CHAPTER III PSEUDO-IDLENESS

(1) Uncompleted equipment in process of construction must be regarded as employed

HOW SHALL WE regard productive resources which are in process of being specialized? Surely they must be thought of as employed. The materials in a half-completed ship are no more idle, in any useful sense, than the stocks on which it rests. But this form of employment may be accompanied by other forms of idleness, a possibility of some importance which complicates the position. Uncompleted equipment is only fully employed (in our sense of optimum utilization) when investment in it is proceeding at the social optimum rate, given existing expectations. Thus, while the vessel “534” which became the Queen Mary was actually under construction, the fact that it was not actively earning did not mean that the resources embodied in it were unemployed. But when work on it was stopped because the proposition ceased to be “profitable” to the company owning it—in the light of indications from the ocean freight market—it stood idle in one or more of the other senses which we have to discuss.

(2) Individuals adding to their powers through education are employed

We find parallels in the case of labor. The clearest example is in the case of young children. At the outset, they have no usable powers; but as such powers do develop, the most profitable use of them (given contemporary standards of social goodness) is usually their improvement through that form of investment represented by the costs of upbringing and education. And throughout life, when individuals are out of the labor market because the addition to their future hire value from education more than compensates for immediate earnings foregone, they ought properly to be regarded as employed. The determining consideration is whether investment in them is proceeding at the social optimum rate. Thus, the raising of the age of voluntary school leaving may have the real object of keeping more juveniles out of the employment market, and it is sometimes quite frankly demanded for this reason. Their condition then obviously partakes of the nature of what we call “withheld capacity” or “enforced idleness” rather than that of being subject to investment. If the standard of schooling available should be such that the juveniles are likely actually to benefit in the long run, then, whatever the motive, the process of investment in them is the explanation of their condition.

(3) Individuals conserving their powers through rest are employed

Similar to the case of training is that of the maintenance of physical and mental efficiency in human beings by rest and recuperation. Thus, normal sleeping hours cannot be regarded as idleness; and there is a recuperative (and hence productive) aspect about most leisure.¹ Genuine efficiencies achievable through the mere postponement of children’s earnings may conceivably be the best employment of their powers, i.e., irrespective of the education which it incidentally permits.

(4) Individuals actively “prospecting” for remunerative jobs are employed

These specific cases of employment have, however, never been mistaken for unemployment. But other cases falling into the same category have been so mistaken. Thus, a worker in a non-unionized and unprotected trade² whose firm closes down in depression may refuse immediately available work in a different job because he feels that to accept it will prevent him from seeking for better openings in his own regular employment or other occupations for which he is peculiarly fitted. Let us for a moment ignore the case in which he is passively waiting and merely preserving his availability. When actively searching for work, the situation is that he is really investing in himself by working on his own account without immediate remuneration. He is prospecting. He is doing what he would pay an efficient employment agency to do if the course of politics had allowed that sort of institution to emerge in modern society. He judges that the search for a better opening is worth the risk of immediately foregone income. If his relatives, or his friends, or the State are keeping him then, in a sense, they also may sometimes be regarded as investing in him, and it may still be wrong to think of him as idle. But this condition is very difficult to distinguish in practice from the various types of “preferred idleness.” Thus, unemployment insurance may lessen his incentive to find work and an apparent or supposed search for the best employment opportunities may be a mask for what is known as “loafing.”

(5) Pseudo-idleness resembles passive employment but is not an identical condition

These last examples of employment are seldom treated as employment, but as the workers concerned are serving the community best in their apparent idleness, and as they themselves are remunerated for the service (when their judgment is right—i.e., when their powers have really been guided to employers who can use them most profitably), we ought properly to think of the idleness as spurious. The purpose of this chapter is, however, to draw attention to a similar category of employment which is even more easily mistaken for idleness. But it is not quite the same, and we allot to it a separate category which we call “pseudo-idleness.” It is a condition which is common and has many forms; and it constitutes a phenomenon of the greatest importance in any study of unemployment of labor, or “surplus capacity” in material resources.

(6) Pseudo-idleness exists when the capital value of resources is greater than their scrap value, whilst their net hire value is nil

One of the most common forms of “pseudo-idleness” is that which exists when resources are being retained in their specialized form (i.e., not being scrapped) because the productive service of carrying them through time is being performed. This condition exists when their capital value is greater than their net positive scrap value, whilst their immediate hire value is nil. This last phrase may require some explanation. Resources must be reckoned as of “no hire value” even if they can be hired out but (a) the price obtainable is insufficient to cover depreciation and loss of specialization, and (b) there is a greater consequent loss or a smaller consequent gain to capital value. That is, we must conceive of a net hire value equal to gross hire value minus depreciation. For when depreciation is not covered, the supposed hire price in part covers the realization of resources as scrap. Thus, suppose expectations concerning the revival of demand to remain unchanged, then, for a piece of equipment to be in “pseudo-idleness,” it is necessary that an entrepreneur should be unable to utilize it profitably whilst maintaining its physical efficiency. The proceeds of the complementary use must be insufficient to finance depreciation in order to bring it into the socially productive category which we call “pseudo-idleness.”

(7) The service rendered by resources in pseudo-idleness is that of “availability”

Thus, the essence of pseudo-idleness is the preservation of availability. For example, in a Communist country, a seaside hotel run for foreigners might become the free abode of the local poor during the “offseason”; but if the resulting dilapidations and costs of supervision could not be covered by some small charge, then the best employment of the building would be to close it down. Such a condition would be socially productive,³ and it could therefore be brought under this heading. Another example is that of a piece of building land which is kept vacant in anticipation of site scarcity in subsequent years. It is obvious also that, in any given state of knowledge and institutions, there are resources which perform their most wanted services through their mere passive existence—the service of “availability.” The resources concerned might be capable of being hired out for certain other purposes, but they would then directly lose their availability for some special task (which entrepreneurs are prepared to bet will be wanting their services later). Hence their present utilization comes to be regarded as likely to bring about a more than countervailing loss in capital value. The loss of availability is a particular case of loss of specialization. Applying our definition in paragraph 6, therefore, they should be rightly regarded as of no immediate net hire value.

(8) Pseudo-idleness can be illustrated in capital consumers’ goods and capital producers’ goods

The simplest illustrations of the productive service of mere availability seem almost fatuous. Consider capital consumers’ commodities of occasional utilization like the gramophone which is played only at odd times, the silk hat which is worn only at weddings and funerals, or the picture which is only providing obvious “satisfactions” when it is actually looked at. To refer to these as in “pseudo-idleness” may appear ironical. But closely parallel cases clearly involve problems of some importance. Thus, I may have a dozen suits of clothes, three cars (two of which are always in the garage), and so forth. One obvious aspect of all these things is that they are purchased “to be available.” A good deal of plant in the industrial world is also in this state. It exists because from time to time it will happen to be wanted. The most indubitable cases in the field of producers’ goods are those in which the phenomenon of “pseudo-idleness” has some regular periodicity. Thus, the plant of a salmon canning factory will not be working out of season, but it will not be unproductive because of that. Ploughs and harvesting machinery may have no alternative uses until the return of the appropriate season. The bottling apparatus of a jam factory may be still for the early hours of each conventional working day. Such regular, recurrent idleness can be confidently classed as “pseudo-idleness.” Spasmodic “pseudo-idleness,” on the other hand, can often be distinguished from idleness in other senses only with much uncertainty.

(9) “Availability” may be regarded as continuously purchased in the form of capital investment until utilization takes place, or as continuously enjoyed and consumed in the form of income

The net loss of income from resources in pseudo-idleness may be regarded as the cumulative investment of an unrealized income. A sum equal to the interest on the scrap value can be thought of as being continuously invested in the resources. Considered from this angle, it must obviously be believed that from such a cumulative investment a return will someday be forthcoming. This unrealized income and investment aspect is present in many cases of “pseudo-idleness.” The ends of production seem to be better served if productive resources (which can wear out or otherwise be consumed with use, or which can be specialized into other forms) are kept for purposes which entrepreneurs are prepared to bet will be more wanted later.⁴ “Availability” is purchased as capital. In other cases, the availability itself is more realistically regarded as the income. Thus, all my unutilized consumers’ capital goods in my home, from my radio-set to my telephone and fire-extinguisher, bring me continuous satisfactions simply through my knowledge that they are there. Or again, the armaments of a country in time of peace also supply a service in the threat which their existence implies to foreign powers. And we cannot say that a fire station has provided no services in a month in which there have been no fires.

(10) The purchase of availability is taking place, even when it is preserved without actual idleness

Resources may, however, be held up for some more wanted employment in such a way that they are not actually idle. The process of investment in them, or of continuous receipt of “availability” services is still present. But the resulting condition of the resources is seldom regarded as idleness; it cannot be very appropriately described as “pseudo-idleness”; and it can hardly be usefully termed “pseudo diverted resources,”⁵ although that term suggests its real category. Thus, the building land kept vacant in anticipation of site scarcity (which we have just considered in this connection) might be employed and bring in some income in the meantime by being used as a car-park or as a playing field. It is then performing a double function; it is giving day-to-day services and it is preserving its availability or “mobility.” Whenever resources are withheld from immediately more profitable specialization or despecialization because of expectations of a different situation in the future, a productive service is being performed. When this service is expressed in its pure or simple form, it constitutes the “pseudo-idleness” that we have defined.

(11) The indivisibility of an efficient unit of specialized equipment is a common cause of pseudo-idleness under fluctuating or spasmodic demand

One of the most important causes of “pseudo-idleness” in the modern industrial system is what has been called “the technical factor,” combined with specialization. That is, the efficient unit of equipment in relation to the relevant market for the product may be large whilst its appropriate output may be small. This is sometimes referred to in abstract discussion as the quality of “indivisibility.” The essence of the situation is that the capital cost of the “indivisible” plant may not be negligible in comparison with all costs, whilst the equipment itself is only occasionally, or partially, utilized. A most obvious example of this is to be found in the petrol supply apparatus provided by competing retailers of that commodity. The services of the equipment they possess may, in sparse districts, be actually demanded for a very small proportion of the day or week only. But if the relations of the retailers are truly competing, the occasionally used equipment represents no waste or unwanted duplication. It is continuously providing the service of “availability.” Obviously, therefore, under an “advanced” system of specialization of resources, that is, under a highly developed “roundaboutness” in productive processes, there is likely to be a relatively large extent of “pseudo-idleness” in equipment. But there is no inherent waste involved. The economies of “roundaboutness” in industry may, of course, involve continuous “scrapping” as an alternative to recurrently or spasmodically idle plant; and it is a crude (although common) error to suppose that either “pseudo-idleness” or “scrapping” are evidence of the wasteful use of resources.

(12) Indivisibility may also cause pseudo-idleness under constant demand

But pseudo-idleness may also be present under constant demand for the equipment’s services. It is, however, much less important than the cases which arise under fluctuating or spasmodic demand. We have seen that “full employment” is a relative conception. That is, a piece of indivisible equipment is fully employed when other resources cannot be usefully (e.g., from the standpoint of consumers’ sovereignty) diverted from other occupations to cooperate with it. When there is a fluctuating demand, the extent of “full employment” varies inversely with pseudo-idleness; and when there is a constant demand, there may be physical idleness for, say, a constant part of the working day, which may also fall into the pseudo-idleness category. The condition can arise when the unit of equipment can provide more services than it is economic to utilize, whilst it is impossible to obtain at all, or impossible to obtain except at a higher cost, a smaller piece of equipment providing fewer services. The test for the simplest case of pseudo-idleness under constant demand is this: Has the equipment a net positive hire value during the idle periods? If it has, the “surplus capacity” is presumably “withheld capacity” and not in “pseudo-idleness.” But the apparent withholding will be spurious if some productive function is performed by the exclusion of cooperant resources during the idle period. In that case, the “surplus capacity” will still be describable as in “pseudo-idleness.”⁶ We shall deal with this case (which is probably of hardly any practical importance) in chapter x, paragraph 13.

(13) Reserves of goods in course of liquidation may be in pseudo-idleness

Most stocks of goods for sale, but not all, must be thought of as in “pseudo-idleness.” Consumers’ goods, for instance, are clearly being distributed over time in accordance with consumers’ demand. The criterion of absence of immediate hire value is not obvious here. But we can make use of the same principle through the rule that the balance of a “surplus” of consumers’ goods (accumulated through seasonal supply and continuous demand, or continuous supply and seasonal demand, or a fortuitously accumulated “surplus”⁷) is in a state of “pseudo-idleness” when its rate of liquidation is being determined by expectation of the future demand and supply position as modified by the costs of holding. The most important case of this is that of stocks which are in the nature of a “reserve” to meet the vagaries of day-to-day or week-to-week demand. Consider consumers’ goods held in the course of the marketing process, e.g., the stocks kept in a retail shop. The consumer pays for their availability. The mere presence of the goods in that place is the performance of a productive function, sometimes called by writers on marketing “the function of assembly.” Thus, those who occasionally wear silk hats will actually purchase them on unpredictable occasions. Yet they will expect them to be available in the shop when they chance to require them. To secure availability, therefore, reserves will be necessary. When this condition applies to consumers’ goods, however, it is never thought of as involving any problem by practical people. But it is quite important, nevertheless, for the same phenomenon receives manifestations in the field of producers’ goods (capital goods) and is then more frequently regarded as idleness than recognized as utilization.

---

1 But leisure is, however, usually to be thought of as “preferred idleness.”

2 We make this assumption for simplicity. It avoids the complications referred to in chaps, VIII-X.

3 Assuming, of course, that the hypothetical Communist government was trying to give recognition to the consumers’ sovereignty ideal.

4 The most common cause of such a situation is an expected revival of demand or an expected fall in costs.

5 See chap. IX, paras. 3 and 4.

6 The same applies, in the abstract, to pseudo-idleness under fluctuating demand. It is most clearly illustrated under the constant demand assumption.

7 But accumulated stocks may often represent “withheld capacity” and conceivably even other forms of idleness, e.g., “aggressive idleness.” See W. H.Hutt, “Nature of Aggressive Selling,” in Economica (August, 1935), p. 312 et seq.