EFFECT  OF  UNDER-CONSUMPTION

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been  confined  to  the  minimum  required  by  the  needs  of  society.
From  the  standpoint  of  “employment”  the  injury  done
by  over-saving  is  thus  seen  to  consist  not  in  the  overproduction ­
  of  plant  or  goods  but  in  the  condition  of  underproduction ­
  which  follows  the  financial  recognition  of  this
glut.  The  real  waste  of  power  of  capital  and  labour  is
measured  by  the  period  and  the  intensity  of  the  underproduction ­
  in  which  forms  of  capital  and  labour  stand  idle.
Briefly,  the  order  of  causation  is  this  :
Under-consumption  or  over-saving  causes  over-capitalisation, ­
  first  in  forms  of  fixed  capital,  then  in  a  glut  of
goods  ;  the  glut  checks  the  investment  of  loanable  capital  ;
this  check  restricts  production  and  a  period  of  underproduction ­
  with  low  prices  ensues.
Thus  it  appears  that  the  immediate  cause  of  the  underproduction ­
  and  unemployment  is  the  inability  of  would-be
savers  and  investors  to  find  any  forms  of  capital  capable
of  embodying  their  savings.  It  makes  no  immediate
difference  as  regards  aggregate  employment  in  the  community, ­
  whether  incomes  are  spent  in  demand  for
consumption-goods  or  for  plant  or  for  production-goods  :
so  long  as  savers  who  hold  money-tokens  are  able  to
apply  them  anywhere  in  the  actual  field  of  industry  they
equally  stimulate  production  and  employment,  but  when
misdirection  compels  them  to  withhold  their  application,
production  falls  off  and  unemployment  ensues.
It  is  the  identification  of  this  refusal  to  apply  the
money-tokens  of  saving  with  lack  of  confidence  that
induces  economists  like  Bagehot  to  explain  bad  trade  by
lack  of  confidence.  This  lack  of  confidence  is  shown  *  to
be  merely  the  subjective  side  of  lack  of  openings  for
investment,  an  objective  fact  due  to  over-saving.
*  See  Chapter  VU.

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