INTERNATIONAL LABOUR OFFICE

STUDIES AND REPORTS
Series C (Unemployment) No. 8

UNEMPLOYMENT
1920=1923

GENEVA
1924

PRINTED BY ALBERT KUNDIG, GENEVA.

CONTENTS

Pages
INTRODUCTION.

5

PART I. — THE OUTBREAK AND DEVELOPMENT OF THE CRISIS.

7

Chapter I. — The United States and Japan.
Chapter II. — The British Empire.
Chapter III. — Scandinavia, Finland, the Netherlands and
Switzerland.
Chapter IV. — Italy, France and Belgium.
Chapter V. — Central Europe.
Chapter VI. — General Survey.

9
18

PART II. — THE PERIOD OF RECOVERY.

Chapter
Chapter
Chapter
Chapter
Chapter
PART III.

I. — The United States, France, Belgium and
Italy.
II. — Central Europe.
III. — Switzerland, Scandinavia, Finland and the
Netherlands.
IV. — The British Empire.
V. — General Survey.

31
42
50
68
73

74
89
93
103
131

— CONCLUSIONS.

Fluctuations of Prices and Unemployment, 1920 to 1923.
The Movement of Prices and the Trade Cycle.
The Relationship between the Unemployment Crisis of
1920-1923 and the General Trade Cycle.
The Stabilisation of Prices.

135
135
142
144

INTRODUCTION
The present study has been undertaken in pursuance of the
resolutions on unemployment adopted by the International Labour
Conference at its Sessions of 1921 and 1922. A report on the
general enquiry into unemployment is published as an Appendix
to the Report of the Director to the 1924 Session of the Conference;
it describes how the Office has carried out the various instructions
of the Conference in respect of the enquiry, either in the course
of its normal activities or in co-operatfon with the Economic and
Financial Section of the League of Nations. The present report
deals more particularly with the origin, development and abatement of the crisis of unemployment from which the majority of
industrial countries suffered during the years 1920 to 1923.
Following the method prescribed by the Conference, the principle has been adopted of examining, first, the situation country
by country; then, when this preliminary analysis has been completed, an attempt has been made to draw certain general international deductions. It will be seen that in each country the growth
and diminution of unemployment appear to have been influencedr
if not exclusively, at least very largely, by the same factors. In
order to bring out more clearly this important consideration, from
which it has been thought justifiable to draw certain general
conclusions, it was felt advisable to examine separately (1) the
conditions under which the unemployment crisis originated and
developed its maximum severity in the various countries; (2) the
conditions under which the crisis subsequently abated, rapidly in
some countries, gradually in others. Each of these two series of
separate accounts is concluded by an international survey of the
general movement of growth or decline.
There are certain difficulties confronting the presentation of a
comprehensive and detailed report on any social phenomenon which
cannot be examined on the spot and for which full information is not
available of all the national economic factors which have affected
it at different times — a consideration the importance of which is
continually emphasised by experience gained in the pursuit of
international scientific investigations. The difficulty may, however,
be avoided if no pretence is made of examining in detail the phenomenon under consideration, but merely of throwing light on the
principal aspects. Such a course has been followed in the present
survey, which deliberately refrains from a minute analysis of the
situation in each country or from any attempt to deal with minor

— 6 —
factors influencing a given section of the national market. Such
a comprehensive task was impossible with the means available, a
circumstance which may, however, yield a certain advantage, in that
an abundance of detail would have masked certain general observations which have been deduced.
Thus, no consideration has been given to the situation by industries, for instance, attention having been devoted exclusively to
showing relationships between general changes in unemployment,
as illustrated by the most reliable national statistics, and other
important economic factors for which regular statistics were also
available \ The chief of these factors have been changes in prices
and in foreign trade. In a number of cases fluctuations in the
exchanges and the movements of currency and credit have also
been considered, for they have an important bearing on the first
two factors, and sometimes assist in explaining their variations.
In the pursuit of such a course of study the conclusion has been
reached that in most countries there is a surprising absence of any
general relationship between the national unemployment situation
as a whole and changes in the volume of exports, while on the
other hand there is a constant and very close relation between
unemployment and price fluctuations (certain observations of fact
already made in the Enquiry into Production support this conclusion). Finally, it has been observed that there is a close relationship between price fluctuations and the financial and credit policy of
the different countries from which the existence of a general relation
between such policy and unemployment may be deduced.
The scientific character of the study has perhaps suffered to some
extent through circumstances which have dictated hasty methods,
and in consequence no dogmatic importance is attached to the
conclusions, essentially o fa provisional character, developed in the
third part of the study. Since, however, they contribute evidence
in support of a very marked current of opinion recently developing
among economists as the result of the study of the same group of
phenomena as examined here, there seems reason to believe that
subsequent research will but confirm them.
In view of this development of economic science, the conclusions
reached are such as to justify a certain spirit of confidence that
there is here revealed a true basis upon which measures for preventing periodical crises of unemployment may be developed, and
it is in the hope of such action that the suggestions contained in
the present study are put forward for further expert examination.
1
As a rule, the figures used have been those published by the League of
Nations in the Memorandum on Currency of 1923 or the Monthly Bulletin of
Statistics.

PAKT 1.

The Outbreak and Development of the Crisis.

If the phenomenon of unemployment since 1920 be analysed
country by country, and the situation in the different countries
compared, the first striking fact that emerges is the irregularity in
the date of development of the crisis in the different countries.
The United States and Japan were affected as from the spring
of 1920. Towards the end of the same year Great Britain and her
Dominions began to suffer; also the Scandinavian countries, the
Netherlands, Switzerland, and, less acutely —- or at least, for a
shorter period — Italy, Belgium and, still less severely, France.
The Centra] European countries, on the other hand, were not
affected until 1922, or even 1923.
This more or less chronological order will be followed in the report,
for it makes it possible to bring out more clearly the similarity of
the general conditions under which the crises originated in each
different country, namely, either through the cessation of inflation.
followed by a sudden fall in prices, or, in certain instances, through
the prolongation of excessive inflation, which itself led to a certain
dislocation of trade before the ultimate collapse of the labour
market which followed the complete restraint of the inflationary
boom. Such conditions were not realised simultaneously in the
different countries and, in consequence, the crises appeared at
different dates.

CHAPTER I

UNITED STATES AND JAPAN.

UNITED

STATES

"The number of unemployed in September 1921 was reported
by the President's Conference on Unemployment, which held its
Session 26 September 1921 in Washington, D.C., as between three
and one-half and five and one-half millions, with a much greater
number of persons dependent upon them. No attempt was made
to estimate the number of their dependents, but on the basis of
30,000,000 employees in a total population of 105,000,000 the
number should be between 10,000,000 and 15,000,000" \
This evidence of the Bureau of Labour Statistics is corroborated
by that of the enquiry of the Committee of the President's Conference on Unemployment. "The depression of 1921 caused a
diminution of approximately one-sixth in the total volume of
employment in the United States" 2 .
Expressed in terms of wages paid, this meant at one period
a decline of 23 per cent., in dollar amounts, as compared with the
highest point recorded in the boom3.
The incidence of unemployment was very uneven. According
to statistics quoted in the Industrial Employment Survey Bulletin,
No. 1, Jan. 1921, the industries which suffered worst were the
automobile and the building trades, i. e. luxury and capital goods
manufacture; whereas the least affected were packing and food
products, lumber, house furniture, boxes, etc., i.e., articles for
direct use by the consumer.
Small employers in general gave more steady employment than
did larger employers in the same industry. Certain towns were
1

UNITED

STATES DEPARTMENT

OF LABOUR, BUREAU

OF LABOUR STA-

TISTICS: Industrial Unemployment, p. 1, Bulletin No. 310.
2
Business Cycles and Unemployment, p. 98. McGraw-Hill Book Co., 1923.
3
Ibid., p. 96.

— 10 —
worse affected than others, probably on account of the specialised
character of their industry. For instance, the volume of unemployment as revealed in the statistics of the Manufacturers' Association of Racine is astounding *.
r,.ta
uale
March
April
June
Aug.
Oct.
Dec.

1920
1921
1921
1921
1921
1921

Number of persons
employed
(the employment peak)
19,351
(52 per cent, less than the peak]
9,215
(60
»
»
»
7,785
(67
»
»
»
6,415
(66 »
»
»
6,600
(68
»
»
»
6,192

The more heavily populated districts suffered much worse than
the agricultural areas. For instance, the index of employment for
New-York shows a decline from 125 in July 1920 to 88 in July
1921 2. The same intensity of unemployment is reflected in the
percentages reported by trade unions in the State of Massachusetts
from 1919 to 1921:
1919

March
June .
Sept.
Dec. .

.
.
.
.

. . . 11.4
. . . 2.8
. . . 2.7
.
4.1

1920

March . . . 4.1
June . . . 14.6
Sept. . . . 16.4
Dec
29.2

1921

March
June .
Sept. .
Dec. .

.
.
.
.

. . . 22.2
. . . 20.6
. . . 20.0
.
25.0

The United States Bureau of Labour Statistics index number
shows a growth of employment almost continuous to 108 3 in May
and June 1920. The collapse from that point was phenomenal,
the lowest point, 74, being reached within eight months, i.e., in
January 1921. In this respect the American crisis was like all
previous cycles, winding up to the highest pitch of activity, then,
almost without warning, plunging into the depth of depression,
nearly every industry being taken unawares. In the early months
of 1920 demand was still intense and prosperity seemed unending.
A period of doubt and tension followed about May and June. By
the month of August practically the whole of industry was plunged
into depression ; enterprises were drawing in ; orders were cancelled ;
1

UNITED STATES DEPARTMENT

OF LABOUR, CHILDREN'S BUREAU:

employment and Child Welfare, p. 8.
» Base: July 1914= 100.
' B a s e : Average for 1919 = 100.

Un-

— 11 —
stocks piled up unsaleable. In fact, so extreme was the difficulty
of marketing goods that the period became to be known as the
"buyers' strike".
A crisis of such unprecedented severity has naturally given rise
to the most widespread speculation as to its causes. The explanations suggested in different quarters are altogether too numerous,
varied, and controversial to receive adequate treatment here.
Certain very definite facts become evident, however, from a mere
study of statistics.
The first point of importance is the close relation which exists
between the movement of prices and the volume of unemployment. Mr. William A. Berridge, of Brown University, has published,
through the Pollak Foundation for Economic Research, a very
comprehensive account of statistical observations of unemployment in the United States 1. From the graphs which he has
constructed to show the unemployment situation from 1913 to
1921, the following coincidences between the movement of prices
and the growth of unemployment are revealed.
• A considerable decline of employment was evident during 1913
and 1914, corresponding with a similar fall in wholesale prices
from the high level of 1912. Owing to the war demand, revival
was rapid, the price level rising from 101 2 in 1915 to 194 in 1918.
Unemployment hardly existed during this period, except during
the summer of 1917 when there was a slight fall accompanying
a decline in the rate of rise of prices.
Immediately after the Armistice there was a period of "hesitation", when, owing to certain inevitable changes from war to peace
conditions of production, and perhaps some political uncertainty,
a considerable fall in industrial activity was noticed. Unemployment reported in Massachusetts in March 1919 was as heavy as
11.4 per cent. This was accompanied by a break in wholesale
prices during the early months of the year. A very rapid rate of
recovery is then noticed, both in prices and employment, marking
the period of intense boom 1919-1920.
From this period onwards, the close relationship which existed
between the movement of wholesale prices, of employment, and
of production is clearly shown in the following table.
1
2

W. A. BERRIDGE: Cycles of Unemployment. Houghton, Mifflin Co., 1923.
Yearly average. Bureau of Labour Statistics, 1913 = 100.

— 12 —
INDEX

NUMBERS OF WHOLESALE

PRICES, Oí' EMPLOYMENT,

AND

OF PRODUCTION FOR 1920 AND 1921.
Employment
Date

Wholesale
prices !

2

U.S. Bureau of New York State
Labour StaDept. of
Production
tistics
Labour
(12 industr.) (55 industr.)

3

1920
Jan
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

233
232
234
245
247
243
241
231
22fi
211
196
179

107
105
107
108
107
108
105
105
103
101

93
85

108
106
108
108
107
107
107
106
103
102
94
87

115
111
113
104
105
107
104
102
100
96
92
86

1921
Jan
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

170
160
155
148
145
142
141
142
141
142
141
140

79
80
80
77
77
75
76
78
79
81
80
80

82
81
81
81
81
80
78
80
80
82
81
81

81
81
76
74
72
74
73
78
79
80
81
83

1
Bureau of Labour Statistics; monthly average. Base: average for 1913 = 100. In
all cases, unless otherwise stated, the statistics of wholesale prices given in this report
are reproduced from the League of Nations' Monthly BuUelin of Statistics or Memorandum
on Currency,
1913-1922.
2
Monthly average. Base: average for 1919 = 100. Seasonal variation eliminated.
Reproduced
from
Review of Economic Statistics, Harvard, Oct. 1923.
3
Harvard Economic Service, Statistical Record, 1922: Normal = 100.

The break in the upward swing of prices and the swift decline
from May 1920 was followed immediately by an increase in the
volume of unemployment, the collapse of wholesale prices, from
247 in May 1920 to 145 in May 1921, being accompanied by a fall
of 27 points in the employment index. Little fluctuation from
this low level of employment was observable until the end of 1922,
when wholesale prices were again recovering.
The above table also yields some evidence that production
responds closely to the movement of prices, a rising level being
marked by a high rate of output and a falling level accompanying
depression.

— 13 —
With a view to showing the relationship between the unemployment crisis and the international market it would be well to examine
the statistics of export and import for the United States during
the period under discussion. The value of imports rose from the
figure of 147,624,000 dollars in 1914 to 318,974,000 dollars in 1919
and to 425,152,000 dollars in 1920. In the year 1921, when
depression was most intense, the value of imports fell to 213,072,000
dollars. It must be remembered in comparing these figures that
they do not represent the real value or the physical volume of the
merchandise, since the price of the goods fluctuated enormously
during the period concerned *. However, even allowing for this
factor, there is evidence of considerable swelling during the prosperous years and diminution during the slump.
The change in the volume of exports is even more pronounced.
From 172,588,000 dollars in 1914 the value of goods exported rose
to 673,373,000 dollars in 1920. In 1921 it was again as low as
364,911,000 dollars, a still further decline being noticeable in
1922 «.
The monthly movement of exports for the period of the crisis
was as follows :
Date

Exports
(in thousands
of dollars)

1918 .(month, aver.)
1919 '
»
»
1920
»
»

503,990
645,818
673,373

1920 J u n e
July
Aug.
Sept.
Oct.
Nov.
Dec.

616,155
640,132
570,796
594,538
741,522
666,540
708,531

. . . .

Date
1921 J a n
Febr..
March
April
May .
June .
July .
Aug. .
Sept.
Oct. .
Nov. .
Dec. .

Exports
(in thousands
of dollars)
642,186
469,567
369,470
330,304
322,449
329,749
318,710
360,626
319,273
337,121
294,437
291,297

This table shows that there was no serious diminution in exports
for seven months after the beginning of the depression, a fact
1
The index number of wholesale prices (Bureau of Labour Statistics) rose
from 98 in 1914 to 247 in May 1920, whence it fell to 138 in January 1922.
2
Figures quoted from the League of Nations' Monthly Bulletin of Statistics,
Dec. 1923, p. 12. In all cases, unless otherwise stated, the figures for foreign
trade given in this report have been drawn from the above source. They
refer invariably to the special trade of the country concerned, i.e., imports
for domestic consumption and exports of domestic produce only, unless indication is given to the contrary.

— 14 —
which contributes materially to the evidence showing that the
American crisis did not owe its origin to the failure of foreign
markets.
A further important point for consideration is the state of the
money market at different stages of the crisis. In the past history
of the United States every recorded crisis has been accompanied
by severe monetary stringency; in numerous cases the state of
affairs in the money-lending organisation has been such as to
cause a serious breakdown and financial panic \ The recent
crisis, although escaping anything in the nature of a financial
collapse, such, for instance, as was experienced in 1907, was marked
by the severest monetary stringency.
The cause of this stringency was, on the one hand, the decision
of the Federal Reserve Board that it was necessary to check the
inflationary process which had been taking place since the beginning
of the war and was reaching extreme and dangerous limits. In
order to put an end to this rapid expansion, the Federal Reserve
Board raised its rate of rediscount (i. e. raised the rate at which
it would lend to Member Banks and consequently obliged the latter
to increase their own rates to customers), in November 1919, to
6 per cent.
On the other hand, the rapid rise in prices and costs caused very
heavy demands to be made on the banks for loans, and the continous expansion of credit began to threaten the adequacy of bank
reserves. This danger was increased by a rapid ebb of gold to
Japan and to other countries, where the demand for it became
intense owing to the critical situation of the banks 2. In the year
1919, although 40.7 million dollars of gold represented the balance
of gold imported from Great Britain, large quantities were exported
to British India (34.3 million dollars), Japan (94.1), China (39.1),
Hong Kong (30.1) and South American countries (74.1). The
drain of gold continued into 1920 so that the reserve situation
was rapidly weakened, as seen in the following table 3 :
Reserve percentages of the Federal Reserve System, 1920.
23 Jan
44.8
13 Febr
43.2
30 Jan
44.5
20 Febr
42.7
6 Febr
44.1
27 Febr
42.5
1
Cf. Wesley C. MITCHELL: Business Cycles, p. 576. University of California
Press, 1913.
2
See later p 17
3
Federal Reserve Bulletin, March 1920, p. 220.

— 15 —
This double strain on bank reserves obliged the Federal Reserve
Banks to raise their Rediscount Rate still further to 7 per cent, in
May 1920. The consequent stringency in the money market is
considered by many American economists to have been a direct
cause of the cessation of feverish activity in 1920 \ In point of
fact the diminution in employment began in June 1920, one month
after the raising of the Rediscount Rate.
In conclusion, it would seem that the unemployment crisis in
the United States may not be considered to have originated from
some swift change in the foreign market 2 , but rather from other
factors, such as the policy of credit restriction, which was responsible
for bringing to an end a long period of inflation. It is evident,
however, that tbe continuation of the policy of credit expansion
would not have prevented, but would merely have delayed, the
crisis. Moreover, it appears that an earlier application of the
monetary brake, if such had been possible, would have had the
salutary effect of preventing or attenuating the boom, of which
the depression was the inevitable reaction.
JAPAN
The situation presented by Japan is remarkable not only because
that country was one of the earliest to be affected by the world
crisis but also on account of the intensity of the earlier months of
depression. In most other countries the maximum unemployment
figure was not reached until 1921, but in Japan the situation was
apparently worst in August 1920, some slight improvement being
noted during the following month. Evidence of this is to be found
in the following figures of discharges and engagements published
in the Osaka Mainichi of 24 November 1920.
Date
1920

April
May
June
July
Aug.
Sept.

Workers
discharged

Workers
engaged

Comparison

76,148
105,930
105,724
75,158
70,063
69,132

79,040
62,022
62,107
60,281
65,922
83,570

+
—
—
—
—
+

1

2,892
43,908
43,617
14,877
4,141
14,438

i The sign + signifies: engaged in excess; the sign — signifies: discharged in excess.
1
Reference in this connection might suitably be made to the Annual Report,
1920, of the Federal Reserve Board itself.
2
It might be noted that the volume of exports from the United States(see Report of the President's Conference on Unemployment, p. 147) does not
amount to more than about 10 per cent, of the total national production.

— 16 —
The situation was still serious in 1921, but less critical than in
1920. The number of factories obliged to close temporarily or
permanently was 145 as compared with 691 in the year 1920 *.
On the other hand, it was estimated that the number of workers
employed in factories in the Osaka prefecture was, even at the
end of 1921, 10 per cent, less than in 1919, the year of maximum
prosperity 2. The number of factories working was 25 per cent.
less, a figure which would seem to give evidence of much speculative enterprise and dangerous expansion during the boom.
The suffering caused by the intense depression of 1920 would
have been much more serious had it not been possible for the
workers discharged from factories to return to the country districts
and secure some measure of employment in agricultural pursuits.
This relieved the situation considerably in the prefectures of Osaka,
Hyogo, and Hiachi. In the case of the prefecture of Kyoto, however, it is stated that of the 11,755 workers discharged in the town
of Nishijin up to 15 June, 7,000 were entirely without employment 3 .
Statistics of unemployment are not sufficiently complete in Japan
to permit a comparison between price movements and the demand
for labour. However, it will be seen from the table below that
both wholesale prices and the volume of foreign trade rose until
March 1920, the decline being rapid in both cases as from April
1920. The unemployment figures quoted above also show the
most violent increase immediately after this date.
Date
1913 (monthly aver.)
1919
»
»
1920 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov
Dec.
1921 J a n .
Febr.
March
April
May
June
1
2

Index number of
wholesale prices
(Bank of Japan)
100
240
301
314
322
301
272
248
240
235
231
226
221
206
201
195
191
190
191
192

Imports
(in thousands
of yen)
60,474
177,113
202,853
268,977
324,436
292,298
292,451
220,115
151,297
119,729
108,369
105,294
106,319
102,011
103,005
118,079
134,533
137,254
148,200
145,019

Osaka Mainichi, May 1922.
Ibid.
•» The Japan Weekly Chronicle, 15 July 1920.

Exports
(in thousands
of yen)
52,393
170,897
174,433
172,622
188,979
212,924
189,864
183,812
148,481
171,591
144,055
131,438
102,902
85,000
73,500
75,500
91,684
113,350
103,687
103,990

— 17 —
From accounts given in the Japanese Chronicle, one of the
earliest signs of the crisis was the feeling of uneasiness on the part
of the banks and the consequent restriction of credit. "Things,
however, have of late taken a turn for the worse, through the
general uncertainty caused by the cautious attitude of the banks
in the matter of advancing loans" \
Further details of conditions in Japan during the critical period
1919-1920 are given in The Street of 24 May 1920. After discussing
the period of intense activity of 1918, it states:
This unprecedented boom was followed by a period of wild speculation. The
country seemed possessed by a mania for expansion of trade and industry
and all kinds of new and sometimes hazardous enterprises were undertaken.
As early as the autumn of last year it became evident that there would be
a reaction from this wild speculative mania. The Bank of Japan, therefore,
twice raised its discount rate until it reached 8 per cent., at the same time
advising city banks to follow a conservative policy in respect to loans and
discounts. It was hoped by this means to control speculation and avert a
crisis.
At about the middle of last January the fears of financiers began to be
realised. The market was flooded with securities, and prices began gradually
to decline. This condition was hastened by the îapid increase of the excess
of imports over exports from the beginning of this year and the stringency
of the money market due to heavy tax instalment. On 15 March there was a
sharp decline in prices of securities,, and the stock exchange was obliged to
close for two days in order to make adjustments. 2

Two important points would appear to stand out clearly from
the above summary :
(1) the close relationship between movement of wholesale prices
and of industrial activity;
(2) the stringency of the money market and the difficulties of
the banks — factors which were evident towards the end of
the boom and seem to have contributed to its restraint.
1
Reprinted in the Economic Review, 2 June 1920, from the Japanese
Chronicle of 15 April 1920.
2
Reprinted in the Economic Review of 23 June 1920.

CHAPTER II

BRITISH EMPIRE

GREAT

BRITAIN.

The years immediately following the war, 1918, 1919, and early
1920, had all the appearance of phenomenal prosperity. Demand
was intense owing to the new requirements of peace; credits were
being granted on every hand for purposes of reconstruction;
industrial development went on apace in every sphere. At one
stage (April 1920) unemployment in trade unions making returns
fell below 1 per cent.
This intense activity was, however, accompanied by a violent
rise in prices, the level of wholesale prices rising from 217.2 in
April 1919 to 313.1 in April 1920 \ As in the case of America,
it was felt (see below) that this rapid price inflation was disorganising production, and should be restrained at the earliest possible
date. Not only was it giving rise to much speculative enterprise
and industrial friction, but was tending to draw Great Britain
further away from the gold standard.
The Cunlilïe Committee, appointed in 1918 to examine the question of "Currency and Foreign Exchanges after the War", recommended various measures for checking this rapid inflation and
substituting for it a certain measure of deflation. Amongst its
recommendations were: the cessation of government borrowing as
soon as possible after the war; the maintenance in working order
of the recognised machinery for controlling credit, namely, the
raising and making effective of the Bank of England discount
rate; and the legal limitation of the fiduciary issue of currency notes.
As regards the first of these recommendations the British Government was successful, as early as April 1920, in budgeting not only
for sufficient revenue to meet expenditure but also for a surplus
of £251,800,000 for the reduction of debt. Large amounts of
both funded and floating debt were paid off during the financial
years 1920-1921 and 1921-1922,
1

Statist.

1913 = 100.

— 19 —
The deflationary effect of this policy was reinforced by the
adoption of a Treasury Minute in December 1919 limiting the total
fiduciary issue of currency notes in any year (the issue in excess of
gold and Bank of England notes held in the currency notes redemption account) to the maximum actual fiduciary issue of the previous
year.
The limitation of the issue of legal tender notes in this way
entailed a simultaneous restraint of credit advanced by banks.
In order to make such restraint effective, the Bank of England
raised its rate to 6 per cent, in November 1919 and subsequently
to 7 per cent, in April 1920.
These measures were effective in checking inflation in May 1920
— roughly the same time as the American crisis had its genesis.
Prices began to fall in May and continued in precipitous decline
until the end of 1921.
Identically simultaneous with this decline of prices was the
outbreak of the unemployment crisis. Having been reduced to
the low figure of 0.9 per cent.1 in April 1920, unemployment showed
a slight increase in May, a development which continued throughout
the year, 6.1 per cent, of unemployment being reported by trade
unions in December. The increase from that date onwards was
exceedingly rapid, the figure of 23.1 per cent, being reached in
June 1921.»
It will be seen that in the initial stages of depression, although
prices fell precipitately there was only a gradual diminution in
employment. This may have been due partly to the continued
activity of the foreign market (see figures of export below) and
partly to the fact that, rather than dismiss workers when demand
began to fail, employers continued to produce for stock. Such
evidence as is available would seem to show that stocks with
manufacturers did increase considerably during this period.8
The growth of the depression is described in the Labour Gazette
of January 1921. A brief extract might usefully be quoted here:
Those first affected were boot and shoe manufacture and leather tanning
and currying, in April, followed, in May, by cotton weaving and, in June, by
the hosiery and jute industries.
1
2

Percentage unemployment in trade unions rraking returns.
For table showing monthly figures of unemployment from 1919 to 1921,
see later, p. 21.
3
There is no official coordination of statistics of stocks in Great Britain.
Certain individual industries, however, publish returns. There is also a valuable
attempt on the part of the London and Cambridge Economic Services to
compile continuous statistics of stocks of raw products.

— 20

-

In July and August, though employment was still good, on the whole, the
decline continued, and spread to other industries; and in September slackness
and short time were reported in most of the textile trades, and in the readymade clothing, boot and shoe, and leather industries. By the end of September
the percentage unemployed had risen to 3.8 in the insured trades and to 2.2.
among members of Trade Unions making returns.
In October the national strike of coal miners and the consequent shortage
of fuel seriously affected unemployment in the principal industries, and at
the end of that month, and in the first half of November, most of these industries were very slack. On the basis of such information as io available, it
would appear that between 8 October and 4 November there was an increase
of at least 350,000 in the total number of workpeople unemployed, and, in
addition, large numbers were placed on short time. The settlement of the dispute was followed by a partial recovery, but at the end of November employment was still considerably worse than at the beginning of October. There
was a further decline during December, and at the end of the year there was
serious depression in mo t of the principal industries. The percentage of trade
union members reported as unemployed had risen to 6.1 and the lecords of
workpeople out of work in the industries * (embracing about 11,900,000 workpeople) covered by the new Unemployment Insurance Act, which came into
operation in November, showed about 5.8 per cent, as unemployed in these
industries at the end of the year. In addition, large numbers of workpeople
in the textile, boot and shoe, clothing, engineering, papermaking, and other
industries were on shoit time. The total number of workpeople on the Live
Register * of the Employment Exchanges at the end of the year was approximately 748,000, of whom 500,000 were men, 188,000 were women, nearly
29,000 were boys and over 31,000 were girls.

The January 1922 number of the same Gazette continues the
account :
The decline in employment, which began in the summer of 1920 and was
still in progress at the end of that year, continued at a rapid pace during the
early months of 1921, and at the end of March there was serious depression
in most of the principal industries. Of the 12 million workpeople covered by
the Unemployment Insurance Act, the proportion unemployed rose from
6 per cent, at the beginning of the year to 11 per cent, at the end of March,
and the proportion working systematic short time in such a manner as to
entitle them to benefit rose from 4 per cent, to 7 per cent. During the same
period the proportion unemployed among certain trade unions (mainly of
skilled workpeople) which pay unemployment benefit to their members and
make returns to the Department rose from 6 per cent, to 10 per cent. In April
the effects of the general slackness in trade were rendered much more acute
by the stoppage of work at the coal mines, which began on 1 Aprii and continued for three months. The great coal-using industries were quickly affected
by the increasing scarcity of fuel, and in May and June employment was bad
in nearly all the principal manufacturing trades. In some industries, notably
the heavy iron and steel trades, tinplate manufacture, and the pottery trade,
work was almost completely suspended. At the end of June the proportion
of unemployed, apart from the coal mining industry, had risen to 19 per cent.
1
a

The principal employments excluded are domestic service and agriculture.
As some unemployed persons, particularly among those not covered by
the Unemployment Insurance Act, do not register at the Employment Exchanges, these numbers do not provide an entirely complete measure of the
total amount of unemployment.

— 21 —
among insured workpeople and to 23 per cent, among members of those trade
unions making returns. These figures are the highest ever recorded by the
Department.

Expressed in absolute figures, this enormous percentage corresponded with 2,171,288 workers applying for benefit in respect
of total unemployment, and 832,340 workers claiming benefit in
respect of systematic short time on 24 June-1921. l
The following table shows the fluctuations in unemployment and
the movement of wholesale prices from the beginning of 1919 to
June 1921:
Date

Percentage
Index
of
number of
unemploy- wholesale2
ment i
prices

1913 (average)
1918
»

2.1
0.8

100.0
226.0

1919 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

2.5
2.8
2.9
2.7
2.1
1.7
2.0
2.2
1.6
2.6
2.9
3.2

224.4
220.6
217.3
217.2
228.9
234.6
242.8
250.2
252.7
263.9
271.8
276.7

Date

Index
Percentage
of
number of
unemploy- wholesale
ment »
prices 2

1920 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

2.9
1.6
1.1
0.9
1.1
1.2
1.4
1.6
2.2
5.3
3.7
6.1

288.6
306.3
308.0
313.1
305.9
300.8
299.5
298.2
292.6
282.2
263.3
243.8

1921 J a n .
Febr.
March
April
May
June

6.9
8.5
10.0
17.6
22.2
23.1

232.0
215.3
208.5
199.8
190.8
183.3

i Percentage unemployment amongst trade unions paying insurance benefit.
2 The Statist.

As in the case of the United States and Japan, statistics for
Great Britain show a remarkably close relationship between the
movement of wholesale prices and unemployment. In the period
of boom, when prices rose 95.9 points 2 in twelve months, unemployment was at one stage reduced below 1 per cent. ; and in spite of
a great increase in the number of strikes, of the conversion of
industry from a war to peace basis, and of rapid demobilisation,
3.2 per cent, of unemployment was the highest monthly average
reported by trade unions during the whole period of prosperity.
1
2

The Labour Gazette, J u l y 1 9 2 1 , p p . 359-360.
The Statist.

— 22 —

The break in prices occurred at identically the same time as
the decline of employment, i. e. May 1920. By the month of
June 1921, unemployment had reached 23.1 per cent, and prices
had fallen 129.8 points.
As already indicated, unemployment figures did not reflect the
intensity of the depression as rapidly as did the fall of prices.
Moreover, in the year 1919, the period of "hesitation", marked by
a fall of wholesale prices in the earlier part of the year, was reflected
by only a very slight decline in employment. In general, however,
the table published above gives evidence of a very close relationship
between the trend of prices and unemployment.
The fact that the outbreak of the crisis synchronised with the
change from price inflation to deflation, coupled with similar
evidence from America and Japan, would seem to be strong prima
jade grounds for assuming that it was the monetary policy adopted
which was mainly responsible for the restraint of feverish activity
in the early summer of 1920. The belief that this restraint in
Great Britain was due to causes of internal origin is strengthened
by a comparison of figures for export and import.
VALUE OF EXPORTS AND IMPORTS
in thousands of pounds sterling
Date

Exports

Imports

1919
1920

(monthly average)
(monthly average)

66,553
111,297

121,784
142,861

1920

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

105,880
85,964
103,699
106,252
119,319
116,352
137,452
114,903
117,456
112,295
119,365
96,631

158,034
147,910
149,616
146,747
146,074
150,367
145,494
139,886
139,342
133,756
131,145
130,086

1921

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.

92,756
68,222
66,809
59,868
43,088
38,152
43,172
51,346
55,248
62,265

107,096
88,970
84,854
81,472
79,076
81,100
71,396
78,583
78,524
74,356

Oct.

— 23 —

Thé above statistics of export would seem to show that the
foreign market remained extremely active until the end of 1920.
On the other hand, figures of import indicate that the internal
market was beginning to weaken somewhat earlier.
Later in the depression, and particularly during the spring of
1921, the export market showed considerable weakness. But it
should be noted, in examining the figures, that the most serious
decline occurred during May and June when internal trade was
disorganised in Great Britain on account of the strike of the coalminers. There was a marked recovery in the summer and autumn
of 1921.
CANADA
In approaching the problem of unemployment in Canada, it is
necessary to bear in mind two characteristics which distinguish
the industry of that country. In the first place, the employment
market is of a highly seasonal nature, some degree of depression
being invariably experienced during the winter months. In the
second place, the industrial activity of that country is dependent
almost entirely on harvest prospects. The anticipation of good
crops in spring directly influences agricultural demand and stimulates trade throughout the land. The expectancy of good sales
in the fall and the realisation of such returns is again reflected in
the purchasing activity of the agricultural population, and trade
once more booms in anticipation of the requirements of the following year. "Trade" in Canada is thus almost synonymous with
"harvest".
In consequence of this special characteristic, the crisis of 1920
was of a very dramatic nature in Canada. In the early months
of the year all trade signs pointed to success. Demand for all
products was intense and, in common with those of every other
country, prices were rising rapidly. Harvest prospects were good
and the farmers' purchases were stimulated by the universal
optimism which these signs appeared to justify.
Throughout the summer, crops gave satisfactory results, an
excellent yield being transported to the head of the Lakes for
sale and export. Here, however, disappointment was in store.
Foreign buyers refused to take the corn at the price demanded.
A rapid slump ensued, entailing serious loss to all sellers. Costs,
including wages and freights, had been exceedingly high and could
not be recovered in the price yielded by the corn. This collapse

— 24 —

of the market for grain immediately spread to other industries,
"The effect of the slump in grain prices and the blocking of the
disposal of the crop has been serious upon business. The farmers
have been unable to make their usual purchases, and the retailers
are disinclined to place further orders with wholesalers, the result
is that the Winnipeg merchants report the dullest autumn trade
for many years, and at least one of the large departmental stores
in the city has been compelled to pay off a large number of its
staff. Inevitably the reaction is being felt in lack of orders for
factories, and the spectre of unemployment is raising its head in
numerous industrial centres at an unfortunately early date in the
year. It is now being generally realised that during the coming
winter Canada must set her house in order and face a spell of trade
depression." 1
That such depression did occur was evidenced by the high figures
ot unemployment reported during the following winter, the situation being intensified by the fact that a seasonal decline invariably
occurs during the same period. From a figure of 3.3 per cent, in
September 1920, unemployment rose to 10.2 per cent, in November
1920, and to 16.1 per cent, in February 1921 2.
In early December 1920, the Canadian correspondent of The
Economist reported: The shipbuilding industry has pratically come
to a standstill, and the sawmill and lumber business in British
Columbia is in a similar condition. In Montreal the delegate of
the metal workers told the Commission that 4.000, or about 40
per cent., of the members of the unions in that city were out
of employment. In the same city there is general unemployment
in the clothing business. It is the same in other industrial centres,
and every city in Canada has to-day a serious contingent of
unemployed. There is a good demand for unskilled labour in the
mines and woods of the East, but the urban workers are loathe
to face the hardships of a Canadian winter in the country. The
situation is by no means desperate yet, and luckily many of the
workers have accumulated some considerable savings. But it is
already plain that Canada will have a serious unemployment
problem upon her hands before the winter ends. s
Although thè most serious development of the crisis in Canada
occurred at the time of the sudden slump of corn prices, there were
evidences earlier in the year that the condition of intense boom
1
2
3

The Economist, 6 Nov. 1920, p. 823.
More complete figures are given later, see p. 25.
The Economist, 4 December 1920, p. 988.

— 25 —

could not be sustained and that the internal market was beginning
to weaken. Some anxiety was felt in the corn-growing areas of
Manitoba on account of the unwillingness of rural credit banks to
extend loans with the same liberality as heretofore. The stringency
of the money market appears to have been general. In its issue
of 29 May 1920 The Economist states: "The banks have taken
rigorous action in the curtailment of loans, and speculation has
been largely discontinued. It is thought that the upward movement in prices may have at least reached its peak. The first
noticeable decline is in the clothing and apparel lines." According to the same publication, this state of extreme monetary stringency continued throughout the year. Moreover the Government
itself redoubled its efforts to meet expenditure out of revenue and
so restrain the tendency to inflation. In the year 1920, taxation
was in fact increased and expenditure considerably diminished.
The anticipated check to the rise of prices occurred about May
1920, the official index of wholesale prices culminating during that
month. Once on the wane, prices fell rapidly and continued to
fall until the summer of 1922. Unemployment increased slightly
after June 1920 but, owing to seasonal activity and the continuance of the optimistic spirit, showed no serious development until
late in the autumn.

Date

Index
Percentage
of
number of
unemploy- wholesale
ment i
prices 2

1919 J u l y
Aug.
Sept.
Oct.
Nov.
Dec.

2.43
2.19
1.79
2.03
3.58
4.29

217.0
222.2
222.5
221.1
227.1
237.8

1920 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

4.02
3.96
3.13
2.52
2.40
2.14
2.35
2.37
3.26
6.09
10.24
13.05

249.7
253.5
257.6
260.6
263.2
257.8
255.9
243.7
241.0
234.4
224.5
214.4

Date

1921 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

Percentage
Index
•of
number of
unemploy- wholesale
ment »
prices 2
13.07
16.12
16.48
16.27
15.46
13.15
9.10
8.71
8.47
7.42
11.06
15.09

207.6
199.3
194.2
187.2
182.5
179.0
176.1
174.5
171.7
169.2
167.7
170.3

i Percentages of unemployment reported by trade unions; published by the Labour
Gazette.
a Official index. Base: 1913 = 100.

— 26 —

It will be seen from the foregoing figures that seasonal fluctuations tend to mask the relationship between the movement of
prices and the development of unemployment. However, the
broad cyclical movements of the two indexes are very closely
correlated. In particular, it is to be noted that the break in prices
occurred in May 1920, and that unemployment began to increase
as from the month following. By the end of 1921, prices had
fallen 92.9 points. Heavy unemployment accompanied this movement throughout, at no time falling below 7.42 per cent.
A USTRALIA
The unemployment statistics quoted for the Commonwealth of
Australia are not easily comparable with those of other countries,
since they are calculated somewhat differently. The quarterly
totals prepared in the various States and communicated to the
Commonwealth department include unemployment due to sickness and accident. Moreover, they relate, not to the number of
unemployed on a fixed date, but to the number of workers who
have lost at least three days, employment during the last week of
the quarter. The returns represent the figures supplied by the
trade unions which suffer most heavily from unemployment, and
exclude such industries as railways, tramways, public service, etc.
where employment is relatively permanent. For these reasons
the "normal" percentage of unemployment in Australia appears
high.
If this factor be taken into account, it will be seen that the
amount of unemployment which may be attributed to cyclical
depression in Australia has been comparatively slight. The following are the percentages quoted for 1912 and 1920-1921.
Percentage of Unemployment reported by Trade
1912
1920

1921

1

End of year .
First quarter
Second
»
Third
»
Fourth
»
First quarter
Second
»
Third
»
Fourth
»

Unions1.

5.6 per cent.
5.6
»
6.2
»
6.2
»
7.8
»
11.4
»
12.5
»
11.4
»
9.5
»

Figures quoted from the Quaterly Summary of Australian Statistics, March 1922.

Although the crisis in Australia has not been so severe as in other
countries, the same broad phases of the phenomenon have been

— 27 —

experienced. The period immediately after the war was one of
rapid inflation, the wholesale index number for Melbourne showing
a rise from an average of 177.8 l in 1918 to 247.4 in August 1920.
Prices fell during the following month and continued to fall until
the end of 1921 when an index number of 154.8 was recorded.
As in other countries, this movement was accompanied by severe
unemployment, which began in the latter months of 1920 and
reached its culminating point in the second quarter of 1921.
The monthly average for exports for the year 1913 was £6,014,000,
and for imports, £6,355,000. The figures given below for foreign
trade during the period of crisis show that the severity of the
unemployment situation could not be attributed primarily to the
failure of the international market, since exports began to increase
from the low level of August 1920, just at the time when unemployment began also to develop. This increase of export was partly
seasonal, and the decline in June-October 1921 was also to some
extent due to winter conditions. In order to estimate the importance of the factor of foreign trade during the subsequent years of
depression, it would seem necessary to consult the annual figures
of exports ».
VALUE

OF IMPORTS AND EXPORTS (IN THOUSANDS OF POUNDS
STERLING) FOR 1920 AND 1921

1

1920

1921

TVTATif h

l u Uli li i i

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

Imports

Exports

Imports

Exports

7,653
6,167
9,144
9,688
11,790
12,567
12,282
12,756
15,243
14,584
14,744
15,146

11,752
12,515
13,241
10,063
13,601
10,618
9,518
7,848
8,399
9,345
11,688
9,476

17,204
11,621
14,053
11,312
10,272
8,558
6,999
6,839
6,359
6,440
7.654
8,474

10,971
11,840
10,414
11,041
10,900
9,709
7,800
7,370
8,533
8,507
10,095
11,139

1
The monthly average for the year ending June 1919 was: £7,662,000 for imports,
and £8,489,000 for exports.

1
s

Base: 1913 = 100.
See later, p . 104.

— 28 —
SOUTH

AFRICA.

In spite of certain very unique features which charaterise the
industry of South Alrica, the depression suffered by that country
has been similar in almost all respects to that experienced in
European countries. It developed about the same period and has
continued with great intensity for three years or more. The forecast of Mr. A. Crawford, Secretary General of the South African
Industrial Federation, in February 1921 \ that the country was
confronted by a financial crisis from which there would be little
recovery for two or three years, has been realised to the full.
Absolute statistics of unemployment are not available for the
years of the crisis, but some conception of the development of
depression can be gained from the totals of applications for
employment at the labour exchanges, although the activities of the
latter may not be fully representative. In 1919, 15,577 such
applications were recorded; the number increased to 20,708 in
1920 and to 33,729 in 1921. Some improvement was evident in
1922 and 1923.
The growth of the depression is also revealed in statistics of
insolvencies :
Year
1918
1919
1920
1921
1922 (Jan.-Sep t.)

Liabilities of insolvents (£'s)
657,905
832,164
1,704,393
6,666.461
3,776,795

As in other countries previously examined, the depression was
accompanied by a rapid fall in the level of prices, the decline
starting in the summer of 1920 and continuing until the end of
1921, after which comparative stability was maintained.
The movement of wholesale prices is shown as follows 2:
Date
1913 (average)
1919
»
1920
»
1920

Jan.
April
July

Oct.
1
2

Index number of
wholesale prices
100.0
164.8
223.3
214.6
223.0
232.3
223.2

Industrial South Africa, Febr. 1921.
Official Index.

Date
1921

1922

Jan.
April
July
Oct.
Jan.
April
July

Oct.

Index number of
wholesale prices
188.1
165.5
150.0
138.0
130.8 .
127.6
126.5
129.0

— 29 —
The decline of prices was preceded by a period of rapid inflation
comparable with that experienced at the same time in Europe.
Amongst the measures adopted for checking this process must be
included the increase of taxation on the part of the Government
for the budgetary year 1920-1921; and the action of the banks,
which were understood to have "exercised greater discrimination in
granting credit in consequence of the requirements of the Currency
and Banking Act, 1920, as regards minimum cash reserves." 1 The
"minimum advance rate" of commercial banks was raised from
6 y2 to 7 per cent, in March 1920 and subsequently to 7 % P e r cent.
in August of the same year. The rise of prices, as noted above,
was checked in the summer of 1920.
Although the general cyclical trend of unemployment and the
principal causal factors appear to have been largely the same as
those of Western Europe and America, there are certain special
features relating to South African industry which should be noted
here. In the first place, all questions concerning conditions of
labour in South Africa are complicated by the existence of a predominant native and coloured element in the population. "As
the result of the presence of this large section of workers the
position of the white worker has been limited to a considerable
degree to the more highly remunerated lines of the skilled trades
or to the work of supervising, overlooking, and controlling the
unskilled labourers who are employed in practically every industrial
or agricultural operation in the Union. The unskilled white worker
has of necessity found himself almost inevitably in competition
with the native or coloured labourer; forced to maintain a higher
standard of living, but unable to command a sufficiently high rate
of pay.2 " The situation tends to become more serious during
a period of severe competition, for employers are frequently obliged
at such times to effect economies through the employment of
unskilled and lower paid coloured labour. The brunt of the
depression is thus largely borne by the white population whose
sufferings are aggravated to an intense degree.
In the second place, owing partly to the high cost of transport
and partly to the character of the country's natural wealth, South
African industry is based largely upon the production of high value
and luxury commodities. On the one hand the demand for South
1
LEAGUE OF NATIONS: Brussels Financial Conference, 1920. The Recommendations and their Application, Vol. I, p. 178.
8
Official Year Book of the Union of South Africa, No. 5, p. 289.

— 30 —
African gold is liable to fluctuation at any moment according to the
requirements of the world's monetary systems and, on the other
hand, the demand for articles of luxury, precious stones and metals,
ostrich feathers, etc., tends to decline during depression more
than the demand for necessaries. How far these influences may
have been at work during 1921 and 1922 is difficult to estimate.
There appears to have been a considerable recrudescence in the
demand for gold at the end of the war, 1917 and 1919 showing
the highest figures of export. From 1919 there was a continuous
decline until 1923. The figures of export for other commodities
show again that 1919 was the most prosperous year, and that
1921 was the period of most severe restriction of foreign demand.
Value of Exports (in thousands of pounds sterling), 1917-1923.

1917
1918
1919
1920
1921
1922
1923

(monthly average)
»
»
»
»
»
»
»
»
»
»
»
»

Merchandise

Gold

2,398
2,594
4,219
3,841
2,234
2,476
2,962

4,992
2,936
3,973
2,962
2,871
2,443
3,264

CHAPTER III

SCANDINAVIA, FINLAND, the NETHERLANDS
and SWITZERLAND

SCANDINAVIA

AND

FINLAND

The end of the year 1919 and the beginning of 1920 were marked
by a general policy of credit restriction in Scandinavian countries,
arising presumably out of a desire to restrain the process of inflation
which was taking place with the same intensity as in the countries
previously examined. In Norway, the Central Bank raised its
rate to 6 per cent, in December 1919 and to 7 per cent, in June
1920. In the same month the Norwegian Exchange Council
adopted a resolution to the effect that the Bank of Norway, private
and savings banks, should be requested to restrict the issue of
new credits and the re-issue of such as had expired, to strictly
necessary objects.1 The rise of prices in Norway was checked in
September 1920.
In March 1920, the National Bank of Sweden raised its rate of
discount to 7 per cent., with a further increase to 7% VeT cent.
in September of the same year. In addition to this, it issued a
circular in May 1920 to the private banks, urging them to restrict
the granting of credits to the public in view of the difficult position
of the Swedish money market. It was suggested that the restriction should apply to money required for speculative purposes, for
the expansion of industrial concerns which were not urgently
needed, for the establishment of new industrial enterprises, shipping
services, railways, etc., and for the purchase of ships from abroad 2.
These measures had the effect of restraining the expansion of credit
in the summer of 1920, wholesale prices reaching their culminating
point about the end of June 1920.
In Denmark the Bank Rate was raised from 6 to 7 per cent, in
April 1920. Prices began to fall in October 1920. In Finland
1

Sjôfartstidende, 22 June 1920.
- Svensk Handelstiding, 29 May 1920.

— 32 —

the discount rate of the Central Bank was raised to 8 per cent, in
March 1920 and to 9 per cent, the following November. The level
of wholesale prices reached a culminating point in November 1920.
As in the case of the previous countries discussed, the fall of
prices, once started, was most precipitous in Sweden, Norway and
Denmark, and produced the same results as in the case of the
United States and Great Britain. Unemployment began to develop
about the end of 1920 in all three countries. This increase was
to some extent seasonal in character; but the spring of 1921 brought
little or no revival from the seasonal trough, enormous percentages
of unemployment being reported throughout the year. The following
table gives evidence of the magnitude of the crisis in these three
countries :
PERCENTAGE

OF UNEMPLOYMENT

REPORTED

BY TRADE

UNIONS,

1919-1922
Norway

Denmark

Date

Sweden

1919

March
June
Sept.
Dec.

7.6
6.1
3.2
3.8

2.2
1.1
1.2
2.6

20.5
3.6
3.1
16.5

1920

March
June
Sept.
Dec.

4.5
3.4
2.9
15.8

1.5
0.7
1.8
6.8

6.7
2.0
2.7
15.1

1921

March
June
Sept.
Dec.

24.5
27.7
27.3
33.2

16.1
20.9
17.1
22.9

23.6
16.8
16.6
25.2

1922

March
June
Sept.
Dec.

30.6
21.5
15.2
21.7

25.4
15.6
11.0
15.1

27.9
13.2
10.6
20.3

.

In each country this vast swelling of unemployment was accompanied, as noted above, by an unprecedented collapse of wholesale
prices. In Sweden prices fell from 375 in June 1920 to 175 in
May 1922 ». The Norwegian price level fell from 425 in September
1920 to 225 in September 1922 2. In Denmark, there was a decline
from 403 in October 1920 to 176 in September 1922 ». In each
case a fall of about 200 points occurred in two years.
'Official. Base: 1913 = 100.
* Okonomisk Revue. Base: 1913 = 100.
3
Finanstidende.
Base: 1913 = 100.

— 33 —

In marked contrast to these three countries is the case of Finland.
For in the latter country there has been neither precipitous fall
ot prices, nor serious unemployment. The unemployment statistics
quoted in the Bulletin of the Bank of Finland for the years 1919—
1922 are as follows:
Number
1919
Jan
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.

Dec.

4,366
3,948
2,971
2,449
1,753
1,193
982
1,147
1,961
1,562
1,762
1,736

of Unemployed
1920
Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

in

Finland, 1919-1922.
1921
2,298
March
1,757
June
1,580
Sept.
1,11.4
Dec.
654
475
542
1922
749
837
March
1,034
June
1,282
Sept.
1,454
Dec.

2,927
937
1,369
2,127

2,861
799
791
1,294

Wholesale prices declined during the winter of 1920-1921, but
the fall was arrested in the spring of 1921, and the level has been
maintained comparatively stable since that date:
Index
Month

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.

Oct.

Nov.
Dec.

numbers

of Wholesale

1920

1,075
1,054
1,024
1,035
1,056
1,113
1,178
1,266
1,298
1,385
1,422
1,400

Prices, 1920-1923 *

1921

1,223
1,188
1,203 •
1,249
1,182
1,247
1,259
1,293
1,364
1,361
1,305
1,295

1922

1923

1,263
1,254
1,244
1,260
1,241
1,229
1,219
1,230
1,224
1,186
1,140
1,149

1,134
1,127
1,108
1,096
1,093
1,095
1,080
1,080
1,089
1,077
1,070

—

1

Index of the Central Statistical Ofllce. See Monthly Bulletin of the Bank of Finland,
Dec. 1923.

The relative lightness of the crisis experienced in Finland is
evidenced in the following account contained in the Monthly
Bulletin of the Bank of Finland of April 1922. "The consequences
of the general world crisis have not proved as disastrous to the
banks in Finland as they have been in many other countries.
Chiefly, this depended on the fact that the extraodinary fall in
prices, which in other lands caused such numerous bankruptcies
and losses to banks, did not occur in this country. On the opposite,
prices averaged pretty much the same throughout the year. The
index number for the cost of living was almost exactly the same
at the end of the year as it had been at the beginning. The number

— 34 —

of bankruptcies in 1921 was only 358, the corresponding number
in 1913 being 762." In the same publication of Februrary 1922, it
is stated: "Contrary to what has been the case in other Scandinavian lands, labour conditions have been specially peaceful in
Finland during the first months of the year. No strikes or lockouts of any size worth mentioning have occurred. Unemployment has continuously been of fairly small extent."
Two conclusions would appear to stand out from the survey of
Scandinavian conditions in the period 1920-1922: (1) the close
connection between falling prices and unemployment; (2) the
comparatively small influence of external conditions in a country
like Finland which succeeds in pursuing an independent price policy.
In the latter connection, it is interesting to note that the value
of exports from Finland, expressed in Finnish marks, actually
increased in 1921 and 1922, in spite of the universality of the
depression in other countries. This may have been due partly
to the fall in the exchange value of Finnish currency during this
period ; but too much stress should not be laid on this factor, since
imports into Finland also remained high in 1921 and increased
considerably during the following years.
Exports from the other Scandinavian countries show a considerable decline in monetary value during 1921; but when account is
taken of the enormous fall of prices during that year in all countries,
the diminution in the real value of the goods would appear to be ol
less account. The failure of internal demand would therefore seem
to be the most important consideration in each of the countries under discussion. The diminution of foreign demand during
1921 must none the less be considered an important intensifying
factor, especially in the case of Sweden.x
NETHERLANDS.
In the Netherlands economic depression set in on the outbreak
of war, and there has been no complete industrial revival since.
It is perhaps the only country in which the depression has continued
almost without a break for ten years, although the degree of
acuteness may have varied. The unemployment percentage »
1
For a more detailed discussion of the influence of export trade, see later,
pp. 96-97.
2
This percentage, established weekly by the Central Statistical Office,
gives the proportion between the total number of days of involuntary unemployment and the total number of possible working days for all workers.
It is therefore a much more accurate index of unemployment than the percentages of unemployed workers given by most other countries which fail to
take account of each worker's period of unemployment.

— 35 —

which averaged 2.5 in 1911, 4.0 in 1912, and 5.0 in 1913, rose
suddenly to 13.8 in 1914. It remained as high as 12.0 in 1915,
fell to 5.1 in 1916, but rose again to 6.5 in 1917 and 7.5 in 1918.
Towards the end of 1919 the situation improved slightly and still
more so in 1920, but during the winter of 1921 unemployment
increased heavily, and in spite of the seasonal improvement of the
summer the average for the year was 9 per cent. The situation
became still worse in 1922, and the year 1923 gave no evidence of
permanent improvement.
These fluctuations are shown in the following table which also
gives the changes in wholesale prices:
Year

Index number of
wholesale prices »

1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923

100
109
146
226
276
373
304
292
182
160
151

Percentage of
Unemployment
5.0
13.8
12.0
5.1
6.5
7.5
7.7
5.8
9.0
11.0
10.8

2

s

i Official. Annual average.
> Maandschri/t. Annual average.
» January-November.

In view of the relation between the fluctuations of prices and
unemployment observed in other countries, it is surprising that
the considerable rise in prices during the war which took place in
the Netherlands as elsewhere was not accompanied by a similar
development of industrial activity and a similar reduction in
unemployment. This exceptional situation is perhaps due to the
difficulties with which Dutch industry had to contend owing to
the proximity of the maritime war zone and the North Sea blockade.
Whatever the reason may be, as from 1920 there appears to have
been a well-defined connection between the fall in prices and the
growth of unemployment. During the first ten months of 1920
prices were relatively stable, and unemployment was relatively
slight. In November and December 1920 there was a sudden fall
in prices and rise in unemployment. Both these phenomena became
more marked in 1921 and 1922. In 1923 prices were relatively
stable and at the same time the volume of unemployment, while
still considerable, ceased to grow.

— 36 —

A comparison of the fluctuations in unemployment with the
volume of foreign trade may be made from the following figures:
Year
1917
1918
1919
1920
1921
1922
1923

Average exports per month
Metric tons
277,000
166,000
227,000
351,000
476,000
576,000
725,000

There was thus a marked and steady increase in the volume of
exports from 1918 onwards; in 1922 it was more than twice as
high as in 1919, which was a comparatively prosperous year.
Under such conditions it seems difficult to attribute the outbreak
of the crisis or the severity of unemployment in the Netherlands
to the loss of foreign markets or to the competition of countries
with depreciated currencies.
SWITZERLAND.
Switzerland has figured amongst those countries in which
unemployment has been highest in proportion to the population.
The number of unemployed increased progressively during the
months following June 1920 *, from 3,856 to 25,000 in October,
36,000 in November, and 65,000 in December of that year. In
April 1921, there were 144,000 unemployed, 49,000 wholly and
95,000 partially ; after a slight improvement in the situation during
the summer months, the number of unemployed again increased,
attaining its maximum in February 1922 with 146,302 wholly
and partially unemployed persons. This total, though not markedly
greater than the figure for April 1921 was, however, evidence of a
much more serious situation, since it included 99,541 wholly and
only 46,761 partially unemployed. Similarly, a closer examination of these figures shows that the improvement alluded to above
as having occurred during the summer of 1921 was more apparent
than real; for the decrease in numbers only applied to partially
unemployed, whose number decreased regularly from May 1921
onwards, whereas the number of completely unemployed, on the
contrary, showed a continuous increase.
It will thus be seen that the unemployment crisis made itself
felt in Switzerland very suddenly, and at once assumed an exceedingly tenacious character, for it only attained its maximum intensity
after 18 months, during which the total number of unemployed
1
See The Swiss Labour Market, monthly publication of the Federal Labour
Office.

— 37 —

remained almost constantly above 130,000, and even at one time
attained 146,000 — a figure which is equivalent to 25 per cent, of
unemployed of the total number of wage earners according to
the Federal census of 1910.
The following table shows the relation between the fluctuations
in unemployment and the movement of prices and foreign trade.
The index number of wholesale prices was established at the
beginning of 1921 by Dr. Lorenz and published by him in the
economic review Die Kurve. It comprises seventy-one articles,
the base being: July 1914 = 100. The index number for retail
prices (cost of living) is that published monthly by the Federal
Labour Office.
FLUCTUATIONS IN UNEMPLOYMENT AND THE MOVEMENT OF PRICES
AND FOREIGN
Unemployment
End of month

1920
Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

Wholly
unemployed

Partially
unemployed

Total

TRADE
Exports i

Prices
Index
number
of wholesale
prices

Index
In
number In thou- millions
of
sands
of
retail of francs metric
prices
tons

240.7

245
253
253
262
258
249
243

325,550
325,550
325,550
299,500
299,500
299,500
243,470
243,470
243,470
230,547
230,547
230,547

77
90
90
90
67
67
67

4,640
4,979
3,878
3,561
3,813
3,100
4,330
5,353
7,275
9,814
13,436
17,623

368
373
646
756
5,388
8,949
10,379
15,512
22,743
47,636

4,640
4,979
4,246
3,934
4,459
3,856
9,668
14,302
17,654
25,326
' 36,179
65,259

1921
Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

37,652
42,705
43,282
49,309
52,635
54,039
55,605
63,182
66,646
74.238
80,692
88,967

71,922
82,930
88,689
95,374
87,741
76,116
79,888
74,309
69,421
59,835
56,869
53,970

106,574
125,635
131,971
144,683
140,376
130,155
135,493
137,491
136,067
134,073
137,561
142,937

233.2
221.7
211.3
185.7
183.3
178.8
177.0
180.6
184.5
182.7
178.2
176.9

237
234
231
212
210
214
209
206
200
198
192
189

165,294
165,294
165,294
171,024
171.024
171,024
210,162
210,162
210,162
166,899
166,899
166,899

37
37
37
45
45
45
54
54
54
47
47
47

1922
Jan.
Febr.

97,091
99,541

49,181
46,761

146,272
146,302

172.3
172.4

179
177

140,552
140,552

49
49

1

Monthly average for the quarter.

237

— 38 —
It is scarcely necessary to emphasise the close relationship
between fluctuations in unemployment and movements of prices:
figures show with striking regularity that an increase of unemployment and a lall in prices have always occurred at the same time.
During the whole period of the war, and until the end of 1919,
currency inflation prevailed in Switzerland and was accompanied
by a parallel rise in prices: fiduciary circulation increased from
270,000,000 francs just before the war to 1,036,000,000 francs on
31 December 1919. At that date, the index number of wholesale
prices x was 327.79, and unemployment was almost non-existent.
Early in 1920, however, a policy of deflation was inaugurated by
the Federal Bank imitating the example of Japan, the United
States and Great Britain, where a similar policy had been adopted
in the spring of 1920. In Switzerland, the fiduciary circulation
had fallen to 974,000,000 francs on 31 March 1920 and had further
diminished to 954,000,000 francs by 30 June 1920 2. In spite of
a certain increase in circulation during the second halt of the year,
the effects of deflation began to make themselves felt in October
1920: prices fell rapidly and at the culminating point of the
unemployment crisis in February. 1922, the index number was
172.3, or scarcely more than half the figure for the beginning of
1920 on the eve of the crisis.
The increase in unemployment was accompanied by a considerable decrease in exports ; and the following table would seem to
demonstrate that the decrease in exports preceded the fall in
prices 3, and probably reinforced the effect of the deflationary
policy mentioned above in causing this price decline.
The decrease in exports, whilst constituting a partial cause
initially of the fall of prices, may in the later stages have been
itself exaggerated by the continuance of the price decline. For
any marked lowering of the price level internally has the effect of
increasing the value of the currency concerned as a means of
purchasing goods, and consequently tends to raise its rate of
exchange in the foreign money market. Moreover, an improving
currency tends to be overestimated externally in anticipation of
its greater future value; speculators and investors more willingly
purchase the currency and, in fact, buy it at a price exceeding its
1

2

3

L O R E N Z : Die

League

Kurve,

of Nations'

1 Jan.

Currency

1923, p . 9.

Memorandum,

1913-1922, p . 62

In spite of the absence of data concerning wholesale prices in 1920, the
usual parallel relationship between wholesale and retail prices (the latter
following the former after a certain interval! would appear to show that the
fall in wholesale prices was first apparent early in the summer of 1920.

— 39 —
immediate value. Falling prices may thus lead to the over-estimation of a currency externally, a factor which has a restraining
influence on export from the country concerned. In the case of
Switzerland, for instance, whose currency was over-valued extern*ally during the whole of the period of crisis, foreign importers with
depreciated currency had difficulty in procuring Swiss money to
pay Swiss prices. Hence a diminution of exports from Switzerland.
In January 1922, a period during which unemployment had
reached its maximum, and when exports were particularly low,
Dr. Lorenz' 1 calculations show that the index.numbers for the
Swiss prices converted into foreign currency were 16.4 per cent.
higher than prices in England, 16.7 per cent, higher than in Italy,
18.3 per cent, higher than in France and 53.6 per cent, higher than
in Germany. The results of similar calculations made as regards
the United States during different months in 1921 and 1922, by
the Economic and Financial Section of the League of Nations, are
contained in the following table:
EXCHANGE FLUCTUATIONS AND RELATIVE PRICE MOVEMENTS
HETWEEN SWITZERLAND AND THE UNITED STATES
Date

(a)
Relative
prices

(6)
Rate of
exchange

1921

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

139.4
142.2
139.7
134.1
127.2
127.5
126.2
125.9
129.5
129.3
128.0
126.9

123.2
118.2
113.2
110.9
108.0
113.3
116.7
114.8
112.3
105.6
102.9
99.7

—
—
—
—
—
—
—
—
—
—
—
—

•11.6
16.9
19.0
16.3
15.1
11.1
7.5
8.8
13.3
18.3
19.6
21.4

1922

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

126.5
122.3
US.7
114.2
109.8
108.9
106.0
106.6
107.9
108.8
109.8
111.1

99.4
98.9
99.1
99.2
100.4
101.3
101.0
101.3
102.5
104.5
105.0
102.2

—
—
—
—
—
—
—
—
—
—
—
—

21.4
19.1
16.5
13.1
8.6
7.0
4.7
5.0
5.0
4.0
4.4
8.0

» Memorandum on Currency, p. 191. Geneva, 1Ï23
1

l

Die Kurve,

No. 12, Dec. 1923.

(c)
Percentage
difference

'

_

40 —

In this table, column (a) expresses the percentage which the
Swiss index number bears to the United States price level : column
(b) gives the cost of the dollar in Swiss francs expressed as a percentage of the par rate; column (c) gives the difference between
(b) and (a) expressed as a percentage of (a). If the rate of exchange
corresponded exactly to the relationship between Swiss and American prices, (a) and (b) would be equal. If, however, (a) is greater
than (b), this indicates t h a t the Swiss franc is over-valued with
reference to the dollar if the purchasing power of the two currencies
is taken into consideration; and it will be seen that this was the
case during 1921 and 1922 l.
The joint effects on imports of the fall of prices on the home
market, coupled with a rise in the Swiss exchange, is indicated
in the two following extracts from reports of the Federal Bank:
The economic position of Switzerland became considerably worse than in
1920, particularly in the second half of the year. The exchanges of the countries
constituting our principal foreign markets continually declined, which resulted
in the restraint of exports; and when the effects of the crisis due to the rapid
and unforeseen fall in the price of raw materials made themselves felt, even
countries with which the rate of exchange was normal endeavoured to cancel
their purchase contracts. Industrial and commercial repoits are practically
unanimous in stating that after a period of intense activity during the first
quarter of the year, and a very considerable increase in prices, a period of
general weakness prevailed, followed by a fall in prices which, although slow
at first, soon assuired alarming proportions; trade was paralysed, output
reduced, and some factories closed down entirely, as shown by the great
increase in unemployment. a
Jn the economic sphere, the most noticeable feature was the persistent fall
in the price of raw materials and manufactured articles. Great hesitation
prevailed among buyers and the difficulty in disposing of stocks and the
necessity for restricting production leu to a world crisis causing intense unemployment and heavy depreciation of stocks of manufactured articles. The
contrast between countries with high and low exchanges became greater and
made it more difficult for the former to export their products, while their
industry was, at the same time, threatened by competition from countries
with a depreciated exchange. Switzerland suffered particularly severely from
the effects of this general crisis, and the position of industries which are largely
dependent on exports became steadily worse for the reasons mentioned above.8
1

In examining the table contained in the Memorandum on Currency, from
which these figures are taken, it will be noticed that, as regards the Netherlands, where it was found that exports, unlike in Switzerland, had not decreased
during the unemployment crisis, the differences between these two series of
figures were sometimes positive and sometimes negative; and that figures
themselves were never as high as in the case of Switzerland. This perhaps
accounts partially for the difference in the position of the two countries as
regards the development of export trade.
2
Swiss Federal Bank, hlth Report, 1920, p. 5.
3
Ibid., 58th Report, 1921, p. 4.

— 41 —
The general examination of the available statistics which has
been undertaken would appear to demonstrate that the fall in
prices and the decrease in exports, both of which contribute to
unemployment, were phenomena closely related to monetary
conditions.

CHAPTER IV

ITALY, FRANCE AND BELGIUM

ITALY.
Shortly after the Armistice Italy suffered, as in the case of most
other belligerent countries, from an increase in unemployment,
generally attributed to military and industrial demobilisation. In
Italy, the lack of raw materials may also have been a partial
cause of this momentary depression.
The number of unemployed recorded during 1919 did not,
however, exceed 400,000. Moreover, the situation improved
rapidly during the following months and at the end of July 1920
there were only 88,000 unemployed.
If reference be made to the following table with a view to comparing fluctuations in unemployment with the movement of wholesale
prices, it will be noticed: (1) that wholesale prices fell at the beginning of 1919, at a time when unemployment was increasing;
(2) that wholesale prices began to rise in March 1919, and that this
rise continued during the whole period when unemployment was
decreasing.
In May 1920 the price curve again showed a downward trend,
and three months later unemployment again began to increase,
which marked the outbreak of a crisis of considerably greater
magnitude than the demobilisation depression. The development
continued until January 1922 when there were 600,000 unemployed1,
whereas from July 1921 onwards prices again began to rise; this
rise, however, which was of short duration, was apparently only
a reaction from the abnormal fall which had occurred in April 1921
1

This figure compared to the approximative total number of wage earners
corresponds to a proportion of 5.23 per cent.; but if a distinction is made
between agriculture and industry, the proportion would be 2.1 per cent, in
the former and 18 per cent, in the latter case.

— 43 —

owing to a change, in the "bread policy" of the Government 1 ;
so that in reality, ignoring this incidental fluctuation, the general
fall in prices appears to have extended from April 1920 (index
number: 679.1), until May 1922 (index number: 523.5).
End of month

Number of totally
unemployed

Index number
of wholesale prices '

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

268,593
395,394
375,297
356,165
326,651
322,080
290,802
294,081
255,314
268,227

327.5
322.5
326.1
329.9
336.8
357.9
362.4
369.4
371.7
390.6
438.8
457.3

1920

Jan.
Febr.
March
April
May
June
July
Aug.
Sept,
Oct.
Nov.
Dec.

270,487
261,947
235,486
202.002
115,098
105,831
88.101
93,241
115,736
100,758
107,112
102,156

503.7
556.3
619.0
679.1
659.0
614.8
613.0
631.7
660.5
662.1
658.0
635.4

1921

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

1919

1922

—

388,744
435,194
463,108
473,216
492,368
512,260
541,779

642.5
613.3
603.6
583.9
546.9
508.9
520.0
541.8
580.0
599.1
594.9
594.6

006,819

577.2

—
—

250,145

—

Jan.

i "Bachi". Base: average for 1913 = 100.

Thus the general relationship between unemployment and price
movements, which has already been noted in the case of other
1

Ernest LÉMONON: L'Italie d'après-guerre, p. 167. Bibliothèque d'histoire

contemporaine.

Alean 1922.

— 44 —

countries, is also strikingly manifest in Italy. It should further
be noted that the period of rapidly falling prices which began in
May 1920 was preceded or accompanied by two increases in the
central rate of discount, from 5 per cent, to b]/2 per cent, in April,
and from 5% per cent, to 6 per cent, in May.
An examination of statistics of foreign trade shows that there
was a considerable strengthening of the export market from July
1920 to the end of the year, that is to say, during the initial stages
of the crisis. On the other hand, the year 1921, the worst period
of the depression, was marked by an appreciable diminution in
exports '.

Date

1920

Jan.
Febr.
March
April
May
June
July
Aus;.
Sept.
Oct.
Nov.
Dec.

Value of
exports
in thousand lire
492,941
631,950
689,935
691,430
662,234
752,154
521,490
531,940
570,174
707,364
730.828
852,000

Date

1921

Jan.
Febr.
March
April

Value of
exports
in thousand lire
503.186
566,630
567,299
587,167

'

FRANCE.
French statistics on unemployment are somewhat imperfect,
a characteristic common to all countries in which there does not
exist a fairly general system of unemployment insurance. Some
indication of the degree of unemployment may, however, be
obtained from the returns of the municipal or departmental
unemployment relief organisations.
The statistics of the Paris Unemployment Fund s in particular,,
show that this important industrial centre did not escape the general
economic depression. In November 1920, the number of workers
in receipt of relief, after falling to an insignificant figure, rose
suddenly from 700 to 2,000, and increased steadily to a maximum
1
2

For a further account of the movements of foreign trade, see later, p. 81.
Bulletin du Ministère du Travail, passim.

— 45 —

of 44,000 in March 1921. That this was not the ordinary seasonal
unemployment of the winter months is shown by a comparison
with the corresponding figures for the previous and following
years: 500 unemployed workers in receipt of relief in March 1920:
3,500 in March 1922 and 600 in March 1923. Although the Parisian
industries suffered from the general depression in 1921, the resulting
unemployment was not so great as that which occurred during
the period of demobilisation after the Armistice. The maximum
point of this latter wave of unemployment was reached in March
1919 when the number of workers in receipt of relief from the Paris
Municipal Unemployment Fund was 70,000.
Another characteristic feature of the 1921 depression, which is
evidence of the very general nature of its causes, is that most of the
industrial groups covered by the statistics were affected simultaneously by the crisis; the number of unemployed began to rise at
about the same time (November 1920) for nearly all the different
groups and reached a maximum at almost the same date, i.e.,
between 26 March and 8 April 1921, for men, and one month
earlier, that is, between 26 February and 11 March, for women.
The statistics of the unemployment funds for the country as
a whole, although less reliable, since the number of active funds
varies from time to time, give a similar picture of the rapid rise
in unemployment at the end of 1920, a maximum having been
reached in March 1921 when more than 90,000 workers were in
receipt of relief.
As in other countries, there is a striking coincidence in France
between the fluctuations of unemployment and of prices. Even
during the 1919 crisis, which must be ascribed essentially to military
and industrial demobilisation, the price factor played a part. The
index number of wholesale prices l fell from 416 in October 1918
to 376 in May 1919. This was the period of the first wave of unemployment after the war. During the second half of 1919 and the
first half ol 1920, on the other hand, wholesale prices rose and unemployment diminished. By the beginning of June 1920 only 98
workers were in receipt of relief from the Paris Unemployment Fund.
At that date the two curves changed their direction. The index
number of prices fell steadily until the beginning of 1922, when,
as has already been shown, the second wave of unemployment
after the war commenced.
If an attempt were made to ascribe the fluctuations in prices
in part to monetary policy, and thereby attribute the unemployment
1

Statistique générale de la France.

— 46 —

to the latter, a reference to the Memorandum on Currency published
by the League of Nations in 1923 will show that the fall in prices
from April 1920 to February 1922 was not accompanied in its
initial stages by a contraction in legal tender currency l.
Date

1920

Index number of
wholesale prices l

Index number of
fiduciary circulation 100.2

March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

100
93.6
83.9
84.3
85.3
89.5
85.6
78.4
74.0

1921

March
June
Sept,
Dec.

61.2
55.3
58.5
55.4

103.1
100.4
99.6
97.9

1922

March

52.3

95.3

101.3
105.2

—

101.7

i Official. Base: April 1920 = 100 (the maximum point of the wholesale price curve).
2 Base: 31 December 1919 = 100.

The above table shows that fiduciary circulation increased during
the first nine months of 1920. The rate of fall of prices varied and
at one point there was even a rise. In September the fiduciary
circulation began to fall, while the decline of prices accelerated
and unemployment increased.
As regards the relation between credit facilities and the movement
of prices, it is to be seen that some restriction was effected in the
spring of 1920 by the raising of the central rate of discount from
5 to 6 per cent, in April and its maintenance at this level until
June 1921. This movement corresponded with the restraint of
rising prices in April 1920 and a subsequent decline until the year
1922.
Statistics of foreign trade might also be examined with a view
to discovering the part this factor may have played in unemployment.
1
Mr. Charles RIST indicates in his book La Deflation en Pratique (Paris,
1924), that the deflation of currency in France was rather the consequence
than the cause of falling prices.

— 47 —
imports i
Date

In thousands
of francs

1919 Monthly average
1920 Monthly average
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

2,983,272
2,950,412

1921

Jan.
Febr.
March

Exports i

In thousands of
metric
tons

In thousands
of francs
989,966
1,869,563

In thousands of .
metric
tons

2,800,453
2,627,876
2,595,445
2,672,178
2,948,257

3,204
4,245
4,251
5,483
4,201
4,341
4,511
4,510
5,763

2,399,508
2,151,573
2,332,552
1,883,598
1,660,896

464
1,039
1,352
1,092
1,299
1,276
1,096
1,251
931

1,982,468
1,613,931
1,742,908

3,703
2,579
2,827

1,882,618
1,889,444
1,686,426

1,117
1,414
1,069

i LEAGUE OF NJATIONS: Monthly Bulletin of Statistics, Special Trade. Evaluated at
1919 official rates.

The import figures give no indication that the unemployment
in France might be attributed to an excessive influx of foreign
industrial commodities. There was, however, a considerable decline
of exports at the end of 1920 and the beginning of 1921. A comparison between the figures showing the value and those showing the
weight of exports seems to indicate that the diminution mainly
affected manufactured articles.
In conclusion, this period of unemployment in France coincided
with the fall in prices. The latter was apparently not produced
by a contraction in legal tender currency, though it may to some
extent have been due to a restriction of credit. Furthermore,
short though the period of unemployment may have been, it was
perhaps accentuated in France by a loss of foreign markets, from
which luxury trades in particular would have suffered, since they
are responsible for a large proportion of French exports.
BELGIUM.
The unemployment crisis in Belgium began to assume an alarming
aspect about the same time as in France and other Western European
countries, that is, in September 1920; it reached its culminating
point very rapidly, i.e., in May 1921, somewhat later than in France.
The development of the crisis is shown in the following table giving
the percentage of unemployed (wholly or partially) among members
of Trade Union Unemployment Funds.

— 48 —
1920

Sept.
Oct.
Nov.
Dec.

Per cent.
5.8
6.4
7.2
17.4

1921

Per cent.

Jan.
Febr.
March
April
May

19.3
22.7
31.5
31.2
32.3

The unemployment crisis was preceded and accompanied by
economic phenomena similar to those noted in other countries.
Early in the spring of 1920 some restraint of credit occurred through
the raising of the central discount rate from 3.5 per cent, in March
to 5.5 per cent, in April 1920. This restriction of credit facilities
appears soon to have been reflected in a diminution of purchasing
power, of which the rapid decrease in the deposits on current
account at the National Bank is perhaps some evidence : These
accounts, exclusive of government accounts, showed a decrease
from 1,694 million francs at the end of June 1920 to 1,100 millions
at the end of December and 489 millions at the end of June 1921 1.
No statistics of wholesale prices are available for the period
immediately preceding the crisis, or during its first stages ; but the
cost of living index number, which shows the fluctuations of retail
prices, indicates that the latter began to fall in October 1920, and
it may be supposed that a fall in wholesale prices had occurred a
few months earlier. It is further to be noted that the official index
number of wholesale prices calculated on the basis of October 1920=
100 shows a fall from 96.4 in January 1921 to 71.8 in August
1921, a decline of more than 25 per cent..
Statistics of foreign trade show that a considerable decrease in
the value of exports, expressed in francs, occurred as from July
1920. This decrease continued in August, and was succeeded,
until the end of the year, by alternate periods of rise and fall.
In 1921 the value of exports, expressed in francs, continued to
diminish, whereas exports calculated in tons showed a tendency
to improve. This may be due, on the one hand, to a decrease
in prices, and, on the other, to a decrease in the real value of the
goods exported, corresponding to a lesser proportion of manufactured goods and to a larger proportion of raw material in the
total volume of exports.

1

LEAGUE OF NATIONS: Memorandum on Currency, 1913-1922.

— 49 —
Imports

Exports
Date

1920

June
July
Aug.
Sept.
Oct.
Nov.
Dec.

1921 ' J a n .
Febr.
March
April
May
1

In thousands
of francs

In thousands of
metric
tons

842,665
769,832
750,963
774,800
760,628
727,881
769,655

950
941
960
1,119
966
893
974

1,149,490
857,714
891,713
841,904
896,222
886,013
926,424

997
895
1,022
954
1,129
1,292
1,249

647,663
647,663
647,663
614,574
614,574

1,107
1,107
1,107
1,750
1,750

914,787
914,787
914,787
774,216
774,216

1,407
1,407
1,407
1,365
1,365

In thousands
of francs

In thousands of
metric
tons

From the beginning of 1921, monthly averages for the quarter.

It might therefore be argued that foreign markets exercised a
considerable influence on the development of the unemployment
crisis in Belgium; nevertheless, the correlation is not continuous
since it is to be seen * that there was subsequently little improvement in the value of exports, expressed in francs, in spite of the
rapid revival of employment after May 1921.
On the other hand, in considering import movements, whether
expressed in francs or in metric tons, a tendency to increase during
the period when unemployment was growing is to be observed;
this increase, however, was comparatively unimportant and was
not lasting. Consequently, the conclusion cannot be drawn that
the unemployment crisis in Belgium was either due to, or considerably aggravated by the competition of foreign goods on the home
market.
1

See later, p. 84.

4

CHAPTER V.

CENTRAL EUROPE

AUSTRIA.
In the other countries already reviewed the unemployment crisis
began to develop at the end of 1920, but in Austria no such development took place; nor was this peculiar situation modified during
1921, for it was only at the beginning of 1922, at a time when the
situation elsewhere had begun to show signs of progressive improvement, that the first signs of the crisis began to appear in Austria.
The fullest statistics dealing with unemployment in that country
are those compiled in accordance with the Act of 24 March 1920
relating to compulsory insurance against unemployment. Despite
the imperfect nature of these statistics, due particularly to modifications in the administration of the Act, they enable the general
movements of the labour market to be followed with sufficient
accuracy.
After the conclusion of the war Austria suffered from an acute
unemployment crisis in 1919, due partly to the labour market
being flooded by large numbers of demobilised soldiers, and partly
to the difficulty of adapting war industries to peace needs and to
the lack of raw materials consequent on the break-up of the Austrian
Empire. During the whole of 1919, the figure of unemployed
was approximately 120,000; but this first crisis was of short
duration, and by May 1920 the number of unemployed in receipt
of relief had fallen to 19,000; the figure continued to decrease with
some fluctuation, until the end of 1921. This improvement
suddenly ceased in November 1921, at a time when the number
of unemployed in receipt of relief had fallen to 8,700, the lowest
figure reached.

— 51 —
From December 1921 the number increased rapidly, doubling
from month to month until March 1922, when it became stationary
a t about 40,000. During the summer, a certain improvement
occurred, but towards the end of the year—at a time when the general
economic crisis was becoming less acute in other countries—the
number of unemployed in receipt of relief in Austria increased
progressively from 57,000 in October to 84,000 in November, and
to 118,000 in December 1922, finally reaching the maximum figure
of 167,415 in the latter part of February, 1923.
These fluctuations are shown in greater detail in the table
below, which permits a comparison between unemployment
movements and those ot prices during the same period. In the
absence of any homogeneous statistics concerning wholesale prices,
statistics based on retail prices must suffice; those which have been
used for this purpose have been published since 1921 in Der österreichische Volkswirt by Mr. Philip Knab, and were drawn up on
the basis of a consumption of 2,500 calories per day for an unmarried person living as a sub-tenant in a household of five
members 1.
Despite these imperfections, the figures in question have the
advantage of covering a period sufficiently long to enable the fluctuations in the purchasing power of the crown at Vienna to be followed
from month to month. In view of the phenomenon often noted
in countries with a depreciated currency, namely, that stable
foreign currencies have at times a higher purchasing power abroad
than in their own country, an attempt has been made to take this
fact into account by converting the Austrian index number of
prices into dollar prices at the current rate of exchange.
Thus, a fall in the index number expressed in dollars corresponds
to an increase in the purchasing power of the dollar at Vienna,
together with that of other currencies whose rate of exchange
followed closely that of the dollar.

1
For this reason, the figures showing the amoint of rent included in Mr.
Knab's index must be accepted with caution, since the rent may have been
charged to the sub-tenant or modified at the will of the householder, whereas
during the whole period under review the general level of rents has been
regulated by law and has remained almost constant. Thus, in Mr. Knab's
index, rent represents about one-fifth of the total, whilst according to the
calculations of the joint commission on wage adjustments it should only
figure as one-eightieth of the total if due account be taken of the legal regulation imposed. (See: Die Industrie, No. 1, 1924.)

— 52 —
STATISTICS OF UNEMPLOYMENT AND MOVEMENTS OF PRICES
IN AUSTRIA.

Date
(commencement of month)

1920

Number of
unemployed
in receipt
of relief

Index numbers of prices
In
paper crowns

In terms
of dollars

—
—
—
—
—
—
—
—
—
—

Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

69,427
61,851
53,999
45,833
19,155
22,403
23,970
22,705
19,768
14.733
16,073

—
—
—
—
—
—
—
—
—
—

1921

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

16,637
16,219
14,527
9,801
9.518
10,105
10,935
11,700
11,345
10,591
8,710
9,829

100
110.24
123.95
130.62
139.99
143.93
160.38
146.91
191.20
242.36
400.33
663.33

0.240
0.275
0.310
0.364
0.384
0.294
0.224
0.175
0.171
0.120
0.140
0.264

1922

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

16,687
33,642
41,761
42,261
44,275
38,563
33,486
30,971
31,243
37,999
57,304
84,283

989.21
1,444.53
1,672.85
1,725.40
1,988.78
2,726.18
3,671.52
7,132.22
16,548.40
20,550.80
21,352.20
20,537.18

0.297
0.432
0.260
0.221
0.220
0.189
0.146
0.147
0.224
0.280
0.294
0.280

1923

Jan.
Febr.
March
April

118,525
161,225
167,415
152,828

19,932.18
20,130.19
20,070.35
20,376.62

0.280
0.280
0.280
0.280

From 1920 until the beginning of 1923, labour market conditions
passed through three main phases in Austria: from the end of
1920 to November, 1921, an almost continuous decrease in the
number of unemployed; from November 1921 to May 1922, the
first stage of depression, followed by a period of comparative
stability during the summer of 1922; finally, from October 1922

— 53 —

onwards, the development of the crisis, attaining its culminating
point in March 1923.
The fact that Austria was scarcely affected by the general unemployment crisis from which nearly all other countries were suffering
from 1920-1922 may be explained by the continuous and almost
complete depreciation of its currency, due to incessant inflation.
The Austrian crowrn, the par value of which is 1.05 gold irancs,
was quoted at Zurich at 42 Swiss centimes on 31 October, 1918,
when the Monarchy collapsed. The rapidity with which it depreciated until it touched the minimum figure of .00007 Swiss francs
in August 1922 is well known. It was at this date that the intervention of the League of Nations occurred.
This inflation of Austrian currency was reflected by a rapid
upward movement in prices; and the first result oi this tendency
was a great increase of industrial activity in Austria and a consequent diminution in the number of unemployed. The continual
rise in prices constituted a powerful stimulus to production, on
the one hand, while on the other, the incessant depreciation of the
currency destroyed all possibility of saving, and led to the immediate
conversion of all available money into goods \
Moreover, although the rise in prices, expressed in paper crowns,
seemed to adapt itself almost immediately to the depreciation of
the currency, this rise only took effect with a considerable time-lag
as regards Austrian prices expressed in a stable external currency
—-the phenomenon already alluded to. The advantage of the
foreign trader in buying crowns and converting them immediately
into Austrian goods tended considerably to favour exports, and
the results of this bonus on exports are to some extent reflected
in the curve of unemployment. It will be seen that during periods
when the margin between the internal and external purchasing
power of the currency was the widest, unemployment was decreasing. Thus unemployment attained its maximum dimensions
in November 1921, at a time when prices, expressed in paper
crowns, were four times as high as in January of the same year:
when expressed in dollars, however, they were only 50 per cent.
of their value in January. Similarly, the decrease in the number
of unemployed, which occurred during the period April-August
1922, corresponds to the existence of a very wide margin between
prices in Austrian paper currency and prices expressed in dollars.
1
LEAGUE OF NATIONS: The Financial Reconstruction of Austria.
Report
of the Financial Committee to the Council. Report of the Delegation sent to
Vienna by the Financial Committee, p. 21.

— 54 —

It should also be noted, however, that this relationship was only
intermittently apparent, and was subject to exceptions during
the period under review. On the one hand, in April and in May
1921, although unemployment was diminishing, the purchasing
power of the dollar at Vienna was at the same time decreasing;
and, on the other, from October 1922 to April 1923, during the most
acute period of the crisis, the purchasing power of the dollar at
Vienna remained at the level it had attained during the months
immediately preceding the crisis, although the number of unemployed quadrupled during this period. It would therefore appear
that the stimulus to foreign trade due to depreciated exchange was
not the only, factor which affected the Austrian labour market,
and that others of an internal character must also be taken into
account.
In addition to the joint effect of currency depreciation and the
rise in prices, account must also be taken of the fact that the
difficulty of securing raw materials experienced by Austria after
the armistice began to play a less important part at the end of
1920. and in 1921. Relations had been re-established by various
commercial treaties with neighbouring countries which possessed
the raw materials needed by Austria and formed its chief markets.
No general statistics of production for the period under consideration are available, but the increase in the production of steei
from 198,497,400 kilograms in 1920 to 293,881,600 kilograms in
1921 may be quoted as an example of this tendency.
After a certain time, however, the inevitable results of inflation
began to make themselves felt: and having for a long time been
a stimulus to production, the continual inflation became itself
ultimately a cause of unemployment. The rise in prices continued at an ever increasing rate, the prices of certain articles
even exceeding those prevailing in world markets; in February
1922, prices expressed in dollars were nearly double those in January
1921, and the margin between the internal purchasing power of
the croAvn and the external value of Austrian currency, which had
acted as a stimulus to exports, no longer existed. In Austria
itself, the general tendency for the depreciating currency to be
converted immediately into tangible goods, developed into feverish
speculation: and capital was also diverted from productive undertakings to speculative purposes. Capital was invested in foreign
currencies, which instead of being employed for the purchase
of raw materials (which owing to the depreciation of currency
were continually increasing in price) were no longer available as

— 55 —

purchasing power on the Austrian market. It was at this period,
from December 1921 onwards, that unemployment began to develop.
This first phase of the crisis, however, was relatively short. During
the summer of 1922 when there was a considerable bonus on exports,
due to the margin between the purchasing power of the currency
at home and abroad, the figures of unemployment decreased by
nearly 30 per cent., remaining stable until November 1922, when the
intervention of the League of Nations for the financial reconstruction of Austria took place. At that date inflation ceased suddenly
and the Austrian crown was stabilised. Prices comparatively also
became stable and the external purchasing power of Austrian
currency tended more and more to equal that of its purchasing
power in the home market, thus no longer providing a stimulus
to export. This phenomenon was accompanied by the continued
depreciation of the German mark, which increased the competitive
power of Germany and raised the value of the Austrian crown
in terms ot the mark.
After October unemployment increased rapidly, attaining its
highest point in March 1923 when there were 167,000 unemployed
in receipt of relief.
The manner in which the stabilisation of the currency resulted
in removing the bonus on exports and thus restricting the Austrian
foreign market can easily be understood. As regards the internal
effects of the stabilisation of prices, attention has already been
drawn to the general tendency existing in periods of rising prices
to convert available currency into goods and thus constitute
reserves of stocks. As soon as prices are stabilised, this fever of
"conversion" is checked, demand falls off, and there is general
stagnation of the market until stocks have been exhausted. Moreover, the stabilisation of prices removes the stimulus to production
resulting from the high profits which can be realised during a
period of inflation. Immediately the rise of prices is checked,
there is a general tendency for all the undertakings which had only
been able to come into existence under the stimulus of rising
prices to collapse.
On the whole, therefore, the conclusion may be drawn that the
movement of prices in Austria, as in other countries, constituted
an essential factor in the evolution of the labour market. Further
evidence of its importance is revealed by the fact that prices in
Austria did not follow the same curve as in the countries which
have just been examined, and that the unemployment crisis also
occurred at a different period.

— 56 —

CZECHOSLOVAKIA
As in the case of Austria, the course of unemployment in Czechoslovakia was very distinctive. While unemployment in all Western
European countries increased in 1921, it declined in Czechoslovakia.
A relatively high minimum of 62,610 unemployed workers was
reached in October 1921. During the first half of 1922 the volume
of unemployment was still comparatively small, but it increased
very rapidly after August, reaching a total of 436,000 at the end
of the year, or four times the figures at the beginning of 1922.
The number of wage-earners in Czechoslovakia being 4 million,
this total indicates that approximately 11 per cent, of the workers
were unemployed. The following table shows the fluctuations in
detail and compares them with changes in the index number of
prices.

Date
(end of month)

1921

1922

Number of unIndex numbers of wholesale prices 1
employed registered in the
Professor
Official
employment
exchanges
Mildschuh's index i
index 2

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

95,254
105,341
102,180
99,896
107,934
103,170
95,920
90,812
70,780
62,160
67,79.6
78,312

1,460
1,317
1,323
1,326
1,270
1,259
1,361
1,653
1,654
1,681
1,674
1,595

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

112,323
141,730
127,599
124,406
113,877
107,147
103,457
140,544
231,641
316,532
375,593
436,710

1,470
1,458
1,479
1,477
1,455
1,440
1,388
1,198
1,090
1,088
1,039

—
—
—
—
—
—
—
—
—
—

1,520
1,552
1,491
1,471
1,471
1,464
1,386
1,155
1,059
1,017
999
1,003
1.019

1
The index number for the first day of each month has been taken as applicable to
the2 last day of the previous month, so as to correspond with the unemployment statistics.
Base: July 1914 = 100.

— 57 —

The parallelism between the movements ol prices and unemployment already observed for the other countries is also very clearly
marked in Czechoslovakia. Prices, which in 1921 were 14.5 times
as high as in 1914, fell slightly until June 1921, after which they
increased rapidly, and the level reached in October 1921 was
16.8 times that of 1914. This month was also the date of minimum
employment. In a general way it may be said that, apart from
a slight depression in the period from April to July, 1921 was a
year of rising prices and decreasing unemployment.
At the beginning of 1922 the situation was reversed. Prices
fell continuously and unemployment, apart from certain seasonal
fluctuations, increased steadily, rising during the year from 112,000
to 436,000.
The changes in prices were accompanied by corresponding
fluctuations in the rate of exchange which alternately tended to
restrain and stimulate export trade. From the end of 1921 till
the end of 1922 the Czechoslovak koruna tripled in value on the
New York Exchange, rising from 1.2 cents to over 3 cents. There
must doubtless have been some relationship between this movement
and the monetary policy of Czechoslovakia. After a period of
inflation during which the fiduciary currency increased, reaching
over 12 milliard koruna, a process of deflation took place, as a
result of which the note circulation was brought down to about
10 milliard koruna at the end of 1922. Furthermore, the rapid
appreciation of the koruna may have been due also to the floating
oi loans in New York, London and Amsterdam and to the balancing of the national budget.
The rise in the external value of Czechoslovak currency may have
influenced the labour market in two ways. On the one hand by
stimulating import, and by restraining export through the competitive disadvantage suffered by Czechoslovak merchants, it would
tend to reduce employment within the country. In the second
place, by turning the tide of investment towards Czechoslovakia
instead of away from that country, it would accentuate the tendency
for imports to exceed exports, thereby still further aggravating
the internal situation.
The depreciation of the koruna both at home and abroad which
had tended to stimulate export during 1921 was no longer effective
in 1922; on the contrary, Czechoslovak trade suffered restraint in
1922 through the appreciation of its currency. Thus it is to be
seen that from 1921 to 1922 the value of Czechoslovak exports

— 58 —
fell by 30 per cent, from 27,312 million koruna to 18,086 million
koruna. This fall may be attributed in part to the decline of
prices, as would appear from the statistics of the weight of exports.
These figures fell only slightly, the monthly average in 1922 being
791,000 metric tons, as compared with 812,000 in 1921. The fall
in prices may not by itself explain the reduced value of exports.
It might also be attributed to changes in the nature of the articles
exported; that is to say, to an increase in the exports of raw
materials as compared with those of manufactured goods.
It should further be recalled t h a t the rise in the Czechoslovak
koruna took place at the same time as the continued depreciation
of the German mark, and t h a t this, combined with a certain
similarity in the production of the two countries, may have enabled
Germany to compete seriously with Czechoslovakia in world
markets. This factor of foreign competition is of considerable
importance in a country in which export industries are as developed
as in Czechoslovakia.
According to Professor Mildschuh, author of one of the index
numbers of prices given above, one of the causes of fluctuations in
exports, and therefore in unemployment, was the alternately too low
and too high purchasing power of the Czechoslovak koruna abroad.
In an article published in Industrial and Labour Information 1 he
describes the comparative prosperity of the first half of 1921, and
notes t h a t in May of t h a t year the under-valuation of the koruna
as compared with the pound sterling was 68 per cent., and as
compared with the dollar 42 per cent. This acted as a stimulus
for foreign buyers, and by its effect on industries working for
export, helped to bring down the number of unemployed.
Towards the end of 1921 the position changed. Prof. Mildschuh
writes as follows:
The mark began to fall rapidly, and the Czechoslovak exchange rate thenceforward followed an independent course. Fluctuations of the exchange have
become less acute, and prices have stabilised themselves. Thus, during the
first half of 1922 the koruna ranged between 8 and 10 Swiss centimes. Prices
fell slightly until they reached the level of 14% times pre-war prices. The
value of the koruna abroad and its home purchasing power approximately
balanced. According to my calculations the disproportion between the home
purchasing power of the koruna and the dollar completely disappeared in
December 1921, and the difference as compared with the pound sterling fell
to 13 per cent. In spite of this, exports did not diminish, and unemployment
did not increase to any extent.
1

Vol. V, No. 13, pp. 614 et seq.

— 59 —
In the second half of 1922, far-reaching changes in the situation occurred.
The exchange rate of the koruna began to rise rapidly, reaching a maximum
on 29 August 1922 when the koruna was quoted at 19.70 on the Zurich exchange. The exchange rate of the koruna was too high in comparison with
other currencies. According to my calculations this over-valuation amounted
on 12 September 1922 to 34 per cent, as compared with the pound sterling,
46 per cent, as compared with the dollar, 61 per cent, as compared with the
lira and 145 per cent, as compared with the German mark. It was at this
period that the cost of living in Prague was highest. The consequences of
the situation were, of course, the contrary of those described above. Exportation
was checked and industrial production fell. There was a great increase of
unemployment from August 1922 onwards, as will be seen from the tables
given above. The change in the situation was, however, in some ways beneficial,
as foreign goods could be obtained much more cheaply and the cost of living
in Czechoslovakia was therefore reduced. This was followed by a reduction
of wages.
According to the calculations of the Statistical Office there was a fall in
prices from 14% times the pre-war level at the end of the first half of 1922
to 10 times the pre-war level at the end of the year. As the result of the fall
in prices and wages on the one hand and of the fall in the Czechoslovak exchange
rate from 18 centimes on the Zurich exchange in October 1922 to 15 or 16
centimes at the beginning of 1923 on the other, this discrepancy between thé
value of the Czechoslovak currency abroad and at home completely disappeared. There appeared in fact a tendency in the opposite direction, the
purchasing power of the koruna at home becoming greater than its value
abroad.
In conclusion it may be said that the striking coincidence between
the fluctuations of unemployment and prices which has been noted
for the other countries discussed, also appears in Czechoslovakia.
Rising prices have accompanied and apparently stimulated high
employment. Falling prices have been accompanied by unemployment. Furthermore, to the extent t h a t fluctuating prices may
also have been responsible for wider fluctuations in the exchange
value of the koruna, they have, in the opinion of several economists,
contributed to the dislocation of the export trade.
POLAND
From the table below, showing unemployment in comparison
with prices, foreign trade, and exchange fluctuations, it may be
seen t h a t the unemployment crisis from which Poland has been
suffering was closely related, both in point of time and character,
to those which affected Austria and Czechoslovakia.
Just as both these States, together with Germany, were spared
an unemployment crisis during the years 1919-1921 (except during
the period of demobilisation), in a like manner Poland was affected
by the world unemployment crisis only at the end of 1921 and the

— 60 —
beginning of 1922; nor was this crisis either of an acute character
or long duration. Being first evidenced at the end of October 1921,
it reached its culminating point at the end of January 1922, when
there were approximately 221,000 unemployed. This crisis came
to an end as rapidly as it had developed, and in June 1922 the
normal level prevailing before the crisis had been again attained.
U N E M P L O Y M E N T IN COMPARISON W I T H P R I C E S ,

EXCHANGE

F L U C T U A T I O N S , AND F O R E I G N T R A D E

Date
(end of month)

1921

1922

1923

Approximate
figure on
unemployment Index number
registers
of wholesale
of public
prices 1
employment
exchanges

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

90,000
80,000
88,000
130,000
115,000
95,000
G5,000
70.000
78,000
120.000
178,368
218,368

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

Foreign trade
Imports
(in thousands of
metric
tons)

Exports
(in thousands of
metric
tons)

602
655
586
570

183
200
180
196
234
494
485
667
1,500
926
894
702

410
430
485
461
280
477
438
350
469
271
321
379

119
174
147
168
115
155
195
177
240
221
147
170

221,444
206,442
170,125
148,625
128,916
98,581
85,240
69,455
68,481
61,178
61,674
75,262

592
534
737
751
786
878
1,016
1,358
1,524
2,013
2,756
3,463

813
945
951
933
962
1,082
•1,421
2,104
2,053
3,195
3,925
4,240

386
310
434
455
449
280
336
151
204

214
129
297
234
290
251
340
1,154
1,660

81,184
106,729
114,570
112,755
93,731
76,397
64,563
56,515
52,420
54,923
61,767
67,581

5,447
8,591
9,885
10,589
11,253
18,814
30,700
52,947
73,022
273,800
679,437
1,423,007

7,667
11.465
10,183

i Base: 1914 = 1.
2

Index
number
of rate
of dollar
expressed
in Polish
marks 1

Figures not available.

—
—
—
—
—
—
—

—
—
—
—
—
—
—
—

—

2

•

—
—
220
260
300
285
253
290
471
239
204
214
347
189

V-l

5i

1,368
1,469
2,151
1,335
1,464
1,667
1,627
1,600
1,384
1,324
1,085
1,171

— 61 —
The close relationship between price movements and unemployment in Poland appears with the same clearness as in neighbouring
States. The official index number of wholesale prices has only been
calculated since September 1921, but from an examination of
figures previously published by Mr. Fiedorowicz, or of the index
number for the cost of living, which also shows broadly the fluctuations of wholesale prices, though with a certain delay, it appears
that the beginning of 1921, a period which was marked by a decrease
in the number of unemployed, was also characterised by a rise in
prices. This relationship is so close that even the slight increase
in the number of unemployed, which rose from 88,000 in March
to 130,000 in April, corresponds to a period when wholesale prices
had momentarily ceased to rise, the index numbers for the same
months being 42,481 and 40,756 respectively (Index number F).
The first symptoms of the unemployment crisis occurred in
October 1921; the rise of prices was checked about this time and
a rapid decline took place during the succeeding months, until the
culminating point of the crisis wras reached. Since that period
prices again began to rise, and continued to do so without cessation.
The exchange factor, the importance of which has already been
noted in the case of Austria and Czechoslovakia, also played a
considerable part in the development of economic life in Poland,
sometimes acting as a brake, sometimes as a stimulus to exports.
For instance, the index number for the value of the dollar at
Warsaw which had risen to 1500 in September 1921, the eve of
the crisis, fell very rapidly during the succeeding months, finally
touching 702 in December 1921. This decline of the value of the
dollar was evidence of a very general rise in the value of the Polish
mark in foreign markets. A similar fall in the index number of
the value of the dollar also occurred at the beginning of 1923, at
a time when unemployment was slightly on the increase.
The movements of foreign trade appear to have reflected somewhat these alternations in the rate of the Polish mark. Both
at the end of 1921 during the crisis and at the beginning of 1923,
when the slight increase in unemployment above alluded to occurred,
a rise in the Polish mark took place and was accompanied by a
sharp decline in exports. It should be noted, however, that the
decrease in exports may in part be due to difficulties of transporting
certain goods, such as wood, by water, during the winter season.
An apparent contradiction in the relationship between price
movements and unemployment, similar to that previously noted

— 62 —

in the course of these studies, is to be observed from the fact that
during the period from February to April 1923, at a time when
unemployment was on the increase, prices were nevertheless
rising somewhat. It will be seen, however, that the rate of rise of
prices slackened very noticeably at the time, when unemployment
was increasing. The same phenomenon as was observed in connection with Austria may also have played a part namely, that after
a certain stage, currency inflation, which had previously acted
as a stimulus to exports, ceases to exercise this effect on account of
its very exaggeration. In the present case, account should also
be taken of the parallel and continuous fall of the German mark,
and the consequent increase in German competitive power, which
appear to have contributed to the continuance of the Polish crisis.
A certain recrudescence of unemployment was to be observed
at the end of 1923 and at the beginning of 1924; this new development coincided with the measures taken by the Polish Government for stabilising the national currency.
The textile and mining industries were most seriously affected
during this outbreak of unemployment. However, the total number
of unemployed did not exceed 114,000 in February 1924, a level
which had been reached in the course of the previous winter during
the seasonal depression. Reports of the situation in March and
April indicate that some improvement is already evident.

GERMANY
The general wave of unemployment did not reach Germany
until 1923, three years after Japan and the United States, and
much later than the other Central European countries discussed
above.
In 1919, Germany, in common with all the belligerent countries)
suffered a certain degree of unemployment as a result of post-war
readjustments. The number of unemployed in receipt of State
relief at the beginning of the year was over a million, while the
proportion of trade union members totally unemployed was 6.6
per cent. The subsequent months witnessed a rapid recovery, and
since then the curve of unemployment continued to fall steadily,
apart from minor fluctuations due to seasonal unemployment in

— 63 —

winter, the absolute minimum being reached in June and July 1922,
with only 0.6 per cent workers unemployed 1.
During the whole of 1920, 1921, and 1922 unemployment was
very slight, and the premonitory symptoms of the crisis did not
appear until the beginning of 1923. The development was somewhat gradual at first, but became more defined as the percentage
of unemployed continued to rise, even after the usual period of
seasonal fluctuation. Since then, apart from a slight fall in JuneJuly 1923, the proportion of unemployed among trade union
members rose continuously until a maximum of 28.2 per cent of
totally unemployed was reached in December 1923. At the same
date 42 per cent of the trade union members were partially unemployed, and the total number of workers in receipt of State
relief was 5 million, of whom 3.5. million were in non-occupied
Germany.
The table below shows these fluctuations in same detail, and
permits a comparison with changes in the index number of wholesale prices and the rate of the dollar on the Berlin exchange. The
actual rate quoted for the dollar is given (nominal value), and also
its value as a means of purchasing goods in Germany (real value).
The comparison of the unemployment percentage with the index
number of prices shows the same correlation as has been observed
in the case of the other countries discussed. Prices consistently
describe the inverse curve to that of unemployment, rising when
unemployment falls. Each time there is a recrudescence of
unemployment it is accompanied by a corresponding restraint of
the rise of prices.
In July 1920, the sudden increase in unemployment to 6 per cent.
was accompanied by a rapid decline of prices from 16 times to
13.37 times their pre-war level. Moreover, these figures reproduce
only imperfectly the total movement, which was partially concealed
by the discontinuance of State control of prices. Movements in
the exchange rate, which appear to be closely related to those of
prices, show that during this period, the dollar rate which had risen
from 65 marks in January to 99 marks in February, was as low
as 39 marks in July 1920, the date of the outbreak of unemployment in question.
1
According to the author of the Indexzahlen der Frankfurter Zeitung, the
increase of unemployment to 6 per cent, in July 1920 and its maintenance at
a fairly high figure until the end of the year, were due partly to political
reasons, more particularly the "Kapp Putsch", and partly to the temporary
rise of the German n ark, the effects of which will be discussed later. (Cf.
op. cit., Aug. 1921, p. 28.)

_.. 64 —
UNEMPLOYMENT IN COMPARISON WITH PRICES
AND EXCHANGE

Date
(end of month)

Percentage unemployed
in t r a d e unions
Totally
unemployed

Partially
unemployed

1919 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

6.6
6.0
3.9
5.2
3.8
2.5
3.1
3.1
2.2
'2.6
2.9
2.9

1920 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

3.4
2.9
1.9
1.9
2.7
4.0
6.0
5.9
4.5
4.2
3.2
4.1

1921 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

4.5
4.7
3.7
3.9
3.7
3.0
2.6
2.2
1.4
1.2
1.4
1.6

1922 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

3.3
2.7
1.1
0.9
0.7
0.6
0.6
0.7
. 0.8
1.4
2.0
2.8

1.6
1.6
1.1
0.6
0.5
0.6
0.8
0.9
2.6
4.7
7.5
8.7

1923 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

4.4
5.5
5.6
7.0
6.2
4.1
3.5
6.3
9.9
19.1
23.4
28.2

12.6
14.9
23.6
28.5
21.7
15.3
14.5
26.0
39.7
47.3 i
47.3 i
42.0 !

1924 J a n .
Febr.
March
April

26.5
25.1
16.6
10.4

29.9
17.1
9.9
5.8

1
2
3

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.1
—

•

1.3

FLUCTUATIONS

Dollar r a t e in Berlin
Official index
(Par. 1 d o l l a r = 4.20 marks)
n u m b e r of wholesale prices
(Base: 1913 = 100)
¡Nominal value Real value

—
—
—
—
—
—
—
—
—
—
—

—
—
—
—
—

—
—
-—
—
—
—
—
—
-—
—

•

• — •

—•
—
——
—

•

•

—

1,243
1,670
1,671
1,556
1,502
1,381
1,337
1,420
1,469
1,462
1,550
1,437

65
99
84
60
46
39
39
48
58
68
77
73

5.88
4.91
3.81
3.08
2 83
2.89
3.29
3.87
4.65
5.12
5.07

1,435
1,376
1,338
1,326
1,308
1,366
1,428
1,917
2,067
2,460
3,416
3,487

65
61
62
64
62
69
77
84
105
150
263
192

4.51
4.46
4.67
4.79
4.76
5.08
5.37
4 40
5.08
6.11
7.70
5.50

3,665
192
4,103
208
5,443
284
6,355
291
6,458
290
7,030
317
10,059
493
19,202
1,135
28,698
1,466
56,601
3,181
115,101
7,183
147,480
7,589
(thousands)
278
17,970
538
27,915
489
21,186
521
24,457
817
47,670
1,939
109,996
7,479
353,412
94,404
4,620,455
2,394,889 •
98,860,000
709,483,656
252,600,000
72,570,849,600
2,193,600,000
2
126,155,650,000

5.23
5.07
5.23
4.58
4.49
4.52
4.90
5.91
5.11
5.62
6.24
5.15

117.3
116.2
120.7
124.1

6.45
5.00
4.33
4.69
5.83
5.67
4.73
4.89
4.13

—
—
—

3

Approximate figures.
Since December 1923, the dollar has been quoted in gold marks at par.
Calculated in gold marks.

—
—.
'—

— 65 —

A similar though much less marked fall in the index number
of prices took place in February-May 1921, a period when the
depreciation of the mark was again checked and unemployment
remained relatively high. After June the mark again depreciated1
and prices began to rise, the latter movement being accentuated
in July and August by the removal of control of the wheat market.
Subsequently, the rise continued without a break and was accompanied until the end of 1922 by a reduction in unemployment.
At that date it seems that the stimulus to trade provided by the
rise of prices began to fail through the very exaggeration of the
rise, and that the incessant inflation, as in the case of Austria,
became a cause of industrial dislocation and unemployment. It
is a frequent phenomenon in countries with a depreciating currency
—'discussed already in the case of Austria, — that the rise in prices,
which at the beginning of a period of inflation fails to adjust itself
sufficiently rapidly to the fall in the exchange value of the currency,
in the long run catches up and even exceeds the external depreciation. Thus there is a gradual disappearance of the advantage to
foreigners in buying marks for immediate conversion into German
goods. Ultimately, German prices have even been placed at a
disadvantage. Thus, in July 1920, when unemployment rose to
6 per cent., the real value of the dollar in Berlin, that is to say, its
purchasing power in Germany, was only 2.89 marks, or 30 per
cent, below par. When unemployment was lower, on the other
hand, as for instance in November 1921, the purchasing power of
the dollar in Berlin was 7.70 marks, or almost double its par
value. Corroboration of this is to be found in the fact that the
index number of wholesale prices in gold at that date was 54.5
as compared with the 1913 average of 100*.
The stimulus given to German export through the external
undervaluation of the mark from 1920 to 1922 thus partly explains
the relatively privileged situation of the German market. Certain
other factors of an internal character appear also to have contributed
very largely to the maintenance of industrial activity. Among
these factors reference may be made to the tendency, when prices
are rising rapidly and currency is depreciating, to convert such
1
A number of German writers attribute this fall of the mark in the middle
of 1921 to the London Conference of 5 May 1921, at which the German reparations payments were fixed; cf. Wirtschaft und Statistik, 1924, No. 1, p. 21,
and Die Wirtschaftskurve mit Indexzahlen der Frankfurter Zeitung, Jan. 1922,
p. 8.
2
Wirtschaft und Statistik, 1913, No. 11, p. 350.

5

— 66 —
currency as soon as possible into commodities of stable value, and
to save as little as possible in cash. The belief that home consumption, due to this stimulus and others, was a more important
cause of the abnormal activity of the German labour market than
was the increase of foreign demand resulting from the depreciation
of the mark, is supported by the fact that the period when unemployment reached its minimum, — the summer of 1922, — was also
the date when the purchasing power of the dollar in Berlin was at
a comparatively low level and consequently reduced the advantage
of foreign buyers on the German market.
This view would also appear to be confirmed by statistics of
export. The year 1922 was the period when the greatest exporting
advantage accrued from the external under-valuation of the mark.
During 1923 the exporting advantage diminished until it became
almost negligible. In spite of this, the year 1923 showed an
export level of 506,596,000 gold marks per month as compared
with only 330,833,000 in 1922. A further paradoxical circumstance
is that the year of small exports, 1922, was one of great internal
prosperity and little unemployment; whereas in 1923, with a high
figure of exports, unemployment developed rapidly and culminated
at the end of the year in the most intense depression.
Although the statistics given may be subject to certain inaccuracies, the broad movement of export, compared with that of the
exchange rate, would seem to point to the comparatively small
influence exchange fluctuations have exerted on foreign trade, and
the equally small influence of changes in the volume of exports on
the internal market.
If it may be assumed, therefore, that external trade has played
a minor part in the determination of employment in Germany,
still greater emphasis is thrown on the importance of fluctuations
in home demand.
In certain countries previously examined, and especially in the
case of Austria, attention has been drawn to the manner in which
a rapid rise of prices causes individual purchasers to invest their
depreciating money in goods, merchants to buy up stocks as rapidly
as they can in order to avoid the higher price later, and manufacturers to increase their plant with a view to taking all possible
advantage of the enormous profits to be made. This continuation
of feverish demand from producers and consumers may for a long
time spur on industry to greater and greater activity. But there
enters also the element of speculation: speculative purchase of
goods, speculative extension of enterprise, and speculative buying

— 67 —

and selling of shares and of currency, all of which tends to introduce
a process of industrial disintegration and uncertainty.
All such activity can continue so long as the rise of prices remains
unchecked, but as soon as this is effected, as it ultimately was in
Germany by a process of drastic currency reform, then all enterprise based upon highly speculative calculations must collapse.
All merchants who have bought large stocks at high costs in anticipation of. a still higher level of prices, and all manufacturers who
have extended their enterprise on the assumption that prosperity
would continue unchequered, become involved in serious loss.
Bankruptcies and partial liquidations ensue and stocks are hurriedly
pressed forward for sale so that they may be realised whilst the
market is yet strong. Some fall of prices almost inevitably ensues;
the market is glutted with goods; workers are thrown out of
employment; and the demand of the consumer and producer alike
suddenly contracts. Such are the symptoms of depression,
symptoms which have made their appearance in Germany in a
most intense form at the end of 1923 and the beginning of 1924.

CHAPITRE VI

GENERAL SURVEY OF THE OUTBREAK AND
DEVELOPMENT OF THE CRISIS

The foregoing section of the report has dealt only with the first
months of the crisis in the different countries. Consideration will
be given later to the period of revival, during which unemployment diminished comparatively soon in certain countries, while
in others it continued with the greatest severity.
Inasmuch as very few industrial countries have escaped the
unemployment crisis, it might justly be termed international. It
is striking, however, that the development was not simultaneous
in the various countries. Japan and the United States were among
the first to be affected, i.e., in the spring or summer of 1920. Whereas in Japan the situation appears to have shown some improvement by the end of the year, in the United States unemployment
continued with great severity during the whole of the following
year. In nearly all west European countries and in the British
Dominions the outbreak of unemployment was not pronounced
until the end of 1920. One exception to the general movement
stands out, that of Finland, which escaped almost entirely, while
other Scandinavian countries, on the contrary, suffered acutely.
Moreover, although unemployment remained very high in the
majority of west European countries during the whole of 1921,
and even in 1922, the crest of the wave was reached much more
rapidly in France and Belgium and was followed also by a more
rapid subsidence.
Finally, most central European countries
escaped the crisis in 1921 and were not affected until 1922, 1923,
or even 1924.
The first deduction which should be drawn from these differences
of periodicity is that the more general factors, which have exerted

— 69 —
an almost constant influence on all the countries under consideration throughout the period in question, cannot be regarded as
directly causing the unemployment crisis.
As a concrete example, that t f the rupture of economic relations
with Russia might be instanced. The isolation of this vast country
from the majority of industrial nations cannot fail to have caused
serious economic dislocation. It seems clear moreover that the
resumption of trade with Russia, which has shown marked progress
since 1920, will assist the recovery of certain trades in certain
countries. It cannot be said, however, that the absence of economic
relations with Russia was one of the predominant causes of the
unemployment from which the world suffered from 1920 to 1923.
For during the period when unemployment was universally of
little extent, i.e., 1919-1920, imports into Russia were at their
lowest level; whereas in the subsequent period when depression
was widespread, imports into Russia were showing a marked
increase. It is to be seen from the Enquiry into Production1 that,
as compared with 100 in 1913, the index of imports into Russia
was 0.044 in 1919, 2.1 in 1920, 15.3 in 1921 and 19.9 in 1922.
It has been noted in the review of the situation by countries
that unemployment developed at different times in different
countries. Now since these developments were accompanied by
no new decline in trade relations with Russia, it would be impossible to attribute the unemployment primarily to such a cause.
The same argument applies to the problems of reparations,
inter-allied debts, and the question of the economicre construction
of certain central European countries. Indisputable though the
influence of these factors on the labour market may be, they cannot
be considered the immediate cause of the outbreak of unemployment. The development of the latter in different countries at
different dates cannot be explained by factors which have had a
practically constant influence throughout the world at all periods.
The most striking feature of the foregoing survey is, however,
the singularly close correlation observed in all countries between
fluctuations in prices and unemployment'. The decline of employment in the United States in the summer of 1920 took place imme1
1

Enquêté sur la Production, tome III.
Attention has been drawn to this correlation in the introduction to the
general report of the Enquiry into Production (vol. I. pp. 81-89) in respect of
certain countries, for 1920 and the first half of 1921. The results of the
present investigation all confirm, for the period following, the observations
already made, besides extending them to several other countries.
BUREAU INTERNATIONAL DU TRAVAIL:

— 70 —
diately after the break in prices. Similarly the increase of unemployment in Great Britain in 1920 accompanied a precipitous decline
of prices. The situation was the same in the British Dominions,
in Sweden, Norway, Denmark, the Netherlands, Switzerland, Italy,
France, and Belgium. All these countries were affected by unemployment at the end of 1920, and in each case the development
was heralded and accompanied by a rapid fall in prices. In Finland,
on the other hand, where prices remained stable, little unemployment was experienced. Similarly in the central European countries,
where the general trend of prices was upwards, unemployment
remained slight. In Czechoslovakia, prices fell at the end of 1921,
and unemployment increased in 1922.
In Austria and Germany the relation between unemployment
and prices was slightly different. Here the increase in prices, after
having for some time acted as a stimulus to trade, reached such
extreme limits through disastrous inflation of currency that it
tended to disorganise trade.
In brief, it may be stated as a preliminary broad conclusion,
to be analysed more carefully later, that the movement of prices
and, in particular, a fall following a more or less prolonged rise,
seems generally to have been the determining factor in the unemployment crisis in different countries. True, fluctuations in prices
are themselves determined by other factors, the monetary factor,
for instance. Certain striking evidence has been noted in this
connection which will be reviewed later. In turn, monetary policy
itself is largely influenced by the important international problems
touched on above and shown not to have been the immediate or
direct cause of unemployment, though they now appear in the
chain of causation as indirect or more distant factors of the crisis.
The present researches have merely confirmed this sequence of
cause and effect, for the General Assembly of the League of Nations
has already proclaimed that the only method of remedying the
evils from which the world suffers : "disorganisation of the exchanges,
economic chaos and unemployment
is to put an end to the
uncertainty regarding the means for the restoration of the devastated regions and the settlement of the Inter-Allied debts".
The chain of causation connecting the political problems of the
war and post-war period with the crises of unemployment which
broke out from 1920 to 1923 may broadly be described as follows.
In the case of all belligerent countries, and a number of neutral
countries, the heavy expenditure entailed on account of political

— 71 —
dislocation during and after the war led to extensive borrowing by
the Governments, which in turn brought about a rapid expansion
of bank credit and of currency. This, coupled with the abnormal
activity of industrial demand, produced a continuous and violent
rise of prices. It appears that it was this inflation of prices which
in all instances sowed the seeds of the reaction from which each
country ultimately suffered. The outbreak of the crisis invariably
synchronised with the adoption of measures for the restraint of
this inflation. Thus, in almost every country reviewed above,
unemployment followed the rise of prices immediately that rise
had been checked (either by the restraint of the expansion of credit,
or by the reduction of State expenditure, or both). Measures for
monetary reform were adopted in a large number of countries in
the course of the year 1920, and in each case where the measures
were effective the rise of prices was checked in the same year and
the crisis followed immediately after. In the case of Germany
and Austria there was no restriction of credit in 1920 and no crisis
ensued. Subsequently, when monetary reform was effectively
applied in these two countries, the same phenomenon was produced:
the restraint of rising prices followed by reaction and widespread
unemployment.
The various links in the chain of cause and effect may thus be
analysed more fully as follows. Political instability led to instability of public finance, extensive Government borrowing and consequent inflation. The rise of prices which marked this inflation
constituted the principal factor in the boom period in each country.
The checking of the rise of prices put an end to the boom, the
depression being the inevitable reaction after the unrestrained
expansion.
The point to which it is felt necessary to draw particular attention here is the price factor, which constitutes the intermediate
link between the great international political problems emphasised
by the League of Nations above, and the no less serious problem
of unemployment under consideration here.
Another important factor examined in the preceding chapters is
that of foreign trade, and more especially the fluctuations in exports
from the different countries suffering from unemployment. It has
been shown that for most countries, and in particular the United
States, Great Britain, the Scandinavian countries, Finland, the
Netherlands, Belgium, France and Italy, the origin or outbreak
of the unemployment crisis could not have been attributed to the
failure of foreign demand. This may, on the other hand, have

— 72 —

been the cause in Switzerland. Moreover, it seems probable that
the temporary increase of exports from certain central European
countries contributed towards delaying their crises. It remains
to be seen what part the reduction of exports may have played
in prolonging or aggravating unemployment in other countries,
this question being reserved for discussion in greater detail in the
second part of the survey.

PART II.

The Period of Recovery

The development of the crisis up to its maximum in the different
countries has been discussed in Part I. There remains for examination the nature of its abatement, rapid in some countries,
gradual in others.
The countries in which revival was relatively rapid were the
United States, France, Belgium, and Italy, and the survey will
therefore begin with this group. The Central European countries
will be considered next, for in these cases the crisis, although late
in appearing, was speedily followed by revival. After these will
be treated the countries in which the crisis was, on the contrary,
both acute and prolonged — Switzerland, the Scandinavian countries and the Netherlands. The final chapter will be devoted to
the British Dominions and Great Britain. It has been possible to
make a rather more detailed examination of the situation in the
latter country, largely as a result of the additional information
provided by the recent unemployment conference organised in
London by the Labour Section of the British League of Nations
Union.
As in the first part of the enquiry an attempt has been made,
in spite of the complexity of the problem, to throw light on the
international similarity of the factors which it is considered have
played an essential part, either as a retarding or an accelerating
influence, in the revival of employment.

CHAPTER I.

UNITED STATES, FRANCE, BELGIUM AND ITALY

UNITED

STATES

Following the period of intense depression, of which some account
was given in Part I of this Report, the recovery of trade in the
United States has been remarkably rapid. This fact does not fail
to find its reflection in unemployment returns. In the State of
Massachusetts, for instance, the percentage of unemployment
reported by trade unions fell from 20.0 in September 1921 to 3.8
in September of the following year.

Percentage Unemployment in Trade Unions in Massachusetts.
Date

March
June
Sept.
Dec.

1921

1922

1923

22.2
20.6
20.0
25.0

20.5
12.7
3.8
10.5

6.2
5.1
3.8
11.8

The employment index numbers given by the United States
Bureau of Labour Statistics and the State of New York also show
a remarkable recovery during 1922.

— 75 —
INDEX NUMBERS OF EMPLOYMENT AND WHOLESALE PRICES

FOR

1922

AND

1923
Employment 1

Employment 1
Date

1922 J a n .
Febr.
March
April
May
June
July
Aug.
Sent.
OcL
Nov.
Dec.

U.S. Bureau of New
Labour York
Statis- State
tics
79
79
76
"76
78
80
84
84
85
89
89
91

81
82
82
82
84
86
86
90
89
92
93
95

Wholesale
prices2

138
141
142
143
148
150
155
155
153
154
156
156

Date

1923 J a n .
Febr.
March
April
May
June
July
Aug.
Sept.
Oct..
Nov.
Dec.

U.S.Bureau of New
Labour York
Statis- State
tics
94
93
95
96
97
97
98
99

1
Base: average for 1919 = 100. Seasonal variation eliminated.
Review
oj Economic Statistics, Harvard, Oct. 1923.
2
Bureau of Labour Statistics. Base: 1913 = 100.

95
96
97
98
98
98
98
98
96

Wholesale
prices2

156
157
159
159
156
153
151
150
154
153
152
151

Reproduced from

T h e following e x t r a c t from t h e Federal Reserve Bulletin of M a y
1923 indicates t h e e x t e n t t o w h i c h this r e c o v e r y w a s reflected in t h e
d e v e l o p m e n t of p r o d u c t i o n a n d general i n d u s t r i a l a c t i v i t y .
In fact, the growth in the physical volume of production since the middle
•of 1921 indicates a rate of industrial recovery almost without parallel in
American business. Within a year and a half after recovery began the monthly
output of 21 basic commodities, as measured by the Federal Reserve Board's
index of production, increased over 67 per cent. The volume of goods produced
and consumed during the first quarter of 1923 probably exceeds that of any
similar period in the history of the country. Fuller employment of equipment
and of labour has produced the additional income from which profits and wages
•were realised. In fact, profits in many lines of industry have been dependent
upon quantity production, the lower production cost per unit more than
offsetting the increased cost of materials. It is partly in consequence of
Jarger output that the prices of manufactured goods have not more fully
reflected the increases in prices of raw materials. Larger pay rolls, also, until
•quite recently have resulted chiefly from increased employment rather than
from advances in wage rates. These increases in production and employment
have thus far economically justified the increases in the total volume of bank
credit. For credit extension does not result in over-expansion so long as the
additional credit yields proportionate results in the larger production and
marketing of goods.
T h i s m o v e m e n t of recovery, following t h e d e e p depression,
finds little reflection in e x p o r t r e t u r n s . I t will b e r e m e m b e r e d
t h a t in t h e s u r v e y of t h e earlier p a r t of t h e crisis, e x p o r t statistics
a p p e a r e d t o s h o w t h a t t h e origin of t h e u n e m p l o y m e n t depression

— 76 —

in the United States could not be attributed to the failure of foreign
markets, since the volume of exports remained high for some seven
months after the outbreak of the crisis. The annual statistics
of export for the subsequent years give evidence of some decline in
export trade during 1921 and of a much more serious diminution
during 1922 and 1923. Such movements would tend to show
that the influence of export trade on the general condition of the
labour market in the United States is of minor importance; for
there is little or no correlation between export returns and the
movement of unemployment. The year 1921, with comparatively
hight totals of export, was the period of most serious depression,
whereas 1922 and 1923, with poor export trade, were marked
by rapid recovery to a position of record production in the spring
of 1923.
EXPORT-TRADE FROM THE UNITED STATES

Year

1913
1920
1921
1922
1923

Price index
number of Export

Exports (monthly average) in dollars
(000's omitted)

(Fed. Res. Board)

Recorded value

Value calculated
on basis of 1913
prices i

100
235
136
157
183

204,024
673,373
364,911
313,758
341,141 2

204,024
286,542
268,317
199,846
186,416

1
Example: In calculating the value of exports on the basis of 1913 prices, the recorded
value of the merchandise is multiplied by i 00 and divided by the index number of the
price of exported goods. Hence, for 1920 the 1913 monthly average value of the exports,
i.e., 286,542,000 dollars = 673,373,000 X 100 4- 235. An estimate of this nature is only
approximate, particularly in years when there are wide fluctuations in both prices and the
monthly volume of exports. However, it affords a better measure of the true movement
of export
than is given by the totals actually recorded.
2
Provisional figure.

As in the case of the early stages of the American crisis discussed
in the first part of this report, a close relationship between the
movement of prices and that of employment is also to be found
during the subsequent period of revival and of stabilisation. From
the indices of employment given by the United States Bureau of
Labour Statistics, and by certain of the individual States, it is
to be seen that a very rapid development of employment took
place from the beginning of 1922 to the early summer of 1923, after
which there was comparative stability for the rest of the year
at the high level attained. Almost identically the same movement is to be observed in wholesale prices. From January 1922
to April 1923, there was a recovery of 15 per cent in wholesale

— 77 —

prices. In May and June there was a slight decline. A high degree
of stability followed for the rest of the year.
In the first part of the present report it was seen that movements
in the central rate of discount frequently preceded important changes
in the trend of business, and appeared in many cases to have some
causal influence. In the period of revival of 1922 and 1923, further
interesting coincidences of the same nature are to be observed.
For instance, the Rediscount Rate of the Federal Reserve Banks
was lowered by stages from 7 per cent, in May 1921 to 4 y2 per
cent, in November 1921. Recovery of trade followed, being particularly marked as from the beginning of 1922. In June 1922 the
Rediscount Rate was reduced still further to 4 per cent, and was
maintained at that figure until recovery was almost complete.
Such, then, was the situation prior to and during the period of
revival: the price of credit low; the fall of prices checked; finally,
a marked recovery of prices. Previous experience in almost all
countries, and particularly in the United States, has shown that
a rise in prices, if carried beyond a certain stage, becomes a danger
rather than an advantage. Once the available forces of production
are very fully employed, easy credit and rising prices can no longer
be effective in stimulating further considerable increases of output.
On the contrary, they tend to disorganise industry by introducing
a tendency to speculative purchase and enterprise, negligence and
mismanagement, factors which themselves cause immediate loss
of economy and ultimately intensify depression.
There was a very widespread appreciation in the United States
that the period of healthy recovery of 1922 and early 1923 might,
if unrestrained, develop into an inflationary boom giving rise to
the same reactions as were experienced after the 1919-1920 boom.
To what extent this fear inspired the action of public bodies is
difficult to estimate. That certain restraints were applied is,
however, unquestioned. In the first place, the rediscount rates
of the Federal Reserve Banks were raised to 4 y2 per cent, in
February 1923, one month before the culmination of wholesale
prices. The restraining influence on the expansion of credit exerted
by this measure was reinforced by the reduction on the part of
Federal Reserve Banks of their earning assets. Through the sale
of securities amounting to 435 million dollars in value, during the
year ending 20 June 1923 l , the Federal Reserve Banks were able

1

See Federal Reserve Bulletin, July 1923, p. 719.

— 78 —
to reduce considerably the cash basis of member banks and limit
still further the expansion of credit.
In addition to these financial measures, other forces were apparently being applied with a view to preventing the period of desirable expansion from developing into an inflationist boom. Professor
Irving Fisher states, for instance, in an article contributed to the
Manchester Guardian Commercial of 8 June 1923:
It is a satisfaction to see that the rapid rise of prices has been checked.
This was apparently due to a determined effort to check it. The rise of the
discount rate by several of the Federal Reserve Banks, the warning of Mr.
Hoover against reckless inflation, and the combined efforts of Mr. Franklin
Roosevelt and the banks to limit loans for speculative building — the point
where inflation was most active •— must have tended in this direction.
This all indicates that inflation and deflation can be controlled, and also
that, to control it, the information given by the index number is essential.

Even though the results of these measures may appear somewhat
fortuitous in part, they none the less form a suitable example for
any country in the midst of depression to follow. The fortunate
precedent of the United States would seem to show that, in the
first place, every facility should be given to trade expansion by
the easing of credit during the period of revival, and that, secondly,
as soon as industry has recovered a high pitch of activity and
absorbed to a large extent the available supplies of labour, an
attempt should be made to stabilise.

FRANCE
It has already been seen that the unemployment crisis attained
its culminating point in France in March 1921 when more than
90,000 unemployed were in receipt of relief. The acuteness of this
crisis diminished rapidly as is shown by the following table:
NUMBER
Month

March
June
Sept.
Dec.

OF

UNEMPLOYED

IN

RECEIPT

OF

RELIEF

1921

1922

1923

91,000
47,000
22,000
10.000

8,000
5,000
3,000
2,000

1,900
1,000
500
650

— 79 However inadequate these figures may be considered a priori,
they are confirmed by the parallel movement of the index number
of industrial activity established by the Société d'études et d'informations économiques \ This index number is based on a combination
ol twenty different components, including production of coal,
iron ore, pig iron, steel; imports of coal, mineral oils, raw wool
and raw cotton; exports of cotton thread, linen goods and automobiles ; railway and canal traffic ; loans and discounts of the Bank
of France, etc., calculated on a basic figure of 100 for 1923, and
covering the whole extent of existing French territory. This index
number rose from 58.15 for the first quarter of 1919 to 89.9 for the
last quarter of 1920, afterwards falling during the three following
quarterly periods to 74.5, 67.9 and 66.1 respectively, subsequently
rising rapidly to 81.2 during the last quarter of 1921, and finally
attaining 102.2 during the fourth quarter of 1923.
This development of industrial activity was accompanied by a
continuous rise of prices, which confirms the corresponding relationship previously noted between a fall in wholesale prices and
a decrease of industrial activity.
The decrease of unemployment and the concurrent development
in industrial activity, however, occurred considerably earlier than
the corresponding change in the movement of prices : for the latter
continued to fall during the first quarter of 1922, subsequently,
however, increasing rapidly.
INDEX

First quarter
Second
»
Third
»
Fourth
»

NUMBERS

OF

WHOLESALE

PRICES

1920

1921

1922

1923

532
555
518
475

389
341
342
337

320
325
335
358

419
418
423
450

The general relationship between unemployment and price
movements has inspired the following reflections on the part of
the Société d'études et d'informations économiques*.

1
See Supplement to the Daily Bulletin of the Society, 17 Dec. 1923: L'évolution de l'activité industrielle de la France depuis l'armistice.
2
Loe. cit.

— 80 —
It is both interesting, and instructive to note the simultaneous development of industrial activity and price movements during the whole period of
the crisis ; it is a remarkable fact that the fall in prices preceded a diminution
of industrial activity, and that this fall should have continued for a certain
length of time after signs of a renewal of industrial activity had already been
displayed.
But this difference in the extent of the two movements appears upon
reflection to be perfectly natural. A first effect of the cessation in the rise in
prices is a falling off in orders, as purchasers, whose capacity has already
become unduly strained owing to the rise, prefer to wait for the effects of the
fall: the manufacturer, however, continues to carry on for some weeks on
previous orders, and he may even be in the position to produce for stock for
a certain length of time as far as his financial reserves allow. Production is,
in fact, his « raison d'être » ; and it is only with difficulty that he resigns his
faith in the return of better times.
For similar reasons, when the crisis appears to have attained its maximum
intensity, he endeavours to resume production with all possible speed.
In order that his undertaking, always burdened with irreducible overhead
charges, may resume activity, the manufacturer endeavours to meet his
customers with a view to inducing new orders: for this purpose he is ready
to make additional sacrifices, and the diminution in prices may therefore
continue after the time when industry has begun to revive ; it is even a necessary condition of such recovery.
For these reasons, the depression of prices is of longer duration than
that of employment. It would doubtless be unwise to generalise too hastily
from the results of one set of experiences alone; however, a comparison of
the index number of prices with those of our industrial barometer is not devoid
of practical interest. A continued fall in the former constitutes a warning that
an economic crisis is ahead; a rise in the index number of industrial activity
would on the contrary justify the prediction of a rise in prices in the near
future.
Finally, a rapid and simultaneous rise in the two figures constitutes a symptom of inflation, in other words, of a state of artificial prosperity which cannot
be permanently maintained. This has already been experienced in 1920, and
the phenomena which have been noted in 1923 unhappily lead one to draw
a similar conclusion. Since last spring, prices have been rising almost continuously; our exchange has been falling, and our industrial index number
(the figures shortly to be published will demonstrate this fact) has risen
considerably above 100 since August last. Past experience proves that a
situation of this nature is not without danger, and that it calls for the greatest
prudence.
T h e i m p o r t a n c e of t h e s e conclusions for t h e p r e v e n t i o n of u n e m p l o y m e n t scarcely needs e m p h a s i s i n g .
I n a d d i t i o n to t h e reasons given a b o v e b y t h e Société d'études et
d'informations
économiques t o explain w h y a r e s u m p t i o n of i n d u s t r i a l a c t i v i t y precedes a rise in prices, a n o t h e r i m p o r t a n t factor
is t o b e n o t e d , n a m e l y , t h e i m p r o v e m e n t in c r e d i t c o n d i t i o n s
since J u l y 1921, d u e t o t h e r e d u c t i o n òf t h e d i s c o u n t r a t e from
6 per cent, t o 5 y2 p e r c e n t . F o r it w a s after t h i s m e a s u r e h a d b e e n
t a k e n t h a t a rise in t h e i n d e x n u m b e r of i n d u s t r i a l a c t i v i t y w a s
first n o t e d . A fresh r e d u c t i o n in t h e d i s c o u n t r a t e t o 5 p e r cent, in

— 81 —
March 1922 followed, after which the price level showed a general
upward tendency, the rate of rise increasing until the first quarter
of 1923.
Another important factor in the resumption of industrial activity
was the state of the exchanges, or more strictly speaking, the
undervaluation of French currency in proportion to its effective
purchasing power, partly due to exchange speculation. The stimulating influence of this factor on exports has already been noted on
several occasions, and French exports, as shown by the following
table, increased very considerably during 1922 and 1923, in comparison with the two previous years during which the crisis was
prevailing.
INDEX NUMBERS OF WHOLESALE PRICES, EXCHANGE FLUCTUATIONS,
AND

•Year

1913
1920
1921
1922
1923

Index
number
of wholesale
prices i

115.6
588.9
398.8
377.6
484.3

EXPORT

VALUES.

Exports (monthly average)
Percentage
of undervaluation Value (in thousands of francs)
of the
franc
Weight (in
Calculated
compared
on the basis thousands
Recorded
of metric
with the
of price
value
dollar *
tons)
index number»

22.3
10.3
7.4
16.8

573,351
2,241,245
1,647,709
1,781,579
2,535,959*

495,978
380,581
413,167
471,816

1,840
1,039
1,336
1,887
2,066

is Basic figure: Average 1901-1910 = 100.
The respective purchasing power being-taken into account.
a By the same method as already employed in the case of the United States (see p. 76).
As noted in the case of America, the method employed yields only approximate results.
An additional imperfection in the method used here is that the wholesale price index
number used as the basis for calculating the real value of exports comprises articles which
do not figure largely in export returns. In spite of these defects the total3 are roughly
comparable and are of greater value for this purpose than the absolute figures or recorded
value of the exports.
* Valued at 1922 official rate3.

It seems clear, however, that the increase in exports which
took place must be attributed to a greater extent to a real increase
in the effective productive power of the country than to the artificial stimulus of the exchange. For, as is shown by the above table,
the under-valuation of the franc with reference to the dollar,
taking their respective purchasing powers expressed by the price
index number into account, was greatest in 1920, at the very time
when exports were lowest. It seems unquestionable, nevertheless,
6

— 82 —
that this under-valuation continued to exert a certain influence.
The question might be justified therefore whether the threatened
crisis foreseen by the Société d'études et d'informations économiques
as a necessary reaction from the boom of 1922-1923 will not be
reinforced when the stimulus to exports disappears in consequence
of the improvement in the financial situation.
In this connection further interesting suggestions are made by
the Société d'études et d'informations
économiques1:
At the end of the year 1923, France's monthly output of pig iron, steel,
and coal exceeded that of 1913. Account must, however, be taken of the
inclusion of the production of the mines and factories of Lorraine. But even
without the additional output of these recovered areas, the figures are not
much below those of 1913.
The fact cannot be concealed, however, that our heavy industries have only
produced in large quantities because their markets have been good, especially
in foreign countries. Now, the increase of sales has been due largely to the
continued rise of prices on the internal market and to the relatively good
demand for French merchandise abroad, two phenomena which are merely
the consequence of the continued depreciation of the franc in 1923
Does it follow, however, that the recent recovery of the franc must, as is
sometimes feared, constitute a severe shock to our commerce and industry ?
We do not think so. There is no doubt that our industrial activity will suffer
to some extent from the appreciation of our currency, but only to a comparatively small extent, provided that this appreciation, after the necessary
rebound, does not continue to an exaggerated degree.
Finally, an important factor in the recovery of French industry
was the continued expenditure of the State on the restoration of
devastated areas.
A considerable portion of this expenditure
has been met, not out of taxation, but out of borrowings; and to
the extent that this process of borrowing has led to the greater
extension of bank credit, it has meant a corresponding inflation
of purchasing power and a general increase of demand, facilitating
the revival of industry and the rise in the level of prices.
The policy of launching vast government enterprise with the aid
of borrowed money would thus appear to provide a valuable
stimulus to industry when in deep depression. But when the same
policy is continued into the period of prosperity, there seems
reason to fear that it may contribute to the intensity of the reaction
which inevitably follows a period of over-extension and rising
prices.

1

Bulletin quotidien, 25 April 1924.

— 83 —
BELGIUM
The table below shows that from the summer of 1922 the unemployment crisis in Belgium began to subside and that since then
the situation on the labour market has been very favourable.
PERCENTAGE OF UNEMPLOYED

WORKERS

(Unemployment fund figures)
Month

Jan.
Febr.
March
April
Mav
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

1921

1922

1923

1924

19.3
22.7
31.5
31.2
32.3
22.9
21.4
21.7
17.7
13.6
13.9
11.4

11.2
10.1
9.2
8.9
7.0
6.0
5.3
4.4
3.8
3.9
3.8
3.8

3.9
3.1
2.6
2.4
3.6
2.6
2.2
1.9
1.5
1.9
2.7
3.6

3.7
3.6

—
—
—
—
•—

This improvement in employment corresponded to an almost
continuous rise in wholesale prices since April 1921. As in France,
this upward movement did not start until a few months after
unemployment began to diminish. From the end of 1922, during
1923, and until the beginning of 1924, Belgian industry enjoyed a
period of boom during which unemployment was reduced to the
lowest dimensions. Certain industries even suffered from a shortage
of labour, and Belgium, in spite of the extreme density of her
population, became a country of immigration as well as of emigration. The Revue du Travail, an official Government publication,
stated that, in February 1924, in the mining industry "the shortage
of labour was becoming more and more marked and that the mines
could not maintain the desired output without employing foreign
labour. As compared with a year ago the number of foreign
workers (Italian, Polish, Moroccan, Algerian, etc.) employed in the
mines had doubled." 1

1

Revue du Travail, 31 March 1924, p. 437.

— 84 —
INDEX NUMBERS OF WHOLESALE
(Base: April 1914 = 100)
Month

1922

1923

1924

366
356
350
344
348
. 356
.360
360
364
385
408
407

434
474
482
480
474
484
504
529
514
515
531
545

580
642
625

1921

Jan.
Febr.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

—
—
—
—
—
—

347
368
372
374
369

PRICES

—
—
—
—
—
—
—
•

—

The rise in prices corresponded to an almost continuous increase
in the circulation of fiduciary currency from February 1921 (6,039
million francs as compared with 6,260 million francs in December
1920) until March 1924 (7,676 million francs), and a rise in the
dollar exchange at Brussels which increased from 257.7 per cent.
of par in February 1921 to 502.9 per cent, in February 1924, the
fluctuations at certain periods being very marked. Simultaneously,
the rate of discount was reduced from 5% per cent, to 5 per cent.
in May 1921 and to 4% per cent in June 1922, being raised again
to 514 per cent, in January 1923.
The part played by export trade in the resulting industrial
revival is illustrated by the following table.
INDEX NUMBERS OF WHOLESALE PRICES, EXCHANGE FLUCTUATIONS,
AND

Year
(monthly average)

1913
1920
1921
Î922
1923

Index
number
of wholesale
prices 1

EXPORT

Exports of goods
Percentage
of undervaluation Value (in thousands of francs)
of the
Weight
franc as
Calculated
(in
compared
on
the
basis
thousands
Recorded
with the
of
the
index
of
metric
2
value
dollar
number of
tons)
prices s

100
5

366*
367
497

VALUES

5.3
14:5

302,882
737,675
605,408
519,636
738,041

302,882
141,590
148,499

1.740
884
1,438
.1,346
1,411

»Base:
Average 1913 = 100.
2
The respective purchasing power being taken into account.
8
By
the
method indicated for France (see p. 81).
4
Average of the last five months.
5
As from May 1922, the export figures relate to the Union économique belgo-luxembourgeoise.

— 85 —

When it is realised that for part of 1922 and the whole of 1923
the export figures relate not only to Belgium but also to the Grand
Duchy of Luxemburg, it is surprising to note that exports were
slightly less in 1922 and 1923 than during 1921, the year of depression, in spite of the premium on export in the two later years due
to the under-valuation of the Belgian franc, in terms of the dollar.
At the same time it will be observed that the volume of exports
in 1923, a year of full industrial prosperity, was still well below
the 1913 figure. It must therefore be concluded that the solution
of the unemployment problem in Belgium was found in the home
market.
As in France, the boom of 1923 naturally gave rise to serious
apprehension as regards the possibility of ultimate reaction. The
first effects of such a movement did in fact make themselves felt
in April 1924. The movement of prices was reversed, and the
exchange value of the Belgian franc, like that of the French franc,
improved. According to Le Peuple of 26 April 1924 * "the consequences of this situation will almost inevitably be unemployment
in the near future. This has began as usual in luxury industries;
diamond workers are out of work for half their time. Certain
industries producing for direct consumption, such as boot and shoe
factories, are already threatened."

ITALY
After reaching a maximum of 606,819 in January 1922, unemployment fell fairly continuously in Italy until August 1923, when the
number of unemployed was 178,612. The figure subsequently
rose to 280,765 in January 1924, but fell again to 259,360 in
February and to 218,740 in March, so that this increase would
appear to be largely seasonal.
The following table ' shows these changes compared with the
movement of wholesale prices, fluctuations in which have been
comparatively slight during the last two years. Although the rise
from May to October 1922 was fairly extensive, exceeding 12 per
cent., the subsequent fall until October 1923 was only 6 per cent.
and was followed by an insignificant rise.

1

Official organ of the Labour Party.

— 86 —
Date
(end of month)

Number of workers
totally unemployed

Index number
of wholesale prices i

1922

Jan.
Feb.
March
April
May
June
July
AU£J.
Sept.
Oct.
Nov.
Dee.

606,819
576.284
498,606
432,372
410,127
372,001
304,242
317,986
312,714
321,011
354,238
381,968

577.2
562.5
533.4
526.8
523.5
537.4
557.5
571.3
581.7
600.8
596.2
579.6

1923

Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

391,974
327,000
280,701
270,214
243,928
216,287
183,144
178,612
180,634
199,694
225.095
258,580

575.3
582.1
586.9
588.4
580.1
568.9
566.0
566.7
569.2
563.4
571.4
577.2

1924

Jan.
Feb.
March

280,765
259,360
218,740

570.8
572.8
578,7

i Bachi. Base: average 1913 = 100.

Thus after the very marked rise of prices in 1919 and the subsequent rapid fall in 1920-1921, accompanied by widespread
unemployment, 1922 and 1923 might in general be considered
years of stable prices. This period was equally marked by monetary
stability, as will be seen from the following table.

1

Year
(average)

Dollar rate
at Rome

Circulation of
fiduciary currency !
(million lire)

1921
1922
1923

23.28
21.06
21.74

21,476
20,279
19,891

Rate of discount
(Per cent.)

6
5.75
5.50

Bank notes plus State notes.

This state of monetary stability is the more appreciated when it
is seen that the tendency to deflation marked by a moderate reduc-

— 87 —
tion in fiduciary circulation was diminished by the increase in
credit facilities due to the reduction in the rate of discount.
The part played by exports in the revival of industrial activity
is illustrated by the following table, which shows that exports
were comparatively low both in 1921 and 1922, the former year
being that in which the unemployment crisis began and the latter
that in which it ended.

Index
number
of wholesale
prices 1

Year

1913
1920
1921
1922
1923

.

Percentage
of undervaluation
of the
franc as
compared
with the
dollar 2

100
624.4
577.5
562.3
574.6

41.2
14.3
8.2
12.5

Exports (monthly average)
Value (in thousands of lire)
Recorded
value

Calculated
on the basis
of the index
number 3of
prices

209,303
981,177
689,584
775,197
921,574

209,303
157,139
119,408
137,861
160,385

i2 Bachi. Base: average 1913 = 100.
The respective purchasing power being taken into account.
3
By the method indicated for France (see p. 81).

In view of the great importance of emigration in Italy, an attempt
has been made to estimate the influence on the general labour
market of fluctuations in migration during the last few years.
They are shown in the following table :
Emigration

Repatriation

Year
Oversea
1920
1921
1922
1923

Continental

Total

194,224 153,717 347,941
182,040 60,846 242,886
121,410 123,030 244,440
177,853 170,226 348.079

Oversea

Continental

77,599
92,212
54,602
39,680

30,083
55,641
79,498

Total

Total
emigration less
total
repatriation

122,295 120,591
110,243 134,197
119,178 228,901

Although exact figures for 1920 are not available, the table
shows that the excess of emigration over repatriation was much
less marked in 1921 and 1922 (years ol unemployment) than in
1920 and in 1923. The setback to emigration in these two years
would therefore appear to have aggravated unemployment.

— 88 —
In briel, it may be said that unemployment in Italy, following,
as elsewhere, the change from rising to falling prices, was accentuated by a reduction in exports and emigration. Now that
prices have been stabilised, as in the United States, the labour
market would appear to have become normal again. Moreover,
although no definite judgment can be given in the matter, it would
seem that in Italy there are no symptoms of another crisis such
as have been observed in France and Belgium as a reaction from
the renewed rise in prices.

CHAPTER III

CENTRAL EUROPEAN COUNTRIES

AUSTRIA
As was seen in the first section dealing with Austria, that country
was exempted, largely through incessant currency inflation, from
the effects of the more general unemployment crisis which prevailed during 1920-1921; and after feeling the first effects of depression at the beginning of 1922, at a time when currency inflation, through its very exaggeration, had ceased to exercise a
stimulating effect on trade, it experienced a period of feverish
speculation which rapidly forced Austrian prices above the general
world level. It was also shown that this crisis became considerably
more acute in November 1922, at the time of the intervention ot
the League of Nations for Austrian reconstruction, under which
the Austrian crown was stabilised and the rise of prices temporarily
checked. The culminating point of the crisis was reached in MarchApril 1923. It will be seen from the following table that soon afterwards prices again began to rise, and continued rising during the
following months, though at a very much slower rate than formerly.
Foreign trade
Date

1

Number of
unemployed
in receipt of
relief

Trice index:
paper crowns

Value
(in millions of gold crowns)
Imports

|

Exports

1923

May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

132,000
109,002
92,789
87,155
83,891
78,801
75,810
77,782

23,032.09
23,280.03
24,457.13
23,284.57
23,909.12
24,408.60
25,376.71
27,086.69

98,192
116,755
122,823
134,981
137,907
141,635
169,029
265,985

71,241
70,896
76,921
87.331
79,518
82,930
83.807
120,638

1924

Jan.
Feb.
March
April

98.069
119,613
125,816
106,264

27,776.07
29,813.22
30,110.00

164,237'
164,237'

70,451'
70,451'

Monthly average for the two months.

— 90 —
Concurrently with this recovery of prices, a decrease in unemployment took place, and the end of the year 1923 may be described
as a period of slow but steady improvement. The number of
unemployed at the beginning of November was less than half
that of the worst period of the crisis; and though a slight increase
in their number occurred during December 1923 and the beginning
of 1924, this fact may be attributed partly to seasonal causes.
The examination of export figures shows that they increased
fairly regularly during the whole of 1923 ; but the monthly average
remained lower than it had been during the preceding year when
the stimulus due to the margin between the internal and external
purchasing of the crown had been exercising its full effects.
CZECHOSLOVAKIA
After reaching a maximum in December 1922-January 1923,
unemployment diminished fairly rapidly during 1923. The gradual
improvement in the labour market is shown in detail in the following table:

Date

Total number of unemployed registered at
the employment
exchanges on the last
working day of the
month

Official index number
of wholesale prices
(Base: 1913 = 100)

1923

Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

441,075
415,222
369,420
310,683
273,234
246,616
216,720
197,644
210,535
176,333
177,367
191,978

1,019
1,028
1,031
1,030
1,001
968
958
957
973
964
984
990

1924

Jan.
Feb. .
March

193.105
195,872
180,002

1,029
1,036
1,022

The index number of wholesale prices remained relatively
stable, the fluctuation between the two extremes being not more
than 7.5 per cent. This stability in prices was paralleled by similar
stability in the Czechoslovak rate of exchange which varied very
little during 1923, ranging on the Zurich Exchange between 16

— 91 —
and 17 Swiss francs for 100 koruna. The very frequent adjustment of the rate of discount, which was lowered from 5 per cent.
at the beginning of 1923 to 4% per cent, in May, then raised to
5 y2 per cent, in November and lowered again to 5 per cent, at the
beginning of 1924, is of interest in that it may have contributed
towards this stability of the koruna on the exchanges. Similarly
there was very little fluctuation in the circulation of fiduciary
currency, which amounted to 9,222 million koruna at the beginning
of 1923, rose to 9,599 million koruna in December 1923, and was
again reduced to 8,506 millions in February 1924.
This rapid diminution of unemployment and the general
stability of prices, rates of exhange, and circulation of fiduciary
currency which accompanied it, indicating in general a sound
financial situation, did not lead to the development of foreign
trade which might have been expected. This may be shown by
the following table:

Year

1922
1923

Index
number
of wholesale
prices i

1,355
992

Exports (monthly average)
Percentage
of overvaluation Value (in thousands of koruna)
Weight
of the
(in
koruna as
Calculated
thousands
compared
on basis
Recorded
of metric
with the
of 1914
value
tons)
dollar 2
prices 3
— 7.59
+ 6.52

1,507,196
1.043,218

111,232
105,163

791
942

2» Official. Base:
3 The respective

1914 = 100.
purchasing power being taken into account.
By the method already indicated for France (see p. 81).

GERMANY
It has already been shown that the unemployment crisis, from
which Germany had hitherto been exempt, developed in that country
at the end of 1923, and some indication has been given of the
principal causes affecting the depression.
The first figures available for 1924 prove that the culminating
point of the crisis was reached in December 1923, when the figure
of total unemployed among members of trade unions attained
28 per cent. During January, February and March 1924 a considerable diminution .occurred in this percentage, accompanied by
a rise in the index number for wholesale prices; this double movement is shown by the following table:

— 92 —

. Date

1924

Jan.
Feb.
March

Percentage of unemployed
among members of trade
unions
Total

Partial

26.5
25.1
16.6

29.9
17.1
9.9

Index number
of wholesale prices
Frankfurter
Zeitung.
Base: 1 July
1914 = 1
(in milliards)

Official
figure.
Base: .
1913 = 100
gold marks

1,430
1,470
1,584

117.3
116.2
120.7

Although the absence of adequate information respecting the
export trade at the beginning of 1924 renders it difficult to draw
any definite conclusions, it would appear that the improvement
which occurred in the labour market was due less to an increase
of export, which suffered some handicap through the high level
of German prices and, in a lesser degree, through the temporary
depreciation of the French franc during February and March 1924,
than to increased purchasing power in Germany itself. For whereas
exports decreased from an average monthly figure of approximately
545 million gold marks during the last quarter of 1923 (the most acute
period of the crisis) to 430 million gold marks during January 1924,
imports on the contrary increased by more than 20 per cent., from
a monthly average of 452 million gold marks during the last quarter
of 1923, to 565 million gold marks in January 1924.

CHAPTER III

SWITZERLAND, SCANDINAVIA, FINLAND,
AND THE NETHERLANDS

SWITZERLAND
The unemployment crisis in Switzerland was slow in its development, for it started in the autumn of 1920 and the maximum was
not reached until February 1922, that is, after a period of eighteen
months. The revival was equally gradual. During the whole of
1922 and the beginning of 1923 unemployment was acute, the
number out of work remaining over 10 per cent, of the total number
of wage-earners (1910 census) *; improvement was slow until the
spring of 1923, as will be seen from the following table:
Index numbers of prices

Number of unemployed
Date

Workers
totally
unemployed

Workers
partially
employed

Total

Wholesale
prices
(Dr. Lorenz)
Base: July
1914 = 100

1922 March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

89,099
80,799
71,100
59,456
52,180
51,789
49,512
48,218
51,128
53,463

40,315
39,249
34,292
30,629
28,279
25,538
23.352
21,585
21,900
20,429

129,414
12 1,048
105,392
°0,985
80,459
77,327
72,864
69,803
73,028
73,892

164.5
162.1
162.8
163.9
164.7
165.7
164.5
170.6
171.9
174.7

167
158
157
158
158
156
157
160
160
161

1923 J a n .
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

56,275
52,734
44,909
35,512
30,228
25,583
22,722
22,554
22,830
24,013
27,029
26,873

19,868
21,791
19,779
17,767
15,640
13,585
12,592
13,507
14,422
14,662
14,368
12,800

76,143
74,525
64,688
53,279
45 868
39,168
35,314
36,061
37,252
38,675
41.397
39,673

175.3
181.0
185.9
186.6
181.0
179.8
175.3
173.4
181.1
181.6
182.5
183.2

160
158
161
164
166
168
167
167
168
170
171
170

1924 J a n .
Feb.
March
April

28.480
27,120
21,380
16,730

12.661
11 ¿ 8 5
8.164
6,465

41,141.
39,105
29,544
23,195

183.4
180.2
181.5
181.0

172
170

i
1

Cf. Dr. L O R E N Z : Die Kurve,

1
passim.

Retail
prices, cost
of living.
Base: July
1914 = 1 0 0

— 94 —
The parallelism observed in the earlier part of the crisis between
the fluctuations of unemployment and those of wholesale prices
was in general maintained during the period of recovery. It is
to be seen, however, that the fall of prices persisted for three or
four months after the culminating point of the crisis had been
passed, a fact which may be due in part to the sudden and rapid
reduction of the price of milk and dairy products in the spring of
1922 owing to large stocks remaining unsold 1. As from July 1922,
prices again began to rise and continued thereafter, with slight
fluctuations, to pursue an upward course.
From the financial point of view the yeais 1922-1923 were
characterised by a period of rapid liquidation, so that the Banque
Populaire Suisse was able to reduce its rate of discount from 4 to
3y2 per cent, on 2 March 1922, then from 3% to 3 per cent, on
17 August 1922 2. On 14 July 1923 it was raised again to 4 per
cent., possibly with a view to restraining the export of capital and
the fall in the Swiss exchange. The note circulation which amounted
to 1,009 million francs at the end of 1921 fell to 725 million
francs in August 1922, rising again to 1,005 million francs on
1 December under the influence of withdrawals made in the fear
of a capital levy. It amounted to 976 million francs at the end of
December 1922 and 982 million francs at the end of December 1923.
It should be added that during 1922 over 200 million francs gold
currency were restored to circulation. The Banque Populaire
Suisse3 remarks that "judging from the weekly reports of the
Banque Nationale Suisse, a considerable proportion of Swiss notes
and currency is hoarded both at home and abroad, for our fiduciary
circulation does not correspond to the present economic requirements of the country 4 ".
INDEX NUMBERS OF WHOLESALE PRICES AND VALUE OF EXPORTS
Exports (monthly average)
Year

1921
1922
1923
1
2
1

index
number of
wholesale
prices 1

191.2
167.5
180.6

Value (in thousands of francs)
Calculated
Recorded
on hasis of
index number
value
of prices 2
178,345
140,794
146,684

93.276
87,638
81,220

Weight
(in thousands
of metric
tons)
'46
62
60

Dr. Lorenz. Annual average. Base: July 1914 = 100.
By the method employed in the case of France (see p. 81).

Cf. Fifty-fourth Annual Report of the Banque Populaire Suisse, for 1922, p. 8.
Ibid., p. 8.
Annual Report, for 1923, p . 9.
* On 31 December 1913 t h e total circulation a m o u n t e d to 314 million francs.
2
3

— 95 —
The above table shows the fluctuations in foreign trade during
the last three years. It is surprising that in 1921, the year when
unemployment was most acute, the value of exports appears to
have exceeded the 1922 figure when the situation was already
beginning to improve, and that the figures for 1923 are even lower
than those for 1922, in spite of there being a marked improvement
in the labour market. This would seem to confirm the opinion of
Dr. Lorenz, supported by statistical evidence x, that the reduction
in the number of unemployed should very largely be attributed to
the revival of the home market. Some evidence of the difficulties
encountered by Swiss export industries during the whole of this
period is given by the following table showing the difference
between Swiss prices and those of certain other countries trading
with Switzerland, the disadvantage to Switzerland being expressed
as a percentage of Swiss prices.

DIFFERENCE BETWEEN SWISS PRICES AND THOSE OF OTHER COUNTRIES
EXPRESSED AS A PERCENTAGE OF THE FORMER

Date

Great
Britain

France

Germany

Czechoslovakia

Italy

1922 J a n .
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

16.4
13.7
12.9
9.5
8.9
6.4
6.7
6.7
8.2
8.3
6.1
5.6

18.3
13.9
8.0
5.3
0.8
0.4
5.8
7.5
12.3
12.0
16.3
14.2

53.6
51.4
48.1
53.7
46.7
37.6
48.7
44.4
48.0
32.0
30.0
39.5

—
—
—
—
—
—
—
—
—
—
—

16.7
17 2
5.5
8.8
5.0
5.4
13.4
12.7
14.5
14.9
16.4
H.8

1923 J a n .
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

6.7
3.8
6.2
11.5
9.5
6.3
7.3
11.0
7.6
6.4
6.8
3.6

10.4
15.7
14.5
11.0
10.8
12.5
15.2
18.6
17.9
9.4
13.3

28.7
28.9
20.3
20.7
22.6
30.7
12.6
0.0
35.2

1

Cf. Die Kurve, Febr. 1924.

—
—

11.8
15.2
14.6
15.6
15.5
15.8
12.7
17.4
17.8
15.6
21.4
18.5

19.3
17.3
8.4
6.4
6.8
7.8
13.1
15.3
14.5
11.6

•— 96—

SCANDINAVIA

AND

FINLAND

The earlier account of the trade crisis in Scandinavia showed
that in three of the countries, Norway, Sweden, and Denmark,
there had been a period of inflation in 1919 and 1920, followed by
two years of intense deflation. This latter period was everywhere
marked by severe depression and widespread unemployment.
In none of these countries has recovery been very rapid, though
in all cases the year 1923, whilst comparing unfavourably with
the pre-war situation, has been better than 1922. The following
percentages of unemployment have been recorded amongst trade
unions in the different countries.
Date

Sweden

Norway

Denmark

1922

Marcii
June
Sept.
Dec.

30.6
21.5
15.2
21.7

25.4
15.6
11.0
15.1

27.9
13.2
10.6
20.3

1923

March
June
Sept.
Dec.

19.9
9.8
7.9
14.1

14.5
7.9
7.6
14.0

15.6
8.1
7.7
19.6

The prolongation and severity of the depression have sometimes
been attributed to the failure of the export market. In the case
of Sweden, for instance, Professor Cassel suggests that one reason
for the exceptional suffering in that country is that its exports
consist largely of building material used for constructional purposes in other countries, and that during a period of trade depression the demand for such material falls off more than proportionately \
Statistics show that the failure of export trade was unquestionably of importance in the case of Sweden and Norway during the
worst year of the slump, 1921. Later in the depression, this
factor appears to have been of comparatively little importance.
For in the case of all Scandinavian countries, export trade in
1922 and 1923, measured in real values, showed an improvement
on 1920, a year of great prosperity. Denmark appears to have
been favoured from the point of view of foreign trade even in
1921, and throughout the whole subsequent period of depression.
1

Money and Foreign Exchange after 1914, p. 241. Constable & Co., 1922.

— 97 —

Index number
of wholesale
prices

Exports (monthly average)
(000's omitted)

Percentage
of unemployment 2

Recorded
value

Value
calculated on
basis of 1913
prices i

68,112
189,858
91,439
96,143
94,649

68,112
52,885
41,189
55,574
58,067

4.4
5.4
26.0
23.1
13.0

31,743
98,753
50,439
63,789
65,951

31,743
25,852
16,926
27,377
28,305

1.6
2.3
17.8
14.1
10.7

53,113
132,589
117,518
97,997
127,723

53,113 .
33,997
52,699
57,308
68,668-

7.5
6.1
19.7
19.3
12.7

33,482
241,343
278,491
369,733
363,142

100.0
68.6
69.0
93.5
94.6

8

Sweden
1913
1920
1921
1922
1923

100
359
"222
173
163

Norway
1913
1920
1921
1922
1923

100
382
298
233
233

Denmark
1913
1920
1921
1922
1923

100
390
223
171
186

Finland
1913
1920
1921
1922
1923

100
1,183
1,263
1,219
1,095

4

5

6

6

1
Example: 1913 value = recorded value x 100 4- price index number (when 1913
= 100). Thus the 1913 value of Swedish average monthly exports for 1920 = 189,858,000
X 100
-5- 359 = 52,885,000 kronor. (See note on p. 81.)
2
Percentages of unemployment reported by trade unions; annual average.
3
Kommerskollegium.
* Ohonomish Revue.
86 Official.
Index published by the Monthly Bulletin of the Banh of Finland.

Taken as a whole, therefore, the condition of the foreign market
would appear to have had relatively little influence on unemployment in Scandinavia, and it would seem necessary rather
to examine internal conditions for evidence of the causes of continued depression.
It is true that in Norway and Sweden exports have not yet
reached their pre-war level. But it seems questionable whether
it may be permissible to regard the pre-war situation as being
"normal" or as providing a basis of comparison with post-war
conditions. In the case of the United States it was seen that the
volume of exports after the war was, on the average of 1920-1923,
considerably higher than in 1923. This might possibly be taken
to signify a lasting change in the nature or volume of American

— 98 —
export trade, due to war-developments or to increasing investment
abroad. Similarly in Norway and Sweden, there may have been
deep-rooted and lasting changes in industry during the war, due
to their being obliged for a long period to be more self-supporting.
A comparison of export figures for 1913 and for 1921-1923 might
therefore be very misleading. The same argument might of course
apply to comparisons between the years 1920 and 1921-1923, but,
it seems, to a less extent.
As regards the relation between price movements and employment
it was pointed out in the previous section on Scandinavia that
trade is of too seasonal a character in these countries to permit
a very close comparison between the movements of the two factors. In the case of Sweden, the index number of employment
(corrected for seasonal variation), published by the Board of
Trade, shows that the lowest point of the depression was reached
in January 1922 and that recovery was most pronounced as from
April 1922. This recovery followed the checking of the deflation
of prices, and continued very gradually throughout 1922 and 1923,
while prices remained comparatively stable. The movement of
recovery was preceded by the reduction of the Bank Rate of the
National Bank from iy2 per cent, in April 1921 to 5 per cent, in
March 1922, and was accompanied by a further reduction of the
Bank Rate to 4% per cent, in July 1922 \
Compared with all countries previously passed in review, Sweden
has suffered much longer and much more intense unemployment.
The annual averages of unemployment reported by the trade unions
of that country have been : 1920: 5.4 per cent. ; 1921: 26.0 per cent. ;
1922: 23.1 per cent.; 1923: 13.0 per cent. The reason for this
intensity of unemployment may be found partly in the fact that
Sweden has followed a policy of severe deflation with a view to
restoring the kronor to pre-war parity with gold. In this policy
it has been completely successful, the redemption of paper money
in gold at the pre-war rate having been resumed as from April
1924. This financial success is widely recognised, however, to have
been achieved at enormous sacrifice. One essential feature of that
sacrifice has been unemployment on an appalling scale, with its
concomitant privation for thousands of human beings. The justification for this policy from the point of view of labour will therefore be whether in the future it may yield to the worker an improved
standard of living, and greater industrial security.
1

Swedish Economic Review, March 1924.

— 99 —
The new system adopted has one particular point in its favour,
that is, it protects Sweden against inflation. Provision is made
that the National Bank of Sweden shall have the monopoly of the
import of gold, and may if necessary increase the gold parity of the
kronor. In this way it is in the power of the National Bank to
avoid inflation, in the face of a general rise of gold-prices elsewhere.
On the other hand, if the value of gold should rise through the
action of other monetary centres, i.e. if gold-prices should fall,
Sweden would be compelled to follow the new movement and to
force down Swedish prices in sympathy. This deflationary policy
would be thrust upon the country regardless of the suitability of
such policy for Swedish industrial conditions.
Norway has suffered very sorely from unemployment, though
apparently less intensely than Sweden. The worst period of the
depression was during 1921 when the fall of prices was most marked.
The rate of fall diminished in 1922 and the decline was completely
checked at the end of the year. During the following year
there was a considerable recovery of the price level from 222 in
January to 247 in December \ The revival of trade was fairly
extensive during the summer of 1922. This period was followed
by a seasonal decline until the spring of 1923, after which a further
improvement to 7.6 per cent of unemployment in September was
recorded.
The movement of the Bank Rate may be taken to indicate
broadly the financial policy followed in the country. The reduction
of the rate from 7 per cent, in June 1921 to 5 per cent, in August
1922 is thus evidence of a tendency to change the policy of rapid
deflation for one of comparatively easy credit.
In Denmark the central rate of discount was reduced from 7 per
cent, in April 1921 to 5 per cent, in April 1922. The fall of prices
was checked in September 1922, after which a considerable rise
took place, proceeding almost continuously throughout 1923 9 .
Employment improved during the summer months of 1922 and
1923 and gave evidence of a gradual diminution of cyclical depression. The situation in 1923 was still very serious, but much of the
remaining unemployment must be attributed to seasonal rather
than cyclical factors. A comparison between pre-war and post-war
unemployment can be made from the following figures.
1

Official Base: 1913 = 100.
* The Finanstidende index shows a rise from 176 in September 1922 to 210
in December 1923.

— 100 —
PERCENTAGES OF UNEMPLOYMENT REPORTED BY TRADE
UNIONS: DENMARK
Month

Jan.
April
July
Oct.

1911

1912

1913

1920

1921

1922

1923

17.1
11.2
5.4
4.2

14.8
8.3
4.23.8

13.8
7.4
3.6
3.7

16.5
6.3
1.8
3.4

15.1
23.6
16.8
20.8

28.9
24.0
12.5
11.3 •

21.5
11.5
7.4
7.6

As regards Finland, it was pointed out in the earlier part of the
report that little unemployment had been suffered in that country
even in 1921, and that prices had been comparatively stable as
from the peak of the boom in 1920. The year 1922 showed some
slight decline in wholesale prices, but in 1923 a very high degree of
stability was maintained. Exports, though still below the level
of 1913 have shown continuous improvement since 1920 (see table
on p. 97).
FINLAND: NUMBER OF U N E M P L O Y E D 1
Month

March
June
Sept.
Dec.

1919

1920

1921

1922

1923

2,971
1,193
1,961
1,736

1,580
475
837
1,454

2,927
937
1,369
2,127

2,861
799
791
1,294

1,242
512
676
779

i Monthly Bulletin of the Bank of Finland. The figures quoted do not give a complete
review ot the number of unemployed, but may be regarded as symptomatic.

In conclusion, it would seem that the development of foreign
trade has had such an irregular and apparently indefinite effect
on the state of the labour market in all the Scandinavian countries,
that it cannot be regarded as of paramount importance in the
general situation.
On the other hand, there appears to be a very close conformity
in all countries between the movement of the price level and the
development of employment. Moreover, as in the first part of this
survey, such evidences as exist of the monetary policy followed
during the period of depression would tend to show that a policy
of deflation has always been accompanied by unemployment; that,
on the other hand, rising prices accompany and probably stimulate

— 101 —
recovery, and that, as in the case of Finland, a policy of stabilisation
after a position of high activity has been attained may lead to
continuous and uninterrupted prosperity.
THE

NETHERLANDS

It will be remembered that the outstanding feature of the unemployment situation in the Netherlands was the existence of
almost continuous depression since the beginning of the war. The
great and almost universal slump of 1921 found some reflection
in trade conditions in the Netherlands, but not to the same extent
as in the United States, Great Britain, Sweden, Norway, and
Denmark. The fall of prices was, however, also less extensive in the
Netherlands than in the above countries during that period. The
decline of prices continued except for a slight recovery in the
winter of 1922-1923 until August 1923. The annual average for
1923 was 151 as against 160 in 1922. This almost uninterrupted
decline was accompanied by an increase in unemployment in
1922, with no permanent recovery in 1923. It is of interest to
note in fact that the Netherlands constitute the only country in
which the third year of depression revealed no sign of improvement
in the average of unemployment.
As in the case of various other countries previously examined.
statistics of foreign trade for the Netherlands give evidence of the
comparatively small influence which international relationships
appear to have exerted on the labour market. Exports calculated
on the common price basis of 1913 show continuous and marked
increases over the 1920 level during all three years of the slump,
whilst employment followed an inverse curve.
Year

1913
1920
1921
1922
1923
i Official.

a
3

Index
number of
wholesale
prices i

100
292
182
160
151

Monthly average of exports
(in thousands of gulden)
I
Value
Recorded
calculated
value
on basis of
| 1913 prices»
255,453 *
141,791
114,133
101,769
108,602

255,453 *
48,559
62,710
63,605
71,922

Percentage
unemployment 8

5.0
5.8
9.0
11.0
10.8

5

See note on p. 81.
Maandschrift.
* In 1917 there was a change in the method of declaring the value of exports; prewar6 figures are therefore not comparable with post-war returns.
January to November; if the usual seasonal increase took place in December the
average for the year would be above 11.0, the Dgure given for 1922.

— 102 —
The Netherlands thus yield still one further example of the close
relationship between the movement of internal prices and the
development of the labour market. The same country provides
strong evidence in favour of the opinion that in a general way
each country has an almost independent crisis and that internal
conditions have far outweighed international complications in
determining the extent and intensity of the depression.

CHAPTER IV

THE BRITISH EMPIRE
CANADA
Although evidence was given in Part I of the Report to show
that the crisis in Canada was seriously aggravated as a result of
the sudden collapse of corn prices, there seems little further indication that the failure of foreign demand contributed to the trade
slump for the remainder of the period. The year 1920 itself shows
a level of export as high as, if not above, the 1913 position. The
year 1921, the worst period of the depression, was apparently
marked by still further improvement in the export trade. Considerable increases were to be observed in the subsequent years
until the level of export in 1923 was about 50 per cent, above the
position at which it stood in 1913.

Year

Index number of
wholesale
prices
(Official)

Index number of prices
of exports
(Bank of
Commerce)

1913
1920
1921
1922
1923

100.0
243.5
171.8
152.0
153.0

100
262.7
154.2
150.0
154.8

Monthly average of exports
(in thousands of dollars) Percentage
unemployment
Value calcu(yearly
Recorded
lated on
average)
value
basis of
1913 prices 1
36,333
106,055
66.892
73,697
84,561

36,333
40,371
43,380
49,131
54,626

4.6
12.6
7.0
4.9

i Seenoteonp. 81.

Canadian experience is thus evidence of the inappropriateness
of taking the year 1913 as a basis of comparison in estimating the
influence of foreign trade during the years of depression 1921-1923.
It also tends to show that the relationship between foreign trade
and the internal labour market has been somewhat indefinite, and
has at no time, since the winter of 1920-1921, dominated the
situation.

— 104 —
The rapid fall of prices which accompanied the development of
the crisis in 1921, was arrested at the end of the same year and
a high degree of stability was maintained throughout 1922 and
1923. It would seem, therefore, that the recovery of trade, which
became pronounced in 1922 and continued into 1923, must be
attributed to some such causes as the natural expansion of newly
developing areas and the contagious influence of the revival in the
United States, rather than to any stimulus given by the movement
of prices.
AUSTRALIA
From the monthly figures of export from Australia given on
p. 27, it was shown that the outbreak of the crisis could apparently
not be attributed to the failure of foreign demand. Owing to the
seasonal character of the export trade of that country, it is necessary to examine annual figures in order to show the relative importance of foreign trade during the years of depression.

Year

1913
1920
1921
1922
1923
1
2

Index number
of wholesale
prices
(Official)

100
227.9
174.9
161.6
178.7

Monthly average of exports
(in thousands of pounds sterling
Recorded
value
6,070
10,083 2
9,930 2
10,053
8,973

Percentage
unemployment
(yearly
Value calculated
average)
on basis of 1913
prices i
6,070
6,221
5,021

6.5
6.5
11.2
9.2
7.0

See note on p. 81.
Fiscal year, beginning 1 July.

The fiscal year 1 July 1919 - 1 July 1920 showed a monthly
average export of £11,501,000. The subsequent fiscal year, ending
30 June 1921 gave a monthly average of £10,083,000, a reduction
of approximately 12 per cent. Averaged over the respective
periods the fall of prices from the first period to the second was
negligible. Hence, one aggravating factor in the first year of
depression was the diminution of foreign demand. The calendar
year 1922, however, showed a volume of exports which was equal
to, if not greater than the export total of 1913, and considerably
higher, calculated on a common price basis, than the export trade
during the boom period of 1919-1920. This period of active
foreign trade was, however, marked by an average unemployment

— 105 —
percentage of 9.2. The following year employment improved and,
on the contrary, the export trade fell off considerably.
In the case of Australia, therefore, the state of the foreign market
appears to have exerted comparatively little influence on the
general movement of trade, except in 1921 when, in common with
almost all other countries, international trade relations were
seriously depressed.
Seasonal fluctuations in Australian industry prevent any very
close comparison of employment with the movements of the price
level. But the broad movement of recovery, marked by a change
from 11.2 per cent, of unemployment in 1921 to 9.2 per cent, in
1922, with a further improvement to 7.0 per cent, in 1923, was
accompanied by the checking of falling prices at the beginning of
1922, followed by a marked upward trend for the remainder oi the
year and a further slight tendency to rise in 1923.
SOUTH

AFRICA

In the case of South Africa, there are no accurate means of
estimating the extent of unemployment or the degree to which
recovery has been made in the course of the years 1922 to 1923.
According to general indications, such as the extensive measures
still being carried out by the Government with a view to relieving
the situation, it would seem that the year 1923 was still abnormally
bad.
That some improvement took place during these years seems
evident, however, from the reduction of loss through bankruptcies,
,the diminution of the number of applications for work at the
labour exchanges 1, and an increase of foreign trade.

Year

Index number
of wholesale
prices
(Officia!)

1913
1920
1921
1922
1923
1

1

100
223.3
160.4
128.4
126.6

See note on p. 81.

See Part I of the report.

Monthly average of exports
(in thousands of pounds sterling)
Merchandise
Recorded
value
2,294
3,841
2,234
2,476
2,962

Value calculated
on basis of 1913
prices i

Gold

2,294
1,720
1,393
1,928
2,340

3,132
2,962
2,871
2,443
3,264

— 106 —
This recovery was accompanied by the restraint of falling prices
in 1922 and comparative stability in 1923, and by the reduction
of the official rate of discount from 7 yz to 7 per cent, in May 1922
and to 6 per cent, in December 1922.

GREAT

BRITAIN

In Part I of the present report, the description of the British
crisis was carried as far as June 1921, when unemployment reached
the highest figure attained during the depression. The enormous
percentage of unemployment (23.1) recorded by the trade unions
in that month was, however, seriously affected by the strike of the
coal miners which, after lasting nearly three months, brought
almost to a standstill a number of industries dependent on steam
power. Immediately after the strike there was a brisk revival of
trade continuing until September when unemployment fell to
14.8 per cent. This recovery was perhaps due to the necessity
for fulfilling contracts delayed during the coal strike, and the
improvement was only momentary. From the month of September 1921 there was a further gradual decline until April 1922 when
17.0 per cent, of unemployment was recorded. This can more
truly be considered the lowest point of the depression. From that
date the situation improved almost continuously, though very
gradually. At the end of 1922, unemployment was still as high as
14 per cent., although in countries such as France, Belgium, and
the United States recovery was by that time almost complete.
UNEMPLOYMENT PERCENTAGE IN TRADE UNIONS PAYING INSURANCE
BENEFIT
Month

1921

1922

1923

1924

Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

6.9
8.5
10.0
17.6
22.2
23.1
16.7
16.3
14.8
15.6
15.9
16.5

16.8
16.3
16.3
17.0
16.4
15.7
14.6
14.4
14.6
14.0
14.2
14.0

13.7
13.1
12.3
11.3
11.3
11.1
11.1
11.4
11.3
10.9
10.5
9.7

8.9
8.1
7.8
7.5

—
—
—
—
—
—
—
—

— 107 —
The above table gives evidence of further improvement during
the course of 1923 and at the beginning of 1924. But the situation
should still be regarded as extremely critical. In previous depressions since 1900, the annual averages reached have been 6 per cent.
in 1904 and 7.8 per cent, in 1908. Compared with these figures,
8 or 9 per cent, in the fourth winter of depression represents still
intense hardship for a considerable proportion of the population.
The total number of applicants for employment on the live registers
of the Employment Exchanges in Great Britain and Northern
Ireland on 17 December 1923 was 1,174,397. On 18 December
1922 the corresponding total was 1,408,008, of whom 1,129,569
were men and 203,119 were women.

PRICE MOVEMENTS AND EMPLOYMENT.

As regards the correlation of price movements and employment,
it will be remembered that, in the earlier part of the report, unemployment was shown to have developed rapidly as prices
fell. In the period of revival which followed there were three
principal stages in the movement of recovery; the early summer
of 1922; the late winter of 1922-1923; and the autumn of 1923. It
will be seen from the table below that the marked recovery of the
labour market from April to July 1922 was heralded by a rise of
four points from February to June in the wholesale price level.
Likewise, the periods of recovery December 1922 to May 1923,
and August to December 1923, were each accompanied by an
appreciable upward trend in prices. In the intermediate stages
unemployment remained comparatively stable, and prices were
also stable or else fell slightly.
The upward movement of the British price level, taken as a
whole, has however been very slight in comparison with that of
the United States, France and Belgium, where revival of trade
was very rapid. Its movement has resembled more that of Sweden
where, as was seen above, the depression has been most severe
and continuous.
Changes in the rate of discount of the Central Bank constitute
in most countries the principal tangible evidence of the monetary
policy being followed. In the earlier section of the Report it was
shown that the rate of discount of the Bank of England was raised
successively from 5 to 6 per cent, in November 1919, and from 6
to 7 per cent, in April 1920, with a view to restraining the rapid

— 108 —
Percentage
unemployment
in trade unions

Date

1922

1923

1 The
2

Bank2
rate

2.1

100.0

July •
Aug.
Sept.
Oct.
Nov.
Dec.

16.7
16.3
14.8
15.6
15.9
16.5

186.1
181.5
175.8
162.8
160.8
157.2

5y,

Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

16.8
16.3
16.3
17.0
16.4
15.7
14.6
14.4
14.6
14.0
14.2
14.0

155.9
155.5
156.8
158.6
159.4
159.5
157.6
152.5
150.5
153.1
153.6
151.9

5

Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

13.7
13.1
12.3
11.3
11.3
11.1
11.1
11.4
11.3
10.9
10.5
9.7

153.2
155.2
156.1
157.6
155.5
150.5
146.8
147.1
150.4
150.2
155.8
156.7

1913
1921

Index number
of wholesale
prices i

51/2

5%
514
5
5
4i/ 2
41/2

4
4

sy
3 2
3
3
3
3
3
•

3

3
3
'

a
3
3
4
4
4
4
4
4

Statist.

End of month.

inflation which was then taking place. The restraint was effective,
and a policy of deflation followed, being marked by a 7 per cent
bank rate until March 1921. The rate was still as high as 5 per cent.
in November 1921. This period of deflation showed a fall in wholesale
prices from 313.1 * in April 1920 to 160.8 in November 1921.
The reduction of the bank rate to 4 per cent, in April 1922 marked
the beginning of a permanent improvement in employment and
the cessation of the policy of deflation.
A further reduction of the rate to 3 % per cent, in June and 3 per
cent, in July 1922 brought the price of money lower than it had
1

The Statist.

Base: 1913 = 100.

— 109 —
been for many years. In these conditions of easy credit, recovery
was slow but fairly continuous.
The rate was raised again a year later (July 1922) from 3 to 4 per
cent. This movement was followed by a slight set-back in employment lasting roughly two months, after which there was a considerable revival until the end of the year..
Such correspondence between the movements of the bank rate,
prices, and employment is not conclusive in itself, but none the
less adds to the evidence which would indicate that monetary
control may in the future prove a useful instrument for stabilising
the development of industry and for sustaining the labour market.

INTERNATIONAL TRADE AND

UNEMPLOYMENT.

The point of essential interest in the problem of the failure of
foreign markets is the relationship which the reduction of foreign
demand may bear to the total diminution of the demand for labour
in Great Britain. On the one hand, purchasing capacity abroad
appears to have been considerably diminished as a result of depreciated currencies and general depression of trade. On the other
hand, home demand has been restricted through the loss of the
purchasing capacity of the unemployed, through stringency of
credit (in the first year of the depression) and through the unwillingness of business leaders to purchase material for new capital
expansion when trade prospects are poor. Which of the two factors
must be considered the more important, the failure of foreign
trade, or oi the domestic market ?
This question is of interest for two principal reasons. First,
the measure of the failure of foreign demand will show the proportion of unemployment which may be regarded as of long duration
i.e., the proportion which may be due to complicating factors
which can only be completely eliminated by the restoration of
Europe to full prosperity and political solidarity. In the second
place the relation between home and foreign demand will show
the relative importance of measures for restoring international
trade and measures for stimulating home demand.
The problem of determining which sphere is the more important
might perhaps be approached in three ways: (1) a comparison of
the actual movements of export trade with simultaneous movements in employment; (2) a comparison of the volume of foreign
etrade and unemployment in times of depression with the volum

— 110 —
of each in times of prosperity; (3) an examination of the nature
of the industries most affected by unemployment.
The first method gives somewhat inconclusive results.
Date
1913 »

Imports
(in thousands of
pounds sterling)

Percentage
unemployment
(trade unions)

Exports
(in thousands of
pounds sterling)

54,931

2.1

43,771

1921

July
Aug.
Sept.
Oct.
Nov.
Dec.

71,396
78,583
78,524
74,356
79,436
76,108

16.7
16.3
14.8
15.6
15.9
16.5

43,172
51,346
55,248
62,265
62,895
59,375

1922

Jan.
Feb.
March
April
May
June
July
Aug.

68,029
59,201
77,725
71,461
79,850
75,578
73,467
75,157
70,562
76,737
86,452
86,433

16.8
16.3
16.3
17.0
16.4
15.7
14.6
14.4
14.6
14.0
14.2
14.0

63,147
58,335
64,581
55,508
58,045
52,146
60,419
60,032
62,511
60,399
66,491
58,883

89,902
74,032
80,937
73,989
77,706
78,353
68,018
82,614
75,155
88,768
91,414
98,793

13.7
13.1
12.3
11.3
11.3
11.1
11.1
11.4
11.3
10.9
10.5
9.7

66,939
57,510
60,921
62,871
71,555
62,884
59,504
60,103
63,836
71,323
65,768
64,115

Sept.
Oct.
Nov.
Dec.
1923

Jan.

Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

2

s

1
The figures for 1913 show the monthly average.
¡> From 1 April 1923, including the trade of Great Britain and Northern Ireland with the
Irish Free State, and excluding the direct foreign trade of the Irish Free State.

The period of serious trade decline from September 1921 to
April 1922 shows little change in the level of exports. Taking
into consideration the fall of prices which took place at this time,
the real value of exports seems to have increased rather than diminished. During the months following, when employment was
improving, exports showed little variation. This lack of relationship
between export trade and employment is perhaps less pronounced
in 1923 when it can be said at least that export trade and employment
both showed general improvement in the course of the year.

— Ill —
Compared with the increase in imports, the development of
export during 1922 and 1923 was of small extent. T h a t would seem
to give prima facie support for the opinion that the internal market
was showing greater recovery and was more responsible for the
trade revival than was the export market. Since there was in fact
a marked recovery of general trade in 1922 and 1923 and since
exports reflected this movement only to a relatively small extent,
it seems that the development of home demand was the more
important factor in determining the revival.
Is it possible then to determine the relative importance of the
two factors during 1923 when home demand had already somewhat
recovered ? For this purpose it might be well to apply the second
method suggested. The following table shows the volume of visible
exports calculated on the basis of 1913 prices, in relation to the
average of unemployment reported by trade unions during the
year 1.
Year »

1913
1920
1921
1922
1923

Export of goods
from the
United Kingdom 2

Re-exports 2

Million pounds

Million pounds

525.2
372.5
261.6
361.8
404.4

109.6
98.9
86.1
89.3
94.0 .

Percentage
unemployment

2.1
2.4
15.3
15.4
11.5

i After March 1923, the trade of the United Kingdom with the Irish Free State is included,
and2 the exports of the Irish Free State are excluded.
Value at 1913 price level.

The volume of exports in 1923 is thus seen to be about 25 per
cent, below the pre-war level. The total volume of exports has
been estimated at about 30 per cent, of the total production 2
of the country. On this basis, a 25 per cent, reduction in exports
would amount roughly to a 7% per cent, reduction of the country's
measurable production.
To attribute 7% per cent, of reduced production, and a broadly
corresponding percentage of unemployment, to the failure of
foreign markets, assumes, however, that pre-war conditions are
1
2

Board of Trade Journal, 24 Jan. 1924, p. 107.
Presumably excluding services which cannot be computed e.g., municipal
services, commercial and professional services. This estimate was the one
given by Mr. E. F. Wise, Economic Adviser to the All-Russian Union of Consumers' Co-operative Societies, before the Unemployment Conference organised
by the League of Nations Union in London on 25-27 March 1924.

— 112 —
"normal". Now, in certain countries previously examined it has
been shown that the average of post-war export is considerably
above (e.g. Canada and the United States) or considerably below
(e.g. Sweden and Norway) the pre-war level and that such a state
of affairs might be regarded as quasi-permanent, being the result
of important and lasting changes in the nature of the country's
industry or the extent of its foreign investments. In the case of
Great Britain there has been a very marked diminution since 1914
in the rate of investment abroad. Furthermore, the country was
obliged during the whole of the war to mould its industry to home
requirements with a view to becoming less dependent on foreign
trade. If, therefore, these changes are of a comparatively permanent character, the year 1920 should be regarded as more
"normal" than the year 1913. What result then does a comparison
between the year 1920 and the year 1923 yield ?
In the first place unemployment averaged 2.4 per cent, in 1920
as against 11.5 per cent, in 1923. Exports, brought to the common
price basis of 1913, amounted to £404 millions in 1923 as compared
with £373 millions in 1920. In other words, in spite of a very
considerable reduction in employment there has been a marked
increase of exports since 1920 1. In view of this considerable
improvement of the foreign market and of a simultaneous diminution
of total demand, the depression of home demand over this period
must have been very extensive, and presumably was, even in
1923, the most important consideration. This does not detract,
however, from the importance of the failure of foreign demand
regarded in an absolute sense.
Moreover, the year 1920 may perhaps have shown a high
figure of employment owing to the great development of home
demand resulting from expenditure on post-war reconstruction,
a development which temporarily masked the existing weakness of foreign demand. Subsequently, when both internal and
external demand began to fail, the effect of reduced foreign demand
was no longer masked and became an additional source of aggravation in an already intense depression.
The evidence which may be drawn by the third method of
approach, i.e. a comparison of conditions in different industries,
lends some emphasis to the importance of the failure of foreign
1
The effect of the exclusion from the returns of exports from the Irish
Free State and the inclusion of exports from the United Kingdom to the Irish
Free State, is considered to be of minor importance and incapable of invalidating the general conclusion.

— 113 —
demand. The percentages of unemployed reported by trade unions
of different industries at the end of December 1923 1 show that
certain of the principal export trades, e.g. engineering, shipbuilding,
miscellaneous metal, and cotton textiles, suffered comparatively
heavily, though this is not the case with coal mining; and that
those producing more particularly for home consumption, e.g.
building, printing, bookbinding and paper manufacture, furnishing
and woodworking, have fared somewhat better. (The pottery and
tobacco trades form an exception to this group).
Percentage
unemployed in
December 1923

Trade

Building *
Coal mining
Engineering and shipbuilding
Miscellaneous metal
Textiles :
Cotton
Woollen and worsted
Other
Printing, bookbinding and paper
Furnishing
Woodworking
Clothing:
Boot and shoe
Other clothing
Leather
Glass
Pottery 3
Tobacco
Total

4.1
0.5
18.7
10.4
7.5 2
2.2
3.7
4.3
6.4
4.8

Increase ( + ) or
decrease (—)
compared with
December 1922
—
—
—
—

3.4
6.3
8.2
0.7

+ 0.5

+ 1.—
—
+
—

0.2
1.8
1.5
2.2

5.5
5.7
9.1
2.1
26.1
16.7

+ 0.7
+ 1.9
+ 0.7
— 0.6
+ 5.1
—14.6

9.7

— 4.3

1
The percentage is based on returns relating to woodworkers and plumbers, and as
regards woodworkers, who constitute the bulk of the membership, the returns relate to the
end2 of October.
In addition to those shown, who were totally unemployed, a large number of the
members of the unions reporting were "paid off part of each week, or alternate weeks or
fortnights, or on temporary stoppage benefit".
s The returns for the tobacco trade are supplied by unions whose members are mainly
cigar makers.

The fact must not be overlooked, however, that most of the export
trades in question are also essentially producers of capital goods,
trades which invariably suffer worst during depression even though
they produce for home consumption alone. They are also the
trades which were over-expanded during the war, and for the
production of which there is now neither home nor foreign demand
on the same scale as before. This expansion during the war is
1

The Ministry

of Labour

Gazette, J a n . 1924, p. 15.
8

— 114 —
particularly noticeable in the case of engineering and iron-founding,
and shipbuilding, as will be seen from the following table extracted
from The Third Winter of Unemployment \

Industry

Building and construction
Coal mining
Engineering and
ironfounding
Shipbuilding

Numbers engaged
in the industries

Numbers
Increase
unemployed
or decrease
in eight years in October 1922

June 1914

Jan. 1922

908,000
1,134,000

870,000
1,180,000

— 38,000
+ 46,000

142,325
84,000

790,000
242,000

1,127,000
315,000

+ 337,000
+ 73,000

249,000
121,000

Such conclusions as may be drawn from the foregoing survey of
home and foreign trade must naturally be very tentative in character,
But it would seem that, in the first place, the conditions of 1913
can no longer be considered as "normal", but rather some state
intermediate between the 1913 and the 1920 situations. In such
case, industry may be expected to recover completely without the
pre-war level of export being reached; and the present level of
exports, low in comparison with 1913 and high in comparison with
1920, should not be considered a cause for undue pessimism.
Home demand successfully masked the failure of foreign demand
for a period of two years after the war ; this was at a time when the
foreign market was weaker than in 1923. Hence there seems
reason to believe that the domestic market may continue to
strengthen as it did in 1922 and 1923, leaving little margin of
unemployment attributable to conditions abroad.
To this note of optimism, might it not be wise to add one of
caution ? Remedial measures, which may assist to some extent
the revival of foreign trade, may at the same time have an adverse
effect on home demand. Would it not be well, therefore, in the
examination of proposals of this nature, such for instance as the
preferential treatment of certain industries, or the reduction of
wages, to consider carefully all the possible repercussions of the
action recommended both upon the foreign and the home markets ?
From the basis of the foregoing generalisations, it would be well
to proceed to some further discussion of the separate factors
which affect the labour market either through their influence on
1

The Third Winter of Unemployment. London, P.S. King & Son, 1923.

— 115 —
international trade or on domestic consumption. As far as possible the factors bearing principally on international trade will be
grouped together and treated first.

FACTORS AFFECTING INTERNATIONAL TRADE

Wages and

Unemployment

A comparison of wage changes with movements in employment
from 1920-1923 may be made from the following statistics quoted
by Professor A. L. Bowley before the London Unemployment
Conference organised by the League of Nations Union in March
1924.
1920
Month

Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

•

1921

1922

A

B

A

B

A

100
100
101
98
101
104
104
102
102
98
102
104

2.9
1.6
1.1
0.9
1.1
1.2
1.4
1.6
2.2
5.3
3.7
6.0

110
114
118

6.9
8.5
10.0

115
115
118
114
113
107
107
107
102
100
100
100

(Coal strike)
114
110
113
115
114
116

16.7
16.5
14.8
15.6
15.9
16.5

1923
B

16.8
16.3
16.3
17.0
16.4
15.7
14.6
14.4
14.6
14.0
• 14.2
14.0

A

B

100
100
102
104
105
104
102
100
100
100
100
98

13.7
13.1
12.3
11.3
11.3
11.1
11.1
11.4
11.3
10.9
10.5
9.7

A = Real wages, United Kingdom, i.e., weekly money wages index^divided by cost of
living index number.
B = Trade Union Unemployment Percentage.
EXAMPLE: In January 1921 the cost of living index number was 251 and the money
wages index number was 277, both in relation to 100 in July 1914. 100X277*251 = 1 1 0
approx. Hence the entry in the table.

The evidence which these figures yield was summarised by Professor Bowley as follows :
In spite of the reduced working week, wages from February to September
1920 were, as nearly as can be estimated, equal to those in 1914. After the
outbreak of the crisis, wages continued to rise during 1921 and unemployment
increased.
Employment began to improve in May 1922, the date at which real wages
began to fall. By October 1922 real wages were at the same level as in 1914
and remained at that level till the end of 1923. The improvement in employment continued till it was checked in the summer 1923, but rapid further
progress has been made since September. Throughout the period the real
wages included are those payable for the reduced working week.
The relation between wages and unemployment is not conclusively
established. The two main points were that employment began to improve

— 116 —
when real wages fell, but after real wages had got back to their pre-war
level, while they remained there employment continued to improve. The
correlation was broken, but it ought to be said that the sudden break at
the beginning of 1921 was not solely or even primarily due to the height
of wages. At present these seems a prospect of unemployment being reduced
to the pre-war average without a fall in real wages; but the synchronism
in the fall in wages and unemployment in the summer of 1922 appears to
be significant.
In view of this somewhat conflicting evidence and of the elementary state of research into the relation between wages and employment, it would seem impossible to do more than throw out a few
suggestions as to the possible reactions between the two factors.
Rising wages, through their relation to costs, obviously tend to
render production difficult in the industries immediately affected
and thus contribute to the factors making for greater unemployment. Through their relation to demand, rising wages stimulate
production and thereby lead to greater employment.
Whether
these two considerations cancel out would seem difficult to determine *. But at all times both factors must be taken into account
when questions of wage policy are under consideration.
The diminution of wages has sometimes been suggested as a means
of alleviating the situation in exporting industries. The immediate
effects of such diminution would appear to be to assist the industries
concerned in securing foreign markets. Such relief as might be
given in this way must, however, be essentially at the expense of
domestic trade; for the reduction of wages will be reflected immediately in a diminution of home demand. Whether such preferential treatment of the exporting section is desirable or not
depends to some extent upon the relative importance of domestic
and foreign demand and the conditions in the respective industries
supplying the demand.
A further complicating element in the reaction between domestic
and foreign trade and their relation to wage changes is as follows.
The reduction of wages by reducing demand within a country will
tend to diminish its imports. Now, when a foreign exporter sends
goods to Great Britain, he requires to be paid for those goods.
His claim for payment is one which can only be realised ultimately
in British goods, i. e., by an increase of British exports. Thus the
diminution of imports means a diminution in the claims of foreigners
1
There is a further factor for consideration. If rising wages create a tendency to rising prices, and if rising prices are the usual accompaniment and
to some extent the stimulus of recovery, the evidence would seem weighted in
favour of the belief that rising wages' lead to greater, rather than less, employment.

— 117 —
on British goods, which is reflected to a greater or less extent 1 in
the failure of demand for British exports. In this way the reduction of wages proposed initially as a means of stimulating export
trade may, through its restraint of imports and consequent diminution of exports, have the reverse effect from that originally intended.
Viewed internationally, the argument for the reduction of wages
as a stimulus to employment fails completely. Whatever momentary
alleviation may be secured by one country through the reduction
of its costs in this way, the advantage would be lost immediately
its competitors followed the same course. The total result would
in fact be a world-wide reduction in the demand of wage-earners
and a gradual and painful reduction of prices until the purchasing
power of the community, diminished in this way, was again adequate
to absorb all the goods brought on to the market.
Commercial Barriers
The evidence given before the London Unemployment Conference by Dr. T. E. Gregory, who has made a special study of international trade in the post-war period, was to the effect that in
view of the universal increase of prices compared with the pre-war
level, the effective tariff wall was no higher in present times than
it had been before the war. In point of fact, until the rates of
specific duty had been raised, the tariff walls of the world were
only one-half as high as in 1913 ; the raising of the rates merely
had the effect of making them correspond with the new level of
prices. It seemed probable, therefore, that the influence which
tariff barriers had exerted had been considerably exaggerated,
One striking example of the comparatively small effect of the
increased duties wras that of the Fordney tariff in America. In
spite of the new customs rates, there had been an increase oí
exports to America since their application.
Dislocation of the Exchanges
There is little need to emphasise the importance of stable exchange
rates from the point of view of international trade. The results
of exchange dislocation are obvious and undeniable; and they have
been singled out in every treatise on the subject of unemployment
as one of the most important aspects of the problem.
1

The question of changes in foreign investment is to be taken into consideration.

— 118 —
From an examination of the general situation in world trade,
it is to be seen that the countries which have suffered worst are
for the most part those whose currencies have been continuously
over-valued externally. This has been the case with Great Britain,
since sterling has been over-valued in relation to most European
currencies during the entire period of the crisis.
This appreciation of the value of sterling on foreign money
markets sets in operation two forces: greater ability of British
merchants to buy foreign goods, in view of the low prices of those
goods when expressed in sterling: and greater difficulty in selling
British goods in foreign markets, in view of the inability of the
foreign trader to buy sterling and pay British prices. There is
thus created a tendency for exports to diminish and imports to
increase, with consequent unemployment. In Great Britain this
tendency is reflected in the actual returns of the Board of Trade,
which show that whereas visible imports are approximately at
their pre-war level, visible exports expressed as real values are
about 25 per cent, below the 1913 level.
These facts, however, require a little further investigation before
it can be assumed that the o ver-valuation of a currency must
invariably lead to unemployment at home. In the first place, in
a country like Great Britain, whose industry is largely dependent
upon imported raw materials, any exporting disadvantage it may
suffer through the appreciation of its currency must, to a certain
extent, be off-set by the cheapness with which it can import raw
materials. This would not appear to eliminate entirely the
handicap on export but would at least remove a part of it.
In the second place, there can only be a permanent change
in the relation between exports and imports provided there is a
corresponding change in the direction of investment. If, for
instance, imports into Great Britain are immediately increased
through the stimulus given by the external over-valuation of
sterling, the foreign exporters of those British imports thereby
secure an additional claim on British goods, which can only be
satisfied by an ultimate increase of British exports — unless those
foreigners or other foreigners forego their claim. This they might
do by investing their claim permanently in Great Britain.
Some such change in the direction of investment appears to
have taken place in the post-war period. Before the war, Great
Britain maintained an exceedingly high annual balance of investment abroad. Since 1920 there has been a considerable diminution

— 119 —
of this rate of investment, the annual balance having fallen appreciably.
Moreover, a further point of perhaps less importance in itself,
but of considerable significance in its implications, is that deposits
in British banks increased very considerably during 1921 relatively
to those in many European countries whose currencies were undervalued externally. This may have been the result of a general
tendency for foreigners to transfer their balances to a country in
which the currency was appreciating.
These facts would seem to be very strong evidence that whenever
a country's currency is overvalued externally in consequence of
its high national credit there is a tendency for further investment
in that country and for foreign traders to leave their idle balances
in its banks.
The result of such an inward flow of investment would be to
reduce the country's exports in proportion to its imports, and so
cause unemployment.
This conclusion appears to yield a satisfactory explanation of
one of the most extraordinary post-war paradoxes, namely that
the higher the national credit of a country and the greater its political
stability, the worse it has suffered from loss of trade in the postwar period. A minor incident in the recent history of British
currency which has some bearing on this matter was that of the
"inflationist scare" which occurred at the beginning of October
1923, and was responsible for a rapid though momentary depreciation of sterling in foreign money markets. This movement was
apparently in no way detrimental to British trade, since improvement in employment was marked during October and the remaining months of the year.
Political Uncertainty
For similar paradoxical reasons the effect of political uncertainty
seems to be to stimulate rather than to reduce employment. In
the case of many countries already examined it has been seen that
the effect of political insecurity has been to reduce the exchange
value of its currency and to turn the tide of investment outwards
from that country, so that its export trade has been considerably
stimulated and the demand for labour increased. In the case of
Great Britain the reverse process seems to have been effective.
Owing to the sound political and financial situation of that country
it has been a centre of investment from countries offering less

— 120 —
security, and its currency has been considerably overvalued abroad,
both factors contributing to the tendency for British imports to
exceed exports. The unemployment resulting from such a change
would thus arise from a circumstance which is in all other respects
eminently desirable and should be preserved at whatever cost to
the nation, namely, its political and financial stability.

All these paradoxical situations would perhaps appear to justify
a pessimistic outlook. Of the factors affecting international trade
some brief discussion has been given above to wage movements,
customs tariffs, exchange dislocation and political insecurity. And
in no case does there seem a possibility of immediate solution.
Wage movements offer little prospect of alleviation, since their
twofold effects seem to cancel out. Customs barriers are said to
be roughly where they were before the war. Political security
would seem too valuable an asset to barter for improvement in the
labour market.
If it is true, however, t h a t Great Britiain is suffering unemployment
through the very solidarity of its position, its high national credit
and its overvalued currency, these must be a consequence less of
absolute than of relative security; in other words, it suffers through
the fact that compared with other countries its position has greater
strength and offers better prospects. One way of reducing
this relative advantage without losing the absolute security would
be to increase the political and financial stability of Europe so
that the currencies of Central European countries may no longer
be undervalued and t h a t capital investment may no longer be
diverted from their borders. Hence, those who urge, as a panacea
for all ills, the restoration of a true spirit of peace in Europe, would
certainly find therein a part solution for British unemployment *.
There remain for examination those factors which have a more
direct bearing on conditions of home demand. In this connection,
some suggestions are made below as to the relations between
unemployment and (1) over-population; (2) taxation; (3) monetary
policy.
1
There is little need to emphasise in this connection the part which has
already been played by the League of Nations through the Economic and
Financial Organisation in restoring the financial and economic stability of
huge tracts of Central Europe (see Appendix to the Director's Report for the
1924 Conference). The continuance of such work, which depends largely
upon the realisation of its importance in the several countries, is unquestionably
of the greatest concern for the future of British trade and employment.

— 121 —
FACTORS AFFECTING THE DOMESTIC MARKET

Over-Population

and

Unemployment

The population of England, Scotland, and Wales increased b y
roughly two millions, from 40,831,396 in 1911 to 42,767,530 in
1921. This rate of increase is very gradual in comparison with
previous decades, but there appears to be evidence t h a t the rate
of development of the country's productive capacity has also
considerably diminished since the end of the 19th century. The
problem thus presented by the growth of population has been given
considerable prominence of late, as a result of an interesting controversy between Sir William Beveridge and Mr. J. M. Keynes \
Briefly the line of argument followed by Mr. Keynes is this:
Unemployment is a phenomenon of maladjustment, and the maladjustment
may be due to causes which have nothing to do with population: as, for
example, the maladjustment due to a transition, through deflation of purchasing
power, from a higher to a lower price-level, or that due to the necessity of
changing over from supplying one type of outside market to supplying another
because of a sudden change in the relative wealth and requirements of the
rest of the woiId. Each of these influences is probably responsible for an important part of the existing unemployment in Great Britain.
But on the other hand, unemployment may be a symptom of a maladjustment very closely connected with population —- namely, that which results
from an attempt on the part of organised Labour, or of the community as a
whole, to maintain real wages at a higher level than the underlying economic
conditions are able to support. The most alarming aspect of the prolongation
and the intensity of the existing unemployment is the possibility that transitory influences may not wholly explain it, and that deep causes may be operating which interfere with our continuing ability to maintain
in these islands an
expanding population at an improving standard of life 2.
Sir William Beveridge considers, however, that when overpopulation is beginning to make itself felt, that is, when numbers
are increasing so rapidly as to press heavily upon the raw materials
available, and when it becomes increasingly difficult to secure the
same rate of output per unit of effort, then "a more probable effect
(of over-population) would be pressure to work more than before
in order to obtain the same comfort." 3
Illustrating his point of view from historical evidence, Sir William
Beveridge shows that, although the latter part of the nineteenth
century was marked by comparatively heavy unemployment in
Great Britain, there could be no ground for saying that this was due
1
2
3

The Economic Journal, Dec. 1923.
The Nation and the Athenaeum, 6 Oct. 1923, p. 10.
The Economic Journal, Dec. 1923, p. 448.

— 122 —
to excessive increase of the population or declining efficiency of
production. It was, in fact, accompanied by a phenomenal rise
both in the numbers supported and in the standard of living
enjoyed by each individual l.
In view of the very gradual manner in which the law of diminishing returns would operate it would seem rash to attribute a
large proportion of unemployment to re-adjustments consequent
on such a slow process of change. However, there is one important
factor for consideration in relation to population and cyclical
depression. One of the usual outlets for surplus population is
emigration, and although this is never a comprehensive cure for
unemployment, it offers a fairly regular way of escape for a certain
number oi workers from over-crowded areas. During periods of
world-wide depression, however, immigration restrictions are greatly
increased and, in consequence, over-populated regions have even
less opportunity of relief than during the more prosperous times.2
It seems probable that through the loss of their customary outlet
for a certain proportion of unemployed during depression, countries
of emigration would tend in general to be worse affected than
neutral or immigration countries. This fact may account to some
extent, though not very largely, lor the great intensity of unemployment in Great Britain as compared with countries of immigration.
Taxation and Unemployment
It is frequently stated that an increase of taxation raises the cost
of production of goods, and that the competitive disadvantage
incurred, by depressing trade, increases unemployment in the
country concerned. It is also stated that taxation, by absorbing
a certain proportion of the purchasing power of the community,
reduces the effective demand for goods, and so gives rise to unemployment; or, alternatively, by interfering with the accumulation of capital, hinders the revival of industry.
1
2

The Economic Journal, Dec. 1923, pp.447-448.
The figures for emigration from Great Britain during 1920-1923 are as
follows :
1920
1921
1922
1923

285,105
199,177
174,096
256,284

The year 1908, a period of serious depression, showed a very marked worldwide diminution of emigration (see I. FERENCZY: Rapport sur le chômage et
les migrations internationales de travailleurs. Ghent, 1912.

•r

— 123 —
A further argument which seems worthy of consideration is one
which relates to the use made by the Government of the revenue
collected through taxation, and the possibility of purchasing power
available from savings for capital investment being supplemented
from, other sources, such, for instance, as the creation of additional
bank credit.
In the first place, it would seem that in a country such as Great
Britain, where the budget is balanced annually, all revenue collected
is offset by expenditure on goods and services (except that part
which is used for the cancellation o¡ floating debt). Consequently
an increase of taxation produces automatically an increase of
Government expenditure. The purchasing power withdrawn
from one section of the community is transferred to another section,
and total effective demand would appear to be unchanged.
However, since taxation constitutes to some extent a reduction
of savings, that is, expenditure on capital investment, and since
Government expenditure is rapidly reflected through wages and
unemployment relief in demand for consumable goods, one effect
of the increase of taxation may be a change in the direction of the
community's total expenditure. From the purchase of capital
goods, a certain proportion of the community's buying capacity
may be diverted to the purchase of consumable goods. The total
demand for consumable goods may thus be increased at the expense
of the demand for capital goods. Which of the two factors is the
more important during depression ?
It is an accepted phenomenon of trade slumps that goods for
final consumption glut the market during this period, and that
until they can be absorbed industry must continue to be sluggish.
From this point of view the diversion of expenditure to the purchase
of consumable goods would appear to give a definite advantage.
At all times, moreover, it is the demand for the final commodity
which regulates the general activity of trade, and if, during
depression, it is possible, by heavier taxation and greater state
expenditure, to increase the demand for final goods, this would
produce as an initial effect a general desire to meet this demand
by further expansion throughout the process of production.
But it has been shown that the demand for final goods was only
increased at the expense of savings — i. e. the reserves available
for capital expansion. If private reserves are thus reduced, will
this not impede the expansion of capital ? Or are there other
resources which may replace private savings ? It would seem
probable that in this period of rising prosperity the necessary

— 124 —
supplementing of private savings might be effected through a
general increase of bank credit.
In this way, it might be possible to argue that an increase of
taxation would be followed by greater state expenditure, which
would be reflected in increased demand for final goods. This in
turn would stimulate the general expansion of industry which
would entail for its operation a certain development of bank credit
to take the place of savings initially reduced by taxation.
This argument appears incomplete without much qualification
at different stages; but in general there seems reason for believing
that increased expenditure for the relief of the unemployed during
depression would act as a spur to production rather than constituting, as is sometimes thought, an unqualified burden on
industry.
British experience during the existing depression has shown that
whereas extensive cuts have been made in taxation and expenditure,
unemployment has continued with the greatest intensity. Revenue
and expenditure for the years 1919 to 1923 were as follows 1 :
Year
1919-1920
1920-1921
1921-1922
1922-1923
1923-1924 »
1

Revenue
(in pounds sterling)

Expenditure
(in pounds sterling)

1,339,571,000
1,425,985,000
1,124,880,000
914,012,452
818,500,000

1,665,773,000
1,195,428.000
1.079,187,000
812,496,604
816,616,000

Budget estimates.

Monetary Factors and Unemployment
The relation between monetary policy and unemployment may
be expressed in very simple terms. Without money, the community cannot buy. If the community does not buy, production
ceases and unemployment begins. This idea might be carried a
stage further as follows. The control over money will permit a
certain control over demand, since demand can only find expression through the medium of money. Is it possible therefore, by
the control of money, to stabilise the growth of demand and so
lead to the greater stability of industry itself ?
This somewhat theoretical conception may be reduced to practical terms in this way. "Money" means every possible instrument
of purchase, whether it be legal tender currency or instrument of
1

Whitaker's

Almanac,

1924.

— 125 —
credit. And all such money flows to and from the community
almost exclusively via the banks. "Virtually, every instrument
of purchase, be it cheque, note, or coin, finds its way into circulation
through the intermediary of the banks; and, in so far as the ebb
and flow of these instruments is under the control of the institutions
issuing them, to that extent the latter are responsible for one of
the most vital factors in industrial production" \ But to what
extent are the banks actually in a position to control the volume
of instruments of purchase which pass to and from their vaults ?
It is a truism to say that a very considerable percentage of industry
is directly dependent on loans and cash borrowings secured from
the banks, and that even those firms which are not directly dependent
are indirectly affected by the volume of money released by the
banks throughout the community. But these facts do not obviate
certain difficulties experienced by the banking system in securing
adequate control over the flow of money into the community and
over the use which the community makes of that money.
Expressed in practical terms, the problem of the monetary
control of industry is that of determining whether the banks are
in a position to exercise control over the money borrowed and used
by the industrial community, thus to regulate the community's
total effective demand and, by so doing, counteract tendencies to
fluctuation of trade. Is it possible in this way to replace the
régime of fluctuation, those alternations of feverish and stagnant
demand — the trade cycle, in fact — by one of comparatively
stable demand, leading to stable production and stable employment.
This conception is now being discussed as a practical possibility
and no longer the academic dream of the economic recluse. Judging
from the experience of the United States in the last twelve months,
the new system is already being given a trial and is proving eminently
successful. The manner of its application to Great Britain was
examined at some length at the London Unemployment Conference
previously mentioned, and some of-the discussions might suitably
be reproduced here.
Mr. H. D. Henderson, Editor of The Nation and the Athenaeum,
opened the debate on the question by explaining the rôle played
by the monetary factor in the various phases of the cycle:
The " normal trade conditions " which existed before the war were not even
steady conditions of active business and full employment, but "a recurring
sequence of ups and downs, an incessant rotation round a cycle of phases —
1
"Bank Credit and Unemployment", International Labour Review, Vol. IX,
No. 1, Jan. 1924, p. 79.

— 126 —
from depression, through the phase of general recovery, in which we find
ourselves at the present moment, marked by a certain recovery of prices, an
increase in production, and the reabsorption of unemployed workers —
through that phase, until a condition of full activity is reached with employment good, but with demand and supply for a time in general equilibrium and
with the price level steady. Then unfortunately on to the next phase, on to
the boom, when demand outstrips supply in almost every direction, outstrips
the maximum output of which the resources of production are capable, so
that there seems a general shortage of everything, and prices — wholesale
prices, wage rates, retail prices — shoot upwards and speculation comes in
and stimulates the tendency. That stage is followed by the crisis and then
the slump, when everybody is trying to sell and hardly anyone is willing to
buy, so that prices tumble and production is restricted and workpeople are
discharged. Then a slow and painful stage of liquidation, and so back to the
depression from which we started.
That is the trade cycle. That was the normal course of things in those
normal days before the war ; and that contributed more than any other single
factor to unemployment, and not to unemployment alone, but to many other
social evils associated with it. And that has played — let there be no mistake about this — a very large part in the unemployment from which we
have suffered during the last 3% years, though I do not suggest for a moment
that it is the whole story.
T h i s c o n d i t i o n of fluctuation could, in Mr. H e n d e r s o n ' s opinion,
b e v e r y largely eliminated b y s h a p i n g t o t h a t e n d t h e m o n e t a r y
policy of t h e c o u n t r y . I n t h e first place, it would b e possible, b y
l a y i n g s u i t a b l e r e s t r a i n t s on t h e g r o w t h of b a n k credit, largely
t o a v o i d t h e period of b o o m . F o r a n increase of b a n k credit w a s
a n "essential c o n d i t i o n " of a n y b o o m in t r a d e .
I n e x p l a n a t i o n of this point, t h e s p e a k e r showed t h a t :
At any time, quite apart from a boom, a very large amount of business is
carried on and financed by means of overdrafts and advances granted by the
banks, and during a boom prices rise (that, of course, is an essential feature
of them), so that in order to finance the same volume of puchases at a higher
price level a larger bulk of bank credit is required than before. Actually,
during the boom business men are buying, or trying to buy, larger quantities
of goods traders are increasing their stocks, manufacturers expanding their
plants, speculators buying simply in the hope of selling again at a profit from
prices that have risen further, so that actually during the boom people are
buying or trying to buy a larger quantity of goods than before, and they are
buying them at higher prices. They, therefore, require more purchasing power
and, in so far as they pay for their purchases by means of bank credit, they
require a larger volume of bank credit than before,
As a matter of fact, during every boom the volume of credit, of advances,
overdrafts, discounts and so forth, invariably increases. The banks grant the
necessary purchasing power, which is an essential condition of the boom. I
say an essential condition, I do not say the cause, though it may very well
be the originating cause. But that is as it may be. What matters is that
the boom could not continue, or even get under way, if the banks did not
make it possible by supplying the necessary credits.

In view of this essential relationship between expanding credit
and rising trade, it was therefore possible to restrain the boom and

— 127 —
control it b y t h e judicious r e g u l a t i o n of credit facilities. A s
r e g a r d s t h e depression, it i n v a r i a b l y h a p p e n e d t h a t in t h e earlier
critical stages after t h e c h e c k i n g of t h e b o o m , c r e d i t r e m a i n e d
t i g h t a n d was m o r e difficult t o o b t a i n t h a n e v e r : T h e policy w h i c h
Mr. H e n d e r s o n a d v o c a t e d w a s t h e r e f o r e :
Let credit be so controlled as neither to permit the boom nor to induce the
slump. When the stage of full activity is reached, let the banks hold trade
there and hold the price level steady. The moment there are signs that a
boon is in progress, even though it be merely a cloud no bigger than a man's
hand, let the brake on credit be at once imposed before any harm is done.
The moment that there are signs that a depression is under way, let credit be
at once offered more freely and on easier terms, and then this vicious circle
of reactions will be reduced to a narrower and narrower radius, until ultimately it may disappear altogether.
Professor E . C a n n a n of t h e L o n d o n School of E c o n o m i c s expressed
his a g r e e m e n t on t h e desirability of d a m p i n g d o w n b o o m s , as h e
h a d for m a n y y e a r s held t h a t this w a s t h e o n l y m e t h o d of a v o i d i n g
depression. B u t h e was n o t confident of t h e efficiency of t h e m e a n s
a v a i l a b l e . As r e g a r d s t h e effectiveness of m o v e m e n t s in t h e b a n k
r a t e , Professor C a n n a n s t a t e d :
It does not seem to me to follow that because these booms often happen to
be, so to speak, finally knocked on the head by a spectacular rise of the bank
rate, they could have been kept under and prevented from getting to any
considerable height by moderate rises earlier. When you come to think of it,
the expenses incurred in borrowing money are only one of the numerous
expenses in running any kind of business, and in a great many they are not
a very large proportion of it. They are not nearly so important constantly as,
other expenses. You talk about the poor builder being unable to build a house
because the bank rate nas gone up ; it may have been only a very moderate
advance that he wanted for a couple of months perhaps, and to pay 1 or 2
per cent, higher per annum upon that advance is not really a very serious
matter — not, probably, anything like so serious as a penny on wages. That
is why I think the movement of the bank rate as an expense in production
is constantly very much over-rated, and I should say in consequence of
that you must not expect a moderate rise of the bank rate at an early
period of a boom to have so much effect as il is often supposed that it would
have. In fact, when such a thing is talked of you will constantly find it asserted
— and I think quite truly — that business men are not going to be prevented
from borrowing when they see chances of a profit by the fact that they have
to pay a somewhat higher bank rate for a short time. You may ask: How is
that consistent with the fact that the final rise constantly breaks up the boom ?
I think it comes about in this way. When you get this final rise, no matter
how, it serves for the business world as a kind of warning given out by
what they consider (when they are not grumbling) the highest authority, that
the boom is about to come to an end. It is not really such an awful thing to
have to pay 7 or even 10 per cent, per annum for a month. It is not that this
is such an awful thing, it is the fear of disaster inspired by the rise. The bank
rate has gone up to 7 or 10 per cent. The idea is that the boom is coming to
an end. "Where shall we be ? Prices are going to fall. We are not going to
be able to sell; somebody else is not going to be able to buy. We must ask
you to pay." And so you have all the things which cause people to think they
must draw in.

— 128 —
Mr. J. M. Keynes dealt in three stages with the question of the
monetary factor in relation to unemployment : the importance of
the influence of financial policy on unemployment; the measures
available for carrying out an approved policy ; and the policy which
could and should be adopted in the near future.
As regards the importance of the influence exerted by financial
factors, Mr. Keynes was of opinion that in the case of a 12 per cent.
unemployment situation such as obtained in the autumn of the
preceding year the effect of financial policy was unquestionably
of chief importance. One way in which the financial factor played
a serious part in the development of employment, was through its
relation to price movements. The manner in which price movements affected trade were briefly as follows:
The business world has to provide for the considerable period which elapses
between beginning the process of production and the consumer getting the
goods and paying for them. In different industries that interval of time
varies, but in many industries it is not less than six months from the beginning
to the end of the process, and, where long distances are concerned, it is very
often a great deal more. All through that time the entrepreneur is engaged
in paying out money for wages and in other ways which he will recoup when,
at the end of the process, he sells his article for money.
Now if prices have fallen during this process the costs of production may not be recouped and the anticipated profit may be
completely wiped out. For this reason it is only to be expected
t h a t whenever a fall of prices is anticipated, enterprise tends to
be considerably restrained.
Therefore I should say that one of the principal ways in which the financial
factor operates is to cause, rightly or wrongly, an expectation in the minds
of individual persons that prices are going to move in a certain direction;
and if the business world as a whole is widely of the opinion that prices are
going to fall, then there will be numerous individuals who can only protect
themselves from loss by throwing their employees out of work, although the
things those employees would make if they were in work are necessary and
useful and desirable, at that cost of effort, to the "community as a whole. So
the method of curing that would be to prevent, so far as one could, that
there should be any reason why business men should expect that prices aie
going to fall.
Dealing then with the second point, that of determining whether
there were adequate measures available for influencing the movement of the price level and so sustaining the anticipation of healthy
markets, Mr. Keynes considered that this was possible through the
regulation of the credit supplied to the business community by
Joint Stock Banks. The amount of credit issued by these institutions could be controlled very largely by the Bank of England,

— 129 —
partly through movements in the Bank Rate (that is, the discount
payable on the money lent to the Joint Stock Banks for the repletion of their cash reserves) and partly by influencing the volume
of the cash reserves of the Joint Stock Banks (through the sale of
securities and other assets held by the Bank of England). By
influencing both the volume of bank reserves and the cost of their
repletion, the Bank of England had an effective double control
over the expansion of bank credit in general.
Mr. Keynes wished to emphasise also the very important psychological effect of movements in the Bank Rate.
Suppose the business world believed that this policy (of credit control)
was going to be put through with determination, so that when there was a
tendency for prices to rise all the forces of the financial world would be brought
to bear to prevent them rising further, then the kind of expectation of which
I have spoken would never arise strongly enough to make them go out of
business and reduce the extent of employment to the degree they do now.
It is not the actual rise or fall of prices that causes unemployment, although
the actual rise and fall of prices causes profits and losses to business men.
What chiefly causes unemployment is the anticipation of falling prices. If,
therefore, this policy can be put strongly into force, so that the business world
knows that when prices have risen more than a certain amount every possible
measure will be taken to prevent them rising further, that will very much
diminish the expectation of falling prices which they would otherwise entertain.

It might be noted that at the end of the discussion, Mr. Henderson
deprecated somewhat the drawing of distinctions between the
different measures available for influencing credit. All the different
methods could be used at the same time, and in point of historical
fact had been used effectively by the Bank of England. When
one measure seemed ineffective, the Bank of England went on to
others until the control was complete.
Speaking, finally, of the immediate policy to be adopted, Mr.
Keynes said that he considered the time might soon be opportune
for giving effect to the new idea for control and stabilisation.
The experiment might be started as soon as the slump was thoroughly
over and the boom beginning, the new policy being that of putting
on dearer money at a very early date compared with previous
occasions and avoiding the impending boom of 1925 or 1926.
Such a policy as is here indicated would be equivalent to following the precedent set by the United States in which, as has already
teen seen, every facility was given, by the easing of credit, to the
revival of trade until ultimately recovery was complete. Then
an attempt was made to prevent the development of a new boom
and to stabilise industrial conditions at the high level of activity
reached.
9

— 130 —
As far as immediate action is concerned in Great Britain it would
seem eminently desirable that not only should the price of credit
be kept low until recovery is further advanced, but that industry
should have full confidence in the continuance of this policy.
For as Mr. Keynes has pointed out, whatever industry is led to
expect as regards the future, the expectation tends to be realised.
And had it been possible to adopt officially a fully recognised
policy of easy credit at an early stage in the depression when
industry was nervously anticipating the possibility of further
deflation and was consequently unwilling to expand enterprise, a
valuable stimulus might perhaps have been given to trade revival.

CHAPTER V

GENERAL SURVEY OF THE PERIOD OF RECOVERY

The general correlation between changes in unemployment and
prices observed in the first part of this enquiry continued throughout the period of revival; for the reduction of unemployment was
generally accompanied by a rise in prices.
In the first group of countries considered, namely, the United
States, Italy, France and Belgium, this relation was very clear,
though there was a marked difference in the nature of the movement as between the United States and Italy on the one hand and
France and Belgium on the other. In the two former countries
the rise was of fairly short duration and was followed by a period
of comparative stability. In France and Belgium, on the contrary,
the rise in prices continued until the spring of 1924, perhaps justifying the apprehension that the boom accompanying this movement would be followed by depression. In the United States and
Italy, on the other hand, where comparative stability of prices
has been secured, labour market conditions appear to be normal.
This evidence should be associated with that noted in the case of
Finland where prices remained stable in 1921-23 and there was no
depression, although the neighbouring Scandinavian countries
suffered very severely.
Similarly, the stability of prices appears to have favoured the
Czechoslovak labour market in 1923, the number of unemployed
having been reduced by half during the year. In Austria a similar
effect accompanied a moderate rise in prices, a movement which
bore no resemblance, however, to the violent rise that had preceded
the stabilisation of the currency. Even in Germany, after the depression at the end of 1923, the first symptoms of revival were
indicated in June 1924 by a return to a slight rise in prices.

— 132 —
The other counts ies reviewed above are those in which the depression has been most acute and lasting. They are also those in which
the recovery of prices was longest delayed. In the Netherlands
the decline continued until 1923, that country being the only one
in which unemployment continued to increase, apart from seasonal
fluctuations, until the year 1923. In Sweden also, the fall in prices
continued almost without a break until the beginning of 1923.
During 1921 and 1922 the proportion of unemployed workers
remained at the very high average of 26 per cent, and 23 per cent.
Revival set in as soon as the fall became less marked. (The annual
average of prices was only 5.7 per cent, lower in 1923 than in 1922.)
The volume of unemployment in 1923 (13 per cent.), although
only half that of 1921, was still very high as compared with the
pre-war situation (4.4 per cent, in 1913).
The fall in wholesale prices was also very prolonged in Norway
and D.enmark, lasting from 1920 until September 1922 in Denmark
and January 1923 in Norway. The labour market showed little
sign of recovery until 1923 when the situation still remained very
bad (average unemployment percentage of 10.7 in Norway as
compared with 1.6 in 1913, and 12.7 in Denmark as compared
with 7.5).
In Switzerland the fall in wholesale prices continued until
April 1922.
In Great Britain, finally, the slight rises in prices which took
place at the beginning of 1922 and 1923 were accompanied by a
fall in unemployment, but in each case they were followed by a
compensatory fall, and a more clearly marked tendency to rise
did not appear until September 1923.
In brief, it may be said that there has been a very close relation
in the different countries between the severity and duration of
unemployment on the one hand and the extent of the fall in prices
on the other. The longer the fall in prices, the more acute and
prolonged was unemployment.
This positive conclusion may be supplemented by certain evidence of a negative character which is perhaps rather more unexpected: the relatively unimportant part played by export trade
in the revival of employment. Some indication of this circumstances
has alreadj been given in the first part of this survey. Apart from
certain exceptions, it was shown that the outbreak of the unemployment crisis could not be attributed to a reduction of foreign
trade. It is true that the depression, once begun, was aggravated
by the diminution of exports, and it is not suggested here that the

— 133 —
difficulties confronting foreign trade have not considerably complicated the situation. In general, however, the international situation
does not appear to have played a leading role either in prolonging
or in abating the crisis.
In the United States the volume of exports was less in 1922 and
1923, years of economic revival and prosperity, than in 1921, a
year of depression. This would also appear to have been the case
in Belgium. Similarly in Czechoslovakia, exports in 1923, a year
of revival, were slightly less than in 1922, a year of severe unemployment. As regards the Scandinavian countries, there was a
considerable reduction of exports in Norway and Sweden in 1921,
the first year of the crisis, but in 1922, during which year the
depression continued with disastrous severity, exports rose to a
level as high as, if not greater than that of 1920, a year of great
economic activity. In Denmark, even in 1921, exports were
heavier than in 1920. This was also the case in the Netherlands,
where from 1920 to 1923 exports rose from year to year, while
unemployment increased. In Switzerland, exports were less in
1922 than in 1921, and less in 1923 than in 1922, while at the same
time unemployment decreased.
The only countries covered by the enquiry which show exception
to this paradoxical relation are France and Italy. In Great Britain
it would seem that the reduction in exports in 1921-1923 as compared with 1913 was a serious factor in the severe unemployment
which still oppresses that country. Nevertheless, exports in 1923
were larger than in 1920, in which year the unemployment percentage averaged only 2.4.
The above observations have been presented with a degree of
reserve in view of the somewhat general character of the calculations and of the statistics available for estimating the
volume of foreign trade. It would nevertheless seem clear that in
the majority of countries the state of the foreign market has had
much less influence than generally thought on the development
and abatement of unemployment.

PART III

Conclusions.
FLUCTUATIONS OF PRICES AND UNEMPLOYMENT, 1920

TO

1923

The relationship between unemployment and price fluctuations
observed in the foregoing survey for the period 1920 to 1923 may
be analysed as follows:
(1) A rapid fall in prices has always been accompanied by a
marked increase in unemployment.
(2) A rise in prices not exceeding certain limits has almost
invariably been accompanied by a marked reduction of unemployment.
(3) A violent rise in prices such as has taken place in certain
countries as the result of catastrophic inflation has ultimately led
to a crisis of unemployment.
(4) A period of price stabilisation following such a rise has been
characterised first by an increase in unemployment but soon after
by a gradual revival of employment.
(5) When the stabilisation of prices has followed a period of
falling prices the reduction of unemployment has been slow.
(6) When the stabilisation of prices has followed a moderate
rise, the rapid improvement in the labour market which had
accompanied the rise has continued or the high level of activity
reached has been maintained.
These relationships are not peculiar to the period under consideration but have previously been recognised as a characteristic feature
of the cyclical fluctuations and crises of unemployment experienced
before the war.
THE MOVEMENT OF PRICES AND THE TRADE CYCLE

In almost all explanations given of the trade cycle, however
varied they may be, it is to be seen that the movement of prices

— 136 —
plays a certain part. A brief description of some of these theories
might be given here \
The Competition Theory of Trade Cycles
The essential motive of industry as at present organised is the
desire for gain. When there is prospect of good profit, industrial
expansion is stimulated. Competitive forces are thereby set up,
one business leader vying with another for a large share of the
market and also for the raw materials and capital goods upon which
enterprise depends. This competition of producers for material
and plant causes an intensification of demand and a further stimulus
to production. The process has thus a cumulative tendency,
every new demand increasing the prospect of gain and every new
gain adding stimulus to demand.
Industry may thus develop the highest pitch of activity before
satiation point is reached. However, as the new plant and capital
outlay is brought more and more fully into operation, increased
quantities of goods are forced on to the market, and ultimately
overshoot the demand of the consumer, causing a glut. The
competition then becomes that of sellers rather than of buyers,
prices being forced down precipitately. Depression follows and
continues until the surplus of goods is taken up by the market.
Theories relating to the Failure of Demand
The theory of diminishing "utility" or "value in use" has some
relation to the foregoing explanation, but emphasises more particularly the part which the consumer, rather than the producer,
plays in the general movement. It starts with the assumption
t h a t consumers' demand is satiable or, at least, may reach a
point of comparative satiation. When goods are produced in
ever-increasing quantities, each successive addition has a somewhat
less "value in use" compared with previous supplies. In the long
run, this means that supply cannot be increased indefinitely with1
In the classification of the different theories of the trade cycle the summaries and critical surveys given by Professors Mitchell, Aftalion, and Hansen
have assisted the study from original sources. In view of the necessity of
combining and summarising a large number of different theories, it has -been
impossible to retain fully the original conceptions of each separate writer.
The main purpose of the present outline is to distinguish as clearly as possible
the principal classes of causes which may be responsible for fluctuation. In
this way, a comparatively wide view may be secured, though there must
inevitably be considerable omissions of detail.

— 137 —
out outrunning demand. The periodical checking of industrial
process is, as it were, a final consequence of the gradually diminishing
utility or value in use of the increasing quantities of commodities
produced, leading ultimately to a general price decline.
Other theories relating to the failure of demand depend less on
the assumption that demand is itself satiable than on the belief
that it is limited for other reasons, such, for instance, as the
insufficiency of wages. The argument is sometimes stated thus.
During the periods of revival and prosperity real wages do not
increase as rapidly as total production. For, on the one hand,
profits are diverted to the production of capital goods rather than
distributed as wages ; and on the other hand, stocks of finished
goods are amassed in warehouses and stores rather than released
for sale on the market. This two-fold process of storing up reserves
leads ultimately to overproduction, followed by temporary stagnation. But such overproduction is considered in this case to be
essentially a result of under-consumption.
The stabilisation of prices would appear to have comparatively
little relation to such theories as the three outlined above. However, it will be seen that in the one case fluctuation is considered
to be caused through alternations in the competitive demand of
producers, and in the other cases through changes in the demand
of the final consumer. If it is true then that demand can only
find effective expression through some form of money or "purchasing power" (since no man can buy unless he has money or
credit) the regulation of the community's purchasing power in
accordance with price movements would result in the regulation
of its total effective demand, and would seem to counteract to a
certain extent any fluctuations arising out of the changing character
of demand, whether it be that of consumers or of producers.
Theories relating to Business Confidence
The central factor in many theories of the trade cycle is the
state of confidence in business. Whenever the industrial world
in general develops either optimism or pessimism with regard to
trade prospects, the anticipation, whatever it may be, is usually
realised. For if, on the one hand, industry has reason to believe
that profits will be good in the future, this leads to the very expansion of enterprise on which the future prosperity depends. On the
other hand, when there is general lack of confidence, expansion is
restrained and depression does in fact follow.

— 138 —
For various reasons, this spirit of confidence tends to be a com- munal force affecting all alike. Industries and firms are interdependent to a very high degree, the success or failure of one
infecting, as it were, its neighbours. Moreover, captains of
industry are in close personal touch, read the same trade journals
and watch the same trade signs. In consequence, any factor
which affects the state of confidence in business will, through its.
widespread diffusion throughout the industrial community, exert
a powerful influence for activity or decline.
Amongst the factors which do so influence business confidence,
the trend of prices must be considered of some importance. An
upward movement of the price level yields an additional premium
of profit for the producer, which stimulates enterprise and leads
to greater optimism. Conversely, a fall in the price level reduces
profits and begets pessimism. The stabilisation of prices, particularly if it were carried out officially as a recognised policy, would
tend to reduce fluctuations in business confidence and, according
to the above theory, would thereby render industry itself more
stable.
Speculation Theories
Amongst the factors which make for instability of production,
emphasis is sometimes laid on the tendency amongst merchants
and retailers to increase their stocks during a period of rising
prices and reduce them when prices fall. It is in their immediate
interests to follow such a course; and thus it will be seen that
movements in prices, by causing fluctuation in the demand of
merchants and retailers, produce instability in the volume of
production and employment.
In the same way it will be seen that price changes affect also
the extent of speculative expansion of enterprise, at one time
stimulating, at another time restraining new development.
Theories of Over-capitalisation
It has been observed in the past that during a period of trade
revival, after serious depression, there frequently occurs a sudden
outburst of capital expansion. This new development is favoured
because reserves of plant and machinery require renewal, having
become very largely exhausted through lack of replacement during
the depression. Moreover, interest rates and other costs, including wages, are low. The feeling is that everything has "touched

— 139 —
bottom" and that the time is opportune for new expansion whilst
costs are still low. Under such a stimulus capital expansion
continues progressively. Employment increases and with employment grows the demand for consumers' goods. This in turn
stimulates further production, justifying and encouraging greater
capital expansion. The process might, it seems, continue indefinitely. But if, during the development, a stage is reached at
which the large accession of new capital begins to turn out goods
in excess of the effective demand of the final consumer, stocks
will inevitably pile up and the phenomenon known as overproduction will be gradually produced. There must then follow
a check to production and to capital expansion accompanied by
unemployment and depression.
This method of explanation appears to be largely independent
of the movement of prices; however, since it postulates, for its
initial operation, the actual existence of wide fluctuations of trade,
of which it is merely an exaggerating feature, it would not seem
to invalidate the conclusion reached through the study of other
causes of instability, that price movements contribute materially
to the factors producing fluctuations of economic activity.
Monetary Theories
Finally, the monetary theories, whilst accepting for the most
part the influence of the factors reviewed above, give special
prominence to the part played by currency and credit facilities
in stimulating or restraining activity. If there arises a tendency
towards economic expansion, such development can only be
effectively realised provided there is a corresponding increase in
monetary accommodation. According to these theories, the boom
is essentially dependent upon the over-extension of credit and
currency, and the depression is aggravated by the too rapid
contraction of these facilities. In the period of prosperity, the
rise of prices is thus stimulated, and subsequently the fall is accelerated in the slump. The solution to which the monetary theories
lead is thus that currency and credit should be controlled with
the essential object of maintaining the stability of the level of
prices, thereby eliminating the possibility of an inflationist boom
and the subsequent reaction to depression.
It has been felt expedient thus to outline certain of the principal
theories of industrial fluctuation, without, however, associating

— 140 —
them with the authors concerned, or entering into details which
would exceed the scope or purpose of this report. It might be of
advantage, however, to quote here the opinions of certain eminent
economists relating to the rôle played by the instability of the
price level in determining the fluctuation of economic activity.
Professor Charles Gide emphasises more particularly the bonus
which rising prices confer on the manufacturer and retailer as a
result of the lapse of time between the purchase of raw material
and sale of final product.
The function of every merchant, and indeed of every manufacturer, is
to purchase raw materials or wholesale stocks at a certain price and then sell
them again in the form of manufactured goods or articles of consumption.
If there is a rise of prices in the interval between the two operations, this is
all profit.
This is why rising prices have always been considered by all producers —
the entire active section of the community — as a stimulant, a tonic, or a rise
in temperature, as it were, which speeds up activity; whereas a fall in prices
acts as a refrigerator: it depresses trade. Those who have bought goods tobe sold at the end of three months find, if prices have fallen during this period
that all their profit has thereby been swallowed up or that loss has even been
sustained l .
Professor Gustav Cassel has frequently urged the necessity of
avoiding a policy of deflation on account of its paralysing influence
on trade.
It is no use speaking of gradual deflation. Once it is made clear to everybody
that prices are to be brought down to a fraction of what they are now, enterprise will very generally come to a standstill, borrowers must suffer terrible
losses, banks will show themselves unable to resist the shock and the working
classes must be exposed to unemployment to a degree which is in itself a
severe evil and which involves a great danger for the maintenance of social
order 2.
Mr. J. M. Keynes shows that since industry is working in a
money economy, the all-important motive of production is the
prospect of monetary profit which, in turn, is dependent on the
money price obtained.
Ultimately wemake goods to exchange them for other goods ; but imm ediately
we make them for money. An interval of time elapses between production
and sale. If therefore there is an expectation that the money-price prevailing
at the date of sale will be lower than the money-cost during the period of
production, obviously no one will produce. Since some of the money-costs of
production are fixed for long periods and others, particularly wages, cannot
be changed without a struggle, the productive process is bound to be brought
•ASSOCIATION POUR L'ENSEIGNEMENT DE LA COOPÉRATION: Les mouve-

ments des prix et leurs causes, p. 22. 1922.
2
Speech before the International Chamber of Commerce, Rome, 18-24
March, 1923.

— 141 —
"to a standstill whenever a fall in prices is widely anticipated amongst merchants. If the anticipation is correct, everyone who is able to put off giving
an order will profit by doing so. When prices are expected to rise, the opposite
is the case; everyone whose credit permits him to place his order in advance
will profit by doing so. In both cases the action of individuals endeavouring
to take advantage of the anticipated movement is cumulative, and tends in
itself to turn the anticipation into a fact *.
Professor Irving Fisher considers that the manner in which
trade fluctuations are intensified by price movements is this:
When prices rise, great profits are made because, as we have seen, the
' profiteer ' or stockholder wins without effort from the bondholder and from
the employees on salary or wages. His easy profits lead him to 'extend himself
until, when interest charges, rents, salaries, and wages do catch up, his prosperity ceases, he gets caught in debt, becomes a bankrupt, and involves others
in a chain of bankruptcies a
The wage-earner also is involved in the catastrophe. Primarily a gainer
when prices are falling, because his wages fall more slowly than prices, he
nevertheless suffers more unemployment during the lowered cost of living
than during rising prices, and in the mismanagement, at the end, he suffers
with the rest 3.
Professor Fisher has described the trade cycle as being largely
a "dance of the dollar" and shows graphically that movements
of trade in America from 1914 to 1922 have followed almost exactly
movements in the rapidity of change of prices. 4
Professor Aftalion, whose theory of trade cycles is largely independent of the monetary factor, considers, however, that the movem e n t of prices may react cumulatively on the state of business
confidence :
A rise in prices conduces to a spirit of optimism which in turn exaggerates
the upward movement. A fall in prices may give rise to excessive pessimism
which further aggravates the fall5.
Mr. F. Lavington, of the University of Cambridge, believes the
state of confidence in business to be a factor of outstanding importance and explains as follows the manner in which price movements
react upon it.
Rising prices, by conferring a bounty on the entrepreneur, react upon and
reinforce the rise in business confidence. In this way there is generated a
powerful cumulative stimulus to trade activity. But within this movement are
causes tending to destroy the confidence on which it is based ; for on the one
1
2
3
4

Reconstruction in Europe, 18 May 1922, p. 66.
Stabilising the Dollar, p. 66. The Macmillan Co., 1920.
Ibid., p. 77.
Quarterly publication of the American Statistical Association, Dec. 1923,
pp.5 76-80.
Crises périodiques de surproduction, Vol. I, p. 294. M. Rivière & Cie., 1913.

— 142 —
hand rising prices are sapping bank reserves and, on the other, the artificial
profitableness of business and the excessive confidence accompanying it, leads
to errors in business forecasts which sooner or later must be exposed 1.
Professor Pigou d r a w s a t t e n t i o n a m o n g s t o t h e r t h i n g s t o t h e
relation b e t w e e n prices a n d t h e fund available for t h e p a y m e n t
of wages, s t a t i n g t h a t
The liability of general prices to vary, or, in other words, the instability
of the standard of purchasing power, is a cause tending to expand the range
of the movements that occur in the aggregate wage-fund. Consequently, the
introduction of any arrangement capable of counteracting this cause would,
pio tanto lessen the fluctuating character of the demand for labour and, therewith, the average volume of unemployment 2 .
Professor F . W . T a u s s i g gives p a r t i c u l a r emphasis t o t h e effect
of price m o v e m e n t s u p o n speculative b u y i n g .
A curious part, and one too much neglected in discussions about the course
of crises, is played by the distributing middlemen — the wholesalers and
jobbers and retailers. These constitute the immediate purchasing public for
the 'producers'. When they buy freely, business is brisk; when they hold off,
business is dull. They are not only subject to psychological contagion; they
are also moved by very simple calculations of profit and loss. Their operations
are almost exclusively in the simple purchase and sale of goods, and their
success depends almost solely on prices. They buy freely when they think that
prices will rise, and cut down purchases when they think that prices will fall.
The very fact that they so think, and accordingly act, accelerates the rise of
prices in the one case, and accelerates the fall in the other. During an upswing
period, they add to their stocks, thinking to sell them at an advance, or at
least to protect themselves against a later rise in the prices of what they buy.
Then comes the shock — a bad failure, a financial panic. They jump to the
conclusion that 'things are going down', countermand old orders as far as
possible, give no new ones, live from hand to mouth in their purchases and
sales, and wait until they think that prices have touched bottom 3.
Similar a r g u m e n t s m i g h t be q u o t e d from a large n u m b e r of
o t h e r a u t h o r i t i e s , t e n d i n g t o show t h a t t h e t r a d e cycle, even i n
t h e less intense form experienced before t h e war, w a s seriously
a g g r a v a t e d b y price fluctuations a n d t h a t a policy of price s t a b i l i t y
would lead t o m u c h g r e a t e r e q u i l i b r i u m in i n d u s t r y as a w h o l e .
T H E RELATIONSHIP BETWEEN THE UNEMPLOYMENT CRISES OF

1920

,TO 1 9 2 3 AND THE GENERAL TRADE CYCLE

The fact that fluctuations in prices were one of the principal
features of economic fluctuations both before and after the war
favours the presumption that the post-war crisis was not funda1
2
3

The Trade Cycle, p. 51. P. S. King & Son. 1922.
Unemployment, p. 122. Home University Library. 1913.
Principles of Economics, pp. 405-406. The Macmillan Co. 1921.

— 143 —
mentally different from pre-war depressions. The unemployment
from which most industrial countries suffered between 1920 and
1923 would seem to be chiefly due to one of those general depressions which, alternating for more than a century with periods
of intense industrial activity, constitute what might be described
as the cyclical pulsation of industry. Often irregular and sometimes violent, these rhythmical fluctuations seem to some extent
measurable by the general movement of prices. Thus the post-war
depression might be considered a natural economic reaction corresponding in severity with the abnormal degree of price inflation
and industrial expansion preceding it. It would follow that the
great political problems which have oppressed the world for several
years, although exceptional in character and duration, can only
be regarded as the indirect cause of the severe unemployment
from which the world has suffered. In reality this post-war unemployment would thus be a symptom, accentuated much beyond
pre-war limits, of some permanent defect in the economic system.
Certain important differences are indeed to be noted between the
situation before and after the war. For instance, before the war
industrial countries were generally affected by unemployment
almost simultaneously and in a fairly uniform manner. This has
by no means been the case in the post-war period. It would seem
therefore as if some previously existing bond of solidarity had
slackened since the war.
In this connection, it was to be seen from the review of the situation country by country that fluctuations of international trade
have had very much less bearing on unemployment in most
countries than fluctuations in home prices; in other words, that
in the present crisis the loss of markets within the frontier has
been of much greater importance than fluctuations in foreign
demand. Hence, the purely commercial link between countries
appears to have been of little influence in uniting the economic
activity of the several countries in the post-war period.
However this may be, there is another international link which
existed before the war and has now disappeared, namely, that
arising out of the monetary system which was then common to
almost all industrial countries; the gold standard, the effect:
of which was to internationalise price fluctuations. That standard
has since been abandoned, through force of circumstances, in very
many countries, and each of them has adopted an independent
currency policy. This has doubtless accounted for the lack of
uniformity of price fluctuations in the various countries, and cor-

— 144 —
responding differences in the dates of the crises in these countries
(if the fairly general opinion may be accepted that there is a close
connection between price fluctuations and industrial activity).
In final analysis, however, this post-war irregularity of movement relates only to differences in price fluctuations as between
the several countries, the fluctuation in each individual country
having invariably borne out the relationship previously established
between the movement of prices and the movement of industrial
activity. This continued correlation thus provides further corroboration for the view that the acute and prolonged unemployment
experienced in many countries after the war is in essence part
of the more or less regular cyclical fluctuations which have hitherto
characterised the present economic system.

THE STABILISATION OF PRICES

Price fluctuations may certainly not be regarded as the only
factor producing involuntary unemployment, and in the present
crisis, especially, other factors have been by no means negligible.
There would seem no question, however, that if price movements
could to some extent be controlled and stabilised, the alternations
of feverish activity and depression from which industry has suffered
for a century or more would be considerably diminished, and
that the risk of unemployment would thereby be much reduced.
In the present report, no pretence is made of definitely pointing
the solution to the difficult problem of the manner in which prices
can be stabilised. It has nevertheless been thought expedient,
with a view to the future more detailed study of these problems.
to show briefly that there is an important current of opinion
supporting the view that the attainment of a high degree of price
stability is both desirable and possible.
The movement for regulating the level of prices can be traced
back to some of the earliest economic writings of the nineteenth
century. But it was probably not until the year 1911 that definite
efforts were made on an international scale to lead to some action
by public bodies in this matter. It was in this year that Professor
Irving Fisher opened a campaign for the international discussion
of the means for stabilising the cost of living. He gained the
support of many leading economists in Europe as well as in America
and Japan. The proposal did not, however, materialise before
the outbreak of the War.

— 145 —
The vast economic upheaval caused by the fluctuation of prices
during and since the War has drawn economists, business men and
labour leaders alike into the movement for the stabilisation of
prices. In the United States, so great was the need felt for securing
some fixity in the value of money that a powerful organisation
known as the National Monetary Association has sprung up with
the sole object of devising measures for securing greater stability
of the price level in the United States.
The motives of this Association are well expressed in the following extract from a speech by Professor Wesley C. Mitchell delivered
at the Richmond meeting of the American Economic Association
in 1919:
One cannot conclude a survey of the violent changes in prices during the
war and of the grave uncertainties of the near future without reflecting upon
the badness of the best existing monetary systems.
The United States has maintained the gold standard without serious limitation and has reorganised its banking system on approved lines. Nevertheless
we have had price fluctuations almost as violent as those of the greenback
period. These fluctuations have caused unmerited suffering to millions of
families and have heaped unearned riches upon thousands. They have caused
wasteful struggles, encouraged extravagance among some, and created the
class of 'new poor'. They have promoted speculation and reduced the efficiency
of management and labor. We are poorer in goods, more quarrelsome in spirit,
less ready to work because of these fluctuations. All this has happened and
is irretrievable. But within a few years fresh changes may happen just as evil
in their consequences.
This wretched record and this wretched prospect are a grave indictment of
our present form of economic organisation. Have we not sufficient constructive
imagination and practical sagacity to develop a better monetary system?

Another organisation expressly established with a view to
investigating the influence of monetary and price movements and
through its researches to lead to the adoption of measures for
the maintenance of unchequered industrial activity or, in the
terms of the above resolution, to "measures taken with a view
to sustaining economic activity, and thus stabilising the labour
market", is the Pollak Foundation for Economic Research, organised under the direction of Dr. William T. Foster.
In Europe the same movement for the stabilisation of the price
level gains the support of such prominent leaders of thought as
Professors Cassel and Wicksel of Sweden, Professor Gide of the
Collège de France, Professor Pigou and Mr. J. M. Keynes of
Cambridge, Mr. R. G. Hawtrey, Professor Verrijn Stuart of the
University of Utrecht, and numerous other personalities whose
names are current in international economic literature.
10

— 146 —
The need for checking the violent rise of prices which was
taking place in 1920 figured as perhaps the most prominent Recommendation of the Brussels Financial Conference. Serious warnings
were also thrown out by the same body against the dangers of
deflation, once inflation had been restrained. The Genoa Conference goes even further and states : "The essential requisite for
the economic reconstruction of Europe is the achievement by every
country of stability in the value of its currency." '
All these movements for the stabilisation of the value of money,
i. e. of the level of prices, have one principal object, the maintenance
of industry at its maximum permanent efficiency. In certain
minds, however, the stabilisation of prices would seem to signify
the stagnation or even the compression of trade. The evidence
given in the earlier part of this report would seem to show, on the
contrary, that even when industry is in the depth of depression,
and confidence is very widely shaken, recovery can take place on
a stable level of prices. In times of greater activity there is a still
more powerful incentive, inherent in industry itself, towards
greater and continuous development. For at all times, and more
particularly in periods of prosperity, every unit in the business
world, which is directed and propelled by human aspirations,
tends to enlarge itself and contribute to the general increase of
productivity.
The stabilisation of prices is thus felt to constitute no restraint
upon healthy expansion. What it does purport to restrain is
that proportion of enterprise which can only prosper when rising
prices yield an excess profit, a kind of enterprise which is uneconomic even in the boom and which, by its ultimate collapse, tends
to aggravate depression. Again, the stabilisation of prices aims
at eliminating the piling up of stocks, which not only reduces
consumption and stimulates the rise of prices during the boom,
but eventually reacts upon the market causing a glut and temporarily seizing up the wheels of industry.
If, then, the stabilisation of prices may be interpreted to mean
the stable and continuous expansion of industry, it would seem
that not only would it yield a higher permant level of production,
but also a higher permanent level of employment; and for this
reason the question of securing the greater stability of this price
level is especially pertinent to a study of the "measures taken

1

Resolution (1) of the Financial Commission.

— 147 —
with a view to sustaining economic activity, and thus stabilising
the labour market."
The various measures proposed for achieving price stability
have one common feature : they recognise that the only practicable
means for controlling the level of prices is through the monetary
factor. The level of prices is subject to the influence of many
factors, but in the present state of industrial organisation it is
considered to be susceptible to efficient control by this one factor
alone, and for that reason the regulation of money has been singled
.out in all proposals for reform, as the one possible line of development. It is important, therefore, to consider how the promoters
of the stabilisation movement consider the price level to be affected
by the volume of money.
The relation between money and prices might perhaps be most
simply illustrated thus: if a rise of prices occurs, more money is
required to purchase the same volume of goods; if there is a fall
of prices, less money is required to buy the same amount of goods.
The price level thus expresses the relationship between money
and goods; and the stabilisation of prices means therefore the
stabilisation of this relation between money and goods. If, then
it were possible to regulate money so that its volume grew at
identically the same rate as the volume of goods coming on the
market, then the level of prices would tend to remain constant.
Stabilising prices thus becomes essentially the problem of adjusting the volume of money to fluctuations in the other factor, the
volume of production available for sale.
By the term "money" used in this sense, is meant every kind
of purchasing instrument, be it cheque, note or coin, and thus the
regulation of money includes the regulation of credit in all forms.
How then can such regulation be achieved ?
As explained in an earlier paragraph of this report ', almost
every form of purchasing power passes into the community through
the intermediary of the banks. New purchasing power is created
by the extension of new loans to business men by the banks. The
repayment of such loans and their non-renewal constitute the
cancellation of purchasing power. Now these loans when issued
may take the form of credit accounts against which the borrower
may draw by cheque, or they may consist of notes and coin,
according as the borrower may wish. Thus the policy of the
banks with regard to the issue of loans determines largely the
»See p. 125.

— 148 —
volume of new money which is issued to the community in the
form of credit, notes and coin. And, moreover, it is the most
direct way in which the regulation of any of these forms of purchasing power can be effected *. The loan policy of the banking
system in general is thus the essential feature in any proposal for
monetary control. Carrying this idea one step further, it will be
seen t h a t the most direct way to regulate the volume of money
in circulation is to bring some influence to bear simultaneously
on the loan policies of all the different units of the banking system.
This is possible in countries in which banking is highly centralised.
A central bank, by virtue of its holding a proportion of the legal
tender reserves of commercial and other banks and having a certain
control over the further issue of legal tender notes and coin, can,
subject to certain limitations, direct the loan policy of the general
banking system. It is for the purpose of securing such control
that the Genoa Conference urges that central banks should be
established in all countries in which they do not as yet exist.
One of the principal ways in which the central bank is able to
influence the loan policy of the general system is by varying the
rate at which it will lend cash to other banks in discounting their
bills. When the latter are thus obliged to pay more for the repletion of their cash reserves, they must of necessity charge more
for the money they in turn lend to their customers ; in other words,
they must raise the market rate of discount. Thus the Central
Bank, by varying the central rate of discount, can exert a powerful
influence over the loan policy of the general banking system 2.
This idea finds the fullest confirmation in the declaration of the
Brussels Conference to the effect t h a t :
In normal times the natural and most effective regulator of the volume
and distribution of credit is the rate of interest which the central Banks of
1
Currency may be withdrawn from the community through the sale of
securities or other assets by the banks or by the Government. But if the
community is in need of more currency it can apply to the banks and, in return
for any legal claims it may have upon these banks, demand currency in such
quantities as it may require. Thus the only direct control over the issue of
legal tender currency is provided by control over the total volume of credit
or of claims which must be redeemed by the banks. This volume is dependent
on the loan policy of banks. The loan policy of banks in turn can be influenced
by affecting their legal tender reserves, but the loan policy itself is the direct
influence which may be brought to bear on the borrowing community with
a view to regulating the volume of currency they absorb into circulation.
2
There are other possible methods of control. By certain processes the
central bank can directly affect the volume of bank reserves and, therefore,
their ability to extend credit. Furthermore, the psychological influence of
movements in the Bank Rate is of some effect. Not less important are the
voluntary agreements amongst bankers whereby they cause the deposit
rate to move automatically with the Bank Rate.

— 149 —
Issue are compelled, in self-preservation and in duty to the community, to
raise when credit is unduly expanding 1.
The evidence which may be drawn from a survey of the years
1918-1923 adds some support to the belief that the Bank Rate
may be used as a means of controlling credit and, through credit,
the level of prices. Violent inflation was proceeding in almost all
countries in the world during the years 1918-1920 and the whole
situation threatened to get out of control. In order to check the
expansion of credit, central banks followed the customary policy
of raising the bank rate. In Japan the rise of wholesale prices 2
was checked in March 1920 after the raising of the central rate
of discount to 8.03 per cent, in November 1919. Prices * began
to fall in the United States as from May 1920 after the raising
of the rediscount rate to 7 per cent, in the same month. In Great
Britain the price-level * ceased rising in April 1920, the Bank Rate
having been raised to 7 per cent, in the same month. In Sweden,
prices 6 culminated in June 1920, the central rate of discount
having been moved to 7 per cent, in March 1920. Similarly, the
turn in prices followed the raising of the central discount rate in
Norway, Denmark, Finland, Belgium, France, and Italy. There
was no movement of the central rate during 1920 in either Germany
or Austria, in both cases the rate remaining stationary at 5 per cent.
Although the bank rate may be effective "in normal times" in
controlling the volume of credit and the movement of prices, there
may arise abnormal circumstances which tend seriously to limit
its efficiency. If banks are to be in a position to control the issue
of loans, they must be able to render borrowing either unprofitable or unwise for their clients. Now the Government is a
borrower over whom the banks have no control and, in turn, the
Government is compelled to borrow either from the banks or the
public whenever it cannot meet its expenditure out of taxation.
Through this train of causation it will be seen that, in order that
banks may have satisfactory control over credit, it is essential
first that the national budget should be approximately balanced.
In this connection the Brussels Conference declares:
The chief cause (of inflation) in most countries is that the Governments,
finding themselves unable to meet their expenditures out of revenue, have
1
2
8

Report of the Conference, p. 18.
Bank of Japan.
Bureau of Labour Statistics.
*6 The Statist.
Official.

— 150 —
been tempted to resort to the artificial creation of fresh purchasing power,
either by the direct issue of additional legal tender money, or more frequently
by obtaining — especially from the Banks of Issue, which in some cases are
unable and in others unwilling to refuse them — credits which must themselves
be satisfied in legal tender money. We say, therefore, that.
Governments must limit their expenditure to their revenue. (We are not considering here the finance of reconstructing devastated areas.)
Banks, and especially Banks of Issue, should be freed from political pressure
and should be conducted solely on the lines of prudent finance 1.

The Genoa Conference endorses the same view, stating that:
So long as there is a deficiency in the annual budget of the State which is
met by the creation of fiduciary money or bank credits, no currency reform
is possible, and no approach to the establishment of the gold standard can be
made. The most important reform of all must therefore be the balancing
of the annual expenditures of the State without the creation of fresh credits
unrepresented by new assets. The balancing of the budget requires adequate
taxation, but if Government expenditure is so high as to drive taxation to a
point beyond what can be paid out of the income of the country, the taxation
itself may still lead to inflation. Reduction of Government expenditure is
the true remedy 3.

There seems reason to believe, therefore, that whenever banking
is centralised and is free from political pressure, the central institution can exercise a considerable influence over the movement of
prices through the medium of its credit policy. In further corroboration of this view, it is to be noted that the fall of prices in 1921
and 1922 was only checked in a large number of countries after
credit had been eased by the lowering of the bank rate. This was
the case in the United States, Great Britain, Sweden, Norway,
Denmark, France and Belgium 3.
Finally, there is the case of the United States in which, intentionally or unintentionally, stability was achieved in 1923 after a
rapid recovery of the level of prices in 1922. The process of credit
restraint, which was necessary to prevent the period of rising
prosperity from developing into an inflationist boom, was effected
1
s
8

Report of the Conference, p'. 18.
Resolution 7 of the Financial Commission.
Although France and Belgium fall strictly within this group it seems
probable that the rapid recovery of the price level was due rather to Government financial policy than to the easing of industrial credit. It should further
be noted that it is not justifiable to compare the level of the bank rate in one
country with that of another with a view to comparing their respective
monetary policies. In certain countries the central rate is much less effective
in controlling the credit situation of the general system and cannot therefore
be considered such a clear indication of the actual state of the money market.
In countries such as Japan, Finland and Latvia, the customary rate of discount demanded by the central banks appears to fluctuate about a figure
of 8 per cent. It is therefore the movement of the bank rate, rather than
the level at which it stands, which gives the clearest indication of the monetary
policy being followed.

— 151 —
partly by a slight rise in the Rediscount Rate and partly by the
sale of securities and other assets by the Federal Reserve Banks,
both methods forming part of a general conscious policy of credit
control which resulted in the maintenance of a high degree of price
stability in the latter half of the year 1923.
Since such eminent success has attended the monetary policy
of the United States during the last two years, it might be well
to give an account of some of the proposals for future guidance
which emanate from the economists of that country. The most
complete system for the control of industry through the regulation
of credit is probably that worked out by Mr. Carl Snyder, General
Statistician of the Federal Reserve Bank of New York. The system
he has evolved comprises: (1) an objective — the stabilisation of
prices; (2) the means for securing that objective; (3) satisfactory
Information and forecasting indices to permit "anticipatory" action
to be taken in the application of the proposed measures.
In the first place Mr. Snyder proposes as the objective of monetary policy the stabilisation of prices around a definite "normal";
he would aim at preventing prices from rising or falling more than
3 per cent, above or below the given normal price level \
The principal means he suggests for carrying out this purpose
are the same as those which were adopted in 1923 with a view to
checking the impending boom: the manipulation of the Rediscount
Rate and the purchase or sale of securities by Federal reserve
banks 2.
Finally, in order to control the movement of prices it is necessary
not only to have an accurate measure of the movement itself when
it actually takes place, but also, if possible, the means of forecasting
the probable future trend of prices. Preventive action may then
be taken, instead of purely compensatory action after the movement has occurred. For such a purpose Mr. Snyder and his staff
have worked out two indices, an index of the volume of trade s
and an index showing the rate of turnover of average bank deposits 4. Both these indices render possible to a certain extent the
forecasting of the probable future trend of prices 5 .

1

American Economic Review, June 1923, p. 284.
' Ibid.
Quarterly Publication of the American Statistical Association, Dec. 1923.
* Journal of the American Bankers' Association, Feb. 1924.
s
One of the possible future uses of economic barometers is indicated here,
namely, that of providing the central authority with the information necessary
for the guidance of its credit policy.
8

— 152 —
This combination of aim, means and information thus produces
a system which appears to commend itself on many grounds. In
the first place it adopts as its principle objective the stabilisation
of prices, necessarily the first step for securing the stable expansion
of industry. Secondly, it proposes control by measures which have
already been put into operation with some degree of success.
Thirdly, the promise which it gives of supplying the necessary
information for enabling anticipatory action to be taken marks
a very definite step in advance and would seem to justify a
measure of confidence in the success of the scheme as a whole.

It may be that there are still a number of countries in whioh a
policy of price stabilisation would meet with difficulty. There may,
for instance, be no means of securing control over the loan policy
of banks owing to the lack of centralisation in banking or in the
regulation of legal tender currency. Moreover, there may not
exist a satisfactory system of measuring the movement of the
price level itself. Finally, public opinion may be more generally
educated to the desirability of securing stability of the exchange
rate rather than stability of the level of prices.
For such countries, the stabilisation of the exchange rate with
a country in which the price level is already stabilised would,
however, yield not only exchange stability but also a high degree
of price stability.
This might be illustrated from the measures recently adopted
in Denmark * with a view to regulating the exchange rate with
Great Britain. A fund of five million pounds sterling has been
established by the former country, consisting partly of bills and
other exchange instruments which can'be immediately realised on
the British and Danish money markets. By the continuous purchase
and sale of sterling bills it will be possible to eliminate temporary
fluctuations of the exchange rate of the kroner and to a certain
extent diminish long period fluctuations. However, if a rise in
Danish prices relatively to British were to take place this would
set up a permanent tendency for the kroner to depreciate in terms
of sterling. The sale of sterling bills from the fund would stem
the movement for a time but only at the expense of the gradual
exhaustion of the fund. If, therefore, it were found that serious
inroads were being made into the fund, the next action on the part
1

Revue commerciale danoise, March 1924, p. 49.|

— 153 —
of the Danish controlling authorities would be to raise the rate
of discount or by other means to restrain the issue of industrial
credit internally in order that the Danish price level might be
brought back to parity with that of Great Britain and thus remove
the tendency for continuous depreciation of the kroner. It will
thus be seen that Denmark, by stabilising its exchange rate with
sterling, binds itself to approximately the same price policy; and,
in consequence, if Great Britain has been successful in stabilising
its price level about a given normal, the Danish price level will
also be restrained in its fluctuations about a corresponding normal.
If, therefore, one central country were able to secure an almost
unvarying level of prices internally, and if subsequently other
countries were to stabilise their rates of exchange with the central
currency, not only would exchange stability be secured, but also
price stability over the whole area affected.
This system, universalised, is in fact in all essentials the one
proposed by Mr. J. M. Keynes in A tract on Monetari/ Reform 1.
Mr. Keynes recommends that the United States and Great Britain
should separately endeavour to secure internal stability of the
price level and that other countries might then conveniently use
the dollar and the pound sterling as a basis for the stabilisation
of their exchange rates.
An earlier proposal for securing both price and exchange stability
is the system recommended by the Genoa Economic Conference.
This would entail the general resumption of the gold standard,
or, as an intermediate stage, of the gold exchange standard 2. The
purpose of the recovery of the gold basis, with a monetary unit
of unvarying gold content, would be to secure exchange stability
on the same footing as existed before the war. Stability of the value
of gold, i.e. of gold prices, would be secured through the control
of credit, effected by the central banks of the several countries
working in conjunction. In order that there should be no shortage
of gold which, by limiting monetary reserves, might impede the
desired credit policy, the Genoa Conference proposes a system
of international regulation of the world's supply of monetary gold.

1
KEYNES, J. M.: A Tract on Monetary Reform. The Macmillan Co. London,
1923.
2
By "gold exchange standard" is inferred a system under which a certain
number of countries maintain the gold standard in complete form and other
countries undertake to maintain the value of their currencies at a constant
value in relation to one or more of the gold currencies.

— ibi —
It is to be seen, therefore, that the application by various methods
of an international policy of price stabilisation is considered by
numerous experts to be immediately practicable. The foregoing
survey gives evidence of the capital importance of such a policy
from the point of view of unemployment, and it is felt that no
effort should be spared to discover the means for overcoming the
difficulties which still confront its immediate application.