issue.
2. T h e scale of the problem does n o t seem u n m a n a g e a b l e . I n t h e p a s t , t h e
r e a l n a t i o n a l income of t h e U n i t e d K i n g d o m h a s p r o b a b l y never oscillated,
between p e r i o d s of boom a n d s l u m p , by m o r e t h a n 7 p e r cent, a b o u t t h e m e a n
level—say, £ 5 0 0 million on a p o s t - w a r income of £ 7 , 0 0 0 million.
If taken in
t i m e a c o m p a r a t i v e l y small i n t e r v e n t i o n s h o u l d suffice to d a m p t h e m down.
B u t it is e s s e n t i a l to act in t h e e a r l y s t a g e s . T h e b r a k e ' h a s to be a p p l i e d in
t h e m i d d l e of t h e p e n d u i u m ' s s w i n g if we w a n t to stop i t s w i n g i n g .
3 . W h a t e v e r may be our t h e o r y of t h e cause of t h e t r a d e cycle, i n v e s t i g a ­
tion shows t h a t t h e m a i n fluctuations in e m p l o y m e n t i n t h i s c o u n t r y o r i g i n a t e
i n our e x p o r t s , w h i c h fluctuate relatively t h r e e to f o u r t i m e s a s w i d e l y a s t h e r e s t
of the n a t i o n a l income. Obviously t h e . b e s t t h i n g w o u l d be t o p r e v e n t ab initio
these v a r i a t i o n s in t h e d e m a n d for o u r e x p o r t s . I n o u r conversations u n d e r
A r t i c l e V I I , we a r e t r y i n g to e n s u r e t h i s . A n u n e x p e c t e d l y w i d e m e a s u r e of
a g r e e m e n t w a s reached between o u r D e l e g a t i o n , h e a d e d by t h e M i n i s t e r of S t a t e ,
a n d t h e A m e r i c a n s . A p l a n for h o l d i n g buffer stocks of p r i m a r y commodities,
w h i c h w o u l d even out the d e m a n d of o u r customers, w a s discussed. A m o n e t a r y
scheme to give c o u n t r i e s a r e a s o n a b l e c u s h i o n of f o r e i g n e x c h a n g e a n d t o p r e v e n t
i n t e r f e r e n c e w i t h t h e n o r m a l flow of t r a d e by s u d d e n c h a n g e s in t h e value of
c u r r e n c i e s , save w h e n t h e c o u n t r y ' s b a l a n c e of p a y m e n t s r e n d e r s t h i s essential,
h a s r e a c h e d a n a d v a n c e d s t a g e . E v e n t h e p r o p o s a l f o r a g e n e r a l r e d u c t i o n of
i m p o r t d u t i e s a n d a ceiling on tariffs, w h i c h w a s i n c l u d e d in o u r commercial
scheme, m a d e some h e a d w a y . * I f these v a r i o u s t e n t a t i v e a r r a n g e m e n t s between
t h e U n i t e d K i n g d o m a n d t h e U n i t e d S t a t e s c a n be converted i n t o firm a g r e e m e n t s ,
a very l a r g e n u m b e r of t h e o t h e r n a t i o n s of t h e w o r l d w i l l a l m o s t c e r t a i n l y
* The monetary and commercial schemes, far from tying our hands as regards employment
policy as is sometimes held, would be of considerable value. They would allow us to depreciate
the pound when our balance of payments was in difficulties as a result of a decline in exports,
without the fear of competitive depreciation or the erection of equivalent trade barriers by
countries more favourably situated. They would also allow us to pursue an expansionist policy
when a depression threatened, without the fear t h a t it might hamper exports (through rising
prices) or unduly stimulate the purchase of imports; for if this happened, and our balance of
payments became difficult, we should be allowed to depreciate the pound and impose impoii
quotas, again without fear of unwarranted retaliatory action by other countries. The international
investment scheme proposed by the Americans might be so worked as to reduce fluctuations :a
world activity as a whole and so in the demand for our exports. Finally, if, as a result of
continuing discussions on employment policy itself, anything can be done to stabilise United
States employment at a high level, this will be of great value in ironing out fluctuations in the
world as a whole.
h a v e to f a l l i n t o line a n d a g r e a t s t e p f o r w a r d w i l l h a v e been t a k e n i n e v e n i n g
out a n d p r o m o t i n g t h e flow of t r a d e . A s t h e g r e a t e s t t r a d i n g n a t i o n of t h e
world, we s h a l l s t a n d t o g a i n m o s t of all a n d o u r e m p l o y m e n t p r o b l e m will be
m a t e r i a l l y eased.
B u t n o firm a g r e e m e n t h a s y e t been r e a c h e d ; some d o u b t
w h e t h e r i t w i l l ever be r e a c h e d , seeing h o w t h e t i d e i n A m e r i c a n p o l i t i c s is
flowing. W e m u s t t h e r e f o r e p r e p a r e to d e a l w i t h these cyclical v a r i a t i o n s w h i c h
m a y be i m p o s e d u p o n u s f r o m a b r o a d by m e t h o d s w i t h i n o u r o w n control.
One way, of course, w o u l d be to r e d u c e o u r d e p e n d e n c e on e x p o r t s by g r o w ­
i n g more food a t home a n d t h u s d i m i n i s h i n g our i m p o r t s . T h e e x t e n t t o w h i c h
t h i s is feasible i s d i s p u t e d . I n a n y event, i t could only come i n t o effect t o a
notable d e g r e e if we m a d e g r e a t c h a n g e s i n c u r a g r i c u l t u r a l p r a c t i c e w h i c h
obviously w o u l d t a k e m a n y y e a r s .
I will, t h e r e f o r e , in t h i s n o t e consider only t h e v a r i o u s possible d i r e c t modes
of i n t e r v e n t i o n , w h i c h m a y be e x a m i n e d
seriatim.
4.—(a) N o w a d a y s , c e n t r a l a n d local a u t h o r i t i e s s p e n d a g r e a t d e a l of
money on p u b l i c w o r k s . A p a r t from this t h e G o v e r n m e n t c a n influence, if n o t
control, t h e t i m i n g of a l a r g e a m o u n t of c a p i t a l i n v e s t m e n t by p u b l i c u t i l i t i e s , &c.
To even o u t t h e t r a d e cycle such p r o j e c t s should be held back, b u t k e p t i n a s t a t e
of r e a d i n e s s , i n b u o y a n t p e r i o d s of boom a n d fostered a n d p u t i n t o effect i n
p e r i o d s of s l u m p . I n t h i s w a y , i t is reckoned, s o m e t h i n g l i k e 1-fr p e r cent, of
t h e n a t i o n a l income m i g h t be flung i n t o t h e scale so as t o d a m p d o w n t h e
oscillations of t h e t r a d e cycle; a n d t h e i n d i r e c t snowball effect of t h i s v a r i a t i o n
( t h r o u g h the e x p e n d i t u r e of t h e w o r k e r s d i r e c t l y employed a n d so on a n d so on)
should be a b o u t as g r e a t a g a i n , so t h a t t h e v a r i a t i o n s would, i n all, offset
fluctuations of 3 p e r cent. ( £ 2 0 0 million) i n t h e n a t i o n a l income a b o u t t h e m e a n
level. T h i s is a n appi-eciable f r a c t i o n of t h e 7 p e r cent. ( £ 5 0 0 m i l l i o n ) w i t h
which w e m a y h a v e to deal, a n d w o u l d i n itself c o n t r i b u t e to a l a r g e e x t e n t
to even t h i n g s out.
(b) T h e r e is a n o t h e r d i r e c t m e a n s by w h i c h t h e G o v e r n m e n t c a n force
money in a n d out of c i r c u l a t i o n . A f t e r t h e w a r , u n h a p p i l y , t h e r e seems l i t t l e
doubt t h a t , i n one f o r m o r a n o t h e r , t a x a t i o n , t o g e t h e r w i t h social s e c u r i t y con­
t r i b u t i o n s , w i l l a m o u n t to s o m e t h i n g like 30 p e r cent. (£2,000 million) of t h e
n a t i o n a l income. I t is clear, t h e r e f o r e , t h a t a c h a n g e of, say, 10 p e r cent, i n
t a x a t i o n w o u l d d i r e c t l y a l t e r by 3 p e r cent. ( £ 2 0 0 million) t h e a m o u n t a v a i l a b l e
to the p u b l i c for p u r c h a s i n g c o m m o d i t i e s , ^ a n d t h i s w o u l d h a v e a c u m u l a t i v e
effect a s e x p l a i n e d above.
T o g e t h e r w i t h controlled i n v e s t m e n t m e n t i o n e d
u n d e r (a) t h i s w o u l d b a l a n c e t h e w h o l e fluctuation d u e to t h e t r a d e cycle. A n d ,
indeed, c o n s i d e r a b l y less w o u l d p r o b a b l y be r e q u i r e d in r e a l i t y if w e a c t e d
quickly, since e x t r e m e f l u c t u a t i o n s w o u l d never develop a s t h e y d i d i n t h e p a s t .
T h i s p r o p o s a l would, of course, h a v e affronted G l a d s t o n i a n T r e a s u r y
officials since i t m e a n s a deficit on t h e b u d g e t in b a d y e a r s a n d a s u r p l u s i n good.
B u t from the economists' s t a n d p o i n t t h e r e is n o t h i n g s a c r e d a b o u t t h e t i m e i t t a k e s
for t h e e a r t h to t r a v e l once r o u n d t h e sun. W e m u s t g e t u s e d to t h i n k i n g o n a
longer b r a c k e t . I f t h e s u r p l u s e s over a long p e r i o d b a l a n c e t h e deficits, even t h e
most c o n v e n t i o n a l financial e x p e r t should h a v e n o t h i n g t o w o r r y about. W e h a v e
been w a r n e d a g a i n s t c r u c i f y i n g m a n k i n d on a cross of gold. W e m u s t e q u a l l y
b e w a r e of c r u c i f y i n g m a n k i n d on t h e 5 t h of A p r i l .
(c) T h e g e n e r a l m e a s u r e s o u t l i n e d above will, of course, n o t suffice t o c u r e t h e
" b l a c k s p o t s " in p a r t i c u l a r i n d u s t r i e s a n d a r e a s w h e r e e m p l o y m e n t fluctuates
w i t h special violence. T h e y w i l l help, especially t h e i m m e d i a t e e x p e n d i t u r e on
c a p i t a l i n v e s t m e n t , since i n d u s t r i e s p r o d u c i n g c a p i t a l goods a r e u s u a l l y subject
to especially l a r g e f l u c t u a t i o n s . Moreover, if p r o s p e r i t y c a n be m a i n t a i n e d
overall i t w i l l be e a s i e r for w o r k e r s to find jobs in o t h e r i n d u s t r i e s w h e n t h e i r
n o r m a l o c c u p a t i o n l a p s e s ; a n d t h e r e w i l l be a c e r t a i n i n c e n t i v e to i n c r e a s e o u t p u t
in places w h e r e l a b o u r is p l e n t i f u l . W e s h a l l h a v e gone some w a y to solve o u r
problem, i n o t h e r w o r d s , if t h e c u m u l a t i v e effects of a^slump i n t h e l a r g e e x p o r t i n g
i n d u s t r i e s c a n be r e d u c e d by p r e v e n t i n g a r e s u l t a n t fall i n t h e d e m a n d for
c o n s u m p t i o n goods w i t h i t s w e l l - k n o w n c u m u l a t i v e effect.
B u t t h e decline i n a c e r t a i n i n d u s t r y o r a r e a is often a p p a l l i n g l y s w i f t .
In
the cotton i n d u s t r y , for i n s t a n c e , u n e m p l o y m e n t rose f r o m 14 p e r cenc. t o
42 p e r cent., i.e., trebled, i n t h e first six m o n t h s of 1930. U n l e s s t h e i n t e r n a t i o n a l
* To illustrate orders of magnitude— Is. in the pound on income tax yields about £100 million. \d. a pint on beer about £15 million. Id. on 10 cigarettes (with a similar tax on tobacco) about £30 million. 5d. a week in insured persons' contributions to social insurance about £20 million.
4cJ. a week in employers' contributions to social insurance about £15 million.
a r r a n g e m e n t s on w h i c h w e have been w o r k i n g come i n t o effect t h i s s o r t of t h i n g is
likely to c o n t i n u e .
T o forestall t h i s it is most d e s i r a b l e t o diversify so f a r a s is possible i n d u s t r y
in the black a r e a s , i.e.. t h e a r e a s d e p e n d i n g l a r g e l y on o n e or t w o i n d u s t r i e s ,
especially w h e r e these a r e w o r k i n g for t h e e x p o r t t r a d e . A r e g i o n w i t h h a l f its
w o r k e r s employed g e t t i n g coal, three-fifths of w h i c h is s h i p p e d overseas, a s in
S o u t h W a l e s i n the early t w e n t i e s , is b o u n d to be a t t h e m e r c y of events abroad,
w h i c h B r i t i s h M i n i s t e r s c a n n o t hope to control.
T h e G o v e r n m e n t can help to
diversify i n d u s t r y by m a i n t a i n i n g , w h e r e possible, m u n i t i o n f a c t o r i e s i n these
a r e a s , a n d by e n c o u r a g i n g i n d u s t r i e s p r o d u c i n g c o n s u m p t i o n goods for t h e home
m a r k e t to go t h e r e . I n m u n i t i o n f a c t o r i e s service p r o g r a m m e s , w h i c h i n peace­
t i m e a r e c o m p a r a t i v e l y elastic, m i g h t be e x p a n d e d o r c o n t r a c t e d to s u i t the
c i r c u m s t a n c e s . I n some cases w e m i g h t even consider k e e p i n g i n t e r n a l
buffer stocks of m a n u f a c t u r e d goods such a s cotton goods, steel, t i n p l a t e ,
ships, for w h i c h t h e d e m a n d is u n s t a b l e . A n d , of course, t h e black a r e a s
should be given p r i o r i t y w h e r e possible for p u b l i c w o r k s . P u r c h a s i n g p o w e r in
t h e locality m i g h t be m a i n t a i n e d by t e m p o r a r y local r e d u c t i o n s i n t h e social
i n s u r a n c e c o n t r i b u t i o n s , t h o u g h t h i s h a s obvious d a n g e r s . I f n e c e s s a r y some form
of compulsory s h o r t - t i m e , s u p p l e m e n t e d by p a y m e n t s from t h e i n s u r a n c e fund,
could be i n t r o d u c e d . W e m i g h t even consider g i v i n g coupons for t h e p u r c h a s e a t
a c h e a p r a t e of consumer goods p r o d u c e d by t h e i n d u s t r i e s affected as h a s been
done in t h e U n i t e d S t a t e s .
O n e g r e a t difficulty i n h e r e n t i n a p p l y i n g these m e a s u r e s w i l l be, of course,
to tell w h e t h e r t h e decline is t e m p o r a r y or p e r m a n e n t .
I n t h e s l u m p of the
"thirties, for e x a m p l e , e m p l o y m e n t i n b o t h t h e cotton a n d t h e e n g i n e e r i n g
i n d u s t r i e s fell by well over o n e - q u a r t e r , b u t w h e r e a s " e n g i n e e r i n g w a s d e s t i n e d
to e x p a n d a g a i n well above i t s p r e v i o u s level, cotton never recovered a p p r e c i a b l y .
I t w i l l n o t be easy t o decide w h e n t h e m e a s u r e s necessary a n d a p p r o p r i a t e t o t i d e
a given i n d u s t r y over a bad p a t c h should give w a y to those r e q u i r e d w h e n an
i n d u s t r y is i r r e t r i e v a b l y p a s s i n g i n t o a s t a t e of decay.
I I . — T h e A v e r a g e Level of U n e m p l o y m e n t .
1. So f a r we have considered m a i n l y t h e t y p e s of policy r e q u i r e d to c u r e
cyclical u n e m p l o y m e n t . B u t even if these policies a r e successful t h e r e m a y still
be a more e n d u r i n g problem. T h o u g h o u r s t a t i s t i c s before 1914 a r e Uncertain
t h e r e seems n o d o u b t t h a t the a v e r a g e level of u n e m p l o y m e n t i n c r e a s e d m a r k e d l y
a f t e r t h e l a s t w a r . V a r i o u s r e a s o n s h a v e been a d d u c e d t o account for t h i s —
(i) F o r e i g n c o u n t r i e s l e a r n t d u r i n g t h e w a r to m a k e m a n y of the
commodities we h a d formerly exported,
(ii) W e were u n d e r - c u t i n t h e e x p o r t m a r k e t s by E u r o p e a n c o u n t r i e s w i t h
d e p r e c i a t e d currencies.
(iii) W e were r e l u c t a n t t o invest i n c o u n t r i e s a b r o a d of d o u b t f u l
financial
a n d p o l i t i c a l s t a b i l i t y ; hence these c o u n t r i e s could n o t buy so m u c h
f r o m us.
(iv) W e were d e p r i v e d of a l a r g e p a r t of o u r m a r k e t s i n I n d i a , R u s s i a a n d
J a p a n by p o l i t i c a l changes.
T h e r e is a g r e a t d e a l of t r u t h i n all of these reasons, a n d t h e f a c t t h a t the
i n c r e a s e d u n e m p l o y m e n t in t h e "'twenties w a s r o u g h l y e q u a l t o t h e r e d u c t i o n in
t h e n u m b e r of w o r k e r s employed in t h e e x p o r t t r a d e s l e n d s colour t o t h e view
t h a t o u r troubles o r i g i n a t e d i n these f o r e i g n m a r k e t s . I t m a y well be t h a t
s i m i l a r tendencies will occur a f t e r t h i s w a r a n d u n h a p p i l y i t i s v e r y difficult to
control c o n d i t i o n s a b r o a d . I t is for t h i s r e a s o n t h a t we should s p a r e n o efforts
to m a k e a success of t h e n e g o t i a t i o n s n o w i n t r a i n w i t h t h e A m e r i c a n s .
2. T h e r e r e m a i n s , however, t h e very p e r t i n e n t q u e s t i o n w h y t h e l a b o u r and
p r o d u c t i v e c a p a c i t y set free by t h e r e d u c e d d e m a n d for e x p o r t s w a s n o t switched
over m o r e q u i c k l y to p r o d u c i n g for t h e home m a r k e t . T h i s s u r e l y w a s w i t h i n
o u r control.
Once a g a i n a n u m b e r of reasons, m a n y of t h e m s u b s t a n t i a l , h a v e been p u t
f o r w a r d . I f we e x a m i n e t h e m one by one t h e r e m e d i e s will be obvious :—
(a) W e need not, I t r u s t , w a s t e a n y t i m e on t h e u t t e r l y f a l l a c i o u s reason
o f t e n cited t h a t p r o d u c t i o n h a d become so easy t h a t s u p p l y exceeded
d e m a n d . T h i s " e c o n o m i c s of g l u t " t h e o r y i m p l i e s t h a t all h u m a n
d e m a n d s h a d been s a t i a t e d ; i t w i l l only be t r u e w h e n t h e last m a n
w h o w a n t s one h a s g o t h i s Rolls-Royce a n d t h e n only if n o new
i n v e n t i o n s a r e m a d e c a u s i n g h i m to ask for s o m e t h i n g else.
;
(b) T h e r e is more force i n t h e e x p l a n a t i o n t h a t l a b o u r s i n c e n t i v e to seek
a n e w job w h e n t h r o w n o u t of w o r k is n o w a d a y s m u c h smaller, t h a n k s
to t h e social services, t h a n i n V i c t o r i a n t i m e s w h e n u n e m p l o y m e n t
s p e l t t h e w o r k h o u s e , a n d t h a t t h i s caused, e.g., c o t t o n - s p i n n e r s i n
L a n c a s h i r e t o h a n g o n w a i t i n g for t h e cotton t r a d e t o revive i n s t e a d
of p u s h i n g a b o u t a n d looking for a l t e r n a t i v e e m p l o y m e n t .
To a
c e r t a i n e x t e n t t h i s is t r u e a n d we m u s t n o t u n d e r e s t i m a t e t h e
i m p o r t a n c e of m a k i n g s u r e t h a t c o n d i t i o n s of w o r k a r e p r e f e r a b l e to
life on t h e dole. B u t , of course, t h i s is only one aspect. I n V i c t o r i a n
t i m e s , w i t h a r a p i d l y r i s i n g p o p u l a t i o n , w h e n n e a r l y all i n d u s t r i e s
w e r e flourishing, i t w a s a m a t t e r of one i n d u s t r y e x p a n d i n g slower
t h a n others, or a t w o r s t s t a n d i n g still. T h e sons w o u l d go i n t o t h e
n e w b u o y a n t t r a d e s ; t h e p a r e n t s w o u l d stay. N o w a d a y s we h a v e t o
cope w i t h h a r d definite falls in d e m a n d . T o find n e w jobs, m i d d l e ­
a g e d people, some of w h o m o w n t h e i r houses or a r e b u y i n g t h e m
t h r o u g h the B u i l d i n g Societies, w o u l d h a v e to move to o t h e r p a r t s of
t h e c o u n t r y . Moreover, a h i g h e r d e g r e e of specialised skill is r e q u i r e d
i n t h e v a r i o u s i n d u s t r i e s t h a n f o r m e r l y ; n o r do T r a d e U n i o n
regulations facilitate a change.
T h e r e m e d i e s seem to be, not so m u c h m i g r a t i o n a w a y f r o m t h e
d e p r e s s e d a r e a , w i t h all t h e loss i n a c c u m u l a t e d social v a l u e s t h i s
w o u l d involve,* a s t o s t a r t and. develop n e w i n d u s t r i e s t h e r e , to a r r a n g e
for t r a i n i n g w o r k e r s d e s i r o u s of c h a n g i n g t h e i r o c c u p a t i o n , a n d t o
m a k e a g r e e m e n t s w i t h t h e T r a d e U n i o n s by w h i c h t h e y c a n be a b s o r b e d .
,(e) A s a c o u n t e r p a r t to (,&) w e a r e often told t h a t h i g h t a x a t i o n h a s r e d u c e d
t h e i n c e n t i v e to t h e entrepreneur
t o s t a r t or e x t e n d i n d u s t r i e s ; a n d
t h a t t h e small m a n , on t h e o t h e r h a n d , finds i t h a r d to s t a r t i n b u s i n e s s
in competition w i t h the mass producer.
I n so f a r a s t h i s f a c t o r is m a t e r i a l , i t e m p h a s i s e s t h e i m p o r t a n c e
of g i v i n g d u e r e w a r d to e n t e r p r i s e a n d i n i t i a t i v e . T a x relief, and,
possibly G o v e r n m e n t loans, to small r i s i n g firms a n d n a s c e n t
i n d u s t r i e s , should be c o n s i d e r e d s y m p a t h e t i c a l l y . I f o u r dying­
i n d u s t r i e s a r e t o be r e p l a c e d by n e w ones, we m u s t look t o e n e r g e t i c ,
active, y o u n g men, w h o see some p r o s p e c t of. m a k i n g a p l a c e for t h e m ­
selves i n the w o r l d . T o p i l l o r y t h e m for b e i n g i n s p i r e d by " t h e profit
m o t i v e " is u n j u s t .
T h e i r motives a r e no more i m m o r a l t h a n those of
t h e w o r k e r w h o w a n t s a h i g h e r w a g e or of a n y p r o f e s s i o n a l m a n w h o
t a k e s p a r t i c u l a r -trouble over his d u t i e s in t h e h o p e of finding " a
l a r g e r sphe*re of usefulness ' ' elsewhere, even t h o u g h i t be l i n k e d w i t h
a larger salary.
(d) T h e m o s t esoteric e x p l a n a t i o n of u n e m p l o y m e n t — w h i c h c o m m e n d s i t s e l f
especially t o a c a d e m i c economists—is t h a t h u m a n i t y ' s i n c u r a b l e
t e n d e n c y to save m o n e y m a y not a l w a y s be m a t c h e d by sufficiently
a t t r a c t i v e i n v e s t m e n t o p p o r t u n i t i e s , a n d so m a y i n h i b i t d e m a n d .
T h i s d a n g e r h a s , in m y view, a t t r a c t e d a n u n d u e a m o u n t of
a t t e n t i o n i n c e r t a i n circles a t t h e expense of more a r g e n t p r o b l e m s .
A d m i t t e d l y , t h e p o s i t i o n w a s e a s i e r in t h e h a l f - c e n t u r y before t h e l a s t
w a r . A n n u a l i n v e s t m e n t , or t h e a d d i t i o n to t h e c a p i t a l stock of t h e
c o m m u n i t y , w h i c h p r o b a b l y a v e r a g e d a b o u t 10 p e r cent, to 15 p e r c e n t ,
of t h e n a t i o n a l income, w a s m a d e u p of t h r e e p a r t s , each of c o m p a r a b l e
i m p o r t a n c e :—
(i) I n v e s t m e n t a b r o a d , i n t h e f o r m of a s u r p l u s of e x p o r t s (visible a n d
invisible) over i m p o r t s . I t will be a good m a n y y e a r s before
we c a n b u i l d u p o u r e x p o r t m a r k e t s once a g a i n to a p o i n t a t
w h i c h f o r e i g n e r s t a k e m o r e from u s t h a n we i m p o r t f r o m t h e m .
(ii) T h e a c c u m u l a t i o n a t home of c a p i t a l e q u i p m e n t , houses, & c , t o
keep p a c e w i t h t h e r i s e i n p o p u l a t i o n . T h i s process h a s n o w
come to a n end.
(iii) A n increase i n t h e a m o u n t of c a p i t a l p e r h e a d (better h o u s e s ,
-increased m e c h a n i s a t i o n , & c ) . I t is o n t h i s t y p e of i n v e s t m e n t
t h a t we m u s t m a i n l y rely for some t i m e to come.
* The scale of migration required will by itself often rule out this solution, For example,
South Wales was so badly hit after 1923 that one-quarter of the population would have had to be
moved "to cure unemployment there, before the onset of the Great Depression in 1929 made t h e
problem even worse.
T h u s two of-our t h r e e m a i n outlets for i n v e s t m e n t i n t h e p a s t a r e
n o w closed—for the t i m e being a t least. B u t w e need n o t meet o u r
troubles before they arise. Scientific discoveries a n d n e w i n v e n t i o n s
will t e n d to create fresh i n v e s t m e n t o p p o r t u n i t i e s , especially if e n t e r ­
p r i s e is fostered a n d the r a t e of i n t e r e s t on b o r r o w e d money is n o t
too h i g h . N o r is there a n y c e r t a i n t y t h a t t h e desire to save m a y n o t
w e a k e n a s social c o n d i t i o n s change. I f t h e problem t u r n e d out to
be serious, i t would not be difficult to find remedies, e.g., by
d i s c o u r a g i n g t h e a c c u m u l a t i o n of u n d u e reserves t h r o u g h t a x
remission to companies (companies a r e responsible for a b o u t half our
savings) w h i c h employ t h e i r s a v i n g s in extensions a n d n e w p r o j e c t s
a t the expense of the less e n t e r p r i s i n g concerns w h i c h n e i t h e r invest
t h e i r e a r n i n g s nor d i s t r i b u t e them.
I f t h e position r e a l l y became so a c u t e t h a t m e a s u r e s of t h i s sort
w e r e not enough, t h e difficulty could, of course, be m e t by u n b a l a n c i n g
t h e budget. T h e T r e a s u r y in t h i s w a y would s p e n d t h e money a n d
c r e a t e t h e r e q u i r e d d e m a n d on behalf of t h e miserly public. T h e
m i s e r l y p u b l i c would receive in r e t u r n a g r o w i n g volume of Govern­
m e n t securities. W h a t b e t t e r s e c u r i t y could i t ask ?
C o m p a r e d w i t h our other c o m m i t m e n t s , the scale of the process
is n o t g r e a t — s a y , £ 1 0 0 million a year. I f we c a n face an increase
of over £ 1 0 0 million in t h e n a t i o n a l debt every f o r t n i g h t in w a r ­
time, we need n o t be terrified by a s i m i l a r increase once a year if
t h i s should be necessary to p r e v e n t u n e m p l o y m e n t i n peace. T h e
e x t r a i n t e r e s t c h a r g e d — s a y £ 3 million a year—-w o u l d be covered
m a n y times over by t h e n a t u r a l rise in n a t i o n a l income a n d t a x a b l e
c a p a c i t y , w h i c h should a m o u n t to a b o u t £ 1 0 0 million p e r a n n u m ,
j u d g i n g by p a s t experience, even a l l o w i n g for a s t a t i o n a r y p o p u l a t i o n .
T h e r e is, of course, a very definite line between t h e beneficent
deficit w h i c h cures u n e m p l o y m e n t a n d the excessive deficit l e a d i n g
to inflation, but, t h o u g h t h i s d i s t i n c t i o n is clear to s t a t i s t i c i a n s , it
m a y not be easy to m a k e i t clear to the electorate, or even to some
v o t e - h u n g r y p o l i t i c i a n s a n x i o u s to a p p e a s e c o n s t i t u e n t s c l a m o u r i n g
for b r e a d and. circuses.*
I I I . — T h e Need for Speedy A d m i n i s t r a t i v e A c t i o n .
A s e m p h a s i s e d in my note on e m p l o y m e n t policy in the t r a n s i t i o n a l period,
a c o m p a r a t i v e l y small i n t e r v e n t i o n in the early s t a g e s before a s l u m p h a s r e a l t y
developed is f a r more effective t h a n much g r e a t e r efforts w h e n all t h e c u m u l a t i v e
effects h a v e come into play. I n 1 9 2 0 - 2 1 u n e m p l o y m e n t rose from 5 p e r cent, to
15 p e r cent, i n four m o n t h s . I t is t h e r e f o r e e s s e n t i a l t h a t t h e G o v e r n m e n t
should be i n a p o s i t i o n t o act i n t h e very early stages, or even to a n t i c i p a t e a
t h r e a t e n e d s l u m p . F o r t h i s p u r p o s e i t is essential to g e t t h e r e q u i r e d s t a t i s t i c a l
d a t a q u i c k l y a n d to analyse t h e m w i t h o u t delay.
R e t u r n s of u n e m p l o y m e n t , p r o d u c t i o n , & c , should be t a k e n a t f r e q u e n t
i n t e r v a l s (in some cases weekly), a n d t h e r e s u l t s m a d e a v a i l a b l e w i t h i n a few d a y s .
O r d e r s placed, especially those w i t h t h e l a r g e e x p o r t i n g firms, w o u l d prove
a n i n v a l u a b l e p o i n t e r . I n f o r m a t i o n about c h a n g e s i n stocks held w o u l d be a
g r e a t h e l p i n f o r e c a s t i n g f u t u r e developments. P r o j e c t e d c a p i t a l e x p e n d i t u r e
by firms a n d local a u t h o r i t i e s should be collected. N a t u r a l l y , all such i n f o r m a t i o n
s h o u l d be t r e a t e d as absolutely confidential. I f they could be s u r e t h a t n e i t h e r
t h e i r c o m p e t i t o r s , c r e d i t o r s nor a n y o n e else had. access to t h e d e t a i l s , I do n o t
believe t h a t , i n d u s t r y w o u l d object to g i v i n g t h e d a t a . A really c o m p e t e n t
economic a n d s t a t i s t i c a l section i n possession of t h e facts could analyse a n d cross­
check t h e m a n d p r e s e n t a m o n t h l y (or p e r h a p s weekly) r e p o r t to t h e a p p r o p r i a t e
M i n i s t e r or m i n i s t e r i a l committee. T h i s , t o g e t h e r w i t h a s t u d y of c o n d i t i o n s in
f o r e i g n c o u n t r i e s , should allow a reasonably a c c u r a t e forecast of t h e t r e n d of
e m p l o y m e n t so t h a t r a p i d steps could be t a k e n to forestall c h a n g e s in i n d u s t r i a l
conditions.
* There is much to be said for the practice frequently advocated, and-adopted I believe in
Sweden, of having an annual budget which must be balanced in the year and a capital account
which may or may not be balanced by revenue according to the state of employment. Public
-works, armaments, &c, which maintain their value over many years naturally come into the
-capital account; national debt interest, pensions, civil servants' salaries, &c, come clearly into
the annual budget. Though the separation makes no difference in the realities, it might be
politically expedient as softening the affront to the old-fashioned mind of an unbalanced hudget
and forestalling to a certain extent the limitless demands of sectional interests.
N a t u r a l l y , t h i s w o u l d involve i n t e r - b u d g e t a r y c h a n g e s i n t a x a t i o n , o r a t
the v e r y least, v a r i a t i o n s in social s e c u r i t y c o n t r i b u t i o n s . H o w t h i s could be
done w i t h o u t u n d u e c h a n g e s i n o u r c o n s t i t u t i o n a l p r o c e d u r e r e q u i r e s e x a m i n a ­
tion. W h e n speedy a c t i o n is r e q u i r e d , i t will p r a c t i c a l l y a l w a y s be t o p r e v e n t
a s l u m p d e v e l o p i n g ; t h i s w i l l m e a n t h e r e d u c t i o n of t a x a t i o n , n o t t h e i m p o s i t i o n
of fresh b u r d e n s , so t h a t serious o p p o s i t i o n i n t h e H o u s e w o u l d be u n l i k e l y .
P a r l i a m e n t m i g h t a g r e e t o a clause in t h e F i n a n c e A c t g i v i n g t h e G o v e r n m e n t
a u t h o r i t y , i n case of need, t o m a k e l i m i t e d r e m i s s i o n s of t a x a t i o n , h a v i n g
i m m e d i a t e effect-but subject to s u b s e q u e n t r a t i f i c a t i o n .
F r o m m a n y p o i n t s of view, of course, t h e r e w o u l d be a d v a n t a g e i n m a k i n g
such v a r i a t i o n s d e p e n d a u t o m a t i c a l l y u p o n definite c r i t e r i a such a s t h e d e g r e e
of u n e m p l o y m e n t . T h i s w o u l d p r e v e n t log-rolling a n d a v o i d d e l a y i n G o v e r n ­
m e n t committees.
O n t h e o t h e r h a n d , t h e r e is m u c h to be s a i d for ad hoc
decisions by some responsible M i n i s t e r or m i n i s t e r i a l c o m m i t t e e .
Automatic
c h a n g e s can o n l y d e r i v e f r o m s t a t i s t i c s of w h a t h a s h a p p e n e d i n t h e p a s t ; ad hoc
decisions c a n be b a s e d on i n t e l l i g e n t forecasts. So m a n y v a r i a b l e s , p o l i t i c a l a s
well as economic, a r e involved t h a t i t seems u n l i k e l y t h a t a n a u t o m a t i c f o r m u l a
could be f o u n d to s u i t a l l e v e n t u a l i t i e s . T h e q u e s t i o n is w h e t h e r i t is n o t even
more u n l i k e l y t h a t w e s h a l l be able to find a m a n c a p a b l e of f o r m i n g a s o u n d
j u d g m e n t , t a k i n g a c c o u n t of all these variables, w h o w o u l d be e n t r u s t e d w i t h t h i s
g r e a t r e s p o n s i b i l i t y by t h e H o u s e of Commons.
P r o b a b l y some i n t e r m e d i a t e a n s w e r w o u l d be best. B u t one t h i n g is c e r t a i n ,
a n d t h a t i t t h a t a l m o s t a n y t h i n g is likely to be b e t t e r t h a n to let m a t t e r s t a k e
t h e i r course, as h a s t e n d e d to h a p p e n i n t h e p a s t .
A l t h o u g h i t seems u s e f u l to set o u t all t h e s e l o n g - r a n g e u n e m p l o y m e n t
problems, I t r u s t discussion of t h e m w i l l n o t be allowed t o i n t e r f e r e w i t h t h e
m e a s u r e s necessary for t h e t r a n s i t i o n a l p e r i o d . T h e g r e a t t e s t i n g t i m e w i l l come
w h e n t h e s l u m p t h r e a t e n s a f t e r t h e a n t i c i p a t e d i m m e d i a t e p o s t - w a r boom. U n l e s s
we prove able to m e e t a n d overcome t h i s d a n g e r , o u r w h o l e social a n d economic
s t r u c t u r e will, i n m y view, be i n j e o p a r d y .
Qth January,
1944.
UN E M P L O Y M E N T
IN
GSLEAT
BRITAIN
UNI E M P L O Y M E N T
i NJ
GGLBAT
B&ITAIN