The Dilemma of Thrift

THRIFT — a virtue almost universally praised and practised; as, indeed, it ought to be. The spendthrift is known for a fool, even though there are always plenty of thrifty ones to abet him in his folly. Nearly everybody — as the rapidly mounting lists of bank depositors, bondholders, stockholders, and insurance-policy holders bear witness — is moved, by some motive or other, to save money in some way or other, instead of spending it; and that is the only sense in which we are using the word ‘thrift.’

In praise of this virtue, home and church and school unite with bankers and economists. The precepts of Poor Richard have become the maxims of the nation. This is as it should be. Individuals must save, or almost certainly become paupers; corporations must save, or almost certainly become failures. Nevertheless, since it is consumption and not abstinence that stimulates production, and since most of the money which is saved is next used to create new capital facilities rather than to buy the goods already produced, the question arises whether it is possible for either individuals or corporations to save money without to some extent discouraging production and thereby frustrating the social object of saving. Is there not a real Dilemma of Thrift?

But here we are, rushing headlong into the middle of our subject before we are ready for it. First, we must take a look at the anomalies of this thrifty world.

I

We all remember how prosperity spurred us on to expand business in 1919, and then how prices cracked and business slumped. Amazing, incredible, would have seemed the conditions that followed, had we not time and again suffered similar strokes of paralysis.

Factories and machines there were on every hand, more extensive, more efficient than any nation had ever known before — but not half used. Warehouses bulging with surplus cotton, copper, leather, lumber, chemicals, wealth beyond the dreams of a generation ago — and nobody able to use it. Several millions of men and women eager to work — but with no work to do. And, withal, a monetary system invented by man for his own convenience, and entirely subject to his control. At the same time, a hundred million of us were eager for the innumerable products which these idle workers, by the use of these idle machines, would gladly make and — thanks to the wizardry of invention — could readily make out of these surplus materials. Yet there was sustained business depression.

How to avoid this periodic paralysis; how to prevent the resultant losses to society, losses far greater than the income of all our millionaires; how to have a job for every worker who wants one; how to keep our vast machinery of production moving at some approach to capacity, and the finished products moving into use at about the same rate — that is the great economic problem.

A baffling problem it is. Indeed, to most of us who know little about abstruse economic theory nothing seems more incomprehensible than the fact that with so many of our people in dire poverty, with so many more in want of the minimum requirements for comfort, health, and security, with scarcely one of us who is not eager for more of the good things of life, and with a capacity for producing far more of these things than we have yet produced, the industrial world nevertheless stops short of creating what is well within its power to create, because of the ever-imminent danger of creating too much. Consumers in constant fear that they cannot get enough, and producers in constant fear that they will turn out too much!

What a mess we get into! We work hard to pile our shelves high with what we most desire, and then we have to stop working because we are unable to take these things off the shelves and enjoy them. Though we produce much less than we could easily produce, we do not distribute to advantage even what we succeed in producing. We condemn extravagant buying at the very time when industry slows down because people are not buying enough. Then, while business wanes because it lacks consumers, we put taxes on consumption; and, precisely when business is in greatest need of people with incomes to spend, we reduce those incomes by reducing wages and dividends. We celebrate ‘Buyers’ Week’ and ‘Thrift Week’ at one and the same time. By investing our savings, instead of spending them, we deny ourselves to-day in order to produce more in the future, although we are already equipped to produce more than we know how to use. While many at home are in want, we strive to send more and more of our own real wealth abroad; but we are loath to import much in return. Nations, at least, seem convinced that it is more blessed to give than to receive. A topsyturvy world! Alice in Wonderland found nothing more paradoxical.

Now, the question before us is whether this paradox has anything to do with thrift. We believe that it has. We are confident that we can throw some light on the mystery by seeking the consequences of saving money. This search, however, will take us on a little excursion into the domain of economics; and economics has been called, with reason enough, ‘the dismal science.’ Still, to anyone who works for a living, and who cannot buy nearly so much as he wants to buy with the best wages he can get, what we have to say may not seem dismal. For we are to consider how real wages can be permanently increased — and real profits, too, for that matter. We are to inquire whether there is not a way, as yet scarcely discussed, whereby everybody can obtain, as a reward for his labor and his thrift, more of the good things of life. And, fortunately, any man can understand us. All he needs is a knowledge of elementary arithmetic and of the way he spends his wages.

II

Why is it, then, that decade after decade we cannot buy more with our money incomes? The first answer is simple. It is because we do not create more. But why this failure to create? What prevents us, as producers, from turning out the goods which, as consumers, we are eager to enjoy? The answer to that is not so simple.

One fact, however, is clear: our failure to produce more is not due to lack of capacity. That was proved during the war. Even with millions of ablebodied men taken from productive effort, even with the resultant sudden dislocation of industry, the workers who were left produced so much that they not only supplied the wealth that was sunk at sea and blown up in battle, not only supplied the Army and Navy and peoples abroad, but had enough left to enable them to enjoy at least as high a standard of living as before the war.

The fact that incapacity to produce is not the trouble is also shown by the heights we have actually reached in time of peace. If business could be sustained even at such levels, if severe setbacks could be prevented, far higher standards of living, far higher real wages, would be certain. Demonstrated capacity, moreover, is far below potential capacity. The engineering societies, under the direction of Herbert Hoover, have shown that we are already equipped to double our volume of production.

To double the output of everything — of matches and motion pictures and medicines, and every other commodity and service — is neither possible nor desirable; but to double the output of things in general, with the proportions among them largely determined as they are now determined by the free choices of the people, would be both possible and desirable. Indeed, such gains would be no more than enough to provide all our people with the requirements for comfort, health, security, and education. Any lower aim is indefensible.

It may be said, however, that the greatest need is, not more goods, but better goods. These two aims can be reconciled; the people want and are perfectly able to produce better goods and more of them. Recent advances in the arts, in the application of inventions to production, in management, in the reduction of wastes, in power development, and in the discovery of new resources, make it clear that the progress of human knowledge alone, in the absence of anything to nullify its advantages, would make possible, decade after decade, better goods and far more of them per capita.

What a challenge to the imagination! Evidently we could all but abolish poverty in this country among those who were willing to work, if we could keep at peace with the world and supply whatever is now lacking to enable us to use our resources, human and material, to continuous advantage.

Precisely what is it that is lacking? Now, as everybody knows, a simple answer to that question will not suffice. A single cause cannot account for all our economic ills, nor can a single remedy cure them. Still, we may find the chief cause and the chief remedy if we hold fast to the truth that in the complex money-and-profit world of to-day, no less than in the primitive barter world, the final end of all production is consumption.

But what do we mean by production and consumption? Once we have answered that question, we are done with technical terms. To grasp what follows, nobody need know anything about the textbooks. In fact, the pursuit of finespun economic theories sometimes develops a blind spot, which prevents the scholar from seeing what seems clear enough to the baker and the butcher, and to everyone else who is in daily contact with the real world; with the people who bring things to market and the people who buy these things or — for some reason not clearly explained in the textbooks — fail to buy them.

What, then, do we mean by production? For our purposes, we mean the turning-out of things which are ready for final use; not lathes, and harvesters, and spindles, which are used up in the process of making other things, but chairs, and bread, and shirts — the things, in general, for which incomes are spent. These are called consumers’ goods; and consumption is, of course, the process of using them up.

Now, as we have said, consumption is the final end of this highly complex industrial world, which presents so many contradictions. Shoes are not made to stock shops, nor leather to lie in warehouses. These myriads of toilers, going daily to their work, — as long as there is work to be had, — planting corn, painting cars, riveting boilers, trimming hats — what are they all about? One end they have in common. All their activities are directed solely toward the consumption of whatever their combined efforts can produce. All other aims are incidental.

Since, therefore, the final end of all economic activity is consumption, and since it is always possible to produce far more than we consume, consumption regulates production. There is no use building more wooden ships, when hundreds are lying idle at the wharves; no use running all our spindles, when it is impossible to sell the cloth we have already made. Too commonplace to mention, this fact may seem; yet it is the basic fact in the whole economic problem. There could not possibly be a serious setback of business in general if consumption regularly kept pace with production. Sustained businessdepression accompanied by adequate consumer-demand is no more possible than drought accompanied by heavy rains.

Why, in 1921, for example, was basic output twenty per cent below the output of 1918? Why do we ever curtail production in general — reduce crop acreage, bank furnaces, shut down mills, throw men out of work? For one reason and one only. Because we cannot get our products consumed, which means that we cannot sell them to the people who want to use them, at prices that make continued production possible.

III

The reason we cannot sell these products, though it is the subject of many learned treatises, seems plain enough to the plain people. It is because they lack the money; it is not because they refuse to buy. The ‘consumers’ strike’ against high prices, which was the common explanation of the depression of 1921, was imaginary. This explanation is discredited both by statistics and by all that we know about the buyinghabits of the public. There was no consumers’ strike.

The one thing that is needed above all others to sustain a forward movement of business is enough money in the hands of consumers. With our financial world as it is to-day, let it be known that there will be buyers with money to spend for any known and producible goods, at prices sufficiently high to warrant production, and the goods will be produced. Give consumers the money, and organized business will look out for the rest. There will be no shortage of money on the producing side; the credit and investment world is always able and eager to take care of that. A willing buyer does not have to wait long, but a willing seller may have to wait forever.

It is true that, even if total consumerdemand were adequate, business would still be bothered with unpredictable changes in the demand for various goods. A mild and sunny fall might reduce the sales of overshoes and ulsters, but sales of motor-cars, millinery, or something else would be proportionately increased. Danger there would still be, as in a barter society, or in a communistic society, or in any other society, of producing relatively too much of certain things — phonographs and tires and Mah Jongg sets, for example; but this danger could not hold back industry as a whole, for there would be no danger whatever of producing too much of things as a whole. Trade could not contract in some places without expanding in others. No longer would there be a vicious spiral of deflation whereby troubles would be passed along from industry to industry in a cumulative process. For business as a whole, overproduction, depression, and financial loss would be impossible.

This is the gist of the matter: there is no possibility of preventing business depressions, giving men steady work, rapidly increasing per-capita output and standards of living, unless consumers somehow obtain enough money, year in and year out, to buy all the finished goods about as rapidly as they are ready for sale.

The chief trouble is that consumers do not now obtain the necessary money.

IV

For this deficiency of consumer income, there are two main reasons: corporations must save, and individuals must save.

First, consider the effects of corporate savings. Suppose, for example, a company is manufacturing shoes and selling directly to consumers. In the process it pays out this year nine thousand dollars. That is to say, its expenses for materials, rent, labor, insurance, and the rest — the money payments in connection with making and selling the product — amount to nine thousand dollars. Now any newsboy can see that the company must recover that amount from sales before it can come out even; but the company would not — in fact, could not — go ahead buying materials and paying wages unless it got back more than the cost, more than the nine thousand dollars, something which could be saved.

Where is this profit to come from? It can come only from consumers; business has no other source of income. The company, however, has given consumers only enough money to cover its costs. In point of fact, successful producers do not, as a rule, pay out enough money to enable people to buy their products at current prices. On account of corporate savings out of profits, the flow of money to consumers in a period of prosperity is not equal to the flow of goods. Largely for this reason, unsold stocks pile up, prices break, production is curtailed, men are thrown out of work, and wages are reduced. Thus the demand of consumers is still further reduced, more men are thrown out of work, and so on, in a vicious spiral downward. Thus prosperity breeds depression.

Here the objection may arise that we are talking about profits as though they were locked up in somebody’s strong box, whereas everybody knows that about half the profits of corporations in the United States are distributed as dividends, and about half are used to expand business; used, for example, to pay the workers who build a new factory, and indirectly to pay those who supply bricks, cement, hardware, and the rest. In such ways, it is said, all the money successful concerns take from consumers is returned to consumers.

This is, indeed, often the case; but not always. The one hundred and thirty million dollars of profits which the United States Steel Corporation has accumulated as bank balances have not been distributed to consumers by the Corporation as dividends or in any other way.

Take, however, the case of a concern which does pay out all the money it takes in. Suppose it makes motor-cars at a total cost of eight million dollars and sells them for ten million. Its profit is two million. Now suppose it pays one million in dividends. So far its operations have taken ten million from consumers and paid them nine. Thus it has fallen one million short of providing the public with enough money to buy its product.

Suppose, however, it uses the remaining one million dollars of profits to build additional cars, in such a way that all this money goes directly or indirectly to consumers. The company has now disbursed exactly enough money to cover the full sales-price of the cars it has already marketed; but where are consumers to obtain enough money to buy the additional cars? The corporation has given them nothing with which to buy these cars.

As a matter of fact, however, business is often expanded by the use of bank loans, which involve an increase in the volume of money in circulation. Are not deficiencies in consumer income made up in this way? Let us see. Let us suppose that a shoe manufacturer, in order to increase his output, borrows ninety thousand dollars from a bank, and that this loan involves an increase of the volume of money in circulation. This borrowed money, we assume, is paid out by somebody as wages. The question is whether such loans offset the deficiencies in consumer purchasing power which are caused by other concerns in the ordinary course of increasing production out of profits. Certainly they do offset these deficiencies at times, for the proceeds of such loans flow into consumers’ hands as wages before the resultant commodities are ready for the markets. The time comes, however, when these commodities are offered for sale — offered necessarily at a price in excess of the amount of money borrowed from the banks. There is no mystery about this. Everybody knows that no man borrows ninety thousand dollars to use in his business merely with the idea of getting back the ninety thousand dollars.

The fact is that for every nine dollars that a manufacturer borrows from banks, and pays out as costs, he expects to get back from consumers, let us say, ten dollars. In short, he seeks profits. If he gets them and does not fully disburse them (as dividends or in other ways which do not at the same time increase the output of consumers’ goods), he not only fails by means of his bank loan to make up an existing shortage of consumer purchasing power, but he actually increases the shortage. This is not a speculative theory; it is elementary arithmetic. The shortage is as certain as the fact that ten minus one is less than ten.

It is true that if corporations went on forever increasing their output, and, in the process, expanding the volume of money in circulation at a sufficient rate, and if the flow of the output to the markets sufficiently lagged behind the flow of the new money as wages to consumers, consumers might continue to buy all that the markets offered. Such an expansion of money, however, does not long take place. Business men always fear a slump in demand; and when they doubt the capacity of consumers to buy current output they have no incentive for increasing output — no motive for using bank loans for that purpose.

So much for the deficit in consumer income caused by the established and approved policy of using profits to finance increased output. So much for the Ten Minus One Theorem, as applied to corporate savings.

V

Corporate savings, however, are not the only form of savings. Individuals also save; and, in so far as they save money, they also may cause deficiencies in sales. That is another point which needs no proof beyond addition and subtraction.

Consumers in this country have no source of income except industry. Industry has no source of income except consumers. If, therefore, industry in some way handed over to consumers all the money it received from consumers, and consumers spent all this money, industry could continue indefinitely to make and sell a given volume of goods at a given price-level. There would be an even flow of money from producers to consumers, and from consumers back to producers, and a corresponding uninterrupted flow of goods. The balance would be perfect. Demand in dollars would exactly equal the supply of goods at current prices.

This could happen — let us note carefully — only if consumers spent all the money they received. Every dollar they saved would cause a dollar of deficit in consumer buying, unless the shortage was made up in some way. Now of course all of us must save. Consequently a part of the money which industry turns over to us as wages, rent, interest, and dividends, we do not spend, but save.

That part of our savings which we tuck away in the proverbial stocking is a total loss to industry as long as the money is hoarded. Concerning that point, at least, there is no disagreement. Most individual savings, however, are not hoarded, but invested; and, it is said, money that is invested is money spent. Through some channel or other it all flows back to consumers. Hence, we are told, it makes no difference in dollar demand whether an individual spends his income or invests his income.

The essential fact that is overlooked in this argument is that, when anyone invests money instead of spending it, he uses it, not to purchase goods which have already been produced, but to bring about the production of more goods; and every dollar thus saved and invested helps to increase the output of industry faster than the capacity of consumers to buy it.

Suppose, for example, a man decides to save five dollars instead of buying a pair of shoes. Then one pair of shoes is unsold which otherwise would have been sold. Now suppose that he invests the five dollars in such a way that this money is used to produce another pair of shoes; and suppose that in the process the money gets into the hands of consumers. As a result, then, of this particular saving of five dollars, consumers receive enough to buy either the first pair of shoes or the second, but not both. There is an ‘overproduction’ of one pair of shoes. Ridiculously simple as this illustration may seem, it shows the essential difference between money spent and money invested.

The eventual result in this case may well be that one pair of shoes is not made which otherwise would have been made, so that the country, far from gaining by this kind of saving, has in effect lost one pair of shoes. The thrifty individual, it is true, has saved five dollars, and is very likely better off for his thrift. What are savings for an individual, however, are not necessarily savings for society. Everyone who saves money at times when his abstinence helps to curtail production and throw men out of work saves at the expense of other people. For the individual, a penny saved is a penny earned; but for society a penny saved is sometimes a penny lost.

This, then, is the Dilemma of Thrift: Both producers and consumers must save; but at present they cannot save without to some extent frustrating the social object of saving.

VI

We have seen, in broad outlines, how it happens that, as production is now financed and savings are now made, it is impossible for prosperity to last long; impossible, therefore, to make those large gains in per-eapita production, decade after decade, without which large gains in real wages, large gains in standards of living, are impossible. As a matter of fact, every forward movement of business culminates in what is called ‘overproduction,’ but what, in view of the chief cause of the trouble, should be called ‘underconsumption.’ On account of a deficient flow of money to consumers, caused in part by corporate savings, and on account of the fact that consumers cannot spend even as much as they receive, industry cannot long continue to sell its increased output without a fall in the price-level.

Well, then, why not have a fall in the price-level? Consumers would have no objection to that! Why can we not constantly expand output by means of improved processes, reduced wastes, and lower unit costs, and sell the total product on a constantly falling pricelevel? Theoretically that is possible. With steadily falling prices, industry could sell an ever-increasing volume of goods, if under these conditions industry could produce the additional goods. Industry as a whole, however, could not produce the goods; for if there is any fact concerning which our statistical evidence fully supports our reasoning it is the fact that falling prices discourage production. If there is any influence that is sure to force business men to curtail output, it is falling prices and the ever-present uncertainty as to how long they will continue to fall and how far they will fall. As a ride, producers have no choice. In the real world, with some conspicuous exceptions, profits fall with falling prices; and with them falls the only motive that is powerful enough to induce men to expand production—indeed, the only practical means of doing so.

Clearly, then, the deficiencies in consumer buying caused by savings are certain to bring about a fall in prices and a depression in business, unless these deficiencies are offset in some way.

VII

At present there is no way in which these deficiencies are permanently offset. They are not offset by government financing, because ordinarily Governments do not pay to the people, in wages, pensions, bonuses, and the like, any more money than they take from the people, directly or indirectly, in taxes. Nor do consumers make up the shortage by spending their savings. For even if they did reduce their total savings — which in the aggregate they never do — they would thereby no more than offset the deficiencies caused by the savings themselves.

Many people seem to think that the way out of this dilemma is foreign trade. Any one nation can, in fact, offset the lack of buying power of its own people by sending its surplus goods abroad to people who cannot pay for them at all, or who are not allowed to pay for them fully with goods. That is to some extent what the United States is doing to-day. This device, however, can make the situation in any one country better only by making it worse in others. Here, again, we need nothing but primary-school arithmetic to show that the practice among nations of dumping their so-called surplus goods on each other cannot decrease by one single dollar the total worlddeficiency of purchasing power.

The greatest economic need, therefore, though by no means the only need, is a flow of money to consumers which, after providing for individual savings, would always be approximately equal to the flow of finished goods. With such incomes, consumers could save and still buy all that was actually produced. The certainty that they could do so would be sufficient to induce both employers and employees to increase the output, year after year, for the very good reason that higher real wages and higher real profits would depend mainly on increased output. If, to the highly efficient system which now provides money for production, we could add an equally efficient system for providing money for consumption, we could make rapid and sustained progress toward realizing the potential output of industry; rapid progress, therefore, toward higher standards of living.

In fact, adequate, sustained consumer-demand would do more than any other means now within human control toward increasing wealth, abolishing poverty, maintaining employment, solving labor problems, increasing good will among men generally, and maintaining the peace of the world. No means of preventing war holds out such large, immediate possibilities as this. Whatever mingling of causes may have brought about the World War, that war was in large part a struggle for outside markets among highly organized industrial nations which had found no means of giving their own ill-nourished, ill-clad, ill-housed people enough money to buy what they themselves had succeeded in producing. It is, therefore, difficult to exaggerate the importance of finding a means of sustaining purchasing power. The next world war, if it does come, may well be the last war — at least the last war in which the present great nations will have any interest, for it may well destroy civilization itself.

VIII

This brief statement of the case, we are well aware, leaves many pertinent questions unanswered. Are actual statistics consistent with the theory? Have we not exaggerated the importance of adequate consumer-demand? Does not the whole argument apply just as forcibly to demand for producers’ goods? Again, how can we account for the fact that retail trade is fairly well sustained after wholesale trade has slumped? And what about the influence of states of mind on the ups and downs of business? These questions we have discussed at length elsewhere.²

There is one question, however, which we may well consider here. To many people our whole argument seems to prove too much. ‘How,’ they ask, ‘has it been possible, if there are really such obstructions in the flow of money, to make the great material progress which we have unquestionably made? How have we disposed of the increased output of goods?’

The first answer is that we have fared as well as we have partly by means which are evils in themselves. Some of the products of industry which could not be sold have been allowed to spoil or become obsolete. Others have gone into large, wasteful increases in inventories. Still others have been wasted in making additions to industrial equipment far beyond the requirements of the markets. Larger still are the products which have been sold, especially in periods of depression, at prices which entail business losses — losses which are borne in the long run by the whole community.

Another evil that has temporarily offset deficiencies in consumer income is a permanent increase of consumer debts. Through buying on installments, — by whatever euphemisms this method is called, — through thus mortgaging future incomes, wageearners have acquired far more houses, automobiles, furniture, washing machines, radios, even dresses and tablecloths, than their incomes could command. In the past few years business has felt obliged to resort more and more to this method of making sales. This device, however, cannot be extended indefinitely. Having expanded sales this year by mortgaging consumer incomes one year in advance, industry cannot even sustain sales at that level another year without mortgaging consumer incomes two years in advance; and so on. What the people must have, if prosperity is to last, is the money with which to pay for goods, rather than more and more devices for enabling them to acquire goods for which they do not pay.

All these means of disposing of surplus goods, however, would not have enabled us to do even as well as we have done, had it not been for permanent increases in the volume of money, and for the fact that the past century in the United States has been a period of exploitation of natural resources and development of new productive facilities unparalleled in history, all of which has induced a flow of money to consumers in advance of the flow of consumers’ goods. We have no reason to suppose, however, that these means will enable us in the future to fare even as well as we have fared in the past.

The past, moreover, hardly justifies complacence. The recent researches of Paul H. Douglas, soon to be published, show that the gain in real wages in the United States from 1890 to 1919 did not average one half of one per cent a year. For a generation or two we have fallen far short of making the gains in human welfare which should have resulted from our scientific progress.

Still, the problem can be solved. Everything we must do is within our power. We do not need to abolish selfishness, regulate the weather, or remove the sun spots. Drought and floods, it is true, fire and frost, earthquakes and pests, are not entirely controllable; but such acts of God cause far less economic loss than acts of men. Inadequate consumer-demand is not a visitation of Providence.

What we need is more exact knowledge concerning the flow of consumers’ goods in relation to the flow of consumers’ income, and, on the basis of such knowledge, the wisdom and courage to act. The immediate task before us is to take human nature and the present structure of society very much as they are and, conserving all that is good in both, to modify the structure year after year in various ways so that human beings, with all their imperfections, will be enabled continuously to create better products and more of them, and in the process to receive enough money, in addition to their savings, to buy those products.

The question, what is the best way to achieve that end, — the best way out of the Dilemma of Thrift, — is too large a question to discuss here. Moreover, we can hardly expect people to wrestle with a problem before they are prepared to admit that any such problem exists. They do not bother to look up trains to Buffalo until they decide that they want to go to Buffalo. At present, few business men or bankers or economists believe that there is any such problem of inadequate consumer-income as the one we have here outlined. Most men believe, on the contrary, that the processes of financing the production of goods automatically yield consumers enough money to buy the goods. They contend that the financial mechanism of society is so nicely adjusted that it will work almost to perfection if left alone. Since they see no essential difference between money invested and money spent, they are satisfied that the invested savings of corporations and individuals can have little to do with the anomalies and shortcomings of the industrial world — that there is no such thing as a Dilemma of Thrift.

Many of these men regard business depressions as the inevitable result of immutable natural law. In economics, as in physics, they say,—being somewhat mistaken in their physics, — every action is and must be followed by an opposite and equal reaction; the farther business moves forward in a period of expansion, the farther back it must slip when the reaction comes. That is, in truth, about what now happens. It does not result, however, from natural law; it results from financial methods deliberately devised by man. The ingenuity of man substituted money for barter, and the admirable Federal Reserve System for a poorer system; and, if necessary, the ingenuity of man can devise the means of enabling people to buy all the finished products they are able and willing to produce. Once the people perceive that the problem exists, there will be no lack of efforts to find a solution. Systems of currency, bank credit, taxation, tariffs, and public works have been contrived by man for his own benefit; and for his benefit he can alter these systems at will. They are no more sacred than flintlock muskets. There is no warrant for comparing the ‘laws of business depressions’ with the laws of physics; there is no scientific basis for the Economics of Despair.

This, then, is the conclusion of our argument: —

Progress toward greater total production and resultant higher standards of living is retarded because consumer buying does not keep pace with production. Consumer buying lags behind for two reasons; first, because, on account of corporate savings, industry does not disburse to consumers enough money to buy the goods produced, without a fall in the price-level; second, because consumers, under the necessity of saving, cannot spend even as much money as they receive. Partly on account of these savings, there is not an even flow of money from producer to consumer, and from consumer back to producer. Furthermore, the savings of corporations and individuals are not used to purchase the goods already in the markets, but to bring about the production of more goods. The expansion of the volume of money does not fully make up the deficit, for money is expanded mainly to facilitate production, and the product must be sold to consumers for more money than the expansion has provided. Consequently we make progress only while we are filling the shelves with goods which must either remain on the shelves as stock in trade or be sold at a loss, and while we are building more industrial equipment than we can use. Inadequacy of consumer income is, therefore, the main reason, though not the only reason, why we do not long continue to produce the wealth which natural resources, capital facilities, improvements in the arts, and the selfinterest of employers and employees would otherwise enable us to produce. Chiefly because of shortage of consumer demand, both capital and labor restrict output, and nations engage in those struggles for outside markets and spheres of commercial influence which are the chief causes of war.