Itwasoneofthetendenciesagainstwhichinnumerablemercantilistwritersthundered，andIdonotthinkitwouldbepossibletofindasingledissentientvoice。[162]2Themercantilistswereawareofthefallacyofcheapnessandthedangerthatexcessivecompetitionmayturnthetermsoftradeagainstacountry。ThusMalyneswroteinhisLexMercatoria1622:\'StrivenottoundersellotherstothehurtoftheCommonwealth，undercolourtoincreasetrade:fortradedothnotincreasewhencommoditiesaregoodcheap，becausethecheapnessproceedethofthesmallrequestandscarcityofmoney，whichmakeththingscheap:sothatthecontraryaugmentethtradewhenthereisplentyofmoney，andcommoditiesbecomedearerbeinginrequest\'。[
163]ProfessorHeckschersumsupasfollowsthisstrandinmercantilistthought:Inthecourseofacenturyandahalfthisstandpointwasformulatedagainandagaininthisway，thatacountrywithrelativelylessmoneythanothercountriesmust\'sellcheapandbuydear\'……
EvenintheoriginaleditionoftheDiscourseoftheCommonWeal，thatisinthemiddleofthe16thcentury，thisattitudewasalreadymanifested。
Halessaid，infact，\'Andyetifstrangersshouldbecontenttotakebutourwaresfortheirs，whatshouldletthemtoadvancethepriceofotherthingsmeaning:amongothers，suchaswebuyfromthem，thoughoursweregoodcheapuntothem？Andthenshallwebestilllosers，andtheyatthewinninghandwithus，whiletheyselldearandyetbuyoursgoodcheap，andconsequentlyenrich[Page346]THE
GENERALTHEORYOFEMPLOYMENTthemselvesandimpoverishus。YethadIratheradvanceourwaresinprice，astheyadvancetheirs，aswenowdo；thoughsomebelosersthereby，andyetnotsomanyasshouldbetheotherway。\'Onthispointhehadtheunqualifiedapprovalofhiseditorseveraldecadeslater1581。
Inthe17thcentury，thisattituderecurredagainwithoutanyfundamentalchangeinsignificance。Thus，Malynesbelievedthisunfortunatepositiontobetheresultofwhathedreadedaboveallthings，i。e。aforeignunder-valuationoftheEnglishexchange……Thesameconceptionthenrecurredcontinually。
InhisVerbumSapientiwritten1665，published1691，Pettybelievedthattheviolenteffortstoincreasethequantityofmoneycouldonlycease\'whenwehavecertainlymoremoneythananyofourNeighbourStatesthoughneversolittle，bothinArithmeticalandGeometricalproportion\'。Duringtheperiodbetweenthewritingandthepublicationofthiswork，Cokedeclared，\'IfourTreasureweremorethanourNeighbouringNations，IdidnotcarewhetherwehadonefifthpartoftheTreasurewenowhave\'1675。[164
]3Themercantilistsweretheoriginalsof\'thefearofgoods\'andthescarcityofmoneyascausesofunemploymentwhichtheclassicalsweretodenouncetwocenturieslaterasanabsurdity:OneoftheearliestinstancesoftheapplicationoftheunemploymentargumentasareasonfortheprohibitionofimportsistobefoundinFlorenceintheyear1426……TheEnglishlegislationonthemattergoesbacktoatleast1455……AnalmostcontemporaryFrenchdecreeof1466，formingthebasisofthesilkindustryofLyons，latertobecomesofamous，waslessinterestinginsofarasitwasnotactuallydirectedagainstforeigngoods。Butit，too，mentionedthepossibilityofgivingworktotensofthousandsofunemployedmenandwomen。Itisseenhowverymuchthisargumentwasintheairatthetime……
Thefirstgreatdiscussionofthismatter，asofnearlyallsocialandeconomicproblems，occurredinEnglandinthemiddleofthei6thcenturyorratherearlier，duringthereignsofHenryVIIIandEdwardVI。Inthisconnectionwecannotbutmentionaseriesofwritings，writtenapparentlyatthelatestinthe1530\'s，twoofwhichatanyratearebelieved[Page347]NOTES
ONMERCANTILISM，ETC。tohavebeenbyClementArmstrong……Heformulatesit，forexample，inthefollowingterms:\'ByreasonofgreatabundanceofstrangemerchandisesandwaresbroughtyearlyintoEnglandhathnotonlycausedscarcityofmoney，buthathdestroyedallhandicrafts，wherebygreatnumberofcommonpeopleshouldhaveworkstogetmoneytopayfortheirmeatanddrink，whichofverynecessitymustliveidlyandbegandsteal\'。[165
]
ThebestinstancetomyknowledgeofatypicallymercantilistdiscussionofastateofaffairsofthiskindisthedebatesintheEnglishHouseofCommonsconcerningthescarcityofmoney，whichoccurredin1621，whenaseriousdepressionhadsetin，particularlyintheclothexport。Theconditions\'veredescribedveryclearlybyoneofthemostinfluentialmembersofparliament，SirEdwinSandys。Hestatedthatthefarmerandtheartificerhadtosufferalmosteverywhere，thatloomswerestandingidleforwantofmoneyinthecountry，andthatpeasantswereforcedtorepudiatetheircontracts，\'notthanksbetoGodforwantoffruitsoftheearth，butforwantofmoney\'。Thesituationledtodetailedenquiriesintowherethemoneycouldhavegotto，thewantofwhichwasfeltsobitterly。
Numerousattacksweredirectedagainstallpersonswhoweresupposedtohavecontributedeithertoanexportexportsurplusofpreciousmetals，ortotheirdisappearanceonaccountofcorrespondingactivitieswithinthecountry。[166]Mercantilistswereconsciousthattheirpolicy，asProfessorHeckscherputsit，\'killedtwobirdswithonestone\'。\'Ontheonehandthecountrywasridofanunwelcomesurplusofgoods，whichwasbelievedtoresultinunemployment，whileontheotherthetotalstockofmoneyinthecountrywasincreased\'，[167]withtheresultingadvantagesofafallintherateofinterest。
Itisimpossibletostudythenotionstowhichthemercantilistswereledbytheiractualexperiences，withoutperceivingthattherehasbeenacbronictendencythroughouthumanhistoryforthepropensitytosavetobestrongerthantheinducementtoinvest。The[Page348]THE
GENERALTHEORYOFEMPLOYMENT
weaknessoftheinducementtoinvesthasbeenatalltimesthekeytotheeconomicproblem。To-daytheexplanationoftheweaknessofthisinducementmaychieflylieintheextentofexistingaccumulations；whereas，formerly，risksandhazardsofallkindsmayhaveplayedalargerpart。Buttheresultisthesame。Thedesireof，theindividualtoaugmenthispersonalwealthbyabstainingfromconsumptionhasusuallybeenstrongerthantheinducementtotheentrepreneurtoaugmentthenationalwealthbyemployinglabourontheconstructionofdurableassets。
4Themercantilistswereundernoillusionsastothenationalisticcharacteroftheirpoliciesandtheirtendencytopromotewar。Itwasnationaladvantageandrelativestrengthatwhichtheywereadmittedlyaiming。
[168]
Wemaycriticisethemfortheapparentindifferencewithwhichtheyacceptedthisinevitableconsequenceofaninternationalmonetarysystem。
Butintellectuallytheirrealismismuchpreferabletotheconfusedthinkingofcontemporaryadvocatesofaninternationalfixedgoldstandardandlaissez-faireininternationallending，whobelievethatitispreciselythesepolicieswhichwillbestpromotepeace。
Forinaneconomysubjecttomoneycontractsandcustomsmoreorlessfixedoveranappreciableperiodoftime，wherethequantityofthedomesticcirculationandthedomesticrateofinterestareprimarilydeterminedbythebalanceofpayments，astheywereinGreatBritainbeforethewar，thereisnoorthodoxmeansopentotheauthoritiesforcounteringunemploymentathomeexceptbystrugglingforanexportsurplusand[Page349]NOTES
ONMERCANTILISM，ETC。
animportofthemonetarymetalattheexpenseoftheirneighbours。
Neverinhistorywasthereamethoddevisedofsuchefficacyforsettingeachcountry\'sadvantageatvariancewithitsneighbours\'astheinternationalgoldor，formerly，silverstandard。Foritmadedomesticprosperitydirectlydependentonacompetitivepursuitofmarketsandacompetitiveappetiteforthepreciousmetals。Whenbyhappyaccidentthenewsuppliesofgoldandsilverwerecomparativelyabundant，thestrugglemightbesomewhatabated。Butwiththegrowthofwealthandthediminishingmarginalpropensitytoconsume，ithastendedtobecomeincreasinglyinternecine。Thepartplayedbyorthodoxeconomists，whosecommonsensehasbeeninsufficienttochecktheirfaultylogic，hasbeendisastroustothelatestact。Forwhenintheirblindstruggleforanescape，somecountrieshavethrownofftheobligationswhichhadpreviouslyrenderedimpossibleanautonomousrateofinterest，theseeconomistshavetaughtthatarestorationoftheformershacklesisanecessaryfirststeptoageneralrecovery。
Intruththeoppositeholdsgood。Itisthepolicyofanautonomousrateofinterest，unimpededbyinternationalpreoccupations，andofanationalinvestmentprogrammedirectedtoanoptimumlevelofdomesticemploymentwhichistwiceblessedinthesensethatithelpsourselvesandourneighboursatthesametime。Anditisthesimultaneouspursuitofthesepoliciesbyallcountriestogetherwhichiscapableofrestoringeconomichealthandstrengthinternationally，whetherwemeasureitbythelevelofdomesticemploymentorbythevolumeofinternationaltrade。[169]
[Page350]THE
GENERALTHEORYOFEMPLOYMENT
IV
Themercantilistsperceivedtheexistenceoftheproblemwithoutbeingabletopushtheiranalysistothepointofsolvingit。Buttheclassicalschoolignoredtheproblem，asaconsequenceofintroducingintotheirpremissesconditionswhichinvolveditsnon-existence；withtheresultofcreatingacleavagebetweentheconclusionsofeconomictheoryandthoseofcommonsense。Theextraordinaryachievementoftheclassicaltheorywastoovercomethebeliefsofthe\'naturalman\'and，atthesametime，tobewrong。AsProfessorHeckscherexpressesit:If，then，theunderlyingattitudetowardsmoneyandthematerialfromwhichmoneywascreateddidnotalterintheperiodbetweentheCrusadesandthe18thcentury，itfollowsthatwearedealingwithdeep-rootednotions。
Perhapsthesamenotionshavepersistedevenbeyondthe500yearsincludedinthatperiod，eventhoughnotnearlytothesamedegreeasthe\'fearofgoods\'。Withtheexceptionoftheperiodoflaissez-faire，noagehasbeenfreefromtheseideas。Itwasonlytheuniqueintellectualtenacityoflaissez-fairethatforatimeovercamethebeliefsofthe\'naturalman\'onthispoint。[170]
Itrequiredtheunqualifiedfaithofdoctrinairelaissez-fairetowipeoutthe\'fearofgoods\'……[which]isthemostnaturalattitudeofthe\'naturalman\'inamoneyeconomy。FreeTradedeniedtheexistenceoffactorswhichappearedtobeobvious，andwasdoomedtobediscreditedintheeyesofthemaninthestreetassoonaslaissez-fairecouldnolongerholdthemindsofmenenchainedinitsideology。[171]IrememberBonarLaw\'smingledrageandperplexityinfaceoftheeconomists，becausetheyweredenyingwhatwasobvious。Hewasdeeplytroubledforanexplanation。Onerecurstotheanalogybetween[Page351]NOTES
ONMERCANTILISM，ETC。
theswayoftheclassicalschoolofeconomictheoryandthatofcertainreligions。Foritisafargreaterexerciseofthepotencyofanideatoexorcisetheobviousthantointroduceintomen\'scommonnotionsthereconditeandtheremote。
V
Thereremainsanallied，butdistinct，matterwhereforcenturies，indeedforseveralmillenniums，enlightenedopinionheldforcertainandobviousadoctrinewhichtheclassicalschoolhasrepudiatedaschildish，butwhichdeservesrehabilitationandhonour。Imeanthedoctrinethattherateofinterestisnotself-adjustingatalevelbestsuitedtothesocialadvantagebutconstantlytendstorisetoohigh，sothatawisegovernmentisconcernedtocurbitbystatuteandcustomandevenbyinvokingthesanctionsofthemorallaw。
Provisionsagainstusuryareamongstthemostancienteconomicpracticesofwhichwehaverecord。Thedestructionoftheinducementtoinvestbyanexcessiveliquidity-preferencewastheoutstandingevil，theprimeimpedimenttothegrowthofwealth，intheancientandmedievalworlds。Andnaturallyso，sincecertainoftherisksandhazardsofeconomiclifediminishthemarginalefficiencyofcapitalwhilstothersservetoincreasethepreferenceforliquidity。Inaworld，therefore，whichnoonereckonedtobesafe，itwasalmostinevitablethattherateofinterest，unlessitwascurbedbyeveryinstrumentatthedisposalofsociety，wouldrisetoohightopermitofanadequateinducementtoinvest。
IwasbroughtuptobelievethattheattitudeoftheMedievalChurchtotherateofinterestwasinherentlyabsurd，andthatthesubtlediscussionsaimedatdistinguishingthereturnonmoney-loansfromthereturntoactiveinvestmentweremerelyjesuiticalattemptstofindapracticalescapefromafoolishtheory。ButI
[Page352]THE
GENERALTHEORYOFEMPLOYMENT
nowreadthesediscussionsasanhonestintellectualefforttokeepseparatewhattheclassicaltheoryhasinextricablyconfusedtogether，namely，therateofinterestandthemarginalefficiencyofcapital。Foritnowseemsclearthatthedisquisitionsoftheschoolmenweredirectedtowardstheelucidationofaformulawhichshouldallowthescheduleofthemarginalefficiencyofcapitaltobehigh，whilstusingruleandcustomandthemorallawtokeepdowntherateofinterest。
EvenAdamSmithwasextremelymoderateinhisattitudetotheusurylaws。Forliewaswellawarethatindividualsavingsmaybeabsorbedeitherbyinvestmentorbydebts，andthatthereisnosecuritythattheywillfindanoutletintheformer。Furthermore，hefavouredalowrateofinterestasincreasingthechanceofsavingsfindingtheiroutletinnewinvestmentratherthanindebts；andforthisreason，inapassageforwhichhewasseverelytakentotaskbyBentham，[172]hedefendedamoderateapplicationoftheusurylaws。[173]Moreover，Bentham\'scriticismsweremainlyonthegroundthatAdamSmith\'sScotchcautionwastoosevereon\'projectors\'
andthatamaximumrateofinterestwouldleavetoolittlemarginfortherewardoflegitimateandsociallyadvisablerisks。ForBenthamunderstoodbyprojectors\'allsuchpersons，as，inthepursuitofwealth，orevenofanyotherobject，endeavour，bytheassistanceofwealth，tostrikeintoanychannelofinvention……uponallsuchpersonsas，inthelineofanyoftheirpursuits，aimatanythingthatcanbecalledimprovement……Itfalls，inshort，uponeveryapplicationofthehumanpowers，inwhichingenuitystandsinneedofwealthforitsassistance。\'OfcourseBenthamisrightinprotestingagainstlawswhichstandinthewayoftakinglegitimaterisks。\'Aprudentman\'，Benthamcontinues，\'willnot，inthesecircumstances，pickoutthegoodprojects[Page353]NOTES
ONMERCANTILISM，ETC。
fromthebad，forhewillnotmeddlewithprojectsatall。\'[174]
Itmaybedoubted，perhaps，whethertheaboveisjustwhatAdamSmithintendedbyhisterm。OrisitthatwearehearinginBenthamthoughwritinginMarch1787from\'CrichoffinWhiteRussia\'thevoiceofnineteenth-centuryEnglandspeakingtotheeighteenth？Fornothingshortoftheexuberanceofthegreatestageoftheinducementtoinvestmentcouldhavemadeitpossibletolosesightofthetheoreticalpossibilityofitsinsufficiency。
VI
Itisconvenienttomentionatthispointthestrange，undulyneglectedprophetSilvioGesell1862-1930，whoseworkcontainsflashesofdeepinsightandwhoonlyjustfailedtoreachdowntotheessenceofthematter。Inthepost-waryearshisdevoteesbombardedmewithcopiesofhisworks；yet，owingtocertainpalpabledefectsintheargument，Ientirelyfailedtodiscovertheirmerit。Asisoftenthecasewithimperfectlyanalysedintuitions，theirsignificanceonlybecameapparentafterIhadreachedmyownconclusionsinmyownway。Meanwhile，likeotheracademiceconomists，Itreatedhisprofoundlyoriginalstrivingsasbeingnobetterthanthoseofacrank。SincefewofthereadersofthisbookarelikelytobewellacquaintedwiththesignificanceofGesell，Iwillgivetohimwhatwouldbeotherwiseadisproportionatespace。
GesellwasasuccessfulGerman[175]merchantin[Page354]THE
GENERALTHEORYOFEMPLOYMENT
BuenosAireswhowasledtothestudyofmonetaryproblemsbythecrisisofthelate\'eighties，whichwasespeciallyviolentintheArgentine，hisfirstwork，DieReformationimMü；nzwesenalsBrü；ckezumsocialenStaat，beingpublishedinBuenosAiresin1891。HisfundamentalideasonmoneywerepublishedinBuenosAiresinthesameyearunderthetitleNervusrerum，andmanybooksandpamphletsfolloweduntilheretiredtoSwitzerlandin1906asamanofsomemeans，abletodevotethelastdecadesofhislifetothetwomostdelightfuloccupationsopentothosewhodonothavetoearntheirliving，authorshipandexperimentalfarming。
Thefirstsectionofhisstandardworkwaspublishedin1906atLesHautsGeneveys，Switzerland，underthetitleDieVerwirklichungdesRechtesaufdemvollenArbeitsertrag，andthesecondsectionin1911atBerlinunderthetitleDieneueLehrevomZins。ThetwotogetherwerepublishedinBerlinandinSwitzerlandduringthewar1916andreachedasixtheditionduringhislifetimeunderthetitleDienatü；rlicheWirtschaftsordnungdurchFreilandundFreigeld，theEnglishversiontranslatedbyMrPhilipPyebeingcalledTheNaturalEconomicOrder。InApril1919
Geselljoinedtheshort-livedSovietcabinetofBavariaastheirMinisterofFinance，beingsubsequentlytriedbycourt-martial。ThelastdecadeofhislifewasspentinBerlinandSwitzerlandanddevotedtopropaganda。
Gesell，drawingtohimselfthesemi-religiousfervourwhichhadformerlycentredroundHenryGeorge，becamethereveredprophetofacultwithmanythousanddisciplesthroughouttheworld。ThefirstinternationalconventionoftheSwissandGermanFreiland-FreigeldBundandsimilarorganisationsfrommanycountrieswasheldinBaslein1923。
Sincehisdeathin1930muchofthepeculiartypeoffervourwhichdoctrinessuchashisarecapableofexcitinghasbeendivertedtootherinmyopinionlesseminentprophets。DrBuchiistheleaderofthemovementinEngland，but[Page355]NOTES
ONMERCANTILISM，ETC。
itsliteratureseemstobedistributedfromSanAntonio，Texas，itsmainstrengthlyingto-dayintheUnitedStates，whereProfessorIrvingFisher，aloneamongstacademiceconomists，hasrecogniseditssignificance。
Inspiteoftheprophetictrappingswithwhichhisdevoteeshavedecoratedhim，Gesell\'smainbookiswrittenincool，scientificlanguage；thoughitissuffusedthroughoutbyamorepassionate，amoreemotionaldevotiontosocialjusticethansomethinkdecentinascientist。ThepartwhichderivesfromHenryGeorge，[176]thoughdoubtlessanimportantsourceofthemovement\'sstrength，isofaltogethersecondaryinterest。Thepurposeofthebookasawholemaybedescribedastheestablishmentofananti-Marxiansocialism，areactionagainstlaissez-fairebuiltontheoreticalfoundationstotallyunlikethoseofMarxinbeingbasedonarepudiationinsteadofonanacceptanceoftheclassicalhypotheses，andonanunfetteringofcompetitioninsteadofitsabolition。IbelievethatthefuturewilllearnmorefromthespiritofGesellthanfromthatofMarx。TheprefacetoTheNaturalEconomicOrderwillindicatetothereader，ifhewillrefertoit，themoralqualityofGesell。TheanswertoMarxismis，Ithink，tobefoundalongthelinesofthispreface。
Gesell\'sspecificcontributiontothetheoryofmoneyandinterestisasfollows。Inthefirstplace，hedistinguishesclearlybetweentherateofinterestandthemarginalefficiencyofcapital，andhearguesthatitistherateofinterestwhichsetsalimittotherateofgrowthofrealcapital。Next，hepointsoutthattherateofinterestisapurelymonetaryphenomenonandthatthepeculiarityofmoney，fromwhichflowsthesignificanceofthemoneyrateofinterest，liesinthefactthatitsownershipasameansofstoringwealthinvolvestheholderinnegligiblecarryingcharges，andthatformsofwealth，suchasstocksofcommodities[Page356]THE
GENERALTHEORYOFEMPLOYMENT
whichdoinvolvecarryingcharges，infactyieldareturnbecauseofthestandardsetbymoney。Hecitesthecomparativestabilityoftherateofinterestthroughouttheagesasevidencethatitcannotdependonpurelyphysicalcharacters，inasmuchasthevariationofthelatterfromoneepochtoanothermusthavebeenincalculablygreaterthantheobservedchangesintherateofinterest；i。e。inmyterminologytherateofinterest，whichdependsonconstantpsychologicalcharacters，hasremainedstable，whilstthewidelyfluctuatingcharacters，whichprimarilydeterminethescheduleofthemarginalefficiencyofcapital，havedeterminednottherateofinterestbuttherateatwhichthemoreorlessgivenrateofinterestallowsthestockofrealcapitaltogrow。
ButthereisagreatdefectinGesell\'stheory。Heshowshowitisonlytheexistenceofarateofmoneyinterestwhichallowsayieldtobeobtainedfromlendingoutstocksofcommodities。HisdialoguebetweenRobinsonCrusoeandastranger[177]isamostexcellenteconomicparable¾；asgoodasanythingofthekindthathasbeenwritten¾；todemonstratethispoint。But，havinggiventhereasonwhythemoney-rateofinterestunlikemostcommodityratesofinterestcannotbenegative，healtogetheroverlookstheneedofanexplanationwhythemoney-rateofinterestispositive，andhefailstoexplainwhythemoney-rateofinterestisnotgovernedastheclassicalschoolmaintainsbythestandardsetbytheyieldonproductivecapital。Thisisbecausethenotionofliquidity-preferencehadescapedhim。Hehasconstructedonlyhalfatheoryoftherateofinterest。
Theincompletenessofhistheoryisdoubtlesstheexplanationofhisworkhavingsufferedneglectatthehandsoftheacademicworld。Neverthelesshehadcarriedhistheoryfarenoughtoleadhimtoapracticalrecommendation，whichmaycarrywithittheessence[Page357]NOTES
ONMERCANTILISM，ETC。
ofwhatisneeded，thoughitisnotfeasibleintheforminwhichheproposedit。Hearguesthatthegrowthofrealcapitalisheldbackbythemoney-rateofinterest，andthatifthisbrakewereremovedthegrowthofrealcapitalwouldbe，inthemodernworld，sorapidthatazeromoney-rateofinterestwouldprobablybejustified，notindeedforthwith，butwithinacomparativelyshortperiodoftime。Thustheprimenecessityistoreducethemoney-rateofinterest，andthis，hepointedout，canbeeffectedbycausingmoneytoincurcarrying-costsjustlikeotherstocksofbarrengoods。Thisledhimtothefamousprescriptionof\'stamped\'money，withwhichhisnameischieflyassociatedandwhichhasreceivedtheblessingofProfessorIrvingFisher。Accordingtothisproposalcurrencynotesthoughitwouldclearlyneedtoapplyaswelltosomeformsatleastofbank-money
wouldonlyretaintheirvaluebybeingstampedeachmonth，likeaninsurancecard，withstampspurchasedatapostoffice。Thecostofthestampscould，ofcourse，befixedatanyappropriatefigure。Accordingtomytheoryitshouldberoughlyequaltotheexcessofthemoney-rateofinterestapartfromthestampsoverthemarginalefficiencyofcapitalcorrespondingtoarateofnewinvestmentcompatiblewithfullemployment。TheactualchargesuggestedbyGesellwas1permil。perweek，equivalentto5。2percentperannum。Thiswouldbetoohighinexistingconditions，butthecorrectfigure，whichwouldhavetobechangedfromtimetotime，couldonlybereachedbytrialanderror。
Theideabehindstampedmoneyissound。Itis，indeed，possiblethatmeansmightbefoundtoapplyitinpracticeonamodestscale。ButtherearemanydifficultieswhichGeselldidnotface。Inparticular，hewasunawarethatmoneywasnotuniqueinhavingaliquidity-premiumattachedtoit，butdifferedonlyindegreefrommanyotherarticles，derivingitsimportancefromhavingagreaterliquidity-premiumthanany[Page358]THE
GENERALTHEORYOFEMPLOYMENT
otherarticle。Thusifcurrencynotesweretobedeprivedoftheirliquidity-premiumbythestampingsystem，alongseriesofsubstituteswouldstepintotheirshoes¾；bank-money，debtsatcall，foreignmoney，jewelleryandthepreciousmetalsgenerally，andsoforth。AsI
havementionedabove，therehavebeentimeswhenitwasprobablythecravingfortheownershipofland，independentlyofitsyield，whichservedtokeepuptherateofinterest；¾；thoughunderGesell\'ssystemthispossibilitywouldhavebeeneliminatedbylandnationalisation。
VII
Thetheorieswhichwehaveexaminedabovearedirected，insubstance，totheconstituentofeffectivedemandwhichdependsonthesufficiencyoftheinducementtoinvest。Itisnonewthing，however，toascribetheevilsofunemploymenttotheinsufficiencyoftheotherconstituent，namely，theinsufficiencyofthepropensitytoconsume。Butthisalternativeexplanationoftheeconomicevilsoftheday¾；equallyunpopularwiththeclassicaleconomists¾；playedamuchsmallerpartinsixteenth-andseventeenth-centurythinkingandhasonlygatheredforceincomparativelyrecenttimes。
Thoughcomplaintsofunder-consumptionwereaverysubsidiaryaspectofmercantilistthought，ProfessorHeckscherquotesanumberofexamplesofwhathecalls\'thedeep-rootedbeliefintheutilityofluxuryandtheevilofthrift。Thrift，infact，wasregardedasthecauseofunemployment，andfortworeasons:inthefirstplace，becauserealincomewasbelievedtodiminishbytheamountofmoneywhichdidnotenterintoexchange，andsecondly，becausesavingwasbelievedtowithdrawmoneyfromcirculation。\'
[178]In1598LaffemasLesTré；sorsetrichessespourmettrel\'EstatenSplendeurdenouncedtheobjectorstotheuseof[Page359]NOTES
ONMERCANTILISM，ETC。
FrenchsilksonthegroundthatallpurchasersofFrenchluxurygoodscreatedalivelihoodforthepoor，whereasthemisercausedthemtodieindistress\'。[179]In1662Pettyjustified\'entertainments，magnificentshews，triumphalarches，etc。\'，onthegroundthattheircostsflowedbackintothepocketsofbrewers，bakers，tailors，shoemakersandsoforth。
Fortreyjustified\'excessofapparel\'。VonSchrö；tteri686deprecatedsumptuaryregulationsanddeclaredthathewouldwishthatdisplayinclothingandthelikewereevengreater。Barbon1690wrotethat\'ProdigalityisavicethatisprejudicialtotheMan，butnottotrade……CovetousnessisaVice，prejudicialbothtoManandTrade。\'[180]In1695Caryarguedthatifeverybodyspentmore，allwouldobtainlargerincomes\'andmightthenlivemoreplentifully\'。[181]
ButitwasbyBernardMandeville\'sFableoftheBeesthatBarbon\'sopinionwasmainlypopularised，abookconvictedasanuisancebythegrandjuryofMiddlesexin1723，whichstandsoutinthehistoryofthemoralsciencesforitsscandalousreputation。Onlyonemanisrecordedashavingspokenagoodwordforit，namelyDrJohnson，whodeclaredthatitdidnotpuzzlehim，but\'openedhiseyesintoreallifeverymuch\'。Thenatureofthebook\'swickednesscanbebestconveyedbyLeslieStephen\'ssummaryintheDictionaryofNationalBiography:Mandevillegavegreatoffencebythisbook，inwhichacynicalsystemofmoralitywasmadeattractivebyingeniousparadoxes……Hisdoctrinethatprosperitywasincreasedbyexpenditureratherthanbysavingfellinwithmanycurrenteconomicfallaciesnotyetextinct。[182]Assumingwiththe[Page360]THE
GENERALTHEORYOFEMPLOYMENTasceticsthathumandesireswereessentiallyevilandthereforeproduced\'privatevices\'andassumingwiththecommonviewthatwealthwasa\'publicbenefit\'，heeasilyshowedthatallcivilisationimpliedthedevelopmentofviciouspropensities……ThetextoftheFableoftheBeesisanallegoricalpoem¾；\'TheGrumblingHive，orKnavesturnedhonest\'，inwhichissetforththeappallingplightofaprosperouscommunityinwhichallthecitizenssuddenlytakeitintotheirheadstoabandonluxuriousliving，andtheStatetocutdownarmaments，intheinterestsofSaving:NoHonournowcouldbecontent，Toliveandoweforwhatwasspent，Liv\'riesinBroker\'sshopsarehung；
TheypartwithCoachesforasong；
SellstatelyHorsesbywholesetsandCountry-Housestopaydebts。
Vaincostisshunn\'dasmoralFraud；
TheyhavenoForceskeptAbroad；
Laughatth\'EsteemofForeigners，AndemptyGlorygotbyWars；
Theyfight，butfortheirCountry\'ssake，WhenRightorLiberty\'satStake。ThehaughtyChloeContractsth\'expensiveBillofFare，AndwearsherstrongSuitawholeYear。Andwhatistheresult？¾；NowmindthegloriousHive，andseeHowHonestyandTradeagree:
TheShewisgone，itthinsapace；
AndlookswithquiteanotherFace，For\'twasnotonlytheythatwent，Bywhomvastsumswereyearlyspent；
ButMultitudesthatlivedonthem，Weredailyforc\'dtodothesame。
InvaintootherTradesthey\'dfly；
Allwereo\'er-stockedaccordingly。
ThepriceofLandandHousesfalls；
Mirac\'lousPalaceswhoseWalls，[Page361]NOTES
ONMERCANTILISM，ETC。LikethoseofThebes，wererais\'dbyPlay，Aretobelet……
TheBuildingTradeisquitedestroy\'d，Artificersarenotemploy\'d；
NolimnerforhisArtisfam\'d，Stone-cutters，Carversarenotnam\'d。So\'TheMoral\'is:BareVirtuecan\'tmakeNationsliveInSplendour。TheythatwouldreviveAGoldenAge，mustbeasfree，ForAcornsasforHonesty。Twoextractsfromthecommentarywhichfollowstheallegorywillshowthattheabovewasnotwithoutatheoreticalbasis:Asthisprudenteconomy，whichsomepeoplecallSaving，isinprivatefamiliesthemostcertainmethodtoincreaseanestate，sosomeimaginethat，whetheracountrybebarrenorfruitful，thesamemethodifgenerallypursuedwhichtheythinkpracticablewillhavethesameeffectuponawholenation，andthat，forexample，theEnglishmightbemuchricherthantheyare，iftheywouldbeasfrugalassomeoftheirneighbours。This，Ithink，isanerror。[183]Onthecontrary，Mandevilleconcludes:Thegreatarttomakeanationhappy，andwhatwecallflourishing，consistsingivingeverybodyanopportunityofbeingemployed；whichtocompass，letaGovernment\'sfirstcarebetopromoteasgreatavarietyofManufacures，ArtsandHandicraftsashumanwitcaninvent；andthesecondtoencourageAgricultureandFisheryinalltheirbranches，thatthewholeEarthmaybeforccdtoexertitselfaswellasMan。ItisfromthisPolicyandnotfromthetriflingregulationsofLavishnessandFrugalitythatthegreatnessandfelicityofNationsmustbeexpected；forletthevalueofGoldandSilverriseorfall，theenjoymentofallSocietieswilleverdependupontheFruitsoftheEarthandtheLabourofthePeople；bothwhichjoinedtogetherareamorecertain，amoreinexhaustible[Page362]THE
GENERALTHEORYOFEMPLOYMENTandamorerealTreasurethantheGoldofBrazilortheSilverofPotosi。Nowonderthatsuchwickedsentimentscalleddowntheopprobriumoftwocenturiesofmoralistsandeconomistswhofeltmuchmorevirtuousinpossessionoftheirausteredoctrinethatnosoundremedywasdiscoverableexceptintheutmostofthriftandeconomybothbytheindividualandbythestate。
Petty\'s\'entertainments，magnificentshews，triumphalarches，etc。\'gaveplacetothepenny-wisdomofGladstonianfinanceandtoastatesystemwhich\'couldnotafford\'hospitals，openspaces，noblebuildings，eventhepreservationofitsancientmonuments，farlessthesplendoursofmusicandthedrama，allofwhichwereconsignedtotheprivatecharityormagnanimityofimprovidentindividuals。
Thedoctrinedidnotreappearinrespectablecirclesforanothercentury，untilinthelaterphaseofMalthusthenotionoftheinsufficiencyofeffectivedemandtakesadefiniteplaceasascientificexplanationofunemployment。SinceIhavealreadydealtwiththissomewhatfullyinmyessayonMalthus，[184]itwillbesufficientifIrepeathereoneortwocharacteristicpassageswhichIhavealreadyquotedinmyessay:Weseeinalmosteverypartoftheworldvastpowersofproductionwhicharenotputintoaction，andIexplainthisphenomenonbysayingthatfromthewantofaproperdistributionoftheactualproduceadequatemotivesarenotfurnishedtocontinuedproduction……Idistinctlymaintainthatanattempttoaccumulateveryrapidly，whichnecessarilyimpliesaconsiderablediminutionofunproductiveconsumption，bygreatlyimpairingtheusualmotivestoproductionmustprematurelychecktheprogressofwealth……Butifitbetruethatanattempttoaccumulateveryrapidlywilloccasionsuchadivisionbetweenlabourandprofitsasalmosttodestroyboththemotiveandthepoweroffutureaccumulationandconsequentlythepowerofmaintainingandem-
[Page363]NOTES
ONMERCANTILISM，ETC。ployinganincreasingpopulation，mustitnotbeacknowledgedthatsuchanattempttoaccumulate，orthatsavingtoomuch，maybereallyprejudicialtoacountry？[185]
Thequestioniswhetherthisstagnationofcapital，andsubsequentstagnationinthedensandforlabourarisingfromincreasedproductionwithoutanadequateproportionofunproductiveconsumptiononthepartofthelandlordsandcapitalists，couldtakeplacewithoutprejudicetothecountry，withoutoccasioningalessdegreebothofhappinessandwealththanwouldhaveoccurrediftheunproductiveconsumptionofthelandlordsandcapitalistshadbeensoproportionedtothenaturalsurplusofthesocietyastohavecontinueduninterruptedthemotivestoproduction，andpreventedfirstanunnaturaldemandforlabourandthenanecessaryandsuddendiminutionofsuchdemand。Butifthisbeso，howcanitbesaidwithtruththatparsimony，thoughitmaybeprejudicialtotheproducers，cannotbeprejudicialtothestate；orthatanincreaseofunproductiveconsumptionamonglandlordsandcapitalistsmaynotsometimesbetheproperremedyforastateofthingsinwhichthemotivestoproductionfail？[186]
AdamSmithhasstatedthatcapitalsareincreasedbyparsimony，thateveryfrugalmanisapublicbenefactor，andthattheincreaseofwealthdependsuponthebalanceofproduceaboveconsumption。Thatthesepropositionsaretruetoagreatextentisperfectlyunquestionable……Butitisquiteobviousthattheyarenottruetoanindefiniteextent，andthattheprinciplesofsaving，pushedtoexcess，woulddestroythemotivetoproduction。Ifeverypersonweresatisfiedwiththesimplestfood，thepoorestclothing，andthemeanesthouses，itiscertainthatnoothersortoffood，clothing，andlodgingwouldbeinexistence……Thetwoextremesareobvious；anditfollowsthattheremustbesomeintermediatepoint，thoughtheresourcesofpoliticaleconomymaynotbeabletoascertainit，where，takingintoconsiderationboththepowertoproduceandthewilltoconsume，theencouragementtotheincreaseofwealthisthegreatest。[187]
Ofalltheopinionsadvancedbyableandingeniousmen，whichIhaveevermetwith，theopinionofM。Say，which[Page364]THE
GENERALTHEORYOFEMPLOYMENTstatesthat，Unproduitconsommé；oudetruitestundé；bouché；fermé；I。i。ch。15，appearstometobethemostdirectlyopposedtojusttheory，andthemostuniformlycontradictedbyexperience。Yetitdirectlyfollowsfromthenewdoctrine，thatcommoditiesaretobeconsideredonlyintheirrelationtoeachother，¾；nottotheconsumers。What，Iwouldask，wouldbecomeofthedemandforcommodities，ifallconsumptionexceptbreadandwaterweresuspendedforthenexthalf-year？
Whatanaccumulationofcommodities！Quelsdebouché；s！Whataprodigiousmarketwouldthiseventoccasion！[188]Ricardo，however，wasstone-deaftowhatMalthuswassaying。ThelastechoofthecontroversyistobefoundinJohnStuartMill\'sdiscussionofhiswages-fundtheory，[189]whichinhisownmindplayedavitalpartinhisrejectionofthelaterphaseofMalthus，amidstthediscussionsofwhichhehad，ofcourse，beenbroughtup。Mill\'ssuccessorsrejectedhiswages-fundtheorybutoverlookedthefactthatMill\'srefutationofMalthusdependedonit。Theirmethodwastodismisstheproblemfromthecorpusofeconomicsnotbysolvingitbutbynotmentioningit。Italtogetherdisappearedfromcontroversy。MrCairncross，searchingrecentlyfortracesofitamongsttheminorVictorians，[190]hasfoundevenless，perhaps，thanmighthavebeenexpected。[191]Theoriesofunder-consumptionhibernateduntiltheappearancein1889ofThePhysiologyofIndustry，byJ。
A。HobsonandA。F。Mummery，thefirstandmostsignificantofmanyvolumesinwhichfornearlyfiftyyearsMrHobsonhasflunghimselfwithunflagging，butalmostunavailing，ardourandcourage[Page365]NOTES
ONMERCANTILISM，ETC。
againsttheranksoforthodoxy。Thoughitissocompletelyforgottento-day，thepublicationofthisbookmarks，inasense，anepochineconomicthought。[192]
ThePhysiologyofIndustrywaswrittenincollaborationwithA。F。Mummery。MrHobsonhastoldhowthebookcametobewrittenasfollows:
[193]Itwasnotuntilthemiddle\'eightiesthatmyeconomicheterodoxybegantotakeshape。ThoughtheHenryGeorgecampaignagainstlandvaluesandtheearlyagitationofvarioussocialistgroupsagainstthevisibleoppressionoftheworkingclasses，coupledwiththerevelationsofthetwoBoothsregardingthepovertyofLondon，madeadeepimpressiononmyfeelings，theydidnotdestroymyfaithinPoliticalEconomy。Thatcamefromwhatmaybecalledanaccidentalcontact。WhileteachingataschoolinExeterIcameintopersonalrelationswithabusinessmannamedMummery，knownthenandafterwardsasagreatmountaineerwhohaddiscoveredanotherwayuptheMatterhornandwho，in1895，waskilledinanattempttoclimbthefamousHimalayanmountainNangaParbat。Myintercoursewithhim，I
needhardlysay，didnotlieonthisphysicalplane。Buthewasamentalclimberaswell，withanaturaleyeforapathofhisownfindingandasublimedisregardofintellectualauthority。Thismanentangledmeinacontroversyaboutexcessivesaving，whichheregardedasresponsiblefortheunder-employmentofcapitalandlabourinperiodsofbadtrade。ForalongtimeIsoughttocounterhisargumentsbytheuseoftheorthodoxeconomicweapons。ButatlengthheconvincedmeandIwentinwithhimtoelaboratetheover-savingargumentinabookentitledThePhysiologyofIndustry，whichwaspublishedin1889。Thiswasthefirstopenstepinmyhereticalcareer，andIdidnotintheleastrealiseitsmomentousconsequences。ForjustatthattimeIhadgivenupmyscholasticpostandwasopeninganewlineofworkasUniversityExtensionLecturerinEconomicsandLiterature。ThefirstshockcameinarefusaloftheLondonExtensionBoardtoallowmeto[Page366]THE
GENERALTHEORYOFEMPLOYMENToffercoursesofPoliticalEconomy。Thiswasdue，Ilearned，totheinterventionofanEconomicProfessorwhohadreadmybookandconsidereditasequivalentinrationalitytoanattempttoprovetheflatnessoftheearth。Howcouldtherebeanylimittotheamountofusefulsavingwheneveryitemofsavingwenttoincreasethecapitalstructureandthefundforpayingwages？Soundeconomistscouldnotfailtoviewwithhorroranargumentwhichsoughttocheckthesourceofallindustrialprogress。
[194]Anotherinterestingpersonalexperiencehelpedtobringhometomethesenseofmyiniquity。ThoughpreventedfromlecturingoneconomicsinLondon，IhadbeenallowedbythegreaterliberalityoftheOxfordUniversityExtensionMovementtoaddressaudiencesintheProvinces，confiningmyselftopracticalissuesrelatingtoworking-classlife。NowithappenedatthistimethattheCharityOrganisationSocietywasplanningalecturecampaignuponeconomicsubjectsandinvitedmetoprepareacourse。Ihadexpressedmywillingnesstoundertakethisnewlecturework，whensuddenly，withoutexplanation，theinvitationwaswithdrawn。EventhenIhardlyrealisedthatinappearingtoquestionthevirtueofunlimitedthriftIhadcommittedtheunpardonablesin。InthisearlyworkMrHobsonwithhiscollaboratorexpressedhimselfwithmoredirectreferencetotheclassicaleconomicsinwhichhehadbeenbroughtupthaninhislaterwritings；andforthisreason，aswellasbecauseitisthefirstexpressionofhistheory，Iwillquotefromittoshowhowsignificantandwell-foundedweretheauthors\'criticismsandintuitions。Theypointoutintheirprefaceasfollowsthenatureoftheconclusionswhichtheyattack:Savingenrichesandspendingimpoverishesthecommunityalongwiththeindividual，anditmaybegenerallydefinedasanassertionthattheeffectiveloveofmoneyistherootofalleconomicgood。Notmerelydoesitenrichthethriftyin[Page367]NOTES
ONMERCANTILISM，ETC。dividualhimself，butitraiseswages，givesworktotheunemployed，andscattersblessingsoneveryside。Fromthedailypaperstothelatesteconomictreatise，fromthepulpittotheHouseofCommons，thisconclusionisreiteratedandre-statedtillitappearspositivelyimpioustoquestionit。Yettheeducatedworld，supportedbythemajorityofeconomicthinkers，uptothepublicationofRicardo\'sworkstrenuouslydeniedthisdoctrine，anditsultimateacceptancewasexclusivelyduetotheirinabilitytomeetthenowexplodedwages-funddoctrine。Thattheconclusionshouldhavesurvivedtheargumentonwhichitlogicallystood，canbeexplainedonnootherhypothesisthanthecommandingauthorityofthegreatmenwhoassertedit。Economiccriticshaveventuredtoattackthetheoryindetail，buttheyhaveshrunkappalledfromtouchingitsmainconclusions。Ourpurposeistoshowthattheseconclusionsarenottenable，thatanundueexerciseofthehabitofsavingispossible，andthatsuchundueexerciseimpoverishestheCommunity，throwslabourersoutofwork，drivesdownwages，andspreadsthatgloomandprostrationthroughthecommercialworldwhichisknownasDepressioninTrade……
Theobjectofproductionistoprovide\'utilitiesandconveniences\'
forconsumers，andtheprocessisacontinuousonefromthefirsthandlingoftherawmaterialtothemomentwhenitisfinallyconsumedasautilityoraconvenience。TheonlyuseofCapitalbeingtoaidtheproductionoftheseutilitiesandconveniences，thetotalusedwillnecessarilyvarywiththetotalofutilitiesandconveniencesdailyorweeklyconsumed。
Nowsaving，whileitincreasestheexistingaggregateofCapital，simultaneouslyreducesthequantityofutilitiesandconveniencesconsumed；anyundueexerciseofthishabitmust，therefore，causeanaccumulationofCapitalinexcessofthatwhichisrequiredforuse，andthisexcesswillexistintheformofgeneralover-production。[195]InthelastsentenceofthispassagethereappearstherootofHobson\'smistake，namely，hissupposingthatitisaeaseofexcessivesavingcausingtheactualaccumulationofcapitalinexcessofwhatisrequired，whichis，infact，asecondaryevilwhichonlyoccursthroughmistakesofforesight；
whereastheprimary[Page368]THE
GENERALTHEORYOFEMPLOYMENT
evilisapropensitytosaveinconditionsoffullemploymentmorethantheequivalentofthecapitalwhichisrequired，thuspreventingfullemploymentexceptwhenthereisamistakeofforesight。Apageortwolater，however，heputsonehalfofthematter，asitseemstome，withabsoluteprecision，thoughstilloverlookingthepossiblerô；leofchangesintherateofinterestandinthestateofbusinessconfidence，factorswhichhepresumablytakesasgiven:WearethusbroughttotheconclusionthatthebasisonwhichalleconomicteachingsinceAdamSmithhasstood，viz。thatthequantityannuallyproducedisdeterminedbytheaggregatesofNaturalAgents，Capital，andLabouravailable，iserroneous，andthat，onthecontrary，thequantityproduced，whileitcanneverexceedthelimitsimposedbytheseaggregates，maybe，andactuallyis，reducedfarbelowthismaximumbythecheckthatunduesavingandtheconsequentaccumulationofover-supplyexertsonproduction；
i。e。thatinthenormalstateofmodernindustrialCommunities，consumptionlimitsproductionandnotproductionconsumption。[196]FinallyhenoticesthebearingofhistheoryonthevalidityoftheorthodoxFreeTradearguments:Wealsonotethatthechargeofcommercialimbecility，sofreelylaunchedbyorthodoxeconomistsagainstourAmericancousinsandotherProtectionistCommunities，cannolongerbemaintainedbyanyoftheFreeTradeargumentshithertoadduced，sinceallthesearebasedontheassumptionthatover-supplyisimpossible。[197]Thesubsequentargumentis，admittedly，incomplete。Butitisthefirstexplicitstatementofthefactthatcapitalisbroughtintoexistencenotbythepropensitytosavebutinresponsetothedemandresultingfromactualandprospectiveconsumption。Thefollowingportmanteauquotationindicatesthelineofthought:Itshouldbeclearthatthecapitalofacommunitycannotbeadvantageouslyincreasedwithoutasubsequentincrease[Page369]NOTES
ONMERCANTILISM，ETC。inconsumptionofcommodities……Everyincreaseansavingandincapitalrequires，inordertobeeffectual，acorrespondingincreaseinimmediatelyfutureconsumption[198]……Andwhenwesayfutureconsuniption，wedonotrefertoafutureoften，twenty，orfiftyyearshence，buttoafuturethatisbutlittleremovedfromthepresent……Ifincreasedthriftorcautioninducespeopletosavemoreinthepresent，theymustconsenttoconsumemoreinthefuture[199]……Nomorecapitalcaneconomicallyexistatanypointintheproductiveprocessthanisrequiredtofurnishcommoditiesforthecurrentrateofconsumption[200]……Itisclearthatmythriftinnowiseaffectsthetotaleconomicthriftofthecommunity，butonlydetermineswhetheraparticularportionofthetotalthriftshallhavebeenexercisedbymyselforbysomebodyelse。Weshallshowhowthethriftofonepartofthecommunityhaspowertoforceanotherparttolivebeyondtheirincome。[201]……Mostmoderneconomistsdenythatconsumptioncouldbyanypossibilitybeinsufficient。Canwefindanyeconomicforceatworkwhichmightinciteacommunitytothisexcess，andiftherebeanysuchforcesaretherenotefficientchecksprovidedbythemechanismofcommerce？Itwillbeshown，firstly，thatineveryhighlyorganisedindustrialsocietythereisconstantlyatworkaforcewhichnaturallyoperatestoinduceexcessofthrift；secondly，thatthechecksallegedtobeprovidedbythemechanismofcommerceareeitherwhollyinoperativeorareinadequatetopreventgravecommercialevil[202]……ThebriefanswerwhichRicardogavetothecontentionsofMalthusandChalmersseemstohavebeenacceptedassufficientbymostlatereconomists。\'Productionsarealwaysboughtbyproductionsorservices；moneyisonlythemediumbywhichtheexchangeiseffected。Hencetheincreasedproductionbeingalwaysaccompaniedbyacorrespondinglyincreasedabilitytogetandconsume，thereisnopossibilityofOver-production\'Ricardo，Prin。ofPol。
Econ。p。362。[203]HobsonandMummerywereawarethatinterestwasnothingwhateverexceptpaymentfortheuseofmoney。[204]Theyalsoknewwellenoughthattheiropponentswouldclaimthattherewouldbe\'suchafall[Page370]THE
GENERALTHEORYOFEMPLOYMENT
intherateofinterestorprofitaswillactasacheckuponSaving，andrestoretheproperrelationbetweenproductionandconsumption\'。[
205]Theypointoutinreplythat\'ifafallofProfitistoinducepeopletosaveless，itmustoperateinoneoftwoways，eitherbyinducingthemtospendmoreorbyinducingthemtoproduceless\'。[206]Asregardstheformertheyarguethatwhenprofitsfalltheaggregateincomeofthecommunityisreduced，and\'wecannotsupposethatwhentheaveragerateofincomesisfalling，individualswillbeinducedtoincreasetheirrateofconsumptionbythefactthatthepremiumuponthriftiscorrespondinglydiminished\'；whilstasforthesecondalternative，\'itissofarfrombeingourintentiontodenythatafallofprofit，duetoover-supply，willcheckproduction，thattheadmissionoftheoperationofthischeckformstheverycentreofourargument\'。[207]Nevertheless，theirtheoryfailedofcompleteness，essentiallyonaccountoftheirhavingnoindependenttheoryoftherateofinterest；withtheresultthatMrHobsonlaidtoomuchemphasisespeciallyinhislaterbooksonunder-consumptionleadingtoover-investment，inthesenseofunprofitableinvestment，insteadofexplainingthatarelativelyweakpropensitytoconsumehelpstocauseunemploymentbyrequiringandnotreceivingtheaccompanimentofacompensatingvolumeofnewinvestment，which，evenifitmaysometimesoccurtemporarilythrougherrorsofoptimism，isingeneralpreventedfromhappeningatallbytheprospectiveprofitfallingbelowthestandardsetbytherateofinterest。
Sincethewartherehasbeenaspateofhereticaltheoriesofunder-consumption，ofwhichthoseofMajorDouglasarethemostfamous。ThestrengthofMajorDouglas\'sadvocacyhas，ofcourse，largelydependedonorthodoxyhavingnovalidreplytomuch[Page371]NOTES
ONMERCANTILISM，ETC。
ofhisdestructivecriticism。Ontheotherhand，thedetailofhisdiagnosis，inparticulartheso-calledABtheorem，includesmuchmeremystification。IfMajorDouglashadlimitedhisB-itemstothefinancialprovisionsmadebyentrepreneurstowhichnocurrentexpenditureonreplacementsandrenewalscorresponds，hewouldbenearerthetruth。
Buteveninthatcaseitisnecessarytoallowforthepossibilityoftheseprovisionsbeingoffsetbynewinvestmentinotherdirectionsaswellasbyincreasedexpenditureonconsumption。MajorDouglasisentitledtoclaim，asagainstsomeofhisorthodoxadversaries，thatheatleasthasnotbeenwhollyobliviousoftheoutstandingproblemofoureconomicsystem。Yethehasscarcelyestablishedanequalclaimtorank¾；aprivate，perhaps，butnotamajorinthebravearmyofheretics¾；withMandeville，Malthus，GesellandHobson，who，followingtheirintuitions，havepreferredtoseethetruthobscurelyandimperfectlyratherthantomaintainerror，reachedindeedwithclearnessandconsistencyandbyeasylogicbutonhypothesesinappropriatetothefacts。
ConcludingNotes[Page372]
Chapter24
CONCLUDINGNOTESONTHE
SOCIALPHILOSOPHY
TOWARDSWHICHTHE
GENERALTHEORYMIGHTLEAD
I
Theoutstandingfaultsoftheeconomicsocietyinwhichweliveareitsfailuretoprovideforfullemploymentanditsarbitraryandinequitabledistributionofwealthandincomes。Thebearingoftheforegoingtheoryonthefirstoftheseisobvious。Buttherearealsotwoimportantrespectsinwhichitisrelevanttothesecond。
Sincetheendofthenineteenthcenturysignificantprogresstowardstheremovalofverygreatdisparitiesofwealthandincomehasbeenachievedthroughtheinstrumentofdirecttaxation¾；incometaxandsurtaxanddeathduties¾；especiallyinGreatBritain。Manypeoplewouldwishtoseethisprocesscarriedmuchfurther，buttheyaredeterredbytwoconsiderations；partlybythefearofmakingskilfulevasionstoomuchworthwhileandalsoofdiminishingundulythemotivetowardsrisk-taking，butmainly，Ithink，bythebeliefthatthegrowthofcapitaldependsuponthestrengthofthemotivetowardsindividualsavingandthatforalargeproportionofthisgrowthwearedependentonthesavingsoftherichoutoftheirsuperfluity。Ourargumentdoesnotaffectthefirstoftheseconsiderations。Butitmayconsiderablymodifyourattitudetowardsthesecond。Forwehaveseenthat，uptothepointwherefullemploymentprevails，thegrowth[Page373]CONCLUDING
NOTES
ofcapitaldependsnotatallonalowpropensitytoconsumebutis，onthecontrary，heldbackbyit；andonlyinconditionsoffullemploymentisalowpropensitytoconsumeconducivetothegrowthofcapital。Moreover，experiencesuggeststhatinexistingconditionssavingbyinstitutionsandthroughsinkingfundsismorethanadequate，andthatmeasuresfortheredistributionofincomesinawaylikelytoraisethepropensitytoconsumemayprovepositivelyfavourabletothegrowthofcapital。
Theexistingconfusionofthepublicmindonthematteriswellillustratedbytheverycommonbeliefthatthedeathdutiesareresponsibleforareductioninthecapitalwealthofthecountry。AssumingthattheStateappliestheproceedsofthesedutiestoitsordinaryoutgoingssothattaxesonincomesandconsumptionarecorrespondinglyreducedoravoided，itis，ofcourse，truethatafiscalpolicyofheavydeathdutieshastheeffectofincreasingthecommunity\'spropensitytoconsume。Butinasmuchasanincreaseinthehabitualpropensitytoconsumewillingenerali。e。exceptinconditionsoffullemploymentservetoincreaseatthesametimetheinducementtoinvcst，theinferencecommonlydrawnistheexactoppositeofthetruth。
Thusourargumentleadstowardstheconclusionthatincontemporaryconditionsthegrowthofwealth，sofarfrombeingdependentontheabstinenceoftherich，asiscommonlysupposed，ismorelikelytobeimpededbyit。
Oneofthechiefsocialjustificationsofgreatinequalityofwealthis，therefore，removed。Iamnotsayingthattherearenootherreasons，unaffectedbyourtheory，capableofjustifyingsomemeasureofinequalityinsomecircumstances。Butitdoesdisposeofthemostimportantofthereasonswhyhithertowehavethoughtitprudenttomovecarefully。Thisparticularlyaffectsourattitudetowardsdeathduties:fortherearecertainjustificationsforinequalityof[Page374]THE
GENERALTHEORYOFEMPLOYMENT
incomeswhichdonotapplyequallytoinequalityofinheritances。
Formyownpart，Ibelievethatthereissocialandpsychologicaljustificationforsignificantinequalitiesofincomesandwealth，butnotforsuchlargedisparitiesasexistto-day。Therearevaluablehumanactivitieswhichrequirethemotiveofmoney-makingandtheenvironmentofprivatewealth-ownershipfortheirfullfruition。Moreover，dangeroushumanproclivitiescanbecanalisedintocomparativelyharmlesschannelsbytheexistenceofopportunitiesformoney-makingandprivatewealth，which，iftheycannotbesatisfiedinthisway，mayfindtheiroutletincruelty，therecklesspursuitofpersonalpowerandauthority，andotherformsofself-aggrandisement。Itisbetterthatamanshouldtyranniseoverhisbankbalancethanoverhisfellow-citizens；andwhilsttheformerissometimesdenouncedasbeingbutameanstothelatter，sometimesatleastitisanalternative。Butitisnotnecessaryforthestimulationoftheseactivitiesandthesatisfactionoftheseproclivitiesthatthegameshouldbeplayedforsuchhighstakesasatpresent。Muchlowerstakeswillservethepurposeequallywell，assoonastheplayersareaccustomedtothem。Thetaskoftransmutinghumannaturemustnotbeconfusedwiththetaskofmanagingit。Thoughintheidealcommonwealthmenmayhavebeentaughtorinspiredorbredtotakenointerestinthestakes，itmaystillbewiseandprudentstatesmanshiptoallowthegametobeplayed，subjecttorulesandlimitations，solongastheaverageman，orevenasignificantsectionofthecommunity，isinfactstronglyaddictedtothemoney-makingpassion。
II
Thereis，however，asecond，muchmorefundamentalinferencefromourargumentwhichhasa[Page375]CONCLUDING
NOTES
bearingonthefutureofinequalitiesofwealth；namely，ourtheoryoftherateofinterest。Thejustificationforamoderatelyhighrateofinteresthasbeenfoundhithertointhenecessityofprovidingasufficientinducementtosave。Butwehaveshownthattheextentofeffectivesavingisnecessarilydeterminedbythescaleofinvestmentandthatthescaleofinvestmentispromotedbyalowrateofinterest，providedthatwedonotattempttostimulateitinthiswaybeyondthepointwhichcorrespondstofullemployment。Thusitistoourbestadvantagetoreducetherateofinteresttothatpointrelativelytothescheduleofthemarginalefficiencyofcapitalatwhichthereisfullemployment。
Therecanbenodoubtthatthiscriterionwillleadtoamuchlowerrateofinterestthanhasruledhitherto；and，sofarasonecanguessattheschedulesofthemarginalefficiencyofcapitalcorrespondingtoincreasingamountsofcapital，therateofinterestislikelytofallsteadily，ifitshouldbepracticabletomaintainconditionsofmoreorlesscontinuousfullemployment¾；unless，indeed，thereisanexcessivechangeintheaggregatepropensitytoconsumeincludingtheState。
Ifeelsurethatthedemandforcapitalisstrictlylimitedinthesensethatitwouldnotbedifficulttoincreasethestockofcapitaluptoapointwhereitsmarginalefficiencyhadfallentoaverylowfigure。Thiswouldnotmeanthattheuseofcapitalinstrumentswouldcostalmostnothing，butonlythatthereturnfromthemwouldhavetocoverlittlemorethantheirexhaustionbywastageandobsolescencetogetherwithsomemargintocoverriskandtheexerciseofskillandjudgment。Inshort，theaggregatereturnfromdurablegoodsinthecourseoftheirlifewould，asinthecaseofshort-livedgoods，justcovertheirlabour-costsofproductionplusanallowanceforriskandthecostsofskillandsupervision。
Now，thoughthisstateofaffairswouldbequitecompatiblewithsomemeasureofindividualism，yet[Page376]THE
GENERALTHEORYOFEMPLOYMENT
itwouldmeantheeuthanasiaoftherentier，and，consequently，theeuthanasiaofthecumulativeoppressivepowerofthecapitalisttoexploitthescarcity-valueofcapital。Interestto-dayrewardsnogenuinesacrifice，anymorethandoestherentofland。Theownerofcapitalcanobtaininterestbecausecapitalisscarce，justastheowneroflandcanobtainrentbecauselandisscarce。Butwhilsttheremaybeintrinsicreasonsforthescarcityofland，therearenointrinsicreasonsforthescarcityofcapital。Anintrinsicreasonforsuchscarcity，inthesenseofagenuinesacrificewhichcouldonlybecalledforthbytheofferofarewardintheshapeofinterest，wouldnotexist，inthelongrun，exceptintheeventoftheindividualpropensitytoconsumeprovingtobeofsuchacharacterthatnetsavinginconditionsoffullemploymentcomestoanendbeforecapitalhasbecomesufficientlyabundant。Butevenso，itwillstillbepossibleforcommunalsavingthroughtheagencyoftheStatetobemaintainedatalevelwhichwillallowthegrowthofcapitaluptothepointwhereitceasestobescarce。
Isee，therefore，therentieraspectofcapitalismasatransitionalphasewhichwilldisappearwhenithasdoneitswork。Andwiththedisappearanceofitsrentieraspectmuchelseinitbesideswillsufferasea-change。
Itwillbe，moreover，agreatadvantageoftheorderofeventswhichI
amadvocating，thattheeuthanasiaoftherentier，ofthefunctionlessinvestor，willbenothingsudden，merelyagradualbutprolongedcontinuanceofwhatwehaveseenrecentlyinGreatBritain，andwillneednorevolution。
Thuswemightaiminpracticetherebeingnothinginthiswhichisunattainableatanincreaseinthevolumeofcapitaluntilitceasestobescarce，sothatthefunctionlessinvestorwillnolongerreceiveabonus；
andataschemeofdirecttaxationwhichallowstheintelligenceanddeterminationandexecutiveskillofthefinancier，theentrepreneurethocgenusomnewhoarecertainlyso[Page377]CONCLUDING
NOTES
fondoftheircraftthattheirlabourcouldbeobtainedmuchcheaperthanatpresent，tobeharnessedtotheserviceofthecommunityonreasonabletermsofreward。
Atthesametimewemustrecognisethatonlyexperiencecanshowhowfarthecommonwill，embodiedinthepolicyoftheState，oughttobedirectedtoincreasingandsupplementingtheinducementtoinvest；andhowfaritissafetostimulatetheaveragepropensitytoconsume，withoutforegoingouraimofdeprivingcapitalofitsscarcity-valuewithinoneortwogenerations。
Itmayturnoutthatthepropensitytoconsumewillbesoeasilystrengthenedbytheeffectsofafallingrateofinterest，thatfullemploymentcanbereachedwitharateofaccumulationlittlegreaterthanatpresent。
Inthiseventaschemeforthehighertaxationoflargeincomesandinheritancesmightbeopentotheobjectionthatitwouldleadtofullemploymentwitharateofaccumulationwhichwasreducedconsiderablybelowthecurrentlevel。Imustnotbesupposedtodenythepossibility，oreventheprobability，ofthisoutcome。Forinsuchmattersitisrashtopredicthowtheaveragemanwillreacttoachangedenvironment。If，however，itshouldproveeasytosecureanapproximationtofullemploymentwitharateofaccumulationnotmuchgreaterthanatpresent，anoutstandingproblemwillatleasthavebeensolved。Anditwouldremainforseparatedecisiononwhatscaleandbywhatmeansitisrightandreasonabletocallonthelivinggenerationtorestricttheirconsumption，soastoestablishincourseoftime，astateoffullinvestmentfortheirsuccessors。
III
Insomeotherrespectstheforegoingtheoryismoderatelyconservativeinitsimplications。Forwhilstitindicatesthevitalimportanceofestablishingcertaincentralcontrolsinmatterswhicharenowleftinthe[Page378]THE
GENERALTHEORYOFEMPLOYMENT
maintoindividualinitiative，therearewidefieldsofactivitywhichareunaffected。TheStatewillhavetoexerciseaguidinginfluenceonthepropensitytoconsumepartlythroughitsschemeoftaxation，partlybyfixingtherateofinterest，andpartly，perhaps，inotherways。Furthermore，itseemsunlikelythattheinfluenceofbankingpolicyontherateofinterestwillbesufficientbyitselftodetermineanoptimumrateofinvestment。
Iconceive，therefore，thatasomewhatcomprehensivesocialisationofinvestmentwillprovetheonlymeansofsecuringanapproximationtofullemployment；
thoughthisneednotexcludeallmannerofcompromisesandofdevicesbywhichpublicauthoritywillco-operatewithprivateinitiative。ButbeyondthisnoobviouscaseismadeoutforasystemofStateSocialismwhichwouldembracemostoftheeconomiclifeofthecommunity。ItisnottheownershipoftheinstrumentsofproductionwhichitisimportantfortheStatetoassume。IftheStateisabletodeterminetheaggregateamountofresourcesdevotedtoaugmentingtheinstrumentsandthebasicrateofrewardtothosewhoownthem，itwillhaveaccomplishedallthatisnecessary。
Moreover，thenecessarymeasuresofsocialisationcanbeintroducedgraduallyandwithoutabreakinthegeneraltraditionsofsociety。
Ourcriticismoftheacceptedclassicaltheoryofeconomicshasconsistednotsomuchinfindinglogicalflawsinitsanalysisasinpointingoutthatitstacitassumptionsareseldomorneversatisfied，withtheresultthatitcannotsolvetheeconomicproblemsoftheactualworld。Butifourcentralcontrolssucceedinestablishinganaggregatevolumeofoutputcorrespondingtofullemploymentasnearlyasispracticable，theclassicaltheorycomesintoitsownagainfromthispointonwards。Ifwesupposethevolumeofoutputtobegiven，i。e。tobedeterminedbyforcesoutsidetheclassicalschemeofthought，thenthereisnoobjectiontoberaisedagainsttheclassicalanalysisofthemanner[Page379]CONCLUDING
NOTES
inwhichprivateself-interestwilldeterminewhatinparticularisproduced，inwhatproportionsthefactorsofproductionwillbecombinedtoproduceit，andhowthevalueofthefinalproductwillbedistributedbetweenthem。Again，ifwehavedealtotherwisewiththeproblemofthrift，thereisnoobjectiontoberaisedagainstthemodernclassicaltheoryastothedegreeofconsiliencebetweenprivateandpublicadvantageinconditionsofperfectandimperfectcompetitionrespectively。Thus，apartfromthenecessityofcentralcontrolstobringaboutanadjustmentbetweenthepropensitytoconsumeandtheinducementtoinvest，thereisnomorereasontosocialiseeconomiclifethantherewasbefore。
Toputthepointconcretely，Iseenoreasontosupposethattheexistingsystemseriouslymisemploysthefactorsofproductionwhichareinuse。
Thereare，ofcourse，errorsofforesight；butthesewouldnotbeavoidedbycentralisingdecisions。When9，000，000menareemployedoutof10，000，000
willingandabletowork，thereisnoevidencethatthelabourofthese9，000，000menismisdirected。Thecomplaintagainstthepresentsystemisnotthatthese9，000，000menoughttobeemployedondifferenttasks，butthattasksshouldbeavailablefortheremaining1，000，000men。Itisindeterminingthevolume，notthedirection，ofactualemploymentthattheexistingsystemhasbrokendown。
ThusIagreewithGesellthattheresultoffillinginthegapsintheclassicaltheoryisnottodisposeofthe\'ManchesterSystem\'，buttoindicatethenatureoftheenvironmentwhichthefreeplayofeconomicforcesrequiresifitistorealisethefullpotentialitiesofproduction。Thecentralcontrolsnecessarytoensurefullemploymentwill，ofcourse，involvealargeextensionofthetraditionalfunctionsofgovernment。Furthermore，themodernclassicaltheoryhasitselfcalledattentiontovariousconditionsinwhichthefreeplayof[Page380]THE
GENERALTHEORYOFEMPLOYMENT
economicforcesmayneedtobecurbedorguided。Buttherewillstillremainawidefieldfortheexerciseofprivateinitiativeandresponsibility。
Withinthisfieldthetraditionaladvantagesofindividualismwillstillholdgood。
Letusstopforamomenttoremindourselveswhattheseadvantagesare。
Theyarepartlyadvantagesofefficiency¾；theadvantagesofdecentralisationandoftheplayofself-interest。Theadvantagetoefficiencyofthedecentralisationofdecisionsandofindividualresponsibilityisevengreater，perhaps，thanthenineteenthcenturysupposed；andthereactionagainsttheappealtoself-interestmayhavegonetoofar。But，aboveall，individualism，ifitcanbepurgedofitsdefectsanditsabuses，isthebestsafeguardofpersonallibertyinthesensethat，comparedwithanyothersystem，itgreatlywidensthefieldfortheexerciseofpersonalchoice。Itisalsothebestsafeguardofthevarietyoflife，whichemergespreciselyfromthisextendedfieldofpersonalchoice，andthelossofwhichisthegreatestofallthelossesofthehomogeneousortotalitarianstate。Forthisvarietypreservesthetraditionswhichembodythemostsecureandsuccessfulchoicesofformergenerations；itcoloursthepresentwiththediversificationofitsfancy；and，beingthehandmaidofexperimentaswellasoftraditionandoffancy，itisthemostpowerfulinstrumenttobetterthefuture。
Whilst，therefore，theenlargementofthefunctionsofgovernment，involvedinthetaskofadjustingtooneanotherthepropensitvtoconsumeandtheinducementtoinvest，wouldseemtoanineteenth-centurypublicistortoacontemporaryAmericanfinanciertobeaterrificencroachmentonindividualism，Idefendit，onthecontrary，bothastheonlypracticablemeansofavoidingthedestructionofexistingeconomicformsintheirentiretyandastheconditionofthesuccessfulfunctioningofindividualinitiative。
Forifeffectivedemandisdeficient，notonlyisthe[Page381]CONCLUDING
NOTES
publicscandalofwastedresourcesintolerable，buttheindividualenterpriserwhoseekstobringtheseresourcesintoactionisoperatingwiththeoddsloadedagainsthim。Thegameofhazardwhichheplaysisfurnishedwithmanyzeros，sothattheplayersasawholewillloseiftheyhavetheenergyandhopetodealallthecardsHithertotheincrementoftheworld\'swealthhasfallenshortoftheaggregateofpositiveindividualsavings；andthedifferencehasbeenmadeupbythelossesofthosewhosecourageandinitiativehavenotbeensupplementedbyexceptionalskillorunusualgoodfortune。Butifeffectivedemandisadequate，averageskillandaveragegoodfortunewillbeenough。
Theauthoritarianstatesystemsofto-dayseemtosolvetheproblemofunemploymentattheexpenseofefficiencyandoffreedom。Itiscertainthattheworldwillnotmuchlongertoleratetheunemploymentwhich，apartfrombriefintervalsofexcitement，isassociated¾；and，inmyopinion，inevitablyassociated¾；withpresent-daycapitalisticindividualism。Butitmaybepossiblebyarightanalysisoftheproblemtocurethediseasewhilstpreservingefficiencyandfreedom。