F.— ECONOMIC SCIENCE AND STATISTICS. Ill 



divergence between the movement of production and the movement of 

 employment. 



S. 6. Whilst the foregoing analysis may be sufficient to establish a 

 presumption that in recent years the process of rationalisation has been 

 responsible for the creation of part of the existing volume of unemployment, 

 in the end one is forced back upon general economic reasoning. Three 

 general sets of circumstances have to be examined : the motive of 

 rationalisation, the circumstances under which rationalisation takes place, 

 and the methods of rationalisation actually adopted. 



(1) The first point is simple. The motive of rationalisation is in all 

 cases to reduce costs from the standiJoint of the capitalistic producer : 

 it is not the reduction of ' real ' cost or ' social ' cost. It may very well 

 be the case that a process which reduces pecuniary costs from the 

 capitalistic point of view also reduces ' real ' cost : a new technique may 

 involve less actual psychic strain to the worker employed. On the other 

 hand, standardisation may involve elements of social loss : a lowering of 

 the standard of skill or reduction of the creative and aesthetic element in 

 work. It follows from this that whenever wage costs per unit of output 

 form a substantial element in the price of the product per unit before 

 rationalisation, it will pay the producer to reduce that cost, if necessary, 

 by the displacement of labour by mechanical instruments. It does not 

 follow that unemployment must ensue, since we have still to take account 

 of demand for the product, and of the indirect effects of the economies 

 introduced. But unemployment may follow. And from this point of 

 view it is important not to overlook the circumstance that the attractive- 

 ness of reducing wage costs per unit of output is not an absolute magnitude : 

 it is a function of the wage cost itself and of the economies to be realised by 

 alternative processes. Now it is at least significant that at the present 

 time the rigidity of wage rates is a striking element of the economic 

 situation in this country : all other prices are falling but the price of labour 

 is not. The same is true of Germany : at least as regards unskilled labour. 

 In 1929 ' weekly wages on standard time schedules ' of unskilled labour 

 were between 75 per cent, and 80 per cent, above 1913 : the cost of living 

 was only about 55 per cent, above the pre-war level. In the United 

 States, the check to immigration has given labour something like a quasi- 

 monopoly. Under these circumstances, to economise labour as much as 

 possible represents merely ordinary business prudence. 



(2) The effect of rationalisation upon the chances of employment 

 obviously differs when the striving after economy is the result of a period 

 of intense demand for goods and services of all kinds, or when the striving 

 after economy represents an attempt to meet the exigencies of falling 

 prices, or an unfavourable economic situation generally. The war period 

 represents the first alternative, the present moment the second. During 

 the War, rationalisation -was forced on because there was an insatiable 

 demand for goods at a time when a large proportion of the able-bodied 

 workers of the country were absorbed by the Army. At the present 

 moment, when industry is suffering from a contraction of the market and 

 when, on other grounds, there is already a surplus of labour available, the 

 position is obviously different. Again, we are not entitled to assume that 

 unemployment must ensue, for we must again deal with the demand side 



