counterbalance one another, complementary industries might mutually strengthen and support one another. Moves in this direction have already been made. More than 60 industries dealing with one or another phase of construction are attempting to meet on common ground to promote the stability of their operations.

V

At most it is not to be expected, nor is it to be desired, that business shall so manage its affairs that it will reach a state of perfect quiescence and serenity unruffled by change. Many of the disturbing influences lie beyond its control. Political upheavals which upset world markets, tariffs which impede the normal flow of trade currents, shifts in consumption due to changing custom, cannot be anticipated. The shadow of uncertainty cannot be altogether dispelled.

But, although the level of the industrial stream rises and falls, from year to year its flow continues. Business at the present times rides in triumph when it is at flood and stagnates when its currents grow sluggish. But the mean flow determines the rate of progress, and to this mean flow it is beginning to adjust itself. Business has gone further in this direction in the past quarter century than in all the years since the industrial revolution swelled the trickling rivulets of commodity production to turgid torrents. It is beginning to limit its operations not by its capacity to make but by its capacity to sell, and the alternate dips and crests due to production outrunning consumption are slowly being smoothed out.

Business management, in the case of individual establishments, has been able to gage and adjust itself to the mean level of consumer demand and reduce the margin of variation to such an extent that it is assured of a reasonable measure of continuity of operation, and can, by the same token, assure a reasonable measure of continuity of employment throughout the year. The necessary balance, to compensate for unforeseen changes, is attained by the device of insurance. By putting by a reserve from earnings when the tide is at its crest, to be drawn upon when the flow subsides, the necessary adjustments to compensate for changes which cannot be calculated in advance may be made.

Certain of the industries which meet needs that are continuous throughout the year and are not, for that reason, as subject as others to the fluctuations of a volatile or transitory demand-such as the trades affected by style changes might, and probably will, follow the example of individual concerns. Whatever the rapids and narrows and the broad reaches where its currents lag, the stream of production flows on until it eventually meets the sea of consumption. In good times or bad, whether demand soars on the wings of speculative elation or plods slowly under the burden of fear, certain basic wants must be met. Nor are these the elemental wants which might have been recognized as essential a century or less ago. In the United States, at least, there is a level below which the standard of living will not be brought by anything short of a cataclysm. The identification of these wants and the means to supply them, a better knowledge of the permanent as distinguished from the transitory elements of our economic life, of the continuous rather than the impulsive changes, will provide

a sufficient measure of certainty to enable business to go forward confidently and to adjust the employment necessary to the performance of this task in such a way that the worker will have the assurance of a stable income.

Whatever the causes, the effects of cyclical unemployment are obvious. It might begin in the collapse of fictitious values created by an outburst of speculation, in the accumulation of undigested surpluses of commodities, in the scarcity of working capital or the freezing of credit-in the piling up of obstacles which block the path of business. But it ends in fear and the loss of economic morale. Capital becomes apprehensive and investment lags. The worker begins to hoard his resources against the approaching rainy day. The buyer begins to curtail his purchases. Consumption hesitates, demand begins to shrink, production declines, and the shadow of unemployment deepens. Frantic attempts to prepare for the disaster often hasten its coming and prolong its stay.

If the fear of the evils that arise in the wake of depression of this magnitude can be allayed, many of them will probably not appear at all. If the worker were assured of a reasonable measure of employment, he would not husband his resources to meet the distress of unemployment, consumption would remain at a more nearly normal level, production would not halt.

The blighting effects of cyclical depression are not due solely to the inability of the unemployed to spend, but also to the disinclination of the employed to buy. In the United States at the beginning of this year there were, according to the Department of Commerce, 6 million unemployed, but the employed numbered probably 39 or 40 million. The saving of the many, rather than the deprivation of the few, had most to do with the hesitancy that was felt throughout the business structure. If the employed or a substantial number of the employed were assured that their work would continue, much of the apprehension would disappear, the business pace would quicken, and the margin of unemployment would probably be substantially reduced.

The social approach to the problem presented by the cyclical depression is to alleviate the distress of the unemployed, an obligation that must be recognized if society is to endure. The business approach is to safeguard the security of the employed as well as to provide work for those who are idle through no fault of their own; to control, as far as may be consistent with the traditional ideal of unregulated consumption, the dislocations and changes which retard the orderly advance of industry, and to develop its flexibility and resiliency so that it may adapt itself to new conditions which are the inevitable accompaniment of growth.

Difficult as the attainment of this ideal may be, it is not altogether visionary. Business has already laid a practical basis for further attempts along this line. If the methods already pursued by individual concerns can be followed by industries and groups of industries, many of the hazards of employment will be avoided and industry will march with surer pace.

For nearly two centuries industry has been building the gigantic productive machine which has lifted from millions of human beings the threat of starvation and want and has set new limits of sustenance for the increasing populations of the world. Beginning by harnessing

water, it brought steam under control and is now developing electricity and releasing the forces locked in the chemical balance of the constituents of matter. It has applied this power literally to the moving of mountains as well as to the stitching of gloves and the wrapping of a stick of chewing gum.

It is conceivable that this resourcefulness has developed so rapidly that it has not been applied skillfully to the uses to which it may be put. It is inconceivable that it shall be arbitrarily halted because the most has not been made of it. Already business is occupied with the task of bringing this power under better direction and control. Having built the machine, industry is devising ways of using it to greater advantage. It is turning its attention from the development of production to development of distribution, to making the machine subservient, not hostile, to human needs. Perhaps industry is entering upon its second phase of revolutionary development, which is the logical sequence of the first industrial revolution which marked the rise of the present economic system.

Of necessity this second phase must, for a time, be a record of experiment and trial. The habits and customs which characterize the world of business cannot be brought into conformity with a social ideal overnight. But neither can they be recast in a new mold by arbitrary decree. It does not lie with Government any more than with any of its citizens to flout economic law, and only injury and misdirection and delay would result from political interference with the working out of these natural forces.

[From "The Forum," January 1931]

CAUSES OF WORLD DEPRESSION

(BY JOHN MAYNARD KEYNES)

The world has been slow to realize that we are living this year in the shadow of one of the greatest economic catastrophes of modern history. But now that the man in the street has become aware of what is happening, he, not knowing the why and wherefore, is as full today of what may prove excessive fears as, previously, when the trouble was first coming on, he was lacking in what would have been a reasonable anxiety. He begins to doubt the future. Is he now awakening from a pleasant dream to face the darkness of facts? Or is he merely dropping off into a nightmare which will soon pass away?

He need not be doubtful. The other was not a dream. This is a nightmare, which will pass away with the morning. For the resources of nature and men's devices are just as fertile and productive as they were. The rate of our progress toward solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life-high, I mean, compared with, say, 20 years ago and will soon learn to afford a standard higher still. We were not previously deceived. But today we have involved ourselves in a colossal muddle, having blundered in the control of a very delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time— perhaps for a long time.

I doubt whether I can hope, in this article, to bring what is in my mind into fully effective touch with the mind of the reader. I shall be saying too much for the layman, too little for the expert. Forthough no one will believe it-economics is a technical and difficult subject. It is even becoming a science. However, I will do my bestat the cost of leaving out, because it is too complicated, much that is necessary to a complete understanding of contemporary events.

MANUFACTURERS AND PRIMARY PRODUCERS

First of all, the extreme violence of the slump is to be noticed. In the three leading industrial countries of the world-the United States, Great Britain, and Germany-10 million workers stand idle. There is scarcely an important industry anywhere earning enough profit to make it expand, which is the test of progress. At the same time, in the countries of primary production the output of mining and of agriculture is selling, in the case of almost every important commodity, at a price which, for many or for the majority of producers, does not cover its cost. In 1921, when prices fell as heavily, the fall was from a boom at which producers were making abnormal profits. But there is no example in modern history of so great and rapid a fall of prices from

a normal figure as has occurred in the past year. Hence the magnitude of the catastrophe.

The time which elapses before production ceases and unemployment reaches its maximum is, for several reasons, much longer in the case of the primary products than in the case of manufacture. In most instances the production units are smaller and less well organized among themselves for enforcing a process of orderly contraction; the length of the production period, especially in agriculture, is longer; the costs of a temporary shutdown are greater; men are more often their own employers and so submit more readily to a contraction of the income for which they are willing to work; the social problems of throwing men out of employment are greater in more primitive communities; and the financial problems of a cessation of production of primary output are more serious in countries where such primary output is almost the whole sustenance of the people.

Nevertheless we are fast approaching the phase in which the output of primary producers will be restricted almost as much as that of manufacturers. This will have a further adverse reaction on manufacturers, since the primary producers will have no purchasing power wherewith to buy manufactured goods. And so on, in a vicious circle.

In this quandary individual producers base illusory hopes on courses of action which would benefit an individual producer or class of producers so long as they are alone in pursuing them, but which benefit no one if everyone pursues them. For example, to restrict the output of a particular primary commodity raises its price, so long as the output of the industries which use this commodity is unrestricted; but if output is restricted all around, then the demand for the primary commodity falls off by just as much as the supply, and no one is further forward. Or again, if a particular producer or a particular country cuts wages, then so long as others do not follow suit, that producer or this country is able to get more of what trade is going. But if wages are cut all around, the purchasing power of the community as a whole is reduced by the same amount as the reduction of costs; and, again, no one is further forward.

Thus neither the restriction of output nor the reduction of wages serves in itself to restore equilibrium.

Moreover, even if we were to succeed eventually in reestablishing output at the lower level of money-wages appropriate to (say) the prewar level of prices, our troubles would not be at an end. For since 1914 an immense burden of bonded debt, both national and international, has been contracted, which is fixed in terms of money. Thus every fall of prices increases the burden of this debt, because it increases the value of the money in which it is fixed.

For example, if we were to settle down to the prewar level of prices, the British national debt would be nearly 40 percent greater than it was in 1924 and double what it was in 1920; the Young plan would weigh on Germany much more heavily than the Dawes plan, which it was agreed she could not support; the indebtedness to the United States of her associates in the great war would represent from 40 to 50 percent more goods and services than at the date when the settlements were made; the obligations of such debtor countries as those of South America and Australia would become insupportable without a reduction of their standard of life for the benefit of their creditors;

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