3. SYMPTOMATIC MEASURES (PALLIATIVES). § 27. UNEMPLOYMENT RELIEF.

We understand by symptomatic measures all those measures to which recourse is had in the depression in order to mitigate its social and economic effects without serving to bring about recovery. To these belongs first and foremost the task of in some way providing for the masses of unemployed, a task which must be performed even if in itself it offers no direct solution for getting out of the depression.

This assistance to the unemployed may take the form in the main of enabling them to exist by giving them goods or paying them money (unemployment relief). This may come from sources in the nature of self-help (trade unions) or from private charity. Where this is inadequate or comes up against other obstacles, the State or the local authorities may take over the relief of the unemployed as is to-day the case in greater or less degree in all the countries of leading economic importance in the world. The public unemployment relief may take either the form of relief grants or the form of unemployment insurance.

The necessity of providing for the unemployed in some form or other is just as self-evident as is the limitation of the extent to which this can take place having regard to the fact (among others) that the relief should not be so high as to undermine the willingness to work. We must look on the unemployed workman as a man who is making his way along a lengthy and often quite impassable track towards the profitable re-employment of his labour power. It is a matter of course that on this journey through the wilderness he must be provided with the necessities of his travel, but these must, unfortunately, not be so liberal that they cease to spur him on towards the attainment of the ultimate objective. This is a principle which has been sadly sinned against in some countries in recent years.

There is still another and much wider aspect of unemployment relief which has an important bearing on economic stability. What I have in mind is the unquestionable fact that unemployment relief, much as it is demanded by social justice, political common sense, and simple charity, has the drawback of making the wage system more rigid. A wage level above the competitive market level, or regional maladjustments of wages, could not be maintained if the pressure of unemployment consequent on these maladjustments were not neutralized by unemployment relief. From this aspect, unemployment relief appears as a sort of “valorization” for human labour, taking charge of the storage of this “product” for the purpose of “orderly marketing.” There is, therefore, no getting away from the fact that systematic unemployment relief tends to add to the rigidity and—so far as this rigidity is inimical to economic stability—also to the instability of our economic system. It must be said, however, that in times of enormous mass unemployment, such as accompanies the secondary depression, the rigidity of the wage system can no longer be considered as one of the major causes of depression and unemployment. The elasticity of demand for labour has by then so much decreased that in many cases even a wage approaching zero would not restore the equilibrium of supply and demand on the labour market; cases of a negative wage even are not altogether inconceivable in a period like this. It must be said, moreover, that it would be rather unfair, at this time, to attribute the rigidity of wages, to any appreciable degree, to unemployment relief. Unemployment benefits, especially in times of tenacious mass unemployment, can never be so high as seriously to damp the desire of every normal man to prefer any job at any reasonable wage to long-term unemployment. Accordingly, it is precisely in the period of tenacious mass unemployment that this objection against unemployment relief loses its force. Just at this time, unemployment relief appears as an almost unmitigated boon so far as this aspect is concerned. Needless to say, it is a very wasteful and objectionable policy as compared with a policy directed against the real causes of the secondary depression. It is an avowedly symptomatic measure. But if unemployment relief is financed out of funds which would otherwise have remained unspent or by an outright credit expansion, it may even exert a positively mitigating influence on the depression, though it could hardly be recommended as a deliberate instrument of public credit expansion.

As regards more normal times, it might be argued in favour of unemployment relief that, granted the creation or perpetuation of unemployment by this “valorization of labour,” the labouring class as a whole would nevertheless benefit by it so far as the combination of higher wages with some measure of unemployment resulted in a larger aggregate of wages than lower wages with little or no unemployment. To this it must be replied, however, that the benefit of the labouring class as a whole is an unreal entity unless the aggregate of wages is being “pooled” between the employed and the unemployed. Otherwise there is a very real conflict of interests between these two classes, and this conflict is apt to increase with growing unemployment. One way of pooling the total of wages is the more equal division of labour by shortening working hours. We shall return to this suggestion in the next section.

A very important question is whether unemployment insurance or unemployment “doles” are to be preferred. The first is undoubtedly superior to the second in so far as it is based on self-help and responsibility of employee and employer and does not degrade those who receive assistance into recipients of charity. Moreover “doles” mean a direct charge on the exchequer. On the other hand, there is the restraining fact that the experiences of all countries at the present time indicate a failure of the principle of pure unemployment insurance. This failure was unavoidable for two reasons. The first is that on account of the violence of the fluctuations on the labour market and the uncertainty of every forecast, the risk of unemployment escapes any estimate of the precision necessary for insurance, with the result that in times of need the unemployment insurance scheme is either thrown back on government contributions or, counter to the principle of insurance, must gradually reduce its payments and introduce the “means test.” The second reason is that in the case of insurance against unemployment the occurrence of the event insured against is not independent of the conduct of the insured person so that insurance against unemployment comes critically near to insurance against fire in a country where arson is allowed.¹⁰

§ 28. OTHER MEASURES.

Everybody feels that the mere support of the unemployed is an extremely unsatisfactory form of unemployment assistance especially because of its demoralizing effects. It is consequently not difficult to understand that other methods should have been contemplated in order to lighten the lot of the unemployed, measures which amount to reabsorbing them in some way or other as working limbs of the society without having to wait until the end of the depression. Such measures include the following:

1. Proportional sharing out of the amount of employment available. The methods proposed for attaining this end are: (a) the shortening of working hours (spreading of the work) which would result in turning the fully employed workers whom it adversely affects and the unemployed workers whom it reabsorbs into short-time workers. This already takes place to a considerable extent spontaneously. So the question is only whether the extent of short-time working should be augmented by government force. The most radical proposal of this kind is the proposal for the introduction of the forty-hour week. It we want to judge these efforts rightly, we must realize at once that we cannot reject them in principle. The very fact that many entrepreneurs proceed in this way of their own accord partly in order to avoid dismissals and partly in order to be able to take on additional employees should bring us to the conclusion that the universal application of the practice is at least worthy of consideration especially if it appears that public relief to the unemployed to-day decides many employers no longer to utilize the method of short-time to the extent that was usual in former times, but to leave the care of the unemployed to the public authorities. The universal application of the principle is open, however, to grave doubts. As soon as it is clear that there can be no question of shortening working hours and then compensating this by wage adjustments (or only under the assumption that the productivity of labour is increased in which case the shortening of working hours as a palliative loses its sense) it is plain that it imposes a sharp reduction of earnings on those who were previously fully employed. The peculiarity of this reduction of earnings, however, is that in contrast to a general reduction in wage rates it brings no relief to entrepreneurs—on the contrary it causes expense and difficulties. That this is a dubious procedure is all the more obvious if we have to count with the possibility that a general reduction of wage rates must take place eventually. It has then the effect of demanding a considerable sacrifice from the employed workmen on behalf of their fellow-workmen in the same trade without its bringing the relief to the firms which is necessary in order to make them profitable.

This doubt must be given double weight if the proposal is one of spreading the work by government force. It is not only the justified aversion to an increase in politico-social regimentation and a further strengthening of the power of social bureaucracy which speaks against it, but also the fear that it will be extremely difficult for the responsible authorities to judge competently the technical and organizational possibilities of executing the proposal, especially as conditions vary not only from industry to industry but also from firm to firm. Finally, one should not over-estimate the amount of employment that it will provide.

(b) The suppression of “unwarranted double earning,” a measure which is extremely popular and whose questionableness is very inadequately realized. Even the question as to what a “double earner” really is is difficult to decide. We must first know what a “single earner” is! How much is any one man allowed to earn? How much work may any one person do without becoming a “double earner” and a nuisance to society? What is the normal level? Everybody knows that these are absurd questions to which we can give no answer. But they serve to bring out the questionableness of the whole concept of the “double earner” and it appears that the attack on the “double earner” is tantamount not only to a punishment of hard work but also to the levelling up of earned incomes, to a “Bolshevism from below,” to the suppression of the free disposition over labour, and therefore to a further approach to a “white ant” community. It should be carefully noted that it is only earned incomes that are concerned since in the eyes of the populace it is not the adding together of incomes but the adding together of more than one “job” that holds out the challenge to “double earners.” A man becomes an alleged nuisance to society only by the fact that because he is more hard working than others he receives a higher income than others in the same class. But the man who receives an unearned income escapes this ex-communication by the people. He is left unmolested and this must be so as long as we do not want seriously to turn to Bolshevism all round. The poor devil who struggles then by the sweat of his brow to work his way above the poverty level will be pushed back into the grey mass of “single earners” while the levelling up of the great unearned incomes can only concern us theoretically from afar off if we do not want to explode the whole structure of society.

It is even more serious than this. If we are going to call “double earners” those who take away work from others by working “too much,” it really makes no difference whether this extra work is done as a second “job” or within the framework of the regular course of employment. The man who works hard simply becomes a “double earner” whose attention must be drawn—according to the opinion of the fanatical enemy of “double earning”—to the fact that his hard work is socially undesirable. For the same reasons it makes no difference whether the man who. “takes work away” from others is an employee or whether he works on his own. Even a fruit-seller who sells more fruit than the average “takes work away” from others and prevents an unemployed man from having the wherewithal to keep himself. Ought we then to control the distribution of the quantity of work in the independent trades and how can we proceed to do this? We should arrive at the most absurd results, and, moreover, it is very doubtful whether any measures taken against “double earners” would be effective. What guarantee can we provide that the man from whom we take away one kind of work will not now apply his services, which have been released, in some other way which is possibly even more undesirable than the first? It is indisputable that there are ample opportunities for using these services elsewhere (household duties, working at home, gardening, repairing door-bells and wireless sets, &c). Consequently the number of vacancies which would be created by such a measure is to be estimated at a very low figure. These doubts, to which we could go on adding, should prohibit any radical measures in this direction. This does not mean to say that regard should not still be had to circumstances of “double earning” in taking on or dismissing workmen.

2. Productive relief works, under which we understand all measures which are aimed at creating a demand for labour which does not spontaneously arise on the market. The fundamental principle on which they are based is that it is better to provide the unemployed with some kind of useful work than to leave them in idleness giving them relief payments and letting their labour power lie unutilized. This cannot, of course, apply to work which competes with normal production, and it must, moreover, be work that does not necessitate any great capital expenditure (digging!) since any extra amount over and above unemployment relief would reduce the available capital in the economic system and so produce unemployment somewhere else, except in the case where a credit expansion is undertaken which changes the whole aspect of productive relief works. In these circumstances the possibility of carrying out productive relief works is very limited especially as their total costs are, as a rule, not inconsiderably higher than the costs of the same projects when undertaken by private industry. Any real relief to the labour market is, therefore, not to be expected from productive relief works. But some form or other of such works seems useful as a means of testing the willingness to work of those in receipt of relief.

3. Compulsory labour service, which has been advocated for a long time in many quarters for the purpose of keeping a part of the unemployed out of idleness. It means fundamentally the universal application of productive relief works and is consequently just as problematical as the latter especially as the compulsory labour service is intended to apply not only to the unemployed but also to the whole of the population in certain age groups. The measure is, moreover, open to the following main objections: difficulties in the organization and in the proper limitation of the range of persons included, interruption of the ordinary occupational training of those liable to service, the removal of labour from the work which corresponds to its occupational ability, its suitability and inclinations, and of which it has become an organic part in accordance with the requirements of society and the labour market, and, lastly, a disproportionately high expenditure on organization. Finally, the idea of forcing people (even those who have employment) to work at a time of a surplus of labour resources has something illogical about it.

4. Land settlement. One of the products of the unsystematic thinking about the problem of unemployment is the idea—which is widely supported because it appeals to deep-rooted instincts—that we should permanently transfer a part of the unemployed on to the land. The notion at the back of this is that it will be impossible ever again to get industry working at its full capacity. It assumes that industrial over-production is a permanent phenomenon for which the only remedy is a movement “back to the land.” This notion is based on a very strange and quite inexplicable misunderstanding of the present situation, which is not characterized by the fact that the agricultural foundations of the economic system have turned out to be too small as compared with the industrial superstructure but quite the reverse. If there is any branch of economic activity which is faced by the prospect of a long lasting overproduction and chronic depression it is agriculture all over the world. A return to agriculture might have some sense if the agricultural countries pari passu with the advance of their own industrialization had continually decreasing agricultural surpluses to dispose of, but the actual fact is that they are stifling under these surpluses. If there is a tendency which even the most superficial consideration could not overlook, it is that the food requirements of the world, with a decline in the rate of population growth and increasing productivity in agriculture, can be covered with an ever smaller amount of labour. When the world trade-cycle again turns upwards, the increasing purchasing power of the world will fall to the benefit of industrial products in far greater measure than agricultural products and it might happen that many of those who are to-day eager to settle on the land would turn their backs on the land with its toil, self-denial, and hardships and take up the new openings for employment in industry. Then the “reagriculturalization” would change to “reindustrialization” an oscillation which is surely not very purposeful.

We should, indeed, do all we can to facilitate the way back to the land and the soil of those who have a keenness and love for agricultural life and who begin to despair of everything in the town as a consequence of their unemployment. Furthermore, giving smallholdings to industrial workers who cultivate them in their spare time is certainly desirable in order to give greater independence and security to the industrial workers and to make their existence less “proletarian.” So far, land settlement is undoubtedly a means of, to some extent, alleviating the depression, but we must not be carried away by a romanticism which has no foundation in hard fact.¹ Before all, it must not be thought that we can in this way evade the task of overcoming the depression by the means which is proper and adequate to the system.

Finally, it must be said that a policy of land settlement may defeat its own purpose if it is connected with agrarian protectionism. The latter makes for unemployment in two ways : firstly, by damaging the export industries, and, secondly, by reducing the demand for those agricultural products of which the urban consumer will buy less when food is made dearer by agrarian protectionism. Those products with the higher elasticity of demand (e.g., butter, eggs, meat, &c.,) are, moreover, exactly those which represent not only a higher nutritional value but also a higher labour value. The case is still worse when protectionism is especially high for grain production as in Germany. It is not surprising, therefore, to find that agrarian production in Germany increased, from 1925 to 1933, by 27% while at the same time the number of persons employed in agriculture decreased by 4%, to say nothing of the increase of unemployment in the export industries brought about by the same policy.

5. Labour Nationalism. One of the worst consequences of a prolonged depression is the emergence of the idea that every foreigner who holds a job in the country is withholding this job from a native worker, thereby augmenting unemployment and making it necessary to dismiss him or to drive him out of the country. It is that same spirit of looking at the total work to be done as a fixed and definite quantity which, as we saw, manifests itself in the popular drive against everybody who has been lucky enough to snatch more than a proportionate share of the whole “labour pie.” But in the case of Labour Nationalism this perverted idea is much aggravated by the fact that here it is the foreigner who is sneaking into the national sanctuary of those who have the privilege to toil. In this case, therefore, the common spirit of envying other people their “jobs”—which is itself closely related to a crude over-production theory—is allied with all the feelings which go with nationalism. It is small wonder then that it is nowadays so popular that it becomes not inapt to speak of Labour Autarky. This state of affairs is one of the most disquieting and even alarming things of the present time, and it is hardly less disquieting that most people give little thought to it. Not everybody seems to realize that the total number of foreigners living, and mostly working, in the civilized countries constitutes a real “nation of foreigners” equal in number perhaps to the inhabitants of England or Italy, and, what is more, that this interchange of men is not the least important part of our complicated economic system, to say nothing of its spiritual implications. Still worse, with the spread of Illiberalism in government there is a constantly growing number of emigrants who have been deprived of the citizenship of their native countries, so that, if this “Autarky in men” becomes general, they will simply have nowhere to go. since there is no legal place for them on this blessed earth.

These objections of a more general character to Labour Nationalism as a palliative against unemployment are enormously strengthened by the fact that even as a mere palliative it seems very questionable. Quite apart from the fact that in many cases the foreign workers are specialists whose replacement by native workers would greatly damage the country, it is to. be feared that to prevent foreigners from working would deprive the country of a great part of its most energetic and inventive persons, since those who go abroad are usually not the duller but the more enterprising type of the inhabitants. But there is a still wider aspect of the matter which cannot be emphasized too strongly. It is the economic narrow-mindedness around the whole conception of a fixed and definite quantity of work to be distributed in equal shares, a conception the wrongness of which surely does not need to be proved once again at the end of this book. It constitutes the very impotence of an economic policy which is exhausting itself in accepting the “shortage of work” without the imagination and courage to see the latent possibilities of work and make them actual by restoring economic equilibrium. And it is the ominous alliance of narrow-mindedness, impotence, and Illiberalism which has made the atmosphere of the world so unbreathable in the last ten years. But it is never too late to learn that a brighter future is to be expected not from coercion but from freedom, not from regimentation but from individual spontaneity, not from autarky and war but from free international intercourse and peace, not from restriction but from expansion.

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¹ It is a curious fact that in economic affairs the artifical things usually attract greater attention than the spontaneous ones, presumably because the latter are taken more or less for granted, but also because the artificial things are mostly done by dictatorial governments who know how to secure publicity for their activities. What Russia has accomplished through the Five Year Plan is really a trifle as compared with the spontaneous investment waves of capitalism and it is an open question what capitalism would have achieved in Russia under the same circumstances. While the Russian reconstruction was astonishing the world, the reconstruction of the devastated areas in France, for example, went on almost unnoticed.

² The problem of unemployment is beyond the scope of this book. From amongst the extensive literature on the subject we may mention : W. H. Beveridge, Unemployment, A Problem of Industry, new ed., London, 1930; A. Mahr, Hauptprobleme der Arbeitslosigkeit, Leipzig and Vienna, 1931; H. Clay, The Post-War Unemployment Problem, London, 1930; A. C. Pigou, The Theory of Unemployment, London, 1933.

³ On this see : F. Neumark, Konjunktur und Steuern, Bonn, 1930; H. Fick, Finanzwirtschaft und Konjunktur, Jena, 1932; J. Lescure, Des Crises Générales et Périodiques de Surproduction, 3rd ed., Paris, 1923, pp. 288-296; H. Dalton, Unbalanced Budgets, London, 1934; H. Laufenburger, “The Interplay of Taxation and Economic Fluctuations,” Index (Stockholm), May 1935.

⁴ These and the other figures are quoted from E. Wagemann, Zwischenbilanz der Krisenpolitik, Berlin, 1935. It is worth noting that in Germany the percentage of the national income taken by public expenditure has risen during the depression to still higher figures (30 in 1930, 32 in 1931, and 35 in 1932), while the national income decreased at a precipitous rate.

⁵ From among the spate of literature on the subject of credit policy and the trade cycle may be cited : J. M. Keynes, A Treatise on Money, London, 1930; J. R. Bellerby, Control of Credit, London, 1924; A. Schmitt, Kreditpolitik und Konjunkturpolitik in Theorie und Praxis, Jena, 1932; L. A. Hahn, Kredit und Krise, Tübingen, 1931; D. H. Robertson, Banking Policy and the Price Level, third impression revised, London, 1932; D. H. Robertson, “Theories of Banking Policy,” Economica, June 1928; G. D. H. Cole and others, What Everybody Wants to Know about Money, London, 1933; R. G. Hawtrey, The Art of Central Banking, London, 1932; “Monetary Policy and the Depression” (Royal Institute of International Affairs), London, 1933; and the aforementioned writings of F. A. von Hayek. Cf. also the present writer’s article “Kredit und Konjunktur,” Jahrbücher für Nationalökonomie und Statistik, March-April 1926.

⁶ See G. Haberler, Der Sinn der Indexzahlen, Tübingen, 1927, and also the same author’s “Die Kaufkraft des Geldes und die Stabilisierung der Wirtschaft,” Schmollers Jahrbuch, 55th year, 1931.

⁷ Irving Fisher, The Purchasing Power of Money, 2nd ed., New York, 1922.

⁸Cf. Hayek, Prices and Production; D. H. Robertson, “Theories of Banking Policy,” Economica, June 1928; Koopmans, “Zum Problem des ‘neutralen’ Geldes,” Beiträge zur Geldtheorie, edited by F. A. von Hayek, Vienna, 1933; G. Haberler, op. cit.; A. Mahr, “Neutrales oder wertstabiles Geld?” Weltwirtschaftliches Archiv, July 1933; Bilimovic, “Zum Problem des ‘neutralen’ Geldes,” Zeitschrift für Nationalökonomie, VI, 1935; A. Cabiati, “La moneta ‘neutrale’ in un libro del Dr. Hayek,” in his book Crisi del Liberismo o errori di uomini? Turin, 1934; “Economic Reconstruction,” Report of the Columbia University Commission, New York, 1934.

⁹ Since 1932 open-market operations have been one of the main instruments of the expansionist policy of the Bank of England, and since 1933 also of the Reichsbank.

¹ Such a policy has to be distinguished from the long-established American practice of protecting the security of bank deposits by minimum legal reserve requirements. The object of this is to regulate the liquidity position of the banks while the measure envisaged in the text above is intended to regulate the volume of bank money in accordance with the phase of the business cycle. The reserve percentage in the former case is fixed while in the latter it is variable.

² The policy of varying reserve requirements against deposits has been discussed above only as an instrument of the (quantitative) control of credit for mitigating cyclical fluctuations. Its appraisal from this point of view does not exclude that it may be exposed to serious doubts in other respects, especially as it may dull the sense of responsibility on the part of the banks.

³ This policy is the main idea behind the “Compensatory Economy” which W. Lippman has very ably described in his recent book The Method of Freedom (London, 1934), as the only way out of the awkward alternative between laissez-faire and planned economy.

⁴ A detailed and well-balanced treatment of this question may be found in Professor Hansen’s paper “The Flow of Purchasing Power” in the Report of the Columbia University Commission on Economic Reconstruction (New York, 1934, pp. 210-237).

⁵Cf. J. Dobretsberger, Freie oder gebundene Wirtschaft? Zusammenhang zwischen Konjunkturverlauf und Wirtschaftsform, Munich, 1932; H. Lieser, Kartelle und Konjunktur in ihrer wechselseitigen Beeinflussung, Vienna, 1934.

⁶Cf. p. 106.

⁷Cf. W. Röpke, German Commercial Policy, London, 1934.

⁸Cf. H. Levy, Industrial Germany, Cambridge, 1935. See, however, the present author’s review of this book in Economica, February 1936.

⁹Cf. the author’s article “Fascist Economics,” Economica, February 1935.

¹⁰ It is important to note that present-day Austria, guided by the sociological teachings of modern Catholicism, is making use of the corporative principle in a quite different and very interesting manner which, by largely confining it to the moral and political sphere, precludes the dangers indicated above.

¹ pp. 73-75.

² A detailed treatment of this question may be found in Mr. Keynes’ Treatise on Money, vol. II. Cf. also E. Hantos, Die Kooperation der Notenbanken, Tübingen, 1931.

³ For a fuller and critical treatment see G. Haberler, The Theory of International Trade, London, 1936, and B. Whale, International Trade, 2nd ed., London, 1934 (more elementary).

⁴ It is pleasing to find that the “Economy Stunt” has been rejected on the same lines by the late Professor Cannan, in his customary pungent manner, in his paper on “Too Little Saving,” published in his book Economic Scares, London, 1933. “It is no advantage to society,” says Professor Cannan, “to do without flowers unless it is to get something better instead. The flower-gardeners at present give society flowers and receive in return the bread and beer and other goods and services on which the money they get in exchange for flowers is expended by them. If they are told, that they can leave off producing flowers because society has resolved to ‘economize,’ but that society will continue to pay them as much as before, nothing will happen so long as they live and continue to receive their pensions in idleness except that society will have no flowers. Evidently there is no sense in the advice, ‘Dispense with flowers,’ unless it is to lead to something more really desirable being produced in their place. Here lay the fatal objection to the great Economy Stunt. There was not the slightest reason to suppose that there was any need to redistribute the forces actually in employment. The preachers of the Stunt revelled in denouncing this, that, and the other employment as unnecessary or unimportant, but always completely failed to say what were the more necessary and important employments into which the persons and machinery now employed in what they said were unnecessary or unimportant ways should be drafted. . . . What was wanted was not to change the employment of the actually employed, but to re-employ the unemployed in their old work or in something substituted for it” (pp. 79-80). Professor Cannan rightly draws attention also to the important point that the expenditure for consumption is less likely to be influenced by this propaganda than the expenditure for capital goods, so that it tends to deepen the gap between investments and savings which, as we saw, is the prime cause of the secondary depression.

⁵Cf. the present author’s little book Die Theorie der Kapitalbildung, Tübingen, 1929. He has again great pleasure in noting that the argument above runs parallel to Professor Cannan’s reasoning in his paper on “Too Little Saving.”

⁶ It has to be noted that, in the absence of a considerable expansion of the volume of money, it will not be easy to prevent the exchange value of the currency from going up again unless devaluation starts a flight of capital from the country.

⁷ The same reasoning applies to the popular contraposition of “Profit Economy” and “Want-satisfying Economy” which is equally illogical. Our present economic system is also essentially a want-satisfying economy since profit depends on the degree in which the wants of the consumers are being satisfied. In calling our competitive market economy a “Profit Economy” we denote the special method of satisfying wants. It would be logical, therefore, to speak of the socialist form of want-satisfying economy as “Office Economy” or “Command Economy.” Whether wants are better satisfied by the method of Profit Economy or by that of Office Economy is a separate question.

⁸Cf. especially G. Haberler, Liberale und planwirtschaftliche Handelspolitik, Berlin, 1934.

¹ An excellent treatment of this question may be found in Professor Robbins Great Depression, loc. cit., chap. vii.

² Though there is still as much reason as ever for condemning protectionism of any kind it can hardly be denied that the use of tariffs as an equilibrating instrument during a depression cannot be dismissed as a priori unsound. During this period—but only then—it may serve two purposes. Firstly, it may help to restore the external equilibrium of a country without having recourse to devaluation and too much wage-cutting. Secondly, a little protection here and there may give a stimulus to new investments as was remarked above in the text. In this case, the Free Trade argument is not quite convincing since the social loss brought about by protection may be more than compensated by the social gain derived from the reduction of unused productive capacity. The whole problem has been widely discussed especially in England during recent years. Cf. : Beveridge, Tariffs: The Case Examined, London, 1931; Keynes, Essays in Persuasion, London, 1933, pp. 271-287; Robbins, The Great Depression, chap, viii; G. Haberler, The Theory of International Trade, London, 1936, pp. 259-273; Th. Balogh, “Löhne, Arbeits-losigkeit und Zölle,” Weltwirtschaftliches Archiv, October 1931; E. F. Harrod, International Economics, London, 1933, pp. 194-201.

To admit tariffs as a possibility in “provocative therapy” is not to say that it is a particularly recommendable one. Its worst side is that tariffs, once introduced, are very hard to remove. Furthermore, it will be difficult to keep this remedy within the very restricted limits where it does more good than harm. There are other and less dangerous methods than this, and it is quite arguable that a policy of public initiative is to be preferred to this method of giving encouragement to private initiative. Finally, the tariff method is applicable only if there were hitherto no tariffs or only very low tariffs. In cases where tariffs have already become the backbone of industrial monopolies, the interests of recovery will be better served by removing or substantially lowering them rather than by introducing new tariffs. In the opinion of the present author, there is always a strong presumption in favour of a policy of expansion by public initiative combined with a policy breaking up all kinds of market rigidities.

³Cf. R. G. Hawtrey, Trade Depression and the Way Out, new ed., London, 1933, pp. 126-144.

⁴ The effect of public works on general economic activity does not differ from any other form of credit expansion, as soon as the primary effect has really led to credit expansion in the private sector. There is, therefore, no need for a special theory of the secondary effects of public works. Cf. however : J. M. Keynes, The Means to Prosperity, London, 1933; R. F. Kahn, “The Relation of Home Investment to Unemployment,” Economic Journal, June 1931; J. M. Clark, “Aggregate Spending by Public Works,” American Economic Review, March 1935; M. Mitnitzky, “Economic Effects of Changes in Consumers’ Demand,” Social Research, May 1934; H. Neisser, “Oeffentliche Kapitalanlagen in ihrer Wirkung auf den Beschäftigungsgrad,” Economic Essays in Honour of Gustav Cassel, London, 1933, pp. 459-477.

⁵ A good example of this judicious combination seems to be the recovery programme of Australia on which a competent authority (Professor Copland, International Affairs, January-February 1934) says : “It is not unreasonable to say that the success of the Australian plan lay in its neat balance of orthodox and unorthodox measures. Deflationary elements created confidence in the capacity of the governments to make necessary adjustments, the inflationary elements prevented these deflationary forces from causing further slackening of enterprise and laid the foundations for financial recovery, which always precedes economic recovery.”

⁶ For this reason we must be extremely distrustful of all the more or less cranky monetary schemes like “stamp money” and such like. Cf. the delightful paper by Mr. H. T. N. Gaitskell on “Four Monetary Heretics” in Professor Cole’s What Everybody Wants to Know about Money, London, 1933.

⁷Cf. the author’s “Trends in German Business Cycle Policy,” Economic Journal, September 1933, where the development was predicted along the lines explained above.

⁸Cf. the author’s book on German Commercial Policy, London, 1934. It should not be forgotten, however, that the foundations of the autarky have been laid by former governments, and this not without assistance from socialist circles.

⁹ As regards Germany’s chance of getting rid of its present system of exchange control, two points have to be reckoned with : firstly, the desperate foreign debt situation, and, secondly, the internal political pressure which, as it makes wealthy persons desirous of leaving the country, is incompatible with a free exchange market. A huge foreign loan of several billions of marks and a change of the political factor, therefore, appear to be indispensable prerequisites for any return to economic normalcy.

¹⁰ For a fuller and more technical treatment of the problems and experiences of unemployment relief cf. : W. Beveridge, Unemployment; A Problem of Industry, new ed., London, 1933; A. C. C. Hill and I. Lubin, The British Attack on Unemployment, Washington, 1934; R. G. Elbert, Unemployment and Relief, New York, 1934; O. Weigert, Administration of Placement and Unemployment Insurance in Germany, New York, 1934; G. Colm, “Methods of Financing Unemployment Compensation,” Social Research, May Ì935; F. Wunderlich, “Insurance or Relief,” Social Research, May 1935.

¹ Even in Germany where the policy of land settlement has been pursued with particular energy since the war, people have come to realize that land settlement can at best do no more than to diminish the drift to the cities and to give “subsistence holdings” to industrial workers. Ambitious hopes that land settlement might be a real cure for unemployment had to be abandoned. Cf. Christopher Turner, Land Settlement in Germany, London, 1935.