114 SECTIONAL ADDRESSES. 



that the elasticity of demand for labour in general is greater than unity ? 

 Since rationalisation reduces the quantity of labour required for the pro- 

 duction of the existing quantum of material welfare, in other words, will 

 it not be possible to add to that volume of material welfare ? Or must we 

 argue with Mr. G. D. H. Cole that rationalisation ' might succeed in lower- 

 ing substantially the cost of producing each unit of the national output : 

 but it would only find itself unable to make use of the great new productive 

 power of which it had become the master. For the problem of production 

 cannot be solved unless the problem of distribution is solved with it ; and 

 the lowering of the unit cost of production, unaccompanied by a pouring 

 of fresh purchasing power into the pockets of the consumers, will only 

 mean a more determined policy of restricting output and a widening circle 

 of unemployment ' ?^^ 



But, in the absence of falling prices due to monetary causes taking place 

 coincidentally (which, as we have already had occasion to point out, inten- 

 sifies the employment problem) rationalisation involves an increase of the 

 monetary purchasing poiver in the hands of the consumer. So long as money 

 incomes in general remain the same, the margin between money incomes 

 and expenditure goes up, in those cases in which the elasticity of demand 

 for products of the rationalised industries is less than unity : or the 

 cheapening of the articles results in a larger aggregate consumption of 

 them, or, if the articles in question are subject to quasi-monopolistic 

 conditions, the same amount is spent on them as before, but profits in the 

 industries producing them increase, and larger profits mean additional 

 purchasing power in the hands of entrepreneurs. The problem as stated 

 by Mr. G. D. H. Cole is not the real problem at all : the real problem is: 

 what use will ' consumers ' make of the margin of purchasing power now 

 available as a consequence of rationalisation ? 



If the answer to this question is that consumers will devote it to the 

 satisfaction of new wants, then it will be true that in the long run rationali- 

 sation will not involve unemployment. But the run may be a very long 

 one : not only because a transfer problem is involved, but because the 

 newer industries themselves will not in all probability require as much 

 labour as they might have, had not the whole atmosphere of industry been 

 impregnated with the rationalisation spirit. From this point of view, an 

 increase in the demand for those personal services which are least affected 

 by the progress of mechanical improvement will help to solve the probleni 

 more easily than a demand for goods the production of which requires the 

 direct application of labour to a smaller extent. The growth of the 

 ' service industries ' in the United States has been expressly adverted to 

 by the very able group of American economists who last year published 

 their Survey of the developments of the last decade in the United 

 States.13 



But consumers need not devote their available resources to the satisfac- 

 tion of new wants. They may decide to ' hoard ' their savings in the 

 technical sense described by Mr. D. H. Robertson in his Banking Policy 

 and the Price Level : or, in other words, they may desire to keep more of 



12 The Next Ten Years, <t'C., p. 116. 



'' Recent Economic Changes, Vol. I, p. xvi. 



