The Evolution of Modern Capitalism: A Study of Machine Production

by J. A. Hobson

The root-evil of depressed trade is under-consumption.[157] If a quantity of capital and labour is standing idle at the same time, in all or in the generality of trades, the only possible reason why they remain unemployed is that there is no present demand for the goods which by co-operation they are able to produce.

English economists, most of whom, ever since the time of J.B. Say, have denied the possibility of the condition of general over-supply which is seen to exist in depressed trade, are contented to assume that there can be no general over-supply because every one who produces creates a corresponding power to consume. There cannot, it is maintained, be too much machinery or too much of any form of capital provided there exists labour to act with it; if this machinery, described as excessive, is set working, some one will have the power to consume whatever is produced, and since we know that human wants are insatiable, too much cannot be produced. This crude and superficial treatment, which found wide currency from the pages of Adam Smith and McCulloch, has been swallowed by later English economists, unfortunately without inquiring whether it was consistent with industrial facts. Since all commerce is ultimately resolvable into exchange of commodities for commodities, it is obvious that every increase of production signifies a corresponding increase of power to consume. Since there exists in every society a host of unsatisfied wants, it is equally certain that there exists a desire to consume everything that can be produced. But the fallacy involved in the supposition that over-supply is impossible consists in assuming that the power to consume and the desire to consume necessarily co-exist in the same persons.

In the case of a glut of cotton goods due to an increased application of machinery, the spinners and manufacturers have the power to consume what is produced, while a mass of starving, ill-clad beings in Russia, East London—even in Manchester—may have the desire to consume these goods. But since these latter are not owners of anything which the spinners and manufacturers wish to consume or to possess, the exchange of commodities for commodities cannot take place. But, it will be said, if the Lancashire producers desire to consume anything at all, those who produce such articles of desire will have the power, and possibly the desire, to consume more cotton goods, or at any rate the desire to consume something produced by other people who will have both power and desire to consume cotton goods. Thus, it will be said, the roundabout exchange of commodities for commodities must be brought about. And this answer is valid, on the assumption that the Lancashire producers desire to consume an equivalent of the goods they produce. But let us suppose they do not desire to do so. The reply that since human wants are insatiable every one with power to consume must have desire to consume, is inadequate. In order to be operative in the steady maintenance of industry the desire to consume must be a desire to consume now, to consume continuously, and to consume to an extent corresponding with the power to consume.

Let us take the Lancashire trade as a test case. Evidently, there could be no superfluous capital and labour in Lancashire trade if the cotton-spinners, manufacturers and their operatives, increased their own consumption of cotton goods to correspond with every increase of output.

But if they do not do this, they can only make good and maintain their capital and labour in employment by persuading others to increase their consumption of cotton goods. How can they do this? If, instead of desiring to consume more cotton goods, the Lancashire employers and operatives desire to consume, and do actually consume, more hardware, houses, wine, etc., then the increased consumption of these things, raising their prices and so stimulating their production, and distributing a larger purchasing-power among the capitalists and operatives engaged in producing the said hardware, houses, wine, etc., will enable the latter to consume more cotton goods, and if these desire to do so, their effective demand will maintain the new capital and labour employed in Lancashire trade.

But if, instead of taking this course, the Lancashire capitalists and operatives want not to consume either cotton or anything else, but simply to save and put up more mills and prepare more yarn and cloth, they will soon find they are attempting the impossible. Their new capital, and the fresh labour conjoined with it, can only be employed on condition that they or others shall increase their consumption of cotton goods. They themselves ex hypothesi will not do so, and if the capitalists and operatives engaged in setting up the new cotton-mills, etc., will consent to do so, this only postpones the difficulty, unless we suppose a continuous erection of new mills, and a continuous application on the part of those who construct these mills of the whole of their profits and wages in demanding more cotton goods—a reductio ad absurdum. In short, cotton capitalists and operatives can only effect this saving and provide this increased employment of capital and labour on condition that either those engaged in erecting and working the new mills shall spend all their income in demanding cotton goods, or that other persons shall diminish the proportion of their incomes which hitherto they have saved, and shall apply this income in increased demand for cotton goods.

Now if the same motives which induce Lancashire capitalists and workers to refuse to increase their present consumption pari passu with the rate of production are generally operative, it will appear that capital and labour lie idle because those who are able to consume what they could produce are not willing to consume, but desire to postpone consumption—i.e., to save.

§ 8. The process of "Saving" has received but scant attention from economic writers. Jevons appears to have held that superfluous food and other necessary consumptive goods, in whosoever hands they were, constituted the only true fund of capital in a community at any given time. Sidgwick also holds that all "Savings" are in the first instance "food." That this is not the case will appear from the following example:—A self-sufficing man produces daily for his daily consumption a quantity of food, etc., denoted by the figure 10. 5 of this is necessary and 5 superfluous consumption. This man, working with primitive tools, discovers an implement which will greatly facilitate his production, but will cost 4 days' labour to make. Three alternatives are open to him. He may spend half his working day in producing the strictly necessary part of his previous consumption, 5, and devote the other half to making the new implement, which will be finished in 8 days. Or he may increase the duration of his working day by one quarter, giving the extra time to the making of his new implement, which will be finished in 16 days. Or lastly, he may continue to produce consumptive goods as before, but only consume half of them, preserving the other half for 8 days, until he has a fund which will suffice to keep him for 4 continuous days, which he will devote to making the new implement. If he adopts the first alternative, he simply changes the character of his production, producing in part of his working day future goods instead of present consumptive goods. In the second he creates future goods by extra labour. In the third case only does the "saving" or new "capital" take as its first shape food. In the same way a community seeking to introduce a more "roundabout" method of production requiring new plant, or seeking to place in the field of industry a new series of productive processes to satisfy some new want, may achieve their object by "saving" food, etc., or by changing for awhile the character of their production, or by extra labour. Thus new capital, whether from the individual or the community point of view, may take either "food" or any other material form as its first shape.

Since "savings" need not take the shape of food or any article capable of immediate consumption, Adam Smith and J.S. Mill are clearly wrong when they urge in terms almost identical[158] that what is saved is necessarily consumed, and consumed as quickly as that which is spent. The antithesis of saving and spending shows these writers, and the bulk of English economists who follow them, are misled, because they regard "saving" as doing something with money, and do not sufficiently go behind the financial aspect of putting money into a bank.

A closer analysis of saving yields the result that, except in one of the simple cases taken in our example above, where "saving" implied withholding consumable goods from present consumption, every act of saving in a complex industrial society signifies making, or causing to be made, forms of capital which are essentially incapable of present consumption—i.e., future or productive goods.