September 13, 19 17 
LAND & WATER 
15 
The Perils of Restriction 
By Arthur Kitson 
This article by Mr. Arthur Kitson, whose leritings on com- 
merce and-Jinance arc well known, deals with a complicated 
and highly controversial question. We welcome corres- 
pondence and criticism for the subject is of the first importance. 
THE editorial comments on Mr. Dudley Docker's 
recent article regarding restriction of output, which 
apjieared in Land & Water, (September 0th) were 
timely and wise. For thirty years or more warn- 
ings have been sounded by leading statesmen and 
economists as to the disastrous results which must ultimately 
ensue from the continuance of this suicidal policj' which 
has long been a recognised part of Trades Unionism. It 
is, however, a mistake to lay tlie blame entirely upon the 
shoulders of organised labour. Trades Unionism is not the 
real author of this species of national folly. Its parents are 
finance and monopolv, and its adoption by Trades Unionism 
was literally forced upon laboin as a measure of self-defence, 
as e.xplained by me in the article entitled " Labour, Capital, 
and the State," in Land &. Water last October. 
Broadly speaking, output is limited by the effective demand 
for commodities, and demand is limited by the amount of 
purchasing power (money and credit) in the hands of those 
whose wants create the demand. Legal tender laws have, 
however, artificially restricted purchasing power far below the 
natural requirements of the trade and industry necessary 
' for maintaining forty millions of people in a rationally pro- 
gressive and economically healthy condition. This restric- 
tion has been brought about by the establishment of the 
gold standard and basis system which have no intelligible 
or coherent relationship to the currency needs of commerce. 
Let any one honestly and impartially seek a solution of the 
problem of poverty and enforced idleness by asking himself 
how it is that with an abundance of all the prime factors of 
production — land and labour — wealth is and has been so 
'comparatively scarce whilst poverty and semi-starvation have 
been the lot of the vast bulk of the world's inhabitants for the 
whole of the jx-riod of modern industrialism? A careful 
r investigation will inevitably lead to the conclusion that one 
[.of the main causes — if not the chief cause — has been an utter 
insufficiency of the medium of exchange in the hands of the 
producing classes. The greed of employers in the past led 
; them to starve the main factor of production by the suicidal 
^policy of low wages, which naturally restricted the demand 
;ior goods—since Labour is the great consuming class and 
■essential for maintaining good markets. 
Curiously enough, whilst employers have always realised 
[the folly of starving the land and neglecting to maintain 
I their plant, machinery, tools and equipment in a thorough 
Estate of efficiency, they have often failed to see that the 
[impoverishment of labour is equally injurious to the mainte- 
nance of trade prosperity. Consequently, labour was com- 
pelled to organise -and restrict each man's output in order 
1 to pro\ide employment for all. Hence both employers and 
L employed were caught in a vicious circle which was not 
[entirely their own creation, and in pursuing their own class 
[interests, they were defeating themselves and each other ! 
By cutting (if)wn wages, employers were lessening the 
[demand for their own goods, and by restricting the rate of 
production, the employed were curtailing the volume of wealth 
jiavailable for distribution. But behind the scenes, limiting 
the means of trade and production, the sinister figure of 
cosmopolitan finance has been constantly operating, con- 
trolling both Labour and Capital, manipulating prices and 
economic conditions and alternating periods of industrial 
prosperit}- with those of industrial depression ! No better 
exposure of the influence of gold in restricting output has ever 
been rnade than by Sir Kdward Holden in his address on 
the " IJepreciation of Securities in relation to Gold," before 
the Liverpool Bankers' Institute in 1907, just after the 
American currency panic. In his address Sir Edward frankly 
asserted that gold controls the trade of the world. 
" Hand in hand with restriction of output goes restriction 
of the currency," writes Land & Water. This should be 
regarded as an economic axiom. Everybody would admit 
that restriction of output in the engineering world would 
accompany restriction of tools, machinery and plant. Surely 
restriction of the mechanism of exchange must similarly 
cause restriction of trade, and therefore restriction of output 
generally. 
.Vfuch is being written and spoken just now regarding 
the dangers of currency inflation and the consequent higli 
prices resulting. It is said that the present industrial 
unrest is partlv attributable to this cause, and various 
remedies have already been suggested by one or two well 
known financial experts. I should like, however, to. point 
out the dangers of these prescriptions, and to warn the public 
to beon its guard against remedies which may prove infinitely 
worse than the disease. I shall endeavour to deal with this 
question in as elementary a way as is necessary to enable an 
easy comprehension of a complicated problem. 
Price Level of Commodities 
What is ordinarily known asth6 price level of commodities 
is brought about by the action of two forces : (a) the 
marketable supply of commodities, (b) the demand for them 
which is expressed by offers of money (namely, legal tender 
and credit) by way of purchase. This level will change under 
any of the following conditions : 
(i) If the supply of goods sensibly declines whilst the de- 
mand for them either increases or remains the same, prices 
will advance. 
(2) If tlie supply of goods increases whilst the demand either 
decreases or remains as before, prices will fall. 
(3) If the money demand for goods increases whilst the stipply 
remains constant, prices will advance. 
(4) If the money demand decreases, the supply remaining 
Constant, prices will decline. 
The first and third conditions produce inflation and hign 
prices, the second and fourth mean contraction and falling 
prices. So long as the supply of goods and tlie money de- 
mand remain constant or vary together in the same direction 
and proportion, the price level will not be affected. Now 
apply these well known truths to present conditions. The 
war has changed normal peace trade conditions completely, 
so that the bulk of the populations in all belligerent countries 
as well as in several neutral countries have been with 
drawn from the production of the munitions of life to furnish- 
ing the munitions of death and destruction. If we take the 
total work done, including the fighting services — those con- 
nected with the armies and naVies — as well as the output of 
all products including munitions of war, the world's turn- 
over in goods and services which have had to be financed 
(or at least the goods and services of that part of the world 
occupied by the present belligerents) is undoubtedly very much 
greater than at any time prior to the war. 
This increase of service including trade and production lias 
necessitated an increase in currency facilities. It takes just 
as much of the mechanism of exchange to produce and dis- 
tribute a given quantity of the munitions of war as it does 
the same amount" of necessary commodities for sustaining 
and developing individual, social and national life. And armies 
though engaged in the work of destruction, must be financed 
in the same way as the armies of wealth production. But the 
economic results of the two are vastly different. 
After producing hundreds of millions of pounds' worth of 
war munitions, our armies necessarily proceed to destroy 
them in the task of fighting and conquering the enemy. 
The result is that whilst the currency we have had to create 
and which is represented by these millions o£ products 
remains in circulation, the products are destroyed. Although 
the total turnover, including services has increased, the 
quantity of life-giving products has decreased, so that we have 
the first condition before mentioned which necessarily leads to 
higher prices — namely, a decline in the supply of real wealth 
with an increase in the demand. And under our present 
economic system it would be quite impossible to avoid this 
result. If instead of making guns, shells, submarines, 
aeroplanes, etc., for destructive purposes, we were building 
up towns, constructing new railwaj-s. new canals, in short 
increasing the national wealth, all this additional currency 
would be represented by tangible wealth, and the supply 
of desirable goods would have kept pace at least with the 
increased demand, and hence we should not have witnessed 
any considerable increase in prices — if at all. 
What arc the remedies — if any ? First examine those 
proposed. One popular writer urges the Government to in- 
crea,se taxation very ctmsiderably and compel the people 
to stint themselves. But to what extent ? To pay the whole 
costs of the war during its progress out of ta.xation, the 
(Government would have to put a tax f)f 20 shillings in the 
pound on all incomes for the rest of the war. Which is 
absurd. 
Another proposal is to reduce the currency by cancelling 
a proportion of the Treasury notes and liy destroying a 
proportional volume of bank credit, which affects prices justas 
legal tender does. Now whilst this would undoubtedly reduce 
the effective demand for goods it would also curtail the 
