The objection, then, which takes the form that over-saving cannot exist, because the worst investments made with open eyes must be productive of more than that which could be obtained by investing in Consols, is not a valid one. It would only be valid on the supposition that capital were absolutely fluid, that the quantity of soundly-placed investments were indefinitely expansible, and that new forms of capital had in no case the power to oust or negative the use of old forms of capital. But this we have seen is not the case. If there existed absolute fluidity of competition in all forms of capital, the fact that interest for new investments stood above zero would be a proof that there was not excess of forms of capital. Capital appears to have this fluidity when it is regarded from the abstract financial point of view. A man who has "saved" appears to hold his "savings" in the form of bank credit, or other money which he is able to invest in any way he chooses. But, as we have seen, the real "savings," which represent his productive effort plus his abstinence, are of necessity embodied in some material forms, and are therefore devoid of that fluidity which appears to attach to them when reflected in bank money.
§ 15. The evils of trade depression, or excessive growth of the forms of capital beyond the limits imposed by consumption, are traced in large measure directly, but also indirectly, to the free play of individual interests in the development of machine-production. The essential irregularities of invention, the fluctuations of public taste, the artificial restrictions of markets, all enable individual capitalists to gain at the public expense. The added interests of its individual members do not make the interest of the community. All these modes of conflict between the individual and the public interest derive force from the complexity of modern capitalist production.
In fastening upon the uncontrolled growth of machinery the chief responsibility for that depression of trade which is derived from an attempt to devote too large a proportion of the productive power of the community to forms of "saving," two points should be clearly understood.
In the first place, it is the forms of capital and not real capital which are produced in excess. If there are 500 spinning-mills in Lancashire where 300 would suffice, the destruction of 200 mills would no whit diminish the amount of real capital. If 200 mills were burnt down, though the individual owners would sustain a loss, that loss, estimated in money, would be compensated by a money rise in the value of the other mills. The quantity of real capital in cotton-spinning is dependent upon the demand for the use of such forms of capital—that is to say, upon the consumption of cotton goods. If 300 mills are sufficient to do the work of supplying yarn to meet the demand of all manufacturers, the value of 500 mills is no greater than of 300; assuming that the 500 mills equally distributed the trade, it would simply mean that the real capital was thinly spread over 500 mills, which could only work a little over half-time without producing a glut of goods, instead of being concentrated upon 300 mills fully occupied.
Turning once more to the diagram,
f (the current rate of consumption) determines the quantity of real productive power of capital that can be effectively employed at each point, a, b, c, d, e. The condition of the arts of industry, including the rates of wages and other conditions of the labour market, determines how many forms of capital (mills, warehouses, ironworks, raw material, etc.) at any given time are socially requisite to embody this capital. But though f has an economic power to force into existence the requisite minimum of these forms of capital, it has no power to prevent the pressure of individual interests from exceeding that minimum and planting at a, b, c, d, e more forms of capital than are required.
Secondly, over-production or a general glut is only an external phase or symptom of the real malady. The disease is under-consumption or over-saving. These two imply one another. The real income of a community in any given year is divisible into two parts, that which is produced and consumed, that which is produced and not consumed—i.e., is saved. Any disturbance in the due economic proportion of these two parts means an excess of the one and a defect of the other. All under-consumption therefore implies a correspondent over-saving. This over-saving is embodied in an excess of machinery and goods over the quantity economically required to assist in maintaining current consumption. It must, however, be remembered that this over-saving is not measured by the quantity of new mills, machinery, etc., put into industry. When the mechanism of industry is once thoroughly congested, over-saving may still continue, but will be represented by a progressive under-use of existing forms of capital, that unemployment of forms of capital and labour which makes trade depression.
An increased quantity of saving is requisite to provide for an expected increase of consumption arising from a growth of population or from any other cause. Such increased saving is of course not over-saving. The proportion, as well as the absolute amount of the community's income which is saved, may at any time be legitimately increased, provided that at some not distant time an increased proportion of the then current income be consumed. If in a progressive community the proportion of "saving" to consumption, in order to maintain the current standard of living with the economic minimum of "forms" of capital, be as 2 to 10, the proportion of saving in any given year may be raised to 3 to 9, in order to provide for a future condition in which saving shall fall to 1 to 11. Such increased "saving" will not be over-saving; the forms of capital in which it is embodied will not compete with previously existing forms so as to bring down market prices. The efforts which take the form of permanent improvements of the soil, the erection of fine buildings, docks, railways, etc., for future use, may provide the opportunity to a community of increasing the proportion of its savings for a number of years. But such savings must be followed by an increased future consumption without a correspondent saving attached to it. The notion that we can indefinitely continue to increase the proportion of our savings to our consumption, bounded only by the limit of actual necessaries of life, is an illusion which places production in the position of the human goal instead of consumption.
§ 16. Machinery has intensified the malady of under-consumption or over-saving, because it has increased the opportunities of conflict between the interests of individuals and those of the community. With the quickening of competition in machine industries the opportunities to individuals of making good their new "savings" by cancelling the old "savings" of others continually grow in number, and as an ever larger proportion of the total industry falls under the dominion of machinery, more and more of this dislocation is likely to arise; the struggles of weaker firms with old machinery to hold their own, the efforts of improved machinery to find a market for its expanded product, will continue to produce gluts more frequently, and the subsequent checks to productive activity, the collapse of businesses, the sudden displacement of large masses of labour, in a word, all the symptoms of the malady of "depression" will appear with increased virulence.