Out of Money and Profits Comes the Economic Problem
That is the problem with which we opened our discussion of Money. Periodically, we observed, the economic organization of society falls far short of fully serving its one great purpose -- the production and distribution of goods. That was the trouble in the United States, for example, during the depression of 1921. Consider the spectacle! Warehouses crowded with cotton, wool, leather, lumber, copper, chemicals -- wealth beyond the dreams of former generations. Factories and machines, extensive, efficient, unparalleled.
Millions of idle workers ready to do their part. A hundred million of our own people eager to enjoy the multifarious things that these idle men, by the use of these idle machines, would gladly make, and, in this age of scientific wizardry, could readily make, out of these surplus materials. Yet, month after month, there was sustained business depression. Materials, machines, money, men -- all in superabundance -- and no immediate means of bringing them into productive relations with each other. How to safeguard business against this periodic paralysis; how to prevent the resultant losses to society -- losses far greater than the income of all our millionaires; how to keep our machinery of production moving at something approaching maximum capacity and the output moving into consumption at the same rate: this is the great economic problem.
It is not a simple problem. Evidently we cannot solve it so long as we continue to think of our industrial world in terms of a pioneer community. We cannot find out how business gets into these recurrent jams if, following the precepts of many of our writers, we ignore money and think only of goods. If a Swiss watch gets out of order, we cannot set the works in motion by attacking it as though it were a machine as uninvolved as a pulley.
The complexities of the money and profit economy of today are not illusions: they do not vanish merely because we refuse to recognize them. That is why all curealls for economic ills are necessarily nostrums. Ignoring some of the powerful, persistent, puzzling factors, they deal with an inherently complex problem as though it were simple.
That the problem of periodic business depressions is far from simple must be evident to any one who tries to understand exactly why we cannot manage, as consumers, to acquire and enjoy the goods which, as producers, we can readily turn out.
Consider the anomalies of the situation. We work hard to pile our shelves full of highly desired commodities; and then we have to stop working because we do not know how to take these things off the shelves and enjoy them. Though producing much less than our labor and capital, under more favorable conditions, could easily produce, we do not distribute to advantage even what we succeed in producing. We so involve ourselves at times that -- incredible as it seems at first thought -- we should actually benefit by giving the goods away, by sending them abroad to people who cannot pay for them, or even by burning them up. We ascribe our troubles in part to the extravagant buying of consumers at the very time when industry slows down because consumers are not buying enough.
Then, while industry wanes because it lacks consumers, we put taxes on consumption; and, precisely when business needs increased consumers' income, we reduce that income by reducing wages. We strive to send more and more of our own real wealth abroad, but we are loath to accept any real wealth in exchange, since our people are unable to buy what they themselves produce. Before we have discovered how to use to advantage what we already have of capital facilities, we feverishly build more. By thus investing our savings, instead of consuming them, we deny ourselves today in order that we may have a greater output in the future; though already we can produce more than we know how to use. All this seems paradoxical. Yet this is merely a glance at the surface of things; it gives no idea of the underlying complexities of our present money and profit economy.
In short, our economic life is no longer an open book, and we cannot hope to open it wide until we know the part that money and profit play in the world's work. For money, as we tried to make clear in our previous study, is the core of economic theory; and profit, as we shall try to make clear in this study, is the heart of industrial life.
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