Back to Homepage Income Measures Income: Saving and Investment Methods of Buying That Save Money The Choice of Goods Methods of Buying That Reduce Mistakes In Selection Methods of Securing Information Concerning Goods Plans and Motives of Consumers Consuming the Product Who Is the Consumer? The Consumer in the Market Priorities and Preferences in Consuming Decisions The Consumer as User of Wealth The Consumer as a Buyer Consumers as Self-Conscious Agents Criteria of a Good Market Information Versus Persuasion of the Buyer The Rate of Interest Interest Rates and Economic Activity Saving, Investment, and Income Saving Motives Saving Plans and their Realization Total Spending Is the Key to Prosperity The More We Spend, The More We Have Spending by Private Enterprise

Consuming the Product THE ARGUMENT of the three preceding chapters amounts to this: unemployment occurs because we do not consume the product that we produce or might produce. If we, the people of the United States, could and would consume as the means available permit, we should never need to stop working. It is as simple as that. We stop and stand idle because our institutional arrangements will not permit us to use the fruits of our labor. We cannot distribute what we could produce. Robinson Crusoe had no difficulty on this score. As he increased his supply of food he ate more or consumed more fully in other ways, as by taking more leisure. He planned his work with consumption in mind. Pioneer farmers followed this same pattern. They planted orchards that they might eat apples, and raised sheep that they might have wool clothes. Similarly when we serve our wants through the instrumentality of the government we are equally forthright. We build schoolhouses because we want to use them; we construct roads because we wish to travel on them, and build bridges because we wish to cross rivers. A private enterprise system proceeds on a different basis. Savers do not lend their money for the construction of shoe factories so that they may have shoes, nor so that they may get shoes to swap for coats or potatoes. No, they let their money be used in building shoe factories so that shoes may be sold and they may make money and save it and make still more money. The business man who undertakes the enterprise is likely to have in mind the getting of shoes or other articles of consumption as part of the reward for his enterprise, but he will count such returns as wages -- as payment for his labor. He will want the interest and the profit on the money that he invests, not in the form of consumables, but in money with which to make more money. It is thus that he will get ahead. It is thus that business men before him have got ahead. Certainly this effort of savers to make money and not consume the goods that they and other savers produce cannot but fail to be self-defeating. If each of 100 men on an economic island should determine not to consume more than half of what he could produce, or its equivalent, then surely after they got their houses built and their cellars full they could have profitable employment only half time. Failure of some persons to buy the share of the product to which their money incomes entitle them is the only conceivable reason for the dismissal of workers and the closing down of plants. It is the refusal to use an adequate amount of income in consumption that prevents sales being made and compels the laying off of workers. That this simple fact should have for so long escaped our ablest economists, editors of bank bulletins, and public men generally is certainly one of the strange phenomena of human thought. But the sun is well up on a new day. Note this refreshing bit which appears as a footnote to the article in Fortune to which attention was called in an earlier chapter. We assert "that American business will turn out all of the goods for which there is a market and that the limits on production in the thirties, for example, were the limits imposed by an insufficient market, i.e., insufficient spending" It is not because the wants of all of us are satiated that we fail to consume the product that is, or might be, available. At least a third of the population are always underfed and shabbily clothed, except during a major war, and always poorly housed. Another third are far from having their desires for the necessities and comforts of life satisfied and know practically nothing of luxuries. The catch is, obviously, that the lowest two thirds of the population on the economic scale cannot buy the available consumable product and that the top one third will not buy their money share of it because of their already adequate consumption and because of their desire to save. As Malthus put it more than a century ago, those who have the will to buy do not have the means, and those who have the means do not have the will. The explanation of the attitude that finds expression in statements such as that by Professor King must lie in an inarticulated major premise that our economy is a communal one. An idea akin to this is often expressed. Thus it is said that our economy is essentially co-operative -- that specialization is the counterpart of co-operation -- that as specialists we all co-operate to make a living for the entire nation. There is realism in this view, but there is only mysticism in the notion that this gives us communism in consumption. Product is distributed only in exchange for money. Production can be continued only if sales can be made. To anyone who wishes to solve problems by direction rather than by indirection it cannot but appear regrettable that, under our present rules, we must approach the problem of employment through the door of investment rather than that of consumption. We cannot set to work to produce what we want to consume and incidentally produce such tools as we may need to get the job done. We must forever build more plant. We can never be prosperous -- never fully employed -- with the equipment that we have, however good and however plentiful it may be. We must build, build, build. But it may not be profitable to build. Business men cannot go on making ovens continuously if savers will not stop saving and buy cake. Being frugal and thrifty, the savers want only additional mortgages on still more ovens and, failing these, they wait and hold their money even without interest. Construction workers lose the privilege of making more ovens and can no longer buy bread from the ovens that we already have. Fires are drawn and bakers walk the street. Ovens stay cold because we are not building more ovens. There has been much talk during the war of the tremendous efficiency shown by private enterprise. The privately managed plants have done a magnificent job, but they have not been operating within the confines of the capitalist system. They have not generated the buying power for which they sell their products. That has come from society acting collectively through the government. Not only does our investment process put the cart of building new plant before the horse of using what we already have; it is, as I have argued above, subject to self-defeat. Investment can go forward only as savers are willing to consume the fruits of their investments. They and they alone have the means, barring the use of expedients of some sort, to consume the product of their investments. But the ideology of capitalism entices them to save; and the ideology of democracy forbids them to consume as extravagantly as would be necessary if they were to consume the fruits of their investments. The dependence of the whole process of our economy on the consumption of the product that we turn out or might turn out appears to be so obvious that it seems strange to find opinion to the contrary. Yet many eminent men have taken that position. They minimize the matter of consumer spending in providing employment. They point to the fact that a decline in business investments usually precedes a decline in sales to consumers when a slump occurs, and that the decline in the one is usually far more pronounced than in the other. Hence they conclude that the problem of consumer spending power is of but little, if any, significance. One would have thought that the only reason why business men build shoe factories or factories to manufacture shoemaking machines is that they believe that people will buy shoes. And analogously one would have thought that the only reason for cutting down on the manufacture of shoemaking equipment would be an actual or an expected decline in the sale of shoes. Evidently not! Why should there be trouble in the capital-goods industries? What business reason could there be for a decline in capital building other than an anticipated failure to sell the consumer goods that new equipment would help to produce? In this rational age business men do not curtail expansion because of what oracles tell them after looking at the entrails of birds. They act on the basis of what their analysts say after looking at their charts. If it appears that limits are being reached in sales on credit and in net exports, the construction of additional facilities will be curtailed. Consumer sales may be making new highs every month and no price weakness may be manifest, yet prudent business men may halt expansion because of anticipated difficulty in being able to continue to expand sales to consumers. Not only may such forecasts result in a curtailment of capital building, but one is at a loss to imagine any reason in the normal course of business for checking additions to equipment other than the anticipation of difficulty in selling the product.   Home