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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