96  THE  PROBLEM  OF  THE  UNEMPLOYED

use,  throughout,  the  agency  of  Banks,  which  are  to  find
investment  for  their  savings.  Suppose  the  Banks,  not
realising  the  mode  of  this  new  saving,  have  invested  the
first  year’s  savings  in  superfluous  cotton  mills.  These
cotton  mills  or  others  in  the  next  year  cannot  continue
to  work  without  advances  from  Banks,  since  they  are
unable  to  effect  profitable  sales.  Soon  after  the  beginning
of  the  second  year  the  Banks  will  refuse  to  make  further
advances  for  over-production  :  markets  being  congested  and
prices  falling,  the  demand  for  bank  accommodation  will  grow,
but  banks  will  not  be  justified  in  making  advances.  Now
the  weaker  mills  must  stop  work,  general  short  time  follows, ­
  and  the  result  is  an  unemployment  of  labour  and  forms
of  capital.  This  is  the  first  effect  of  the  attempt  to  over-save
upon  employment.  We  have  now  for  the  first  time  a  reduction ­
  of  the  aggregate  of  production.  The  result  of  reduced
employment  (under-production)  will  be  a  reduction  of  real
incomes.  This  will  tend  to  proceed  until  the  reduced  reward
of  saving  (real  interest)*  gradually  restores  the  right  proportion ­
  of  saving  to  spending—a  very  slow  and  wasteful  cure.
It  thus  appears  that  so  long  as  “  saving”  can  be  vested  in
new  forms  of  capital,  whether  these  are  socially  useful  or  not,
no  net  reduction  of  employment  is  caused,  the  portion  of
income  which  is  “saved”  employs  as  much  labouras,  though
not  more  than,  that  which  is  “spent,”  but  when  the  machinery
of  production  is  so  glutted  that  attempted  saving  takes  shape
in  the  massing  of  “loanable  capital”  unable  to  find  an  investment, ­
  the  net  production  and  the  net  employment  of  labour  in
the  community  is  smaller  than  it  would  have  been  had  saving
*  Observe  that  an  over-supply  of  capital  does  not  bring  down  the  “rate
of  interest,”  though  it  reduces  the  real  reward  of  saving.  The  effect  of
putting  up  unnecessary  mills  is  to  lower  the  capital  value  of  each  mill.
The  rate  of  interest  on  this  reduced  valuation  may  be  the  same  as  before
(Cf.  Hadley,  p.  278).