INTERNATIONAL

LABOUR

OFFICE

STUDIES AND REPORTS
Series C (Employment and Unemployment) No. 16

UNEMPLOYMENT PROBLEMS
IN 1931
STUDIES PREPARED

BY THE INTERNATIONAL

IN COLLABORATION

WITH

PROFESSORS

COLE, HAHN AND

LABOUR

OFFICE

ANSIAUX,

HERSCH

GENEVA
1931

l

11JÜIL1931Í ; )
'"

Published in the United Kingdom
For the INTERNATIONAL LABOUR OFFICE (LEAGUE OF NATIONS)

By P. S. KING & SON, Ltd.
Orchard House, 14 Great Smith Street, Westminster, London, S.W.!
M

.

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o ' -• o i t;
l) j . j . f i i

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PRINTED BY ALBERT KUNDIG
GENEVA

CONTENTS
Page

Introduction
Unemployment Problems in 1931 (Extract from the Report of
the Director)
I

1
3

Social Dangers (p. 5). — The International Labour
Organisation and the Depression (p. 6). •— Resolution
of the Governing Body on Unemployment (p. 7).
II.

III.

IV.

The Economic Depression: Its Extent, Causes and
Possible Remedies
Unemployment Statistics (p. 11). — Extent of the
Economic Depression (p. 13). •— Causes of the Depression
(p. 15). — The Agricultural Depression (p. 18.) — Industrial Overproduction (p. 23). — Monetary Problems:
Gold (p. 25). — Lack of Confidence and its Effects (p. 28).
— Fall in the Price of Silver (p. 30). — Too High Costs
of Production (p. 31). — Disturbances in Commerce
(p. 33). — Population and Unemployment (p. 43). —
Mechanisation and Rationalisation (p. 45). — Delimitation of Responsibilities (p. 48).
Direct Action by the International Labour Organisation against Unemployment
Direct Action against Unemployment (p. 50). —
Placing in Employment (p. 53). — Migration (p. 58). —
Unemployment Insurance (p. 59). — Public Works
(p. 70).
Hours of Work, Wages and Unemployment . . . .
Another Line of Action for the Organisation (p. 74).
— Short Time (p. 75). — The Workers' Case: Permanent
Reduction of Hours of Work (p. 77). —• The Employers'
Case: Costs of Production (p. 82). — The Level of Wages
(p. 87). — New Considerations (p. 91).

Unemployment and Monetary Fluctuations
I. Previous to 1913

11

50

74

97
99

United States (p. 99). — Great Britain (p. 102). —
Germany (p. 106). — France (p. 106).

II. 1920 to 1928
III. 1929 to 1930
Inequalities in the International Distribution of Capital as a Cause
of Unemployment. By Professor L. Albert HAHN . . . .
Introduction
Inequality in the Distribution of Capital

110
115
119
119
121

IV

Page
The Causes of the Unequal Distribution
Surplus and Lack of Capital as Causes of Unemployment .
Shortage of Capital, Wages being Inelastic
The Effect of the Unequal Distribution of Capital . . .
What Can and Should Happen

124
125
128
129
131

Disturbances in International Trade and Their Effects on Unemployment. By Professor Maurice ANSIAUX

133

Introduction
The Notion of Normal Conditions (p. 134). — Classification of Disturbances (p. 135).
Part I : Legal or Administrative Restrictions on International Trade
Barriers properly so called (p. 136). — Protectionism
(p. 140). — Risks Involved in Certain Systems of International Trade (p. 155).

133

136

Part II : Disturbances in International Trade Originating
in the War

158

Part III : The Extent of Net Unemployment Due to Disturbances in International Trade
Conclusions

163
170

Population and Unemployment. By Professor L.

. .

173

Appendix : Statistics of Births, Deaths and Natural Increase
of Population in Different Countries

217

HERSCH.

The Effects of Rationalisation on Employment

219

Wages and Employment. By G. D. H. COLE
Wages
Employment
A Note on Relative Trade Wage Rates
A Note on the Efficiency of Labour

255
256
259
278
280

INTRODUCTION
The present volume contains: (1) all that part of the Report
of the Director to the Fifteenth Session of the International Labour
Conference referring to unemployment; (2) a series of memoranda
submitted in January 1931 to the Unemployment Committee
of the Governing Body of the International Labour Office. Some
of these memoranda were prepared by experts outside the Office
and others by officials of the Office.
As the reader will see, the Report of the Director and the
succeeding memoranda are mutually complementary and form a
complete whole.

UNEMPLOYMENT PROBLEMS I N 1931

The Report of the Director to the Fifteenth Session of the
International Labour Conference deals mainly with the unemployment
problem. After outlining the general progress of the work of the
Organisation during 1930 and the unfavourable influence of the
economic depression on the development of international labour
legislation, the Director continues:

I

. . . Action on behalf of the workers suffering from unemployment has probably never been more urgent. Never has the
psychological and material condition of the unemployed been the
object of so much thought and anxiety both from the personal and
from the social standpoints.
The noticeable improvement in the position of the majority of the
working classes since the war has made a return to the hardship,
privation and suffering caused by unemployment much harder
to bear, because the workers felt that they had escaped from such
conditions for good and all. The working classes in the more prosperous countries, especially, for example, in the United States, were
proud of their comfortable situation, and they have suffered not
only in their wellbeing but also in their dignity as a result of this
decline in material prosperity and their impotence to escape from it.
The spectacle of the streets in New York and Chicago has proved a
surprise to foreign visitors 1 . An analysis of the feelings revealed
by official or private enquiries in the United States is still more
heartrending. There is no need here, for an assembly such as the
1
Cf. Memorandum of Mr. H. B. Butler, Deputy-Director, submitted to the
Governing Body of the International Labour Office, and- the articles of
Mr. André Maurois (in the Paris Journal).

4

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

International Labour Conference, to draw again the only toofamiliar picture of the distress of the unemployed worker. At the
same time, the severity of the present depression brings the situation
home with tragic intensity.
Once again thousands of human beings are suffering the material
and mental torments of unemployment : the sudden loss of earnings,
sometimes foreshadowed by a brief period of partial unemployment, but depending on mysterious and inevitable causes beyond
their comprehension; the despairing hope of finding fresh employment, with constant applications to one factory or workshop
after another and long and fruitless visits to employment exchanges ;
the resigned acceptance of unskilled jobs which corrupt occupational skill, but which only a fortunate few are able to obtain. Soon
the savings of years amassed with considerable effort disappear;
small insurance policies recently taken out have to be surrendered ;
possessions must be pawned; the mother of the family has to leave
home in place of the husband to earn some modest sum by casual
work; the children have to go to work too soon and will shortly
prove competitors on the labour market; sometimes, last of all,
after considerable privation and under-feeding, there comes the
necessity of appealing for relief to public charity. This long and
gradual decline, step by step, into the depths of misery means not
only the destruction of future plans, not only discouragement and
despair, but also family friction and quarrels and even moral
degradation 1 .
It will perhaps be said that this description, which is being given
afresh to-day by Americans in the first shock of the depression,
is no longer true to the facts, or that in any case it does not hold
good in countries which have an unemployment insurance system.
This observation is true. Unemployment insurance has enabled
cases of extreme distress to be avoided. In the United States during
the last eighteen months private charity has had to take almost
daily action to save considerable numbers of people from starvation,
while in Great Britain and in Germany millions of unemployed have,
thanks to the insurance system, been spared the extreme privations
which were common during the pre-war periods of unemployment.
During the last few months, however, even in countries where
insurance exists, the position has become much more serious.
No doubt the unemployed are sheltered against suffering for a
1
Cf. Case Studies of Unemployment (Committee of the National Federation
of Settlements). Edited by Marion ELDERTON. Philadelphia, University of
Pennsylvania Press, 1931.

REPORT OF THE DIRECTOR

5

certain number of weeks. Unemployment benefit has enabled them
to accept the loss of employment without too much difficulty
and to return to work without being crushed by a weight of debt.
All the same, in some countries, particularly Germany and Great
Britain, there is a growing number of workers who have been
unemployed for months and months, if not for years. At the
beginning of 1930 there were about 400,000 unemployed in
Great Britain in receipt of " transitional " benefit, which means
that they had not been able to pay a minimum of 30 weekly
contributions during the two preceding years. In such cases
unemployment benefit provides but little compensation for the
loss of wages. In Great Britain, for instance, an unemployed
worker draws 17s. a week, and if he is married and has three children
he is entitled to a supplement of 15s., making a total of 32s.
These are flat rates applying to all workers irrespective of their
previous earnings. In Germany the rate of benefit is to a certain
extent proportionate to the wages previously earned: the most
poorly paid workers (below 10 marks a week) receive 75 per cent.
of the basic wage on which the benefit is calculated, and those
who earned more receive benefit up to a smaller percentage, which
is as low as 35 per cent, of the basic wage, when that wage exceeded
60 marks a week. Supplements are granted for family responsibilities, at the rate of 5 per cent, of the basic wage for each dependant,
up to a maximum of 80 per cent, if the wage was less than 14 marks
a week or 60 per cent, if it was above 48 marks a week (with
corresponding percentages for intermediate wages). A man who
for months or perhaps years has no other income but these allowances is unable to support his family. Even in Great Britain appeals
have recently had to be made to private charity to provide clothing
and other necessities to certain groups of unemployed and their
families. This has been the case with numerous workers whose
specialised work is no longer in demand and who were earning quite
high wages until they lost their employment—for example, numbers
of railwaymen.
Thus even in countries with an unemployment insurance system
the continuance of the depression has involved considerable
privation in individual cases.
Social Dangers
In the social field the classic phenomena of every depression
have recurred: an increase in morbidity and crime, and sometimes

6

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

also in revolutionary tendencies and political agitation. But these
older phenomena 1 have been accompanied in the case of the
present depression by new features. An enquiry carried out by the
association of visiting nurses in Philadelphia and covering 442
unemployed families showed that morbidity was 70 per cent, among
adults, and that the children were the first to feel the effects of
poverty. The position of the children is indeed most disturbing.
The Director's Report for 1929 mentioned that the number of
children who began school in the year 1922-1923 was only half the
annual number usual before the war. These children were born
during the war, and on account of their small numbers were likely
to be called upon at an early age to commence industrial work,
for which they would be physically less fitted than a normal
child. This year these children are on the point of entering or have
already entered the factory. Their parents are perhaps amongst
the older workers who have been dismissed or among the
unemployed, and even the children themselves may already be
victims of unemployment.
Need attention also be called to the fact, which is so often referred
to in Germany and which is so serious from the psychological
standpoint, namely, that considerable numbers of young persons
who have been trained as manual workers or salaried employees
have been ready for work for four or five years but have never yet
drawn wages in any factory or undertaking ? It has been said that
certain political attitudes, born of despair, which are at present a
secret or open source of trouble to many States, are the result of
unemployment. It would not be surprising if this is the case.
The International Labour Organisation and the Depression
It is impossible not to feel, in view of the extent and effects of the
depression, that the International Labour Organisation has an
urgent duty to discharge. It is not only that the work which the
Organisation has already accomplished and which has produced
definite if perhaps limited results seems more or less compromised,
but the workers whom it is called upon to protect are again suffering
very seriously. They are entitled to claim the application of the
principles laid down in the Peace Treaties ; they are entitled to ask
what the Organisation has done for " the prevention of unem1
R O W N T R E E and L A S K E R : Unemployment—A
Social Study.
London,
Macmillan & Co., 1911. Cf. also the Enquiry into Production:
General Report,
Vol. I, p p . 89 et seq.

REPORT OF THE DIRECTOR

7

ployment " which is mentioned in the Preamble to the Labour
Section of the Treaties.
This means that the whole policy of the Organisation, the whole
of its immediate programme, should be carefully reconsidered.
The Governing Body has realised the importance of the situation.
At the last Session of the Conference a resolution on unemployment submitted by the Swiss Worker's Delegate, Mr. Schüren,
was adopted unanimously. This resolution requested the Office to
pay special attention to the unemployment crisis and suggested
certain definite studies which should be undertaken on various
aspects of it.
These suggestions were considered by the Governing Body at its
October Session in Brussels. The Governing Body decided to
add a number of members to the Unemployment Committee which
it had set up some few years ago, and to convene an early meeting
of this Committee for January 1931, in order to consider the unemployment problem as a whole and the action which the International
Labour Office could take to help in its solution.
Between October and January the Office itself prepared and
requested qualified experts to prepare introductory memoranda
on certain aspects of the problem 1.
. •
The Committee met on 26 and 27 January and made a report to
the Governing Body on 31 January. The Governing Body
adopted this report after amending and completing it on certain
points.
Resolution of-the Governing Body on

Unemployment

This report was as follows :
A.
The Committee, which is greatly concerned at the increasing gravity
of the unemployment problem and its consequences both from the
humanitarian and social point of view and from the point of view of the
world economic situation, considers it indispensable to study the causes
thoroughly and to try to find remedies capable of practical application.
Considered as a whole, this exceptionally grave unemployment appears
to be the cumulative effect of economic and financial disturbances
likely to affect more expecially certain countries and certain industries.
Among these disturbances there are some which recur with a certain
regularity, while others have been introduced into the economic system
of the world after the war-time and post-war upheavals.
Without wishing to make either a complete or a systematic enumeration, the Committee, desirous of showing the complexity of the problem,
1

See the memoranda given further on in this study.

8

UNEMPLOYMENT PROBLEMS IN 1931

draws attention to the following factors which, rightly or wrongly, are
often considered as causes of unemployment:
(a) Excessive production of certain agricultural products said
to result partly from exceptionally good harvests, and partly from
an increase in the amount of cultivated land due to faulty estimates
of the demand, which is sometimes diminished by under-consumption, leading to inability to sell, to a decrease in the purchasing
power of the rural population and consequently to a contraction
of outlets for industrial products;
(b) The maladjustment between the production of certain
industrial products, such as raw materials and industrial equipment,
and the markets' power of absorption;
(c) The alleged inelasticity in the links whereby effective
purchasing power, as expressed in currency and credit, is held by
some to be connected with the world's available gold supply and to
have been a factor in the unprecedented fall in world prices ;
(d) Lack of confidence, which is often said to be the cause of an
inadequate distribution of gold, of an imperfect circulation of
capital and a restriction in the granting of credits and which
by preventing the financing of countries which are in need of capital
and the development of the purchasing power of consumers is said
to have made it impossible to restrict the fall of world prices;
(e) The fall in the price of silver, which is said to have brought
about a considerable decrease in the purchasing power of countries
whose currency is based on that metal, a purchasing power already
reduced by the political conditions in some of those countries;
(/) Too high a cost of production in certain countries as a result
of physical, geographical or other conditions ;
(g) The disturbances in international commerce caused not
only by the development of new industrial areas but also by artificial
barriers put in the way of international trade and by the difficulties
said to be associated with the problem of political debts;
(h) The difficulties in the way of adjusting movements of
population to the possibilities of exploiting the resources of the
world ;
(i) The disorganisation of the labour market caused by the
extra-rapid development of labour saving machinery and of the
process of rationalisation.
B.
These various causes of unemployment, which are in some cases
generally admitted and sometimes the subject of controversy, should be
thoroughly studied with a view to bringing out their real importance
as well as the importance of methods suitable for mitigating them. These
investigations will be carried out by the International Labour Office
in co-operation with the League of Nations, experts and other organisations being consulted, if necessary, so as to show in a systematic form
the known elements and factors of unemployment. The Committee
urges, however, that the International Labour Organisation should
immediately strive more than ever, with the help of the employers'
and workers' organisations represented in it, to induce Governments
to take all immediately practicable steps to preserve the world of labour
from the consequences of unemployment.

REPORT OF THE DIRECTOR

9

The Committee therefore desires that the attention of Governments
should be called with insistence to the following points :
(a) The need for the organisation of the labour market by
public employment exchange services, which should collaborate as
effectively as possible in the drawing up of systematic schemes for
the re-employment of the unemployed and the re-adaptation, if
necessary, of discharged workers to the technical requirements of
production;
(b) The need of developing existing systems of relief and
insurance against total unemployment and short time and the
creation of insurance systems where they are not yet in existence,
with the means necessary to ensure that they are immediately
financed by advances from the State, every effort being made to
adapt them to the essential needs of the workers without interfering
with the re-employment of the workers in industries capable of
activity either at home or abroad;
(c) Undertaking extensive public works of national utility
in accordance with programmes previously drawn up and at the
same time expanding orders for supplies, so as to counteract the
effects of the temporary falling-off of activity in private enterprise ;
the possibility of Governments coming to an agreement through
the appropriate organs of the League of Nations with a view to
joint execution of extensive public works of an international
character;
(d) International co-operation which will make possible the
free movement and placing of men in unexploited regions capable
of utilising their activity, and with a view to increasing markets ;
(e) The development of suitable methods for ensuring
co-operation among the different national economic systems.

With regard to the measures to be taken on the subject of the length
of the working day or week and the remuneration of labour, in relation
to unemployment, the Committee takes note of the fact that the
representatives of the employers and workers hold different opinions at
the present time.
The representatives of the workers, while maintaining their demands
in connection with the 40-hour week, ask for:
(a) A reasonable shortening of the working day or week, taking
into account the increase in output obtained by improved methods
of production;
(b) A suitable means of raising the remuneration of labour
in countries where it is most inadequate at the present time, with
a view to eliminating one factor of unfair competition and to
increasing the consumptive capacity of certain markets, without
neglecting the development of social insurance, which preserves
a certain power of consumption to workers prevented from earning
their living by causes beyond their control.
The employers consider, on the contrary, not only that the measures
suggested by the workers would be of no avail, but that they would
produce most serious disturbances. They are convinced, on the other

10

UNEMPLOYMENT PROBLEMS IN 1931

hand, that one of the essential measures to be adopted in the effort to
restore economic equilibrium should be a reduction of the cost of production and the expenses of distribution so as to enlarge markets by
increasing the purchasing power of the whole body of consumers.
As a result of this difference of opinion the Committee invites the
Office to pursue its investigations in order to lead at a later date, if
possible, to a narrowing of the gap between the two points of view and to
positive action.
This resolution has given rise to considerable comment and some
criticism. It has been asked whether the Office has only just
discovered the existence of unemployment. Those who make such a
suggestion forget all the work of the last ten years : the Washington
Convention on unemployment and the organisation of employment
agencies, which has been ratified by 24 States and applied in all
the important industrial communities ; the Recommendation of the
same Conference on international recruiting of workers, public
works and unemployment insurance, which Recommendation has
played a part in the enormous development of insurance systems;
the Genoa Convention on finding employment for seamen, ratified
by 18 States; the Geneva Recommendation on the means of preventing unemployment in agriculture; the studies and enquiries
on which reports have several times been made to the Conference x ;
the resolutions adopted by the Conference which contributed to the
convening of the Economic Conference of 1922 at Genoa and of the
World Economic Conference of the League in 1927 ; the work of the
Mixed Commission on Economic Crises ; the international statistics
compiled with such care and with such valuable results; and all the
vast supply of information collected day by day and already so
widely known and so frequently used by national administrations 2 .
The International Labour Office did not discover unemployment
in 1930; it had already begun, ten years ago, to take measures for
preventing or remedying unemployment, in fulfilment of one of
1
Including, for example, the following, in addition to the nine volumes
of the Enquiry into Production published between 1920 and 1925:

2

Statistics of Unemployment in Various Countries, 1910 to 1922. 1922.
28 pp.
Remedies for Unemployment. 1922. 141 pp.
Unemployment 1920-1923. 1924. 154 pp.
Unemployment Insurance : A Study in Comparative Legislation. 1925.
134 pp.
Methods of Statistics of Unemployment. 1925. 66 pp.
Bibliography of Unemployment. 1926. 155 pp.
Unemployment. Some International Aspects, 1920-1928. 1929. 222 pp.
Bibliography of Unemployment (Second Edition), 1920-1929. 1930.
217 pp.
Unemployment and Public Works. 1931. 186 pp.
International Labour Review and Industrial and Labour Information.

REPORT OF THE DIRECTOR

11

the provisions of its programme. The resolution adopted by the
Governing Body, which is due to the exceptional nature of the
the situation, is based on an examination of all the work performed
during these ten years, the methods adopted and the fresh difficulties
which have arisen.
Other critics have found the resolution " futile ". They surely
did not expect the Office here and now to produce the one and final
solution of the situation, in the manner of those social inventors who
periodically discover a panacea for existing evils. They surely
did not imagine that a meeting of a few representatives of Governments or important industrial associations could find an infallible
explanation of the present crisis.
The resolution of the Governing Body was all that it could be or
was bound to be: (1) a serious and frank warning to public opinion;
(2) a reasoned selection of topics on which investigation seemed
particularly urgent; (3) an examination of the principles which
should guide the general policy of the Organisation.
Since January the Office has continued its research work along
the lines indicated by the Governing Body. Its services, especially
those concerned with economic and unemployment questions, have
endeavoured to define more clearly the scope and form of the work
which the Office was asked to undertake and the contribution
which it might be expected to make to a solution of the problem.
In order that delegates to the Conference may also help the Office
by their views and suggestions to build on the foundations which
have already been laid, and assist it to grapple with unemployment
more effectively, it is proposed to review here some sections of the
information recently collected, some of the reflections to which
it has given rise in the mind of the Office and some of the lines of
action which might be considered by the Conference. This review
will follow the order of the points mentioned in the resolution
of the Governing Body.
II
The Economic Depression: Its Extent, Causes and Possible Remedies
Unemployment Statistics
The Governing Body first of all noted the unprecedented extent
of the present unemployment throughout the world.
The International Labour Office has published unemployment
statistics which it has been continually improving and developing.

12

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

Clearly, as one member of the Governing Body observed, the Office
cannot be content with continual publication of eloquent figures.
The appeal to sentiment is not enough. All the same, it is useful
that the world should recognise what its real situation is.
A year ago the number of unemployed throughout the world could
be estimated at 10 millions. At the end of February last this total
was exceeded by two important industrial countries alone—•
Germany and the United States of America. The number of
unemployed has doubled.
In the United States, whose extensive system of statistics has
so far neglected the phenomenon of unemployment, the most
recent and most authoritative estimates give a figure of about
6 million wholly unemployed. In Germany, where the compulsory
unemployment insurance system, combined with the public employment exchanges, ensures very complete supervision of the
labour market, there were, on 31 January 1931, 4,953,174 applicants
for employment, of whom 4,894,000 were totally unemployed. In
Great Britain, where there are also definite statistics, there were at
the end of 1930 (including Northern Ireland), 1,853,575 fully
unemployed and 646,205 partially or temporarily unemployed.
Similar results, reached by different methods, are to be noted for
Italy, with 642,169 wholly unemployed and 21,788 partly unemployed at the end of 1930, for Poland, with 345,295 wholly unemployed, and Austria with 331,239 unemployed in receipt of benefit.
In other countries statistical information is more fragmentary.
The work of the Office, and the discussions in the Governing Body,
however, have had the useful effect of leading to the provision
of further information. Previously France gave only two very
incomplete figures—the number of unemployed in receipt of relief
and the number of unemployed registered with the public exchanges
but unable to secure employment. The necessity of arriving at
international comparisons has elicited the information that the
number of wholly unemployed persons at the beginning of 1931
was actually about 350,000 and that there were about a million
persons partly unemployed.
Similar estimates or special censuses show that there were
322,527 wholly unemployed in Japan on 1 October 1930; 100,000
unemployed (mostly agricultural workers) in Andalusia in
November 1930; 42,689 unsuccessful applications for employment
in Rumania at the end of 1930; 9,989 in Yugoslavia, which in the
opinion of the Labour Chambers is equivalent to about 100,000
unemployed, including 30,000 skilled workers; 239,564 wholly

REPORT OF THE DIRECTOR

13

employed in Czechoslovakia at the end of 1930; 90,379 unemployed in Australia in September 1930; 63,585 wholly unemployed
and 117,167 intermittently unemployed in Belgium; 80,578 wholly
unemployed in Sweden; 72,191 in the Netherlands.
All these figures are evidence of a considerable increase in
unemployment as compared with the previous year.
The few exceptions were Denmark, Estonia, Latvia, Norway and
Ireland, and the still more noticeable exception of the U.S.S.R.
In this last country in July 1930 unsuccessful applications for
employment made to the labour exchanges amounted only to
633,400 as compared with 1,310,500 in July 1929. The figure
for July 1930 is the last received by the Office. The Soviet
authorities are no longer concerned with the problem of unemployment, but with the recruiting of the workers required for the
fresh development of Russian economy in accordance with the
Five-Year Plan.
Statistical investigations of this kind are of general utility. They
require to be carried further. In the Annual Review some further
information is given on the incidence of unemployment as between
the sexes and as between different branches of production. For
present purposes the object has simply been to show the
unprecedentedly high rate of unemployment in 1930.
Extent of the Economic Depression
Economic phenomena, the effects on unemployment of which have
often been pointed out, also indicate the extent of the depression
and the gravity of the crisis.
Of the 35 countries which prepare index numbers of wholesale
prices there are only three which from August 1929 to
November 1930 show increases. These are Spain, with 2.9 per cent.
(owing to the depreciated exchange), Russia, with 3.3 per cent.
(the result of its independent monetary policy, adapted to the
Five-Year Plan), and China, with 7.9 per cent, (on account of the
internal unrest and the depreciation of silver). In all the other
countries the figures dropped: from 4 to 10 per cent, in five
countries, from 10 to 15 per cent, in five others, from 15 to
20 per cent, in 17 countries, and from 20 to 25 per cent, in five
others. The decrease in individual countries was as follows:
Germany, 13 per cent; Poland, 17 per cent.; France, 17.3 per cent.;
Italy, 17.5 per cent.; the United Kingdom, 17.6 per cent.; the
United States of America, 17.7 per cent.; Australia, 21.3 per cent.;

14

UNEMPLOYMENT PROBLEMS IN 1931

the Netherlands, 22.5 per cent.; India, 24.5 per cent.; Japan,
24.7 per cent.
In spite, however, of their magnitude, these falls in general
index figures, which represent averages of movements in individual
prices of a large number of products, do not bring out the economic
disturbances caused by the collapse of prices of certain products
of essential importance.
In the case of many such products, in fact, the collapse was so
great that they are below pre-war prices, and in some instances are
even considerably below that level 1 .
The fall in prices has been reflected in a decline in profits. The
index figures of industrial shares as compared with the peak figures
reached in the period 1928-1930 showed the following decreases in
September to December 1930: 5 per cent, in Chile; 11 per cent.
in Norway; 14 per cent, in Denmark; 29 per cent in Sweden; 29 per
cent, in Czechoslovakia; 31 per cent, in Switzerland; 31 per cent.
in the United Kingdom; 34.5 per cent, in Austria; 44 per cent, in
Germany; 46 per cent, in the Netherlands ; 53 per cent, in the United
States; 59 per cent, in Canada; 59.7 per cent, in Belgium; 60 per
cent, in Poland. The number of bankruptcies has been increasing
rapidly 2.
Official discount rates, which during the last months of 1929,
prior to the crash on the stock exchange, had been considerably
raised, have been falling almost continually and universally. In
New York, the rate dropped from 6 per cent, to 5 per cent, in
October 1929, 4.5 per cent, in November, 4 per cent, in March
1930, 3.5 per cent, in April, 3 per cent, in June, 2.5 per cent, in
July, and 2 per cent, in December. In Great Britain the rate
has fallen gradually from 6.5 per cent, in September 1929 to 3 per
cent. In France it was reduced in January 1930 from 3 % per cent.
to 3 per cent, and in May from 3 per cent, to 2% per cent., this last
figure being one which had not been fixed since 1898.
The general index figures for the volume of production which are
prepared in certain countries give a similarly striking picture of
the depression. Taking 1928 as a basis (—- 100), the index reached
its maximum of 113.5 in the United States in June 1929. By
October 1930 it fell to 80. For other countries the figures are:
for Germany, 109.8 in January 1929, and 80.5 in October 1930; for
Poland, 105.8 in January 1929 and 82 in November 1930; for the
1
2

Cf. post: Industrial Overproduction.
Cf. Monthly Bulletin of Statistics, of the League of Nations.

REPORT OF THE DIRECTOR

15

United Kingdom, 108.1 in December 1929 and 94.3 in September
1930; for France, 113.4 in May 1930 and 106.3 in November 1930;
for Sweden, 137.3 in January 1930 and 110 in November.
It will thus be seen that the depression is of an unprecedented
nature and that hardly any country seems able to escape it. All
are gradually involved in it. The first duty is to endeavour to
ascertain its causes.
Causes of the Depression
At the time of the depression of 1921 or again in 1926 there was
considerable discussion amongst experts. Some maintained that
the depression was of a " cyclical " nature, that it bore all the
symptoms of this, and that the old law of the fat years and the
lean years, to which the industrial world was as much subject as
the Egypt of Pharaoh's time, was once more taking effect. Others
maintained that, in spite of the apparent grounds for the periodicity
theory, the real causes of the depression were the upheavals of the
war and post-war periods.
No such discussion took place in 1930. This time the general opinion
has been that, in the words of the Governing Body's resolution, there
has been an "accumulation of economic and financial disturbances".
There has been a combination of " cyclical depression " and "endemic
depression ". They have reacted on and aggravated each other.
There has been a noticeable concatenation of circumstances which
have played a decisive and principal part in the general movement
and which seem to indicate definitely that this movement has had
all the features of a cyclical evolution. For some years past world
economy, despite difficulties peculiar to certain industries and
certain countries, had been carried forward on a great wave of industrial activity. As has been noted in the Reports of previous years,
Europe, thanks to a more or less regular resumption of international relations, and in particular to the re-establishment of
currencies and exchanges, had set itself vigorously to work once
more in order to recuperate its past losses.
In America, as in Europe, the spirit of enterprise found free
expansion in the renewal or transformation of existing industries
—manufacture of machinery, countless kinds of chemical industries,
including artificial silk, electricity and electrical equipment, motorcars—as well as in the development of new industries such as
aviation, wireless telegraphy, gramophones, various labour-saving
devices for the home, etc.

16

UNEMPLOYMENT PROBLEMS IN 1931

In the new industries, as in the old ones, there was a systematic
application of new methods designed to secure the maximum
output and based on the application of science to all phases of production. In the United States, under the stimulus of the depression
of 1920-1921, a campaign against waste in industry was begun, and
in order to carry it out thoroughly American economy definitely
adopted as a permanent policy the technical reorganisation and
transformation of production. In a number of European countries,
too, and particularly in Germany, the pressure of international
competition and also of international obligations hastened on
considerably the process of industrial concentration: industrial
methods and equipment were overhauled, and rationalisation
became the order of the day.
Hence, as in the nineteenth century or at the beginning of the
twentieth, the same phenomena and the same effects as have
been noted in every ascending phase of the industrial cycle:
increased production, rising profits, and bigger dividends. These
results were particularly noticeable in the United States 1 : industrial
investments in the country expanded, United States credits abroad
diminished, and there was an influx of foreign capital into the
country. Then suddenly, after the stock exchange crisis, the
situation changed : collapse in shares and securities held by private
individuals, business undertakings and banks, falls in prices,
systematic restriction of buying, decline in all branches of production from the transforming industries to those supplying them with
raw material or partly made-up products. Things went from bad to
worse; the fact that large classes of the population were obliged
to cut down expenditure curtailed production still further.
But what has made the present depression exceptionally serious,
especially since the middle of 1930, and has prevented the recovery
which experts felt would occur about that date, was the intervention
of other disturbing factors—the agricultural depression, certain
monetary and financial factors, the consequences of post-war
political, financial and industrial settlements, and also the lack of
confidence and the anxiety as to the future which gripped public
opinion generally.
So far as the cyclical part of the depression is concerned, the view
1
According to the Report on Recent Economic Changes in the United States
published in 1929 (Vol. II, pp. 607-609), the annual percentage increase
between 1922 and 1927 in the profits of industrial companies was 9 per cent.,
in dividends 6.8 per cent., and in the price of shares 14 per cent., the average
increase in the case of shares between 1927 (average for the year) and September
1929 having been 84 per cent.

REPORT OF THE DIRECTOR

17

may still be taken, in accordance with the traditional theory, that
the evils thus produced will correct themselves in the usual way
after a certain time, by a sort of spontaneous reaction of the economic body, only to appear later, however, with an inevitable
counter-reaction. On the other hand, there are all the exceptional
causes referred to above, which are not part of the cycle, which
have been the causes for some years of endemic unemployment,
but the real seriousness of which has been suddenly revealed by the
new depression. Surely, these causes require to be investigated,
tracked down, and if possible eliminated by direct measures.
This was the idea which the Governing Body had in mind in its
resolution. The Governing Body did not set out to distinguish
the cyclical from the endemic depression or to give a complete or
systematic list of the causes of the depression and unemployment
(a German expert claims to have counted as many as 235), but took
the view that it would be useful to draw attention to and expedite
investigation into a number of factors which are most frequently
pointed to as causes of unemployment.
The Governing Body was careful to note that certain of the
factors mentioned by it were perhaps " wrongly " regarded in
current opinion as causes of unemployment. In any case, it
considered it was essential that endeavours should be made to
estimate their real effects.
Further, the Governing Body indicated that these investigations
into the causes of unemployment were to be " carried out by the
International Labour Office in co-operation with the League of
Nations, experts and other organisations being consulted, if
necessary, so as to show in a systematic form the known elements
and factors. . . . "
Some members, indeed, suggested the appointment of a mixed
committee representing the Office and the League of Nations, but
the suggestion was considered premature.
If the Office correctly interprets the mind of the Governing Body,
the latter's intention was that, before liaison and co-operation with
any other bodies and persons was established or the work was
definitely distributed between the different institutions of the
League, the Office should define its own views and requirements.
In particular, the Governing Body appears to have intended that the
Office, before itself participating in any of the financial, economic
or political work of the League, should ascertain as clearly as
possible to what extent the disturbances or disorders in international
life operate, or do not operate, to produce unemployment.
2

18

UNEMPLOYMENT PROBLEMS IN 1931

On this basis, the Office proposes to review here the different
factors referred to in the Governing Body's resolution. An endeavour will be made, in the light of the Office's preliminary investigations, to indicate how far each factor seems to produce
unemployment, and what might accordingly be the attitude to be
adopted by the International Labour Organisation as such in regard
to the remedial measures which might be taken.
The A sricultural Depression
The Governing Body, then, first drew attention to :
(1) Excessive production of certain agricultural products
said to result partly from exceptionally good harvests
and partly from an increase in the amount of cultivated
land due to faulty estimates of the demand, which is sometimes diminished by under-consumption, leading to inability
to sell, to a decrease in the purchasing power of the rural
population and consequently to a contraction of outlets for
industrial products.
The agricultural depression is commonly regarded as one of the
most obvious causes of the present disturbed state of world economy. It was one of the chief subjects of consideration by the League
of Nations during the last year. Since 1927 the representatives
of agriculture had claimed a larger share in international discussions.
The misfortune which has overtaken their industry has given them
what they demanded; agricultural experts have been consulted
by the Economic Committee; special conferences have been held on
sugar and wheat; agricultural problems have been laid before theCommittee on European Union; and collaboration between th&
League and the International Institute of Agriculture has been
extended. The Mixed Advisory Committee of the Office, too, has.
felt the need of endeavouring to estimate the possible effects of the:
depression on labour conditions.
In the Unemployment Committee, Mr. Olivetti stressed the
fundamental importance of the agricultural depression.
The first obvious symptom has been the slump in the prices of
agricultural produce. To give only one example: as compared
with 1926 the price of wheat in Chicago fell in 1930 by 34.8 per cent.,
Of course, the real significance of so big a fall as this must be very
carefully scrutinised. When the price of a commodity drops, this
is not always due to an excess of production over demand. It may-

REPORT OF THE DIRECTOR

19

also be due to a reduction in costs of production or to a rise in the
purchasing power of money.
If, for example, the index figure for the average price of wheat
in Chicago is compared with the average level of wholesale prices
for all commodities in the United States, it will be found that
13.6 points in the 34.8 per cent, reduction in the price of wheat
represent the rise in the purchasing power of the dollar, and only
the balance of 21.2 points is attributable to other factors, i.e.
decreased cost of production or over-production.
In the case here in question reduced costs of production have
certainly played a part. The substitution of reaper-threshers
for reaper-binders in the Argentine have effected a saving of from 23
to 40 per cent, according to the district. In the United States, too,
where it costs 4.22 dollars per acre to harvest with a seven-foot
reaper-binder, the cost is only 1.47 with a ten-foot reaper-thresher.
It would thus appear that the fall in selling prices is due partly
at least to a saving in costs of production.
But the fall is also due, and perhaps to a larger extent, to overproduction. As has been shown by the International Institute of
Agriculture, the fundamental causes of the present agricultural
depression are to be found in market changes as between supply
and demand in agricultural produce.
Whereas comparison between the periods 1925-1928 and 1909-1913
shows a reduction in the consumption of wheat per head of population of 2 per cent, in Switzerland, 3 per cent, in Australia and in
Spain, 6 in Germany and Great Britain, 11 in France, 14 in the
United States, 16 in the Argentine, 21 in Belgium and 31 in Canada,
these reductions were far from being offset by the increases,
considerable as they were in some cases, which are recorded for
other countries, e.g. 4 per cent, in the Netherlands, 13 per cent.
in Italy, 15 in Bulgaria, 25 in Denmark, 33 in Sweden, 50 in
Rumania and 69 in Norway. On the whole, world consumption
declined by 4.1 per cent, per head of population. It is true that
during the period 1913-1928 world population increased 10 per cent.
Accordingly, on the assumption that in 1913 supply and demand were
equal, a simple calculation will show that, in order to maintain the
same position in 1928, regard being had to the decrease in the
consumption per head of population and to the increase of population, production of wheat should have increased by about 5.5 per
cent. In reality it increased from an average of 822,645,000 quintals
during the period 1909-1913 to 965,875,000 quintals for 1925-1928,
an increase of 17.4 per cent. In 1929 the total production was

20

UNEMPLOYMENT PROBLEMS IN 1931

reduced to 917,920,000 quintals. But even this figure is too high,
since it represents an increase of 12 per cent, over the period
1909-1913. There is thus little doubt but there has been
over-production in wheat 1 .
This over-production cannot be attributed to exceptionally good
harvests, as it is a feature of the whole of the period 1925-1929.
It is rather due to the fact that producers as a whole miscalculated
the demand and planted too large crops.
Contrary to what might have been expected, having regard to
improvements in farming methods in certain countries, the world
output per unit of land did not increase. For the period 1925-1928, it
was the same as for the period 1909-1913, viz. 10.4 quintals per
hectare, whereas in 1929 it fell to 9.7 quintals. At the same time,
the area under wheat rose from 109,382,000 hectares in 1909-1913 to
125,564,000 hectares in 1929. Europe (excluding Russia) made no
contribution to this increase: the area under wheat fell from
29,430,000 hectares to 23,988,000 in 1919, and only rose 'to
28,133,000 in 1929. This decrease is not entirely offset by the
increase in the U.S.S.R., where the area rose from 29,950,000 hectares in 1909-1913 to 30,644,000 in 1929. On the other hand, great
expansion took place in Australia, the United States and Canada.
In Australia the wheat area rose from 3,077,000 hectares in
1909-1913 to 5,703,000 in 1929, in the United States from 19,060,000
to 24,743,000, and in Canada from 4,025,000 to 10,220,000.
It is thus not surprising that, with production increasing to such
an extent, stocks also accumulated considerably, as the following
figures show:
STOCKS OF WHEAT IN THE UNITED STATES AND CANADA
(in millions of quintals.)
U. S. A.
1 July
1926
1927
1928
1929
1930

29.5
35.9
37.3
70.8
80.4

Canada
31 July
9.9
13.8
21.1
28.4
30.4

1
This situation can hardly be remedied by attempts to increase the
consumption of wheat. A number of writers have recently shown that, popuation being equal, the world consumes less foodstuffs made from wheat than
previously. The rising standard of living of the masses creates increasing
consumption of such foodstuffs as meat, fruit, fresh vegetables, sugar, coffee,
tea, etc., while the individual rate of consumption of wheat diminishes (cf. a
pamphlet recently published in France by Messrs. FROMENT and COURTIN:
Essai sur la crise agricole — Production et population, 1930).

REPORT OF THE DIRECTOR

21

Similarly, it is estimated that in the case of sugar stocks increased
from 1,945,000 tons (average at the ends of the years 1925-1927)
to 3,883,000 tons at the end of 1930 (increase, 89.4 per cent.);
in the case of coffee, from 427,000 tons to 15,552,000 tons (increase
3,542 per cent.) ; in cotton, from 748,000 to 1,186,000 tons (increase,
58.6 per cent.); in raw silk from 5,969 tons (end of 1927) to 45,363
tons (increase, 660 per cent.); in jute, from 99,000 tons (end of 1927)
to 263,000 tons (increase, 165.6 per cent.).
Such over-production, accompanied as it was by mechanisation
in agriculture, inevitably created a certain amount of unemployment amongst agricultural workers themselves.
For the United States and Canada, statistics on this point are
almost completely lacking 1 , but the scattered information available is significant. In Germany the number of agricultural workers
registered as applicants for work with public employment exchanges
has risen year by year from 14,593 in August 1927 to 59,252 in
August 1930, and from 44,116 in December 1925 to 195,637 in
December 1930 2 . In Italy, too, the number of unemployed amongst
workers in agriculture, hunting and fishing rose from an average
of 75,640 in 1927 to 103,451 in 1930 3, while in Great Britain an
enquiry carried out at the end of 1929 by the National Union of
Agricultural Workers showed t h a t the percentage of unemployed
was 4%-—a relatively high figure for British agriculture.
Still more serious has been the decrease in the purchasing power
of rural populations owing to difficulties in disposing of their
produce and the fall in agricultural prices.
In some countries an attempt has been made to measure this
decrease in purchasing power. Thus, for the United States, it has
been estimated at 2,400 million dollars, the total value of farm
produce having fallen from $8,675,420,000 in 1929 to $6,274,824,000
in 1930 4. In Canada, the estimated value of the harvests fell
from $1,125,003,000 in 1928 to $948,981,400 in 1929 and
$629,146,000 in 1930. The purchasing power of the farmers, who
1
The census statistics in the U.S.A., however, show that between 1920
and 1930 the rural population diminished by nearly 3,800,000.
- This increase may be partly ascribed to an extension of activity on the
part of the employment exchanges. It is not, moreover, incompatible with
the3 persistance of a certain scarcity of labour.
It will be observed that Italy and Germany have suffered less than other
countries from the wheat crisis, on account of their policy of tariff protection.
In the case of Italy account must also be taken of the legal obligation imposed
on agricultural employers to employ a minimum number of workers per unit
of land.
« The Times, Annual Financial and Commercial Review, 10 Feb. 1931.

22

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

represent more than 40 per cent, of the population, was thus reduced
by 33 per cent, in 1930 as compared with 1929, and by 44 per cent.
as compared with 1928.
In Australia, during one quarter in 1930 imports fell by
17% million pounds sterling (i.e. by 46.4 per cent.) owing to the
reduction in purchasing power caused by the depression in
agricultural produce, and particularly wool.
It will even be found that if the value of the imports of some
36 countries for the years 1929 and 1930 be compared, the biggest
slumps, those of 20 per cent, and over, affect essentially agricultural
countries. On the other hand, in stock-raising countries, such as
Denmark and Ireland, which have not been affected by the depression and in which the prices of meat and butter have risen, no
increase in unemployment is reported. Similarly, in Switzerland,
also a stock-raising country, the slight increase in unemployment
is due rather to difficulties of the exporting industries than to
weakening of the home market.
To what extent and by what methods can a remedy be found
for this cause of the depression ?
In this field at any rate it would seem that remedial measures
might take a more direct form, inasmuch as the causes of the
evil are more obvious. Negotiations have been undertaken to assist
certain agricultural countries of Europe to find markets for their
stocks of cereals. At the time of writing an international wheat
conference is being held in Rome. Will this Conference find it
possible to adapt the requirements and interests of consuming
countries and producing countries ? Will it in any case be sufficient
to organise exchanges of products ? Will not international collaboration require to be extended to the regulation of production so as
to adapt it to the needs of the market ? It may well be that agreements between States will be necessary for the rationing of production. But will such agreements be possible without a proper
organisation of agricultural credit, possibly on international bases,
so as to enable producers of certain commodities to transfer their
attention to other produce, for example, the growing of fruit and
vegetables or the raising of stock instead of the cultivation of cereals,
in order to respond more closely to the requirements of consumers 1?
Further, in order to prepare the way for official agreement and
assist in their application if they are concluded, will not endeavours
1
This suggestion was made, among others, at the Fifth Session of the
Mixed Advisory Agricultural Committee in December 1930.

REPORT OF THE DIRECTOR

23

have to be made to develop permanent relations between groups
of consumers and groups of producers ?
So far as knowledge of the facts can be acquired in the course
of its work, the International Labour Office will be able to assist
in the investigation of the problem and in the attempt to solve it.
The standard of living of the wage earners is a matter of close
concern to it. It has investigated the question of the rural exodus,
and has had direct consultations with the representatives of
agriculture on the depression in their industry. It has thus become
associated in various ways with the endeavours being made to
reorganise agricultural production. Indirectly, but very effectively,
it has assisted in bringing consumers and producers together 1.
Industrial

Over-production

The Governing Body next drew attention to :
(2) Maladjustment between the production of certain industrial
products, such as raw materials and industrial equipment,
and the markets' power of absorption.
There are two special points involved here: (a) over-production
of raw materials and (b) over-equipment of industry.
(a)

Over-production of Raw

Materials

As has already been indicated in the case of wheat, a fall in the
price of a commodity is not necessarily due to disequilibrium
between supply and demand. It may also be due to an increase in
the purchasing power of money or to a reduction in costs of production. In the case of raw materials regard must also be had
to the fact that during the depression disequilibrium between
supply and demand may be more due to a temporary restriction
of demand than to increased supply. A clear effect of the general
slowing down of industrial activity is an equally general decline in
consumption of raw materials, and a fall in their prices is thus an
effect and not a cause of the depression.
This was not the case just before the depression began. As
compared with the 1925 average, the price of rubber in London
had fallen by 70 per cent, in June 1929, the prices of lead, zinc and
tin by 34 per cent., 28 per cent, and 23 per cent, respectively, and
1
The Mixed Committee of Distributive and Agricultural Co-operative
- Organisations has already on two occasions appealed to the Office for its
technical collaboration.

24

UNEMPLOYMENT PROBLEMS IN 1931

those of jute and wool by 38 per cent, and 33 per cent., while artificial
silk in Crefeld fell 48 per cent, and natural silk in New York 23 per
cent. These drops are much greater than the increase in the
purchasing power of money, which for the same period was about
15 per cent, in Great Britain, 5 per cent, in Germany and 7 per cent.
in the United States of America. Except for reductions in production costs, there is thus a good presumption that there was
over-production in these different raw materials as compared with
the demand for them during the period preceding the depression. It
would also be desirable to ascertain whether in the case of other raw
materials there was not over-production also, even if their prices
did not fall, at least until the depression, owing to accumulation of
stocks.
The slowing down which took place in the production of these raw
materials did not affect only the workers employed in the industries
themselves. It affected many industries which did business with
them, e.g. the engineering trades, just as, inversely, the general
depression in transforming industries, due to the direct influence of
other factors, itself caused, by way of under-consumption, a
considerable aggravation of the situation produced by the relative
over-production of raw materials.
(b) Excessive Increase in Equipment
Some American experts have given great prominence to this
factor. Thus Mr. Stuart Chase 1 gives the following figures for a
number of industries in the United States. The coal mines of the
United States dispose of 500 million tons of coal a year, whereas
they are equipped to produce 750 millions. The oil wells do not sell
more than 4 million barrels a day, but could produce 6 millions.
The steel mills turn out 40 million tons, while their capacity is
66 millions. The boot-making industry can market only 300 million
pairs, whereas it could make 900 millions. The turn-over in the
woollen industry is about $ 2,000,000,000 a day, and this could be
almost trebled. The motor-car industry could produce 8 million cars
a year, whereas the demand for the whole world is only six millions.
Such over-equipment, when impressed on the world by the
present shrinkage of markets, naturally leads more and more to the
slowing down of a large number of businesses which were developed
in order to manufacture this equipment, believed to be required to
meet a real demand by consumers.
1
Cited by Mr. DESPAUX in Information financière, économique et politique,
26 Feb. 1931.

REPORT OF THE DIRECTOR

25

Another writer, Mr. Kuvin, holds that the actual utilisation of
equipment, even in normal times, is considerably below productive
capacity. He considers that for machine tools the effective utilisation is only 65 per cent., for gas 66 per cent, of productive capacity
and 40 per cent, of distributive capacity, for petrol refineries
76 per cent., for flour mills 40 per cent., and for the steel industry
60 to 80 per cent. 1
It is perhaps possible that in this matter of over-equipment, in
spite of the extent to which it has been carried, the special conditions
of industrial production will not lend themselves so readily to
attempts at organisation or to international action as the present
situation in agricultural production. In industry the spirit of
individual competition is stronger, and rivalry between countries is
greater. Already, however, many branches of industry have united
nationally or internationally for regulating production and adapting
it to demand. Though public authorities do not actively intervene
and there are no official treaties for the distribution of raw materials,
nevertheless methods of general collaboration are tending to replace
methods of blind competition. And it does not seem impossible
to imagine that production could adapt itself more closely to
market requirements, and that means could be found to avoid this
great waste of productive energy, which is so seriously reflected
in the unemployment it causes amongst the workers.
The Economic Conference of 1927 opened up certain perspectives
in this direction. It contemplated the possibility of consumers and
wage earners having at least a right to a watching brief and to be
kept regularly informed in subsequent developments of industrial
agreements.
It may be recognised that it is impossible to go further. But even
so, the International Labour Organisation could be regularly
associated with any steps taken along these lines. In any case, the
Organisation should take part in analysing the obvious lack of
co-ordination in the present situation and in the search for really
direct solutions which may help to prevent unemployment.
Monetary Problems : Gold
The Governing Body further drew attention to :
(3) The alleged inelasticity in the links whereby effective
purchasing power, as expressed in currency and credit, is
1

Bulletin of the Taylor Society, Dec. 1930, p. 268.

26

UNEMPLOYMENT PROBLEMS IN 1931

held by some to be connected with the world's available
gold supply and to have been a factor in the unprecedented
fall in world prices.
The connection between movements of prices and unemployment,
and particularly between monetary fluctuations and unemployment,
has been recognised by economists and experts for a considerable
number of years 1 . A fall in prices is always accompanied b y
considerable unemployment. In a period of rising prices there
is generally little unemployment. During 1929-1930 there was a
general slump in wholesale prices and unemployment rose proportionately. Conversely, in the U.S.S.R., the price level rose and the
number of registered unemployed fell.
To what extent has the available amount of gold affected the
movement of prices ? Authorities like Professor Cassel and
Mr. Kitchin have shown that there is a close connection between
actual purchasing power measured by currency and credit on the
one hand and the available world supply of gold on the other, so that
an inadequate gold supply with reference to the requirements of
production and trade can be regarded as a certain cause of a fall
in prices lasting over a fairly long period.
The Gold Delegation of the Financial Committee of the League
drew attention to this problem at the outset of its Second Provisional Report submitted in January 1931:
In our interim report published in September 1930, we dealt with the
problem whether "the current and prospective production of gold, on the
one hand, and the normal increase in demand . . . on the other, are
such as to make it likely that the general trend of prices over a series of
years (and apart from short-term oscillations) will be in an upward or
downward direction ".
We reached the conclusion that the possibility of gold constituting
a factor in the course of the next decade or more, tending to exercise an
influence towards depressing prices, was such as to render it desirable
to keep careful watch on future developments and to take measures for
economising the use of gold as a basis of money. We would draw attention
again to the fact that we were dealing in that report with long-term
price movements and with the probable monetary demand in the future;
we were not dealing with sudden variations in prices or in general
economic activity such as those which the world has recently experienced.
We reserved for future consideration a number of questions falling within
our terms of reference, including the effect of price fluctuation on general
prosperity, of cyclical as distinguished from long-term movements, and
1
Cf., for example, Unemployment 1920-1923 (Geneva, 1924) : Unemployment:
Some International Aspects, 1920-1928 (Geneva, 1929): and the Memorandum
submitted by the Office to the Gold Delegation of the Financial Committee
of the League and of the Unemployment Committee of the Office,
Unemployment and Monetary Fluctuations, reproduced on pp. 97-117 of this
volume.

REPORT OF THE DIRECTOR

2 7

of the distribution of gold. With the last-mentioned problem—the
distribution of gold—we propose to deal in the present interim report.
Before turning to this subject, however, we think it desirable, in order
to avoid the possibility of misinterpretation, to emphasise once more the
fact that the data on which our previous calculations were based referred
to the end of the year 1928. Wholesale prices have fallen very sharply
since that date, and, were they to settle down at, for instance, approximately to-day's level, the supplies of new gold likely to become available
for money would probably meet the demand for an appreciably longer
period of time than they would were the former level to be restored.
But whatever the tendency of prices may be when the present economic
depression is past, we believe, as we have already stated, that measures
can be found which should prevent the quantity of the supplies of new
gold becoming available for monetary purposes from exercising a decisive
influence.
The above passage definitely emphasises the economic importance
of the available gold supply, and suggests the possibility of action
for stabilising its effects.
Apart, however, from such action on the available gold supply,
the Governing Body drew attention more particularly to a special
difficulty—the inelasticity between currency and credit on the
one hand, and gold reserves on the other.
Here again, the Gold Delegation recognised the importance
of the problem. It not only defined the nature of the problem,
but suggested a solution:
The proportional gold reserve system is apt to produce an excessive
disturbance whenever the actual reserve approaches the legal minimum.
Under this system Central Banks are thus compelled to maintain a reserve
in excess of the legal minimum, in order to prevent such excessive disturbances being caused by gold movements. It was shown in an annex
to our interim report that the excess reserves over the average minima at
the end 1928 only amounted to from 6 to 12 per cent., and suggested
in the report itself that the existing minimum reserve percentages could
be reduced without in any way weakening the general credit structure.
In fact, the necessary liberty could be afforded to Central Banks and the
risk of a strain on the gold resources of the world averted by means of
reducing the legal minima to a figure well below that which countries are
likely to desire to maintain in practice. Such a reduction in the immobilised portion of the world's monetary gold would increase the working
reserves of the Central Bank and give greater elasticity to the whole
system.
Now that gold is no longer used for internal circulation, the amount
of gold reserve that is required by a Central Bank depends rather on the
probable amount of any temporary disequilibria in its balance of international commitments than on the volume of the note circulation and the
Central Bank's sight liabilities. We do not propose to enter into the details
of this problem in our present report; nor do we believe that any hard
and fast rule equally applicable to all countries can be framed. The
working reserves required by any country will depend, inter alia, upon its
general economic structure.
Thus, debtor States and agricultural and other countries whose exports

28

UNEMPLOYMENT PROBLEMS IN 1931

are composed of a relatively restricted number of commodities are
likely to require a larger reserve proportionately to their total external
trade or average balance of international payments than are countries
with a more mixed economy. Countries again in which foreign Central
Banks keep their reserves in the form of large sight claims may well
consider it advisable to maintain an additional stock of gold against these
special international liabilities.
We are of the opinion, therefore, that, in order at once to allow Central
Banks the liberty of action which is necessary for the conduct of a rational
credit policy, and to permit of an economy in the use of gold, the existing
legal stipulations concerning gold reserves should be modified.
As we stated in our previous report, the existing minimum could be
reduced without in any way weakening the general credit structure,
granted an international understanding had previously been reached.
The report enumerates vario as other preliminary conditions
which would require to be fulfilled before the reform contemplated
could be introduced. It is unnecessary to consider these conditions
here. It is simply desired to note t h a t the Gold Delegation of
the Financial Committee has already indicated a possible remedy
for the difficulty to which the Governing Body drew attention
as a possible cause of the economic depression and of unemployment.
The lack of elasticity between actual media of payment and gold
reserves is a difficulty which could be avoided by a policy of
international monetary agreement. In framing such a policy the
collaboration of the Office could perhaps be only of a remote
nature. But this policy is one which could effectively contribute
to reducing unemployment, and the Office will use all its influence
for bringing it into operation at an early date.
Lack of Confidence and its Effects
The next point referred to by the Governing Body was:
(4) Lack of confidence, which is often said to be the cause of
an inadequate distribution of gold, of an imperfect circulation of capital and a restriction in the granting of credits
and which, by preventing the financing of countries which
are in need of capital and the development of the purchasing
power of consumers, is said to have made it impossible
to restrict the fall of world prices.
There is no need to go at length into the circumstances from
which it may be demonstrated how lack of credit causes unemployment. Professor Hahn, of Frankfort, in the memorandum 1
1
Inequalities in the International Distribution of Capital as a Cause of
Unemployment, reproduced on pp. 119-132 of this volume.

REPORT OF THE DIRECTOR

29

which he prepared for the Unemployment Committee, shows
with great force of argument that a dearth of capital in a country
in relation to a given situation confronts the workers of that country
with the alternatives of a reduction of wages or an increase of
unemployment. Besides, a country which has been unable to
obtain the capital necessary for its industry or its agriculture
and which has accordingly been reduced to a lower standard of
living is a very bad customer and buys little or nothing from its
neighbours. On the other hand, a transfer of capital from a country
rich in capital to a country poor in capital adds to the volume
of employment in the latter country much more than it reduces
it in the former. It does not in fact reduce it at all in the lending
country if, as should be the case, the exported capital is not
withdrawn from the economic activity of the country but taken
from available unutilised funds, such as exist at the present time
in several countries.
Why in these circumstances does capital not find its way to
the places where it might obtain the maximum return ? Why
are the countries of Eastern and Southern Europe unable to obtain
the credits required for increasing the amount available for expanding their production and at the same time strengthening
the purchasing power of their populations ? Why these hesitations,
when the results would be advantageous to the activity of the
lending countries, which would thereby supply their markets ?
The Governing Body has replied: owing to the general lack of
confidence. Europe, said a great diplomatist, was in 1914 plunged
into war by an immense wave of fear. At the present time it
is held in an abyss of unemployment by a spirit of universal
distrust.
In the course of the discussions in the Unemployment Committee this was the leitmotiv of all the speeches. The settlement
of reparations and interallied debts, measures for the stabilisation
of currencies such as the accumulation of reserves of liquid capital
by certain countries like France, and economic disequilibrium
between costs of production have probably had a less disturbing
effect on the distribution of capital than the permanent political
uneasiness of which the world has not succeeded in curing itself
for the last ten years.
The renewal of confidence indispensable to the re-establishment
of economic prosperity and consequently to the diminution of
unemployment will depend on the daily progress of international
relations, a rapid and sure appeasement of conflicts and collisions,

30

UNEMPLOYMENT PROBLEMS IN 1931

reiterated undertakings not to resort to war for the settlement
of disputes, the new hopes of disarmament, the efforts at European
union—in a word, on the various political activities of the League
of Nations as a whole.
The International Labour Organisation will feel that it is contributing to the accomplishment of this task by multiplying in its
own field mutual agreements and obligations, and consolidating
a sense of international unity and solidarity in the work for social
justice.
Fall in the Price of Silver
A fifth cause of unemployment, which the Office was also asked
by the Governing Body to investigate, was:
(5) The fall in the price of silver, which is said to have brought
about a considerable decrease in the purchasing power of
countries whose currency is based on that metal, a purchasing power already reduced by the political conditions
in some of those countries.
This also is a complex subject. The symptoms of depression
in India and China are clearly visible. The imports of foreign
products in these countries show a considerable diminution. The
exports of Japanese cotton goods to China in 1930 were only
599,268,000 square yards as against 679,954,000 in 1929, or a
diminution of 12 per cent. 1 The exports of American cotton
good"? to China fell from 393,974 square yards during the first
ten months of 1929 to 269,605 square yards during the corresponding period of 1930, or a diminution of 32 per cent. 2
The exports of British cotton goods to China fell in a still more
considerable proportion, having dropped from 16,551,900 square
yards during the first ten months of 1929 to 6,336,600 during the
same period of 1930, or a diminution of 63 per cent. 3
As regards India, its imports of goods for internal consumption,
which amounted on the average to 208,568,000 rupees a month
in 1929, fell to 160,503,000 a month in 1930, or a diminution of
23 per cent., which even reaches 33 per cent, if the figures for
1
2

Figures published by the Japanese Association of Cotton Spinners.
Report, dated 24 November 1930, of the Department of Commerce of the
United States.
3
Accounts relating to Trade and Navigation of the United Kingdom, presented
by Mr. William Graham, Nov. 1930.

REPORT OF THE DIRECTOR

31

December 1930 (112,227,000 rupees) are compared with those for
December 1929 (167,025,000) K
To what is this phenomenon due ? To attempts at boycotting,
the result of which has in some circumstances been appreciable,
to general political crises, to the Nationalist movement in India,
to Communist influences, to the revolts of generals in China,
and to the obstacles to economic activity which result from these
causes. The influence of these factors must be taken into account,
but the primary cause, the importance of which can hardly be
over-estimated, has been the fall in the price of silver.
After having reached the price of 89%d. per ounce in 1920,
silver was only worth 215/16d. in 1929 and 147/16d. at the end of
1930. Experts are agreed in attributing this formidable drop
principally to the more general adoption of gold as the only
monetary standard.
The consequence, however, has been, for an immense country
like China, whose currency is based on silver, an enormous diminution in purchasing power. In India, another immense country,
although the currency has been stabilised in relation to gold,
enormous reserves of purchasing power have nevertheless remained
hoarded in silver. Altogether nearly a thousand millions of
persons have thus had their consuming power appreciably reduced
by changes in monetary policy. Even if their consuming power
is small per head of population, still their numbers are immense.
By what means and at" what rate will the political agitations
of the Far East be appeased ? By what international agreements
will the monetary difficulties be solved ? These problems, indeed,
are beyond the competence of the International Labour Organisation. All the same, it is one of its functions to emphasise the
need for solutions, by making a more thorough study both of
internal unemployment in China and India and of unemployment
in certain trades in Japan, the United States of America and Great
Britain which are the result of Chinese and Indian unemployment.
Too High Costs of Production
The Governing Body also indicated as a cause of unemployment :
(6) Too high a cost of production in certain countries as a
result of physical, geographical or other conditions.
1

Monthly Bulletin of Statistics, of the League of Nations.

32

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

The Office is in a certain difficulty here. The words used by
the Governing Body themselves indicate the complexity of this
factor in unemployment. " Physical, geographical or other
conditions " undoubtedly include, if the Office correctly interprets
this last indefinite adjective, economic conditions, political conditions and social conditions in the countries in question.
This point appears to raise a problem which has been dealt
with, or at least touched on, from time to time by Sessions of
the International Labour Conference, viz. that of the possible
injustice of imposing too high conditions of labour on countries
not highly favoured by nature or by the situation which they
have inherited from their past. Is it possible to impose on a
country poor in natural wealth and in credit the same conditions
of labour and the same social charges which richer countries have
accepted as equitable standards ? Are there " capitalist nations "
and " proletarian nations "• ?
This is the moral of the problem. It has also an economic
aspect.
In periods of crisis such as that through which the world is
passing, the general conditions of production in certain countries
may impose on them too high costs of production, with the result
that, in the face of world-wide competition, many of the workers
in such countries are condemned to unemployment.
In what direction should a remedy be. sought for this situation ?
Is it to be found in derogations from the general rules of labour
legislation, so as to make it possible to some extent, in the vital
interests of a particular country, to compensate its physical or
geographical inferiority by a more intensive utilisation of its
labour power ?
Or is it rather to be found in a system of international mutual
assistance calculated to promote the economic progress of such
countries and to raise the standard of living of their workers
to that which the Labour Charter indicates as equitable ?
In point of fact, definite data for the solution of the problem
are lacking. It is important that it should be dealt with, but
it is undoubtedly desirable in the first place to institute detailed
and careful enquiries on this question of costs of production,
taking each industry and each product separately. And this is
undoubtedly a field in which the co-operation of the Economic
Organisation of the League of Nations could be particularly
valuable.

33

REPORT OF THE DIRECTOR

Disturbances

in Commerce

Another factor t o which the Governing Body drew attention
was:
(7)

The disturbances in international commerce caused not
only by the development of new industrial areas b u t also
by artificial barriers put in the way of international trade
and by the difficulties said t o be associated with the problem
of political debts.

This immense field of enquiry has in fact been frequently
explored since the War. It is now possible to move in it with
more certainty. The study carried out for the Unemployment
Committee by Professor Ansiaux showed very forcibly the repercussions which barriers to trade may have on the employment of
the workers.
Among the disturbances to commerce which cause unemployment
the Governing Body mentioned first the development of new industrial
areas.
As the World Economic Conference noted, the War has here
merely hastened changes which had been observable long before.
" A careful observer in 1905 or 1906 ", says the Report of the Conference, " or possibly twenty years earlier in the case of the United States,
could have perceived that a new chapter was opening in the history
of these distant countries, the chief characteristic of which was the
endeavour to establish manufacturing industries of their own . . .
It is none the less true that the War stimulated this development by
restricting and diverting foreign trade between Europe and the rest
of the world. "
As early as 1925 the British Government Committee on Industry
and Trade declared that the development of manufacturing
industries in previously importing countries was " perhaps t h e
most important permanent factor tending either to limit t h e
volume or to modify the character of British export trade " 1 .
Since the W a r the great exporting countries have felt the direct
effects of this development.
Of course, in the present attempt t o estimate the effect of the
various factors of economic instability and unemployment, it is
clearly necessary to distinguish the part played by the natural
development of certain national industries, due simply to needs
1

COMMITTEE ON INDUSTRY AND TRADE: Survey

of Overseas

Markets.

London, 1925.
3

34

UNEMPLOYMENT PROBLEMS IN 1931

and demands, and that played by a systematic policy of deliberately
creating national industries from political motives. The part
played in each country by rationalisation should also no doubt
be estimated.
The fact is that the idea of self-sufficiency, the systematic
policy of assuring to a country its own manufactures, either from
motives of national defence or from economic ambition, has often
led to the development of new industrial areas.
There are new areas in the Far East, in China and Japan, in
India and in Australia. When the imports of British woollen
goods into Australia fell from 12.9 million square yards in 1915
to 10 million in 1927 and British manufacturers complained, the
Australian Minister for Trade and Customs said he could only
invite them to come to Australia and assist in the development
of the woollen industry there. In Japan the capital invested in
manufacturing companies increased almost six-fold between 1924
and 1927.
There is a similar development, which calls for detailed study,
in the countries of Latin America, where, particularly in Chile
and Brazil, industries born during the War and protected by
high customs tariffs are continually growing. Argentina, which
in 1914 imported 71,328 dozen pairs of boots and shoes, only
admitted 1,716 dozen pairs in 1927, the national leather manufacturers having succeeded in the interval in dominating the market.
In Brazil the imports of wool were reduced by half between 1914
and 1924, the imports of cotton were diminished by two-thirds
from 1922 to 1929, while the number of workers employed in the
national cotton industry increased by about one-third and the
number of spindles by 50 per cent, between 1920 and 1926. In
Chile, where the progress of the textile industry has also been
very noteworthy, industrialisation was rapidly accelerated during
and after the War: the capital invested in manufacturing industries
rose from 133 million pesos in 1914 to 822 million in 1925 and
1,102 million in 1928.
As for Europe, the economic consequences of the new political
frontiers on this Continent have often been described. Over the
whole surface of the Old Continent industrial areas have either
been revived or built up as entirely new creations, as a result
of the circumstances of the War or the arrangements which
followed it. Sometimes also they have developed side by side
with old industrial centres. The territorial re-arrangements which
were considered desirable on political grounds have not produced

REPORT OF THE DIRECTOR

35

the economic agreements by which they should have been supplemented. Their only effect in many cases has been to duplicate
old centres of production by the addition of new industrial areas.
Far from production being developed in line with equipment,
Europe has experienced a set-back in its international trade and
an increase in unemployment.
For pre-War producing countries of Europe the competition of
oversea countries has often been enhanced by the rivalry of new
industries arising on the Continent itself. As regards cotton, for
example, countries separated from the Russian Empire, such as
Poland and Estonia, and cut off from the Russian market, have
had to put their mills to work for export. Czechoslovakia has inherited more than three-fourths of the Austro-Hungarian textile
industry, but the other successor States have promoted new textile
industries on their own territory under the shelter of protective
tariffs. Similarly, by the recovery of Alsace and Lorraine France
obtained nearly 1,900,000 spindles and more than 50,000 looms,
while, on the other hand, Germany, anxious to re-establish her old
position within the limits of her present territory, has largely
reconstituted her previous equipment. Since the War, too, the
woollen industry has considerably expanded in several European
countries, particularly in Italy, a country which has reduced by half
its imports of manufactured woollen goods and increased its exports
five-fold as compared with the pre-War period. From 1913 to 1928
the number of spindles in that country increased by more than half,
the number of mechanical looms nearly doubled and imports of
wool were nearly trebled.
And then, on the Eastern side of Europe, there are the developments in the U.S.S.R., and the results of its Five-Year Plan. "
As a result of its revolutionary policy and the destruction of
normal relations between it and other States, the U.S.S.R. has
become isolated. It has lived in a compulsory and impoverished
self-sufficiency, which, however, it has made the basis of a systematic policy. By the creation of equipment the Soviet Government
is in process of forming a considerable area of industrial and
agricultural production.
In all these cases the results are identical. The creation or
development of new industrial areas produced new bodies of
workers and, through the competition of all these areas in restricted
markets, these workers are in large numbers reduced to
unemployment.
In Russia at present the carrying out of the Five-Year Plan

36

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

is putting an end to unemployment. There is even a lack of workers.
On the other hand, in countries which have hitherto been exporting
countries, often on an immense scale, unemployment is acute.
In every quarter of the globe there is intense competition between
these new industries which are compelled to seek export markets.
It is significant to see Japan entering into competition on the
Chinese market, not only in cotton, but also in wool, in order
to utilise the 910,000 spindles which it now possesses, as compared
with the 240,000 which it possessed in 1914. It is also significant
to see the coal industry of Australia affected in its exports by the
development of the collieries of its old customers, such as the
Dutch East Indies and Chile. The situation is such that the Australian collieries are at present confronted with an over-supply of
labour, and that consideration is being given to the possibility of
finding employment for 5,000 Australian miners in other industries.
There is no more curious example of the consequences of these
sporadic new creations than the now almost classic case of the
cotton industry. Before its mechanisation almost every country
produced enough to satisfy its needs in the matter of clothing.
The rapid expansion of the industry in the nineteenth century
secured the primacy of Lancashire throughout the world. And now,
by a strange reversion, there is once more a tendency for all countries
to produce for themselves the textiles which they require. The new
competitors of Europe, i.e. the United States, followed by the Far
East, South America and shortly afterwards by the Near East
and Egypt, have installed weaving mills to which spinning mills have
gradually been added. From 1913 to 1930 the percentage of increase
in the number of spindles for Europe does not exceed 4.8 (0.66 in
Great Britain) as against 100.53 for Asia (256.91 for China, 183.91 for
Japan and 43.06 for India), 15.5 for America (129.16 for Brazil,
45.03 for Canada, 10.5 for the United States) and 415.41 for the other
continents. As regards looms, the percentage of increase is 28.88 for
Europe (a decrease of 8.13 per cent, in Great Britain), 130.96 for
Asia (409.02 for China, 298.74 for Japan, 76.9 for India) and 8.49 for
America (58.5 for Brazil). It is undoubtedly Great Britain which
has seen its cotton industry undergoing the most accentuated
retrogression since the war and especially during the last three years.
According to Sir Ernest Thompson, English cotton exports diminished by two and a half million square yards from 1913 to 1929,
of which one and a half millions was the result of the development
of new industries and one million the result of foreign competition
in neutral markets. According to the Sub-Committee for the cotton

REPORT OF THE DIRECTOR

37

industry of the Economic Advisory Council of Great Britain, the
reduction in the exports of Lancashire must be attributed to the
progress made by the manufactures of India and Japan and, to a
smaller extent, of China.
During this period, the number of workers employed in the
British cotton industry has continually diminished, falling from
621,516 in 1912 to 569,950 in 1927, although weekly hours of work
were reduced from 55*4 to 48 in 1919. Moreover, the number of
unemployed in this industry, which had varied between 39,000
and 144,000 since 1923, increased in 1930 to as much as 257,879
(83,066 men and 174,813 women) on 25 August last, i.e. 46.5 per cent.
of the insured workers.
These are merely examples. It would be easy to multiply
evidence of similar effects produced by fresh competition on the
stability of employment.
How are the conflicts of interests which are thus spreading
between one nation and another to be prevented or mitigated ?
How, above all, to repeat a question already asked, is it possible to
restore the spirit of mutual confidence which is necessary to increase
trade and render international economic life more intense and
more fruitful ? How is international trade to be freed at an early
date from the artificial restrictions which have fettered it more
than ever since the War ?
This is the second point to which the Governing Body drew
attention.
Here, too, the work of Mr. Ansiaux has facilitated the task of the
Office.
There is no need to frame a full list of the improvised measures,
sometimes comprehensible and at other times unjustified, or of the
different remedies, whether useful, often vain or, more often still,
mischievous, by which most countries have sought to stay the
course of the diseases which they feared or to give their organism
the stimulus of an artificial tonic.
There were first the exceptional measures which immediately
followed the War: prohibitions of imports and exports, quota
and licensing systems, control of foreign securities, etc. . . . These
had an extremely depressing effect. In proportion as exchanges
became stabilised, most countries began once more to conclude
treaties of commerce, in order to secure export markets for their
national production. The classic customs tariff, " that honest and
somewhat ingenuous form of protection ", as it has been called, was
restored to the position of honour.

38

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

No doubt some distinctions have to be made, but protection pure
and simple has also not been guiltless. The World Economic
Conference criticised the excessive height of the walls formed by the
customs duties with which the economic map of the world bristles.
Even in 1927 the growth of protection seemed formidable. Since
then the rivalry in customs tariffs has not ceased.
To take a typical example. The Hawley-Smoot tariff came into
force on 17 June 1930. It was intended to secure to the workers
of the United States a certain stability of employment, and to
defend them against the hardships of the depression. It threatened
simultaneously to create unemployment elsewhere. Complaints were
heard from the Swiss watchmakers' organisations, the silk industry
in Lyons and the lace makers in the North of France. While mitigations were obtained on certain points,mostof the European exporting industries concerned, which had been hard hit by the coming
into force of the previous tariff, the Fordney-McCumber tariff, in
1922, but had nevertheless succeeded by progressive adjustments in
regaining a footing in the American market, once more found
their business seriously affected, and numerous workers lost their
employment.
It was on this occasion that Mr. Mussolini denounced the new
customs barriers as one of the principal causes of the depression.
The new American tariff, during the first eleven months of 1930,
reduced to 764 tons the Italian imports of artificial silk into the
United States (as compared with 1,153 tons during the corresponding period of 1929). It reduced to 28.9 tons the imports of artificial
silk fabrics (as compared with 93.3), and to 562,400 the number
of hats imported (as compared with a little over a million).
Even in the United States, however, in spite of its intentions to
stabilise employment among American workers, this tariff has been
a new element of disturbance. Apart from the effects of the accumulation, on the announcement of the tariff, of stocks of goods which
saturated the market for a considerable time and subsequently
produced unemployment, American exports have in fact fallen,
partly as the result of reprisals and partly from a natural
reaction.
Though American protectionism cannot be held wholly responsible
for the situation, the fact remains that at the end of 1930, six months
after the erection of the new tariff wall by the United States, the
number of unemployed was still on the increase.
Side by side with these effects of customs duties, the same
disturbing effects result from the indirect and sometimes veiled

REPORT OF THE DIRECTOR

39

protection which is practised by customs formalities, marks or
certificates of origin, internal taxes, transport charges or facilities by
land or sea, bonuses and all kinds of subsidies or encouragements
to exports.
Last, but not least, the same effects flow from dumping methods.
This term is often abused. Around it have crystallised the fears and
anger of producers and, sometimes, misguided and dangerous
suggestions of anti-dumping.
There have in fact been numerous cases, even in the past year,
in which Governments, in order to save the workers in certain
industries from unemployment, have stimulated exports by
enabling such industries, by various means, to sell abroad at a price
below that of the home market. Among such cases may be memtioned the re-imbursement in 1930 by the Polish Government of the
amount of certain customs duties payable by the national textile
industry on the entry of its products into foreign countries; the
complaints of the French hatters' unions against the competition of
Italian products, which, in spite of the customs tariff, were sold in
France at a price 20 per cent, below the French products, thanks
to the subsidies which were said to be granted by the Italian Government to the Monza factories 1; and the numerous complaints in the
coal trade. It was stated in the Belgian Chamber of Representatives
on 15 January last, for example, that English coal was sold in
Belgium at l i s . 4d. a ton, or 2s. 6d. below cost price, not including
costs of transport from the mine to the port of loading. In France,
too, the General Confederation of Production has declared 2 that
the Yorkshire basin and neighbouring districts were receiving a
subsidy of 2 shillings per ton on their exports, which was said
to have enabled them in two years to treble the total volume of
their exports and in particular to increase their exports to France
from 319,000. tons in 1927 to 866,000 tons in 1929. The Confederation has also complained of the increasing subsidies granted to
exports in Germany. Thanks to the system of levies raised by the
Rhine-Westphalian Syndicate, coal can be sold abroad at 4 or
5 marks less per ton than in Germany.
The same complaint is made in Belgium, where it appears that
German coal is sold at from 50 to 70 francs a ton less than in Germany, owing to a system of levies which amount to a subsidy on
1
The result is said to have been: 2,000 persons completely unemployed and
7,000
partially unemployed in the French hat industry.
2
In reply to an enquiry by the National Economic Council {Journal officiel,
11 December 1930, p. 1190).

40

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

exports and to abatements varying from 1.35 to 17.25 francs a ton
on railway transport, etc.
The consequence is a shifting of unemployment. While German
or British miners obtain somewhat more employment, the
employment of French or Belgian miners is threatened.
But a still more serious problem is the dumping which is or might
be practised by certain important producing countries for all their
exports.
The possibility of dumping by the United States of America, for
example, under the shelter of the Hawley-Smoot tariff, and the
large scale on which this could be carried out have given rise to
considerable apprehensions in the Old World.
In recent months, however, it is chiefly the U.S.S.R. which has
been accused of practising systematic dumping.
The Office must set out in its investigations to collect and criticise
the real facts in an objective spirit. It must try to discover whether
the U.S.S.R. has indeed endeavoured by such dumping not only
to make a tremendous change in the incidence of unemployment
but also to aggravate it for revolutionary purposes in so-called
capitalist countries, and whether it is really the case that the fall
in the price of wheat in Chicago to a level as low as that of 1906
was due to the quantity of wheat at 10 cents a bushel thrown on
the American market through the Soviet Department for Foreign
Trade. From Polish sources it has been stated that the amount of
timber exported from Russia increased from 1,144 million tons
in 1927 to almost 1,670 million tons in 1929, whereas during the same
period the Polish exports of timber fell from 804.2 to 123 million tons.
The great publicity given everywhere to the Soviet Five-Year
Plan, which is intended, by the development of industrial plant,
to make Russia a first-class industrial power, has helped to spread
throughout the world the idea that the expansion of Russian exports
in partly responsible for the present depression.
What justification is there for these fears, and is Russia really
a serious menace to the rest of the world ? Russia was an exporting
country before the War: it sent, for example, 12 million tons of
cereals across its own frontiers each year. At present the total
foreign trade of Soviet Russia hardly exceeds half the trade of
pre-War Russia, and it constitutes less than 2 per cent, of the total
trade of the world. Even before the War Russian produce was
sold abroad at very low prices. Any objective investigations must
keep these facts in mind.
It is also a question whether Russian dumping really tends to

REPORT OF THE DIRECTOR

41

provoke revolution among other peoples, or whether the desire
of the Soviet Government is not simply to obtain the foreign bills
which are indispensable for its needs, and particularly for t h e
carrying out of the Five-Year Plan.
The present state of statistics makes it difficult to estimate the
the effects of the Russian exports which are complained of on the
labour market in foreign countries, but it seems probable t h a t the
policy of various Governments towards Russia is inspired by their
anxiety to master and mitigate the prevailing unemployment
which they have to face.
Whereas Canada, France and Belgium in different ways restrict
or supervise the importation of certain categories of Russian
commodities, Great Britain, Italy, Germany and also the United
States of America are endeavouring to stimulate commercial
relations with Russia, particularly with a view to remedying their
own unemployment by importing raw materials at low prices and
finding outlets for their own manufactured products. In these
countries some Russian dumping may perhaps help to bring about
a revival in certain lines of business which have been stagnant *.
1
Russian dumping has been the occasion for a curious campaign from all
sorts of quarters, in the course of which criticism has frequently been directed
against the International Labour Organisation.
It is said— " Russian dumping is only possible by reason of the frightful
labour conditions prevailing in Russia. For example, the timber which is
flooding the markets in Sweden, Germany or America was cut, floated and
despatched by tens of thousands of peasants who, because of their real or
alleged hostility to the Soviet system, were torn from their own fields and
transplanted by order of the G.P.U. in the forestry districts. Moreover, the
Russian worker is not free to move from one place to another. He is dragooned
and forced by orders from above to stick to the factory where he is employed
and cannot get a living if he tries to budge. The International Labour Office
claims to prohibit forced labour among native races—why does it not intervene
to prevent the forced labour imposed on Russian workers ? The Preamble
to Part XIII says—' Whereas the failure of any nation to adopt humane
conditions of labour is an obstacle in the way of other nations which desire to
improve the conditions in their own countries . . .'. Why, then, does not
the International Labour Organisation take up an official stand against this
' Hard labour ' State and draw attention to the principles of the Peace Treaty
in regard to what is going on in the U.S.S.R. ? "
This campaign has taken many and curious forms—headlines and articles in
Le Matin in France, onslaughts by Mr. Charles Maurras in L'Action Française, a
letter from Mr. Cuthbert Laws to The Times, a memorandum by the International Entente against the Third International, resolutions of associations of
manufacturers and dealers, etc. Just recently certain Swiss newspapers
expressed surprise that the Federal Council did not bring the matter before the
International Labour Office.
A good deal could be said on the ignorance and confusion of ideas, not to
mention the intentions, on which such a campaign is based. But what purpose
could intervention by the International Labour Office serve ? The U.S.S.R.
is not a Member of the Organisation. She has not recognised its constitutional
principles. The International Labour Office can only intervene in any way in

42

UNEMPLOYMENT PROBLEMS IN 1931

However, the serious and dominating fact which the Office wishes
to emphasise here is that all these measures and the repugnance
which still subsists to a return to stable tariffs, to the most-favourednation clause or to long period commercial treaties, threaten the
workers with permanent instability of employment.
Among the disturbing factors in international trade which may
be partly responsible for the present intense unemployment the
Governing Body also referred to the difficulties said to be associated
with the problem of political debts.
This is not the place to go into the different aspects of this delicate
problem, which has been often discussed.
Its psychological,
juridical and political aspects cannot be overlooked. All the same
the fact remains that the international economic aspect of the
reparations problem and consequently also its effects on
employment are receiving more and more attention from the standpoint of the interests both of the debtor countries and also of the
creditor countries. Mr. de Stefani, former Italian Finance Minister,

conformity with the rules of Part XIII. Would its own Members admit any
action of the kind in their own case ? An enquiry in Russia has been suggested.
Such an enquiry was in fact suggested in 1920. It could only be carried out
with the consent of the U.S.S.R. herself, and that consent has always been
refused.
Is the idea that a solemn resolution might be passed on behalf of the Organisation, by the Governing Body of the Office or by the Conference, which
would make a declaration of principle, and condemn ex cathedra the conditions
in Russia ? Surely the Director of the Office could hardly propose a declaration
of this kind, and if someone else proposed a resolution at the Conference,
such a resolution could only have a purely moral effect. This does not mean
that the Director underestimates resolutions of this kind. In the past when he
was a free agent he not infrequently got such resolutions carried, and they
served a useful purpose. His view has always been that States must respect
human rights and personality and that there can be no strong and real League
of Nations except on this common basis. But what could be the precise subjectmatter of such a resolution ? Would it condemn the fact that prisoners, convicted of offences under the ordinary law or of political offences, are compelled
to work ? Then surely the rule should be a general rule for all States. If
reference is made only to the number and grounds of the convictions, the
position is a different one. Would the resolution condemn the fact that workers
are compelled to stick to the factory to which they are allotted, or that workers
are commandeered ? There have been many times when other States have
practised this sort of thing, in the public interest. Or would the idea be to
condemn the principle of compulsory work ? There are a number of selfgoverning communities which impose rules for compulsory work on their
members, and during the discussions on forced labour these cases were
distinguished: so that the only subject for discussion would be the form of the
Russian Government, which imposes such obligations. Infringements of liberty
and the rights of human personality call for protests and appeals, which
unfortunately have often been feeble and half-hearted. But whatever be the
Director's personal feelings in the matter, the International Labour Office
is the wrong quarter to accuse of indifference or inertia: the question is not
within its competence.

REPORT OF THE

DIRECTOR

43

recently wrote 1: " Without discussing the question whether
Germany can or cannot pay reparations (as is alleged by important
leaders in that country and by experts abroad), there can be no
doubt but that the question of debts and reparations will have to be
re-examined, not so much as a mark of goodwill towards any one
country as for reasons of universal policy which may prove of
benefit even to the creditor countries themselves ".
Population and Unemployment
The Governing Body also drew attention to:
(8) The difficulties in the way of adjusting movements of
population to the possibilities of exploiting the resources
of the world.
On this aspect of the question complete and accurate material
has been supplied by Mr. Hersch, Professor of Statistics and
Demography in the University of Geneva2. This information supplements that submitted to the Conference in 1929 in the special
report on unemployment, a large part of which was devoted to the
connection between unemployment and international migration3.
These data show that in general the maladjustment of population
movements to the possibilities of exploiting the resources of the
world should not be regarded as an important factor in the enormous
spread of unemployment since the end of 1929, but that, on the
other hand, it should be considered as one of the serious causes of
the endemic unemployment from which certain countries have
sulïered for the last ten years.
The maladjustment of population to economic requirements may
mean two things: either that population is badly distributed
having regard to economic circumstances, or that the international
economic system is badly organised having regard to the existing
distribution of human life over the earth. If it is found that in a
given territory there is constantly an abnormal proportion of
unemployed workers, that may mean that there are too many workers,
but it may also mean that there is a lack of the necessary capital
(or mismanagement of the available capital) for obtaining within the
1
s

Corriere della Sera, 11 March 1931.
Population and Unemployment, Memorandum submitted to the Office's
Unemployment
Committee, cf. pp. 173-217 of this volume.
3
Unemployment.
Some International Aspects 1920-1928. Studies and
Reports, Series C, No. 13.

44

UNEMPLOYMENT PROBLEMS IN 1931

country the instruments and raw materials by which these workers
could be employed on the manufacture of marketable products.
Relative over-population might occur, as Mr. Hersch points
out, even in certain sparsely populated countries, such as the
United States, where there are only 15 inhabitants per square
kilometre as compared with 49 in Europe, if it was found that the
population grew too rapidly as compared with itself. Eut such is
not the case in the United States according to Mr. Hersch, since
the real increase in population, which was 36 per 100 inhabitants
from 1840 to 1850, has fallen steadily since that date. It was only
21 per cent, from 1890 to 1900 and 16 per cent, from 1920 to 1930.
It would seem, however, that the important fact is not so much the
rate of increase of the population in itself, but the rate of increase
in relation to the resources of the territory and the possibilities
of capital investment for the development of these resources. From
this standpoint too it is clear that the rich and extensive territory
of the United States could support a very much larger population
than at present.
in the case of the European countries, Mr. Hersch finds that the
rate of natural increase of the population has fallen so considerably
that in some of them it almost reaches zero. In England and
Wales, for instance, the annual increase was 12 per thousand in
1905, but it has fallen year by year until it was only 2.9 per thousand
in 1929. The corresponding figures for Germany are 14.4 and 5.3
per thousand respectively. The steady decline in the rate of natural
increase of the population has not prevented unemployment in
these two countries, for it is more intense, or at least more lasting,
there than elsewhere.
From his survey of the majority of European countries, Mr.
Hersch came to the conclusion that the unprecedented unemployment in western countries is not to any appreciable extent due to
a too rapid increase in population, and that, for the future, the
population in these countries is not likely to be too high but rather
to remain stationary or even to decline.
For Japan, a member of the Office staff * has shown that, contrary
to current opinion, this country is not economically over-populated,
and that, if account is taken of the influx of workers from Korea,
which has been increasing during recent years, Japan is at present
an immigration rather than an emigration country.
The only country in which Mr. Hersch thinks that population
1
Mr. Seishi IDEI: "Japan's Migration Problem", International
Review, Dec. 1930.

Labour

REPORT OF THE DIRECTOR

45

movements might at present be an important factor in unemployment is Italy. In that country, as in other western nations, the
natural increase in the population is tending to fall, being 12.fci
per thousand for the years 1911-1914 and only 9.2 in 1929. But the
chief factor to be borne in mind is rather the stoppage of emigration
and the return of former emigrants which has been noted during
recent years. In any case, from his conclusions regarding Italy
Mr. Hersch considers (though it is possible that there is some slight
contradiction in his own thought) that the constant fall in the
natural increase in population is likely to aggravate the periodical
crises of over-production and unemployment, rather than to lessen
their influence. It remains to be seen in which case this expert
is right (unless he may be right in both): when he asserts that
unemployment in Italy is really due to some extent to overpopulation, or when he makes the general conclusion that there is
at present a contradiction between production, which is tending
to increase with undue rapidity, and population, which has almost
ceased to increase in western countries.
Perhaps the crux of the whole question is, in point of fact, the
distribution of population as between the various fields of economic
activity within each country, and also as between different countries. The task of the International Labour Organisation must be
to discover, and perhaps in the near future to deal with, the demographic defects in the present situation of the labour market in the
individual country and of the international labour market 1.
Mechanisation and Rationalisation.
The final point referred to by the Governing Body as a factor
in unemployment was:
(9) The. disorganisation of the labour market caused by the
extra-rapid development of labour-saving machinery and of
the process of rationalisation.
The previous causes of unemployment indicated by the Governing
Body fall within the field of economic pathology. But it is somewhat strange to find mentioned as a further disturbing factor
1

The International Population Congress which is to be held at Rome in
September next will stimulate investigations in this direction. Mr. Gini
has published on the matter a very interesting and suggestive article the
conclusions of which will no doubt give rise to some discussion. (Estratto
degli Atti della Società italiana per il progresso delle Scienze, XVII riunione,
Torino, settembre, 1928. — Pavia, 1929).

46

UNEMPLOYMENT PROBLEMS IN 1931

the gradual mechanisation of an increasing number of manual
activities or the new scientific management measures which a
short time ago were so enthusiastically received by many enterprising and clear-thinking men both in the Old and the New
Worlds. Can these really be a factor in the present unemployment ?
There seems little doubt as to what the answer to this question
must be. The development of machinery and improvements in
technical methods have been so great that they have been said
to produce what was called at the beginning of the nineteenth
century an industrial revolution. The first consequence of this
new revolution, no less than in the last century, has been to deprive
a great number of workers of their employment1. In the investigations which must be actively carried out for the general
improvement of the economic situation, it would perhaps bè
valuable to consider afresh some of the symptoms of the periods
of great industrial expansion during the nineteenth century.
But the problem needs to be clearly defined. The second point
in the resolution of the Governing Body mentioned the maladjustment between the production of industrial equipment and the
market's power of absorption. The problem thus is to see how,
even assuming that production were properly adapted to needs, the
development of machinery and changes in methods, including all
rationalisation processes other than those of a mechanical nature,
can deprive considerable numbers of workers of employment.
In the report on this question submitted by the Office to its Unemployment Committee numerous examples were quoted from enquiries
in different countries, and fresh examples can be met with every
day. The Deputy-Director, Mr. H. B. Butler, brought back from
his visit to North America a considerable amount of evidence of
the effects of mechanical improvements on employment and
unemployment. To take one single case: the combine (reaperthresher) wherever adopted deprives five agricultural workers
of employment. And the use of these machines has made immense
strides in some countries: in Kansas, for example, there were 14
in 1918, 20,000 in 1928 and 25,000 in 1929, while the figures for
Canada are 2 in 1922, 18 in 1925, 4,341 in 1928 and 7,215 in 1929.
Originally, in the United States, and especially in agriculture,
it was the shortage of labour which led to the tremendous develop1

Cf. the Memorandum prepared by the Office for the Unemployment
Committee, The Effects of Rationalisation on Employment, reproduced on
pp. 219-253 of this volume.

REPORT OF THE DIRECTOR

47

ment of machinery, whereas to-day this development is causing
unemployment and an increase in the rural exodus.
It is possible that earlier Reports of the Director to the Conference may have under-estimated rationalisation as a factor in
unemployment. The latest evidence from the United.States and
from Germany, however, seems to show that the effect of rationalisation in the present situation has been enormous. Mr. Butler
has specially brought out these effects in an interesting report
which the Office has recently published. Miss Bondfield, too,
in a recent speech in the House of Commons, referred to a number
of striking examples drawn from British industry.
An enquiry carried out in the United States * into the output
of workers per working hour shows that this output had increased
in 192?, as compared with the 1914 figure, as follows;
In slaughterhouses and
preserving factories
by 26
Cane sugar refining works , 33
Paper factories
, 40
Tanneries
, 41
Steel works and rolling
mills
, 46
Cement works
, 54
Mills
, 59
Petroleum refining works
, 82
Blast furnaces
, 103
Automobile factories
, 178
Tyre factories
, 292

Such changes are bound to produce immediate effects on the
labour market and to have a considerable influence on the stability
of employment of the workers. It is true that in general a worker
who loses his employment through the introduction of a new
machine can find another job more or less rapidly either in the same
industry if sales are increased, as often happens through a reduction
in selling price brought about by mechanical progress, or in another
industry which the development of the first has caused to be
created or extended. But when the pace of mechanisation becomes
as rapid as it has been in the last few years then it must of necessity
produce a sort of endemic unemployment, which will, grow in
extent as a greater number of workers are replaced by machinery
and dismissed with no chance of finding another place in the active
ranks of the employed for some time.
The advocates of rationalisation are sometimes disturbed by
such conclusions, but it would be a mistake to persist in denying
1

Monthly Labour Review, March 1930.

48

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

them. Surely any rationalisation which leads to such consequences
can hardly be considered perfect. Is not the trouble simply
that these new methods do not embrace the economic system as
a whole but are concerned merely with improving the output of
a particular undertaking or group of undertakings ? Should not
rationalisation be applied to the whole economic system with a
view to eliminating all sources of waste, and so, in the first place,
avoiding the serious waste of idle workers ? Surely, as has been
said, rationalisation itself requires to be rationalised. It may be
inevitable that, when machines or methods are being transformed,
a certain period of adaptation will always be necessary. Hence
the American idea of " technological unemployment ". But, as
the Economic Conference of 1927 recognised, something must be
done for the workers who suffer from such adaptations. The
human factor must remain in the foreground. No doubt, if the
obvious practical conclusions are to be drawn from this consideration, the great problem whether technical progress should be restrained or slowed down will have to be faced, and it will be difficult
to reply in the affirmative. In any case, if the workers are to be
saved from further sufferings, the possible effects on the labour
market of future technical improvements must be closely studied.
Delimitation of Responsibilities
The above completes the present review of the causes of unemployment to which the Governing Body drew attention, and which
it asked the technical services of the Office to study carefully,
in collaboration with the League of Nations and other qualified
bodies. The object of that review has been, in the light of such
investigations as have already been carried out and of a few
characteristic features, simply to demonstrate that these causes
have a real existence. In subsequent studies the primary concern
of the Office will be to determine the relative importance of these
different causes, and to ascertain the effect of each of them in
the complexity of the present depression. How many workers
are really victims of one or another cause of unemployment ?
For how many of them could work be found if that cause were
eliminated ? Again, how long would it take for any action
undertaken to combat the respective causes of unemployment
to take effect ? Would this be in the near or distant future ?
Perhaps it will not be possible to find definite answers to these
questions or ever to succeed in classifying the unemployed according

REPORT OF THE DIRECTOR

49

to the cause of their unemployment. Still, here are two lines
of enquiry which should help to determine, at least so far as the
workers are concerned, the sequence in which particular forms
of action should be taken.
For pursuing the desired investigations along such lines as
these, both on the monetary and the economic factors as causes
of unemployment, certain organisations, and, in particular, the
Economic Organisation of the League of Nations, are admittedly
better equipped and more competent than the Office. If such
investigations are not to be purely academic but are to lead to
action, it is for the League of Nations, its various organisations
or the Bank for International Settlements, rather than for the
Office to take and expedite the necessary measures. The League
is the body through which the States, which are also Members
of the International Labour Organisation, are accustomed to prepare
and conclude international agreements in the economic, political
and financial fields. As recently as last year the Assembly of the
League while recognising that the International Labour Office
should collaborate, asked the Economic Organisation to undertake
a systematic enquiry into the present economic depression.
It is important, however, that the mistake made in 1922 should
not be repeated in this inevitable division of the work. This
time there should be no suggestion that the economic side and the
social side of the investigations, the work of the Economic Organisation of the League and that of the International Labour
Organisation, should be divided into separate water-tight compartments. The International Labour Organisation cannot of course
claim, in the present position of the international institutions, to
investigate and apply direct remedies for the economic, political
and financial causes of unemployment. All the same, to attempt
to investigate and apply them without the Organisation would
open the way to blunders and might perhaps provoke unfortunate
reactions. Surely this has been demonstrated throughout the
different sections of this chapter. There is hardly any field, even,
economic, financial or otherwise, in which during the last ten
years the International Labour Office has not been called upon
by the force of circumstances—because of its collaboration with
occupational groups or by reason of the moral, social or humanitarian aspects of the problems concerned—to make some definite,
if modest, contributions. In such matters as the agricultural
depression, the gold problem, rationalisation, etc., it has made
investigations and taken action of its own.
4

50

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

Moreover, the Office believes that the International Labour
Organisation plays a special rôle as a stimulating and driving
force in the endeavours being made by the States to promote a
more organised order of things in the political, economic and financial fields. It is recognised that the needs felt in different industries
or countries for order, regularity and efficient organisation in
production are in themselves capable of inspiring reform. But,
when all is said and done, the real urge to action and reforms,
even in the economic field, most frequently comes from concern
for unrest " so great that the peace and harmony of the world
are imperilled ", anxiety for the masses with their burden of unemployment and uneasiness at disorders in the body social. In
1921 and 1926, for example, the initiative of the workers' representatives, in fact the appeal of the International Labour Conference
as a whole, was largely responsible for the convening of the international conferences held in Genoa and Geneva for investigating
the means of creating a better organisation of the economic system.
Besides, it is clear that economic or financial reforms which disturbed
or possibly neglected the interests of the masses of the people
would be doomed to precarious results.
In the scientific field, then, and perhaps still more from the
psychological and political standpoints, the International Labour
Organisation has an important part to play: it can give its
collaboration, and also act perhaps as a prompter, in investigating
the causes of unemployment and taking such measures as will
help to remove them.
Ill
Direct Action by the International Labour Organisation
against Unemployment
Direct Action against Unemployment
But surely this rôle, however effective it must be and whatever
pains may be taken to perform it, is not all that should be expected,
in the seriousness of the present situation, from an Organisation
which was created for the improvement of " conditions . .
involving . . . injustice, hardship and privation to large
numbers of people ", and, in particular, for " the prevention of
unemployment ". Has the Organisation no immediate action of

REPORT OF THE DIRECTOR

51

its own to suggest, no substantial remedy or remedies to propose
to the States Members ?
Some of the workers' representatives in the Unemployment
Committee or in the Governing Body made strong comments on
this aspect of the situation^—comments which are not without
justification.
It may be indispensable to undertake investigations, with the
co-operation of responsible employers, for any measures of an
economic character. It is also important that workers' representatives should collaborate in the enquiries and decisions of the
League. But there is surely a danger that the result of such
proceedings as these may be to concentrate attention on a vast,
methodical and scientific policy for the future and divert it from
measures which could produce direct and immediate results.
How many years will it take to abolish customs barriers or even
lower them all round, to ensure that credits are rationally
distributed, or finally to restore mutual confidence between the
States Members ? Surely, if radical remedies are to be sought
for unemployment, care must also be taken not to overlook others
which are better known, more direct and yet really effective.
There is one objection which has been urged. A member of
the Governing Body, Mr. Cantilo, said in effect : " You want to
persuade Governments, with employers and workers behind you,
to take all measures which are immediately practicable against
unemployment. But how can you advise remedies when you
yourselves are still discussing or are in doubt as to the causes
of the evil ? You say cautiously that ' rightly or wrongly ' you
have included this or that cause of unemployment in your list.
You start off timidly, on tiptoe, and then, suddenly, you adopt
the imperative, and, on the mere report of a committee of enquiry,
you claim to direct the policy of sovereign Governments."
Surely the reply is that nothing could have been accomplished
during the last fifty years if every reform had had to wait for the
collection of exhaustive information on the problem to be dealt
with, that in all reforms, whether social, political, national or
international, action must lead the way, and that such action
is dictated by a consciousness of the needs of the time.
The fact is that unemployment must be considered, per se, as
a well-defined social evil, and not merely as a symptom of the
economic depression. No doubt it is an effect of disturbances
in production and disorder in trade. But it can still be prevented
or mitigated to some extent by specific measures independent

52

UNEMPLOYMENT PROBLEMS IN 1931

of economic circumstances. It is even possible to imagine a
system of organising work brought to such a pitch of perfection
as to ensure stability of employment for all workers irrespective
of economic fluctuations.
For the last ten years the International Labour Organisation
has been taking action on this basis against unemployment,
following its own methods and within the limits of its competence,
and it is not its fault that this action has not been developed
and expanded. Conventions and Recommendations have been
adopted, ratified, and applied by the States Members. Studies
have been published, with practical and definite conclusions.
Without any previous economic investigations, but simply on the
basis of experience of long standing, a considerable number of
measures have been defined and applied. These measures have
been of a purely social character, and, to say the least, economic
conditions have given way to them or adapted themselves to them.
The Office considers that, in the thick of the present unprecedented
situation, it is the obvious and primary duty of the International
Labour Organisation to consider whether the measures it has
advocated and recommended or prescribed for general application
are adequate for the new conditions, whether they should not be
developed or possibly transformed in their character and their
scope, or whether, again, in view of unexpected reactions, they
should not be abandoned. In a word, should the International
Labour Organisation maintain its traditional policy of action
against unemployment in the present position of the problem ?
It has been said, not without a touch of scorn, that all the
activities of the International Labour Organisation do not, after
all, amount to a real battle against unemployment, that they
cannot get at the causes and that they can only mitigate the distress
of the unemployed worker by securing him relief or benefits,
finding for him opportunities for work which exist or of which
he is unaware, or creating new openings for him. All this it is
said, is merely the application of palliatives and nothing more.
It will require considerable ingenuity to distinguish clearly
between palliatives and definite remedies. In any case, in this
abyss of unemployment, palliatives do exist and have proved
their efficacy. Can the same be said of all the remedies which
have been proposed or of all the economic or financial measures
which it is considered should be recommended to Governments ?
Is there not a host of difficulties to be met in the application of
the remedies which it is claimed have already been discovered ?

REPORT OF THE DIRECTOR

53

If, in the present situation, the International Labour Organisation
really wishes to demonstrate its capacity and its possibilities
of action and to prove that those who say that nothing can come
out of Geneva are mistaken, there is only one course for it to
follow7—to " get on with its job ". If it does this, if it goes ahead
with its own ideas, without allowing its attention to be distracted
by what its neighbours are doing, it is sure to accomplish something
definite and possibly big; for in matters of social reform especially
a clear-cut line of action, if well followed up, will sooner or later
get to the very heart of social and economic life.
Social palliatives applied in proportion to the suffering which
they are intended to relieve may eventually make profound
economic changes inevitable. What started from a duty of charity
or solidarity will inevitably bring about a revision of the rules
and methods of social organisation.
If the International Labour Organisation is to carry out in a
manner worthy of it the work entrusted to it by the Peace Treaty
and not to disappoint the hopes placed in it by the workers, it
is its duty to examine, define, revise and of course intensify its
own action against unemployment in this spirit.
The different forms which such action may take are briefly
considered below.
Placing in Employment
Here is a first group of measures for the protection of the unemployed. Workers are without employment ; there is work available
at a greater or shorter distance from them; supply and demand
must be made to meet; this is the purpose of placing systems.
Placing, the International Labour Conference has laid down,
must be free of charge, must be organised or at least supervised
by the State, and must be worked with the help of employers'
and workers' organisations. The Washington Unemployment
Convention provided that the operations of placing agencies must
be co-ordinated on a national plan. The Recommendation on
Unemployment urged that the creation of fee-charging agencies
should be prohibited and that the practice of recruiting bodies
of workers should be organised and supervised. The Convention
has been ratified by tsventy-four countries, while the Recommendation has been very widely taken into consideration. In one
country and another, very considerable progress has been made
in placing work during the last ten years.

54

UNEMPLOYMENT PROBLEMS IN 1931

The present difficulties, however, surely show that this work
requires to be carried further. Of course, it would be childish
to claim that placing could provide a potent remedy for unemployment of the present unparalleled dimensions. But endemic
unemployment, caused by individual movements of workers, is
itself sufficiently serious to justify endeavours to deal with it on
more methodical lines, especially as it tends to be increased by
mechanical progress and developments in industrial organisation.
During the last few years, for instance, a considerable number
of industrial agreements have been entered into, either inside
individual countries or on an international scale. These agreements frequently produce greater regularity in production and
consequently greater stability of employment. To reach this
result, however, transitional measures have to be taken; factories
are closed because of their inadequate equipment or of their poor
position: production is transferred from one factory to another.
This means that workers are sometimes discharged; they may
be out of work for a long time; often they have to leave their
usual locality and move to quite different parts of the country.
If such agreements are inevitable for technical and economic
reasons, surely their effects on the workers can be foreseen and
forestalled by an extension of the functions of placing agencies.
In this connection considerable importance attaches to the
measures taken in Germany since 1920 and by which employers
are required to notify the public authorities some time in advance
if they intend to suspend the working of their undertaking wholly
or partly and to dismiss a part of their staff. Such provisions,
which have also just been embodied in a Bill prepared by the
Czechoslovak Government, enable the authorities to explore
possible means of meeting the situation and facilitate the placing
of the workers who are discharged.
Surely an idea of this kind could be practised on a wider scale.
If, for example, establishments which are not sufficiently productive
or are too costly have to be closed down, should not plans be
made in advance for utilising the workers ? And would it not
be desirable to associate employment exchanges, with all the
authority which they derive from their joint managing and supervisory committees, with the putting into operation of rationalisation
programmes ?
Placing work would be used in many directions like this, with
most effective results. Existing employment exchanges faithfully
register applications and vacancies voluntarily communicated to

REPORT OF THE DIRECTOR

55

them. They have thus already done useful work in leaving
unsatisfied only for the shortest possible time the minimum of
applications and vacancies which suited each other. They feel,
however, that they could do more—that, with a systematic policy,
they could adapt supply to demand and vice versa more closely
than they do under present conditions.
It is questionable whether, for the purpose of adapting supply
to demand, all that was necessary has so far been done to ascertain
on a centralised basis the full supply of employment available.
In countries with compulsory insurance, or an extensive voluntary
system, the demand is to a large extent known through the records
kept with the exchanges of unemployed persons in receipt of benefit.
Is the same the case with employers looking for workers ? In
some countries, such as Italy, the principle that notification of
offers of employment is compulsory is beginning to be recognised.
In others it is left to the staff of the employment exchanges to
do all they can to find all possible openings for their worker clients,
and also, in order to help their employer clients, to discover among
the multitude of applicants for work those whose qualifications
are the best suited to the available vacancies.
Surely, something more than this could be done. Should it
not be one of the normal functions of employment exchanges
to draw the attention of the public authorities in good time to
the desirability of meeting decreasing employment in private
undertakings by developing public undertakings ? Some countries,
e.g. Japan, go so far as to allow employment exchanges themselves
to undertake public works. Elsewhere, employment exchanges
encourage the association of unemployed workers in co-operative
groups, which sometimes create possibilities of employment which
would not otherwise be found. Speaking more generally, should
not public economic authorities rely more than they do on employment exchanges for indicating to them the time when public
works, held in reserve and properly prepared, should definitely
be put in hand so as to absorb to good advantage workers threatened
with unemployment ?
Again, for adapting demand to supply, surely there is a considerable range of measures which have already proved their value
and which should be followed up and more widely applied.
In the first place, public employment exchanges can render
most useful services in connection with vocational guidance for
young persons. This work does not consist merely in noting
such individual aptitudes and tastes as are observed by school-

56

UNEMPLOYMENT PROBLEMS IN 1931

masters assisted by practical psychologists. Just as much attention
requires to be given, in the general social interest, to the future
prospects of different industries. Surely in this matter employment exchanges should be in a position to furnish the best indications
for the employment of the workers.
Further, would it not be desirable for employment exchanges
to assist in transferring workers as rapidly as possible from trades
or industries which are overcrowded to other more active branches
of production ? Employment exchanges performed this function
during the war for recruiting workers for munitions and other war
factories. In so far as unemployment is not simultaneous in all
industries, there seems no reason why they should not discharge
similar functions now. Not only should they discover the unemployed who are most capable of being transferred to another
occupation, but they might help them to develop the required skill
by instituting actual courses in industrial re-education. Examples
of such activities are to be found in several countries, as well as
cases where public employment exchanges procure facilities for
workers who are without the necessary tools for changing their
trade, or help them towards the expenses of their removal.
Such measures as these would institute in the individual country
a rational policy of training and distribution of labour among the
different industries in proportion to their requirements, and so help
to prevent considerable economic disorder and a waste of human
labour 1 .
But placing work must also be methodically extended in the
international field. There are still numerous barriers, even between
neighbouring countries of a similar industrial complexion, preventing exchanges of apprentices, workers and even technicians.
The sufferings of unemployment naturally create resistance to any
ready and regular exchange of workers. But surely any general
apprehensions of this kind should not distract attention from the
advantages of all kinds, whether individual or social, to be derived
from such exchanges. Is it not the duty of the International
1
Apart from this transfer of workers from one trade to another, public
employment exchanges might also be called upon to assist in maintaining
the morale of the unemployed by giving them facilities, in case of prolonged
unemployment, for following courses in general education. A great employer,
Mr. Ernest Solvay, who deserves to be so called not only for the number of
workers employed in his establishments but also for the breadth of his views,
was one of the first to put forward this idea. Public employment exchanges
might endeavour to put it into effect. The social problem of facilities for the
utilisation of spare time is perhaps still more serious for the dreary spare time
of the unemployed than for the enjoyable leisure secured to the worker in a job
by short days of remunerative work.

REPORT OF THE DIRECTOR

57

Labour Organisation to do all it can to promote international
placing of workers, particularly in Europe * ?
The Washington Unemployment Convention (Article 2, paragraph 3) formally lays down that the operations of the various
national employment systems are to be co-ordinated by the
International Labour Office in agreement with the countries
concerned. Action in this direction has become more necessary
than ever. For years past the Office has, so far unsuccessfully,
endeavoured to suggest certain steps in the matter. It would
appear that the time has now come to make a fresh move.
This would seem to be the feeling of a number of countries.
The Polish Government, for instance, in its last annual report on
the application of the Washington Unemployment Convention,
expressed the wish that an exchange of national statistics of
emigration and immigration countries should be organised by the
Office, and that placing methods should be unified. Other Governments too have had similar ideas in mind.
The best practical method perhaps of pooling national experience
in placing work, with the possible developments already referred
to, and of initiating international collaboration in the matter
would be to convene in the near future representatives of public
placing services, delegated by their respective Governments, in
an international conference similar to the International Conferences
of Labour Statisticians. This might be a means of putting fresh
vigour into, and improving along international lines, the application
of the placement provisions of the Unemployment Convention,
besides securing the adherence of further countries to that Convention. Such a conference, it would appear, might well prepare the
way for a rational policy of distribution of labour and a better
organisation of the international labour market.
It is recognised that a better distribution of workers in the
different industries would not in itself suffice to remove the manifold
forms of economic disorder which are the fundamental causes of
the present unemployment. But the problem of national and
international placing of workers is none the less of primary importance for the future of industry, and it assumes still more important
aspects when it is considered in relation to the wider problems
involved in migration movements.
1
Unofficially and simply exerting its moral influence, the Office has done
all that lies in its power in this field. It has done its best to assist employers'
and workers' organisations in the printing trade, the hotel industry, etc., to
establish relations and to find solutions for a number of difficulties.

58

UNEMPLOYMENT PROBLEMS IN 1931

Migration
The International Labour Organisation has not been inactive
in the matter of migration. At Washington a Recommendation was
adopted in favour of reciprocity of treatment of foreign workers, the
object being to ensure that foreign workers and their families should
have the benefit of labour legislation protecting national workers.
In 1925 a Convention was adopted on equality of treatment for
national and foreign workers as regards workmen's compensation
for accidents, and later, in 1926, the rights of foreign workers were
safeguarded in the Conventions on sickness insurance.
The communication to the International Labour Office of statistical and other information on migration, which was the subject
of a decision of the Conference in 1922, has also helped towards
methodical protection of emigrants. Further, the decisions adopted
at the Eighth Session of the Conference (1926), on the simplification
of the inspection of emigrants on board ship, have helped to increase
their protection during their transport by sea.
But is this personal protection of emigrants enough ?
The International Emigration Commission of 1921 prepared the
outlines of an extensive programme. Going beyond the mere
protection of emigrants, it contemplated a wide policy for encouraging the renewal or creation of emigration on a large scale with
a view to the adaptation of labour supply to openings for employment and a better distribution of population. A number of
resolutions along these lines were subsequently adopted by the
Conference. But hardly a beginning has been made with the
work thus contemplated. Difficulties arose when it was proposed
to create, under the auspices of the Office itself, a permanent
Emigration Committee for defining this work and carrying it out.
Very strong opposition was shown, too, when practical proposals
were made for international placing of unemployed workers, on
the lines of the placing of Russian and Armenian refugees. At one
time, in fact, on account of these difficulties, the International
Labour Organisation was near to having the initiative in migration
matters taken away from it by outside international conferences.
The work which the Office's Migration Committee has in hand for
the recruitment and placing of emigrant workers and the new
suggestion referred to by the Governing Body in January 1931
should lead to practical action. Mr. de Michelis, in particular,
emphasised the necessity of doing something along these lines. In
the interests of the unemployed, the International Labour Office

REPORT OF THE DIRECTOR

59

must help to bring about more labour treaties, to facilitate collective
recruitment of workers, and to promote international agreements
for the development of unoccupied territory. It must also help
to overcome such feelings of antagonism as have been engendered
by narrow ideas of national sovereignty. It must methodically set
out to remove obstacles to free movement throughout the world
and, in the interests of civilisation, endeavour to adapt to each
other supply and demand in labour, land and capital.
The action of the Office in this direction cannot always perhaps
take the form of decisions of the Conference by way of Conventions
or Recommendations. But at least the Office can usefully exercise
in these matters those functions of a " prime mover " and prompter
in social progress which its severest critics recognise to be a valuable
aspect of its activity.
Palliatives again, some one may say. Nevertheless, some
American economists have noted that legislation restricting the
number of emigrants—the famous quotas—is largely responsible for
the present unemployment crisis in the United States. To revive
by common agreement the currents of migration would not merely
relieve countries with an excess population, but would encourage
production and life in places where agricultural or other riches are
yet undeveloped. Endeavours to find work for the unemployed
would lead to better development of the earth's resources and
greater stability in international relations.
Unemployment Insurance
The third direction in which the International Labour Organisation can take action against unemployment is in the matter of
relief for the unemployed by way of employment insurance.
The necessity of relief is not disputed nowadays by anyone.
On behalf of the Employers' Group in the Governing Body,
Mr. Lambert-Ribot said that there was no idea in the mind of any
of them of leaving in distress workers who were out of employment.
If it is impossible to find fresh jobs for the unemployed, the community regards it as a duty to provide them with the minimum to
enable them to live.
On the other hand, the system of guaranteeing this minimum
through unemployment insurance has not found unanimous support
in all quarters. Mr. Lambert-Ribot said he would have preferred
some other formula, which, instead of speaking of insurance, would
have referred in a very general way to the grant of allowances to

60

UNEMPXOYMENT PROBLEMS IN 1 9 3 1

the workers, having regard to their essential needs, with help from
public funds. The facts, however, are there: in spite of doctrinaire
preferences for other forms, insurance has developed in an astonishing way during the last ten years.
When, in 1919, the International Labour Conference recommended that " each Member of the International Labour Organisation should establish an effective system of unemployment insurance,
either through a Government system or through a system of
Government subventions to associations whose rules provide for
the payment of benefits to their unemployed members ", there
were some 4,500,000 workers in the world insured against unemployment. Great Britain was the only country with a compulsory, though limited, insurance system, which protected some
3,700,000 workers. At the same period there were a round million
of workers in various countries who were members of voluntary
insurance societies subsidised from public funds.
To-day more than 46,000,000 workers are compulsorily insured, in
ten different countries—or ratber the actual figure is 36,000,000,
since the authorities of the U.S.S.R. on October 1930 suspended all
unemployment benefit, in view of the situation of the labour market.
In addition, there are nearly 3,000,000 voluntarily insured persons.
The following table shows how the total is distributed among the
different countries:
Compulsory insurance countries.

Number of insured persons.

Australia: Queensland
Austria
Bulgaria
Germany
Great Britain and Northern Ireland
Irish Free State
Italy
Poland
Switzerland (9 cantons)
U.S.S.R.
Total
Voluntary insurance countries.

Belgium
Czechoslovakia
Denmark
Finland
France
Netherlands
Norway
Switzerland (14 cantons)
Total
1
2

137,000 i
1,200,000 i
287,000
15,648,000
12,400,000
284,000
4,500,000 »
1,033,000
150,000 l
10,000,000 2
45,639,000
Number of insured
628,000
1,129,000
288,000
69,000
200,000
388,000
43,000
165,000 »
2,910,000

Estimated.
Estimated. As stated above, since 9 October 1930 the authorities have
suspended all insurance benefits on account of the state of the labour market.

REPORT OF THE DIRECTOR

61

Unemployment insurance thus seems to have proved its value.
Its methods may be subject to criticism, which occasionally has
some justification and which must be taken into consideration,
but such criticism has not arrested its development. The old
empirical systems of assistance, hastily improvised in periods of
crisis, no longer meet the situation, any more than general public
relief institutions. If able-bodied workers deprived of employment
for reasons beyond their control and due to fluctuations in industrial
activity are to be indemnified, a special insurance system is-the
only way, and this has been almost universally recognised in
practice.
In the United States, where the position is far from advanced
in this respect, the idea of unemployment insurance has made
unexpected progress since the present depression began. Insurance against unemployment was not entirely unknown in that
country. A number of large undertakings had organised localised
insurance systems for their workers, and generally in collaboration
with them. Some 200,000 persons were covered by these systems.
All the same, the immense majority of the working classes in the
United States were left without any guarantee of indemnity in case
of unemployment. Now, however, Bills have been laid before the
Federal Congress and the Parliaments of ten of the States (Wisconsin, New York, etc.), where they are being carefully considered. The
Governors of seven States in the north-east are agreed that the
whole question of unemployment insurance must be re-examined.
A general scheme is being drafted by the American Association for
Labour Legislation. The American Federation of Labour has decided
to undertake a thorough re-examination of the problem. In
January, Senator Wagner introduced a Bill in the Senate proposing
an annual expenditure of 100,000,000 dollars to enable the creation
of an Unemployment Insurance Fund administered by the U.S.
Employment Service in collaboration with the State Governments.
This Bill made no progress, but in pursuance of a resolution
proposed by Senator Wagner and adopted by the Senate a
Committee of three Senators has been appointed to study the
question of national unemployment insurance. The situation
has in fact so far changed that the Deputy-Director of the
Office, Mr. H. B. Butler, was able to write in January last,
on his return from America, that: " Many experienced observers
believe that the United States, having already estabhshed
workmen's compensation, is likely to develop in the comparatively near future other forms of social insurance, including

62

UNEMPLOYMENT PROBLEMS IN 1931

insurance against unemployment, not on a nation-wide but òn a
State basis, in the areas where it is most needed." 1
It would thus appear that even the great industrial community
which hitherto seemed closed to any idea of social insurance is
making towards the acceptance of unemployment insurance.
As a matter of fact, there is still a considerable amount of
criticism of unemployment insurance, not only by employers but
by economists and statesmen as well.
(1) There is first the view, expressed by the British National
Confederation of Employers' Organisations, that if rates of benefit
are too high, or benefits are too easily granted, this prevents the
adjustment of wages to market conditions.
The fact is that wages -vary just as much in countries which have
an unemployment insurance system as in those which have not.
In the United States, for instance, since the beginning of the
depression, wages have not fallen much although there is no
unemployment insurance. It is true that to some extent this
insurance acts as a barrier against a serious lowering of the workers'
standard of living, and indeed this is one of the aims of the system,
but it does not appear to have prevented adjustments of wages.
(2) It has also been urged that insurance adds to costs of production by imposing a heavy charge on employers and increasing
taxation.
Of course, an unemployment insurance system cannot avoid
imposing considerable charges. But, if the maintenance of the
unemployed, which everyone agrees is necessary, is not covered by
insurance benefits, it will have to be covered in some other way.
What imposes a burden on production is unemployment, and not
unemployment insurance. The latter merely tends to fix the
incidence of thè burden on a particular section or sections of the
community. As Dr. Royal Meeker recently wrote with regard
to the situation in the United States 2 :
The total cost of insurance is of no importance. The difference between
the cost of unemployment under the insurance plan and under no plan
at all is of vital importance. We must quit deluding ourselves with the
foolish fancy that unemployment does not .cost us anything so long as
we don't recognise it. Make no mistake ! We are paying for unemploy
ment and paying through the nose in taxes for maintaining our extravagant poor-houses, our ever-present street beggars, our sporadic
1
H. B. BUTLER, C.B.: " T h e Social Effects of the Economic Depression
in North America ", International Labour Review, March 1931.
2
Assure Jobs by Bold and Drastic Action. Irving Fisher Service.

REPORT OF THE DIRECTOR

63

and prodigal outbursts of charity to keep the unemployed from starving
and freezing . . . Even if unemployment insurance should add
500 million dollars to the prices of all commodities, the whole
nation, including employers, would be the gainers. The total drain
upon the national income would be substantially less than at present,
but the greatest gain would be in the improved morale of workers
freed from the fear of being thrown out of a job.
Dr. Royal Meeker is right. As soon as it is decided worthily to
relieve any member of the community who is unemployed, the only
problem that is left is how to organise this relief. Even in countries
where the present depression makes the cost of the insurance
system feel especially heavy, the result of the adjustments in the
system that have been thought necessary sometimes appear rather
doubtful. This is the case, for instance, with Germany. It seems
difficult to determine how far the recent changes decided on have
been a real saving, or have simply transferred the burden from the
federal to the local authorities. According to statistics published
by the Union of German Towns, the number of persons in receipt
of relief from local authorities, taking only localities with a population of over 25,000, rose from 24,000 at the beginning of 1930 to
479,000 at the end of September. This increase in the number
of unemployed relieved by the local authorities has been considered
a serious threat to local finances. The Union of German Towns
has accordingly recommended that the emergency relief given by
the State should be extended to all trades, without in future any
limitation of its duration. Measures on these lines have been
adopted.
Similarly, Sir Francis Floud, Permanent Secretary of the British
Ministry of Labour, made the following statement before the Royal
Commission on Unemployment Insurance on 19 December 1930 * :
" Throughout this time (1921-1929) unemployment benefit . . .
relieved local authorities of a burden and responsibility under which
local governments in many areas would have broken down, particularly where economic foundations rested upon the heavy industries
and textiles. "
(3) It is maintained, however, that unemployment insurance,
at least in certain forms, has a detrimental effect on the morale of
both employers and workers, and that it leads to undue reliance on
State support and to a slackening of individual enterprise and effort.
If this objection were valid, it would apply to all forms of social
1
Minutes of Evidence taken before the Royal Commission on Unemployment
Insurance, first three days, p. 3.

64

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

insurance and not to unemployment insurance alone. It would
even apply to practically all social services, including free education,
which has been adopted by all civilised States.
Perhaps it is true, as Sir William Beveridge notes 1, that the
existence of an unemployment insurance system may to some
extent have a bad effect on Governments, Parliaments and trade
unions. It may absorb the work of some of these bodies; it may
prevent others from realising the economic effects of a certain
crystallisation of wages ; it may even happen that " industries
practising casual engagement or perpetual short time may settle
down to batten on the taxation of other industries or on the general
public in place of reforming their ways ". But, in Sir William
Beveridge's opinion, " the immobilising influence of generous
unemployment relief upon the recipient can be controlled by labour
exchange machinery simply and as completely as we choose. For
its immobilising influence on the minds of Governments and leaders
of industry, the remedies needed are stronger, and may be painful."2
Sir William does not consider, however, that these evils are inherent
in insurance as such.
(4) This same reply can be made to another criticism, as to the
immobility of labour produced by unemployment insurance. It
is argued that workers have less incentive to seek employment
in other trades than their own and in other localities.
But, here again, it is the duty of the employment exchanges,
without which no unemployment insurance system can usefully
function, to intervene so as to prevent such a result in cases of
prolonged unemployment. The organisation of the system must
be rationalised. The employment exchanges should be linked
up in such a way as to be able to put unemployed workers in
touch with vacant jobs wherever they exist. In point of fact,
a very large number of unemployed workers in Great Britain
have been transferred during the last few years from one industry
to another, for instance, to relieve the coal industry or certain
engineering trades, and also from one part of the country to
another.
In such cases unemployment insurance encourages that rational
placing to which reference has already been made, when industries
have to be reorganised. This was clearly noted in the 1929
1
Cf. BEVERIDGE: Unemployment: A Problem of Industry
New edition. London, Longmans Green and Co.
2

BEVERIDGE, op. cit., p. 294.

(1909-1930).

REPORT OF THE DIRECTOR

65

report of the German Federal Institute for Employment Exchanges
and Unemployment Insurance, according to which: " Unemployment insurance has always had to bear the first effects of rationalisation, not only owing to the increase in the number of unemployed in receipt of benefit, but also because the closing down
of undertakings or their removal to other localities involves a
heavy burden on the employment exchanges, especially in small
places. It may thus be maintained that unemployment insurance
contributions act as a premium to meet the cost of the rapid
transformation in the machinery of production " l.
If in certain cases—though there is at present very little evidence
to this effect—unemployment insurance proves an obstacle to
these transfers of labour, which are often a feature of any industrial
development, the fault lies rather with the detailed application
of the system and not with the system itself.
As the British Committee on Industry and Trade noted 2 :
" It is, however, possible by wise regulations and procedure to
reduce this danger too, and in view of the outstanding importance
of preserving and increasing mobility in the widest sense of the
term, we are of opinion that no efforts for this purpose should
be spared."
(5) But it has also been alleged that unemployment insurance
to some extent saps the workers' will to work, and that the
unemployed are content in many cases to draw their benefit
and give up looking for new work. This allegation has often
been heard.
Any reference to the actual rates of benefit paid should make
it clear that this phenomenon can hardly be widespread. When
an unemployed person without dependants receives 17s. a week
in Great Britain, is it to be believed that, unless there are very
exceptional circumstances, which could no doubt be avoided,
such an allowance will suffice to induce him to refuse a job which
would bring him in a wage of more than twice this sum, and
perhaps more than three or four times as much in the case of a
skilled worker ? It appears that the wages of a building labourer
are about 52s. a week, those of an engineering labourer 42s., and
those of a shipbuilding labourer 40s., and that this last wage is
amongst the lowest in industry. If unemployment benefit is to
1
" Zweiter Bericht der Reichsanstalts für Arbeitsvermittlung und Arbeitslosenversicherung für die Zeit vom 1. Januar 1929 bis zum 31. Dezember 1929."
Sonderdruck aus dem Reichsarbeitsblatt, 1930, No. 12.
2
Final Report, p. 131.
5

66

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

reach this last figure by means of allowances for dependants the
unemployed worker will have to have dependent on him one adult
(9s. extra a week) and seven children (2s. a week extra for each
child). Surely it is clear that nine persons cannot live on a wage
of 40s. any more than on unemployment benefit to the same
amount, and that, even if the father is at work, a family in this
position would have to have help from public relief. Sometimes
unemployment benefit for a family of five persons, which would
be 32s. a week, is compared with the wages of an agricultural
labourer, which are from 30s. to 36s. a week. But such a comparison
is hardly reasonable, seeing that agriculture is not at present
covered by unemployment insurance, that British agriculture is
not short of workers, and that if unemployed industrial workers
were to be placed in agriculture new openings for employment
in it would first have to be created.
Similarly, in Germany unemployment benefit can hardly be
called luxurious when it is remembered that benefit is proportional
to wages previously earned, and that the percentage diminishes
as the wage scale increases, so thai a worker who earned more
than 48 marks cannot get unemployment benefit above 35 per
cent, of his wages if he has no dependants and a maximum of
60 per cent, if he has.
As a matter of fact, the cases where the margin between wages
and benefit is too narrow are quite rare, and it is deluding public
opinion to present such abnormal cases as the rule in unemployment
insurance.
It is a general rule that any unemployed worker who is offered
and refuses suitable work forfeits his right to benefit. The criticism
thus implies either that the regulations are too lax, or that there
is a tendency among the workers to use subterfuge so as to obtain
benefit to which they would otherwise have no claim. In spite
of all the enquiries made, very few cases of fraud have been discovered. The British Unemployment Insurance Committee found
that in 1925 out of 12 million insured persons there were 11,413
cases in which fraud was suspected and that prosecutions followed
in 9,164, with convictions in 1,844, including imprisonment in 468.
Where there was no prosecution, it was either because the good
faith of the claimant had been clearly established after further
enquiry, or that there was found to be no sufficient grounds for
prosecution. The Committee added 1 : "These figures are, we
1

Report of the Unemployment

Insurance

Committee,

1927, Vol. I, p . 2 1 .

REPORT OF THE DIRECTOR

67

think, almost negligible when contrasted with the total number
of claimants to benefit, which runs into millions."
The other point, viz. whether the insurance regulations themselves
are too indulgent, can hardly be dealt with here. It would involve
a detailed examination of the provisions in force in the different
countries, and that would far exceed the scope of this Report.
Clearly, abuses are possible in exceptional cases, but can be eliminated by the adoption of suitable regulations.
(6) Lastly—and this is one of the strongest objections against
unemployment insurance^—during the last eighteen months the
burden imposed on certain States which have adopted this system
has been such as to give rise to some hesitation and doubt. Unemployment insurance had been conceived as a means of fighting
the endemic unemployment inherent in any living industrial
community. It has been put to the test during a period of unexampled depression, which, moreover, in certain countries such
as Great Britain and Germany, set in after a period of prolonged
unemployment which had already exhausted the funds. Serious
financial difficulties have been encountered, with consequent
alarm for the State budget.
In both Germany and Great Britain steps have been taken
to effect economies, but so long as unemployment remains as
heavy as at present, it will be difficult to obtain appreciable
results. In Germany, contributions have been raised and benefits
reduced, while various restrictions have been placed on the amount
of the Government loans to the insurance fund. In Great Britain,
a Royal Commission has been set up, to which the Treasury
submitted a memorandum indicating that the rapid increase in
the cost to the Exchequer threatened to upset the equilibrium
of the Budget on the basis of existing taxation. The sums spent
on unemployment insurance are certainly very high, but, as
explained above, the maintenance of the unemployed would cost
the community much more if there were no insurance system
at all. Perhaps, as has been already suggested, some laws have
been too liberal and given rights to classes of unemployed men
and especially unemployed women who were no longer regular
factory workers. It may be possible that in the future some
clear distinction will have to be made between a strict insurance
scheme and relief on general social grounds.
On the whole, however heavy the sacrifices and. serious the
consequences of certain ill-devised methods of application, both
sacrifices and defects should be balanced against the incontestable

68

UNEMPLOYMENT PROBLEMS IN 1931

advantages of a general insurance system. For workers, employers,
and community alike, these advantages are becoming more and
more evident.
For the workers unemployment insurance has meant in one
of the most critical periods of history the avoidance or at least
the alleviation of distress. The official Committee on Industry
and Trade in Great Britain, presided over by Sir Arthur Balfour,
stated in 1929 *:
Throughout the last few years it has been a matter of constant comment
that so deep and prolonged a trade depression has produced so little
actual suffering in comparison with far slighter and more transient
periods of depression before the war. There has been practically no
decline in the consumption of the essential necessaries of life, in spite
of the fact that a million or more workers have been earning no wages
at their trades. For this happy result, a large part of the responsibility
undoubtedly rests with the unemployment insurance scheme.
For employers, the advantages are no less clear, as was recognised
by this same British Committee on Industry and Trade, which
considered t h a t nothing was more harmful to the skill and morale
of the workers than a lack of adequate means of subsistence
combined with prolonged inactivity 2 . By sparing the unemployed
the evils of want and helping them to wait for a new job, unemployment insurance enables industrial employers to keep their staffs
and to re-engage their workers when the situation changes for
the better. It is proof of the advantages that employers derive
from insurance in Great Britain that certain undertakings have
organised special systems to supplement the official insurance
benefits by special allowances 3 .
Besides, there-can hardly be any need to emphasise t h a t unemployment insurance serves the interests of the community as a
whole. There can be no doubt but that it has been the foundation
of the political and social stability of the great industrial States
during the last ten years. Without it, the distress caused by
unemployment would have found expression not merely in electoral
surprises or emotional, and perhaps violent, demonstrations, but
there would have been social disturbances which would have
delayed recovery and reconstruction.
From the economic standpoint, unemployment insurance has
appreciably preserved the purchasing power of the workers and
1

Final Report of the Committee on Industry and Trade, 1929. Cmd. 3,282.
- Final Report, p. 133.
3
Mary B. GILSON and E. J. RICHES: "Employers' Additional Unemployment Benefit Schemes in Great Britain " International Labour Review, March
1930.

REPORT OF THE DIRECTOR

69

their families, and this has prevented the depression from battening
on itself. It has also prevented wholesale reductions in wages,
not so much reductions devised or accepted as a means of economic
readjustment as those that would have resulted from a regrettable
competition among unemployed workers not in receipt of relief.
Further, it has constituted a sort of collective credit granted
by the community to the workers in the expectation of better
output in the future, and as a means of hastening the return to
prosperity.
Although the fact has not been consciously realised, perhaps
this so-called palliative is really the consummation of a vast
revolution. For what, in fact, is unemployment insurance if not
a recognition in an organic and constitutional form of that " right
to live " which the workers of the middle of last century claimed
to be one of the main principles of a new form of society ?
In point of fact, from a purely economic, and almost a capitalist,
point of view, unemployment insurance may indeed be said to
have become an absolute necessity. The memorandum of the
British employers on the industrial situation, already referred to x,
contains some thoughtful and suggestive words: "We have
throughout supported a system of unemployment insurance as
part of the industrial organisation of the country . . . " No
doubt they complain that the original Acts of 1911 and 1920
have not been adhered to, but could the extent to which, in a
society that is beginning to feel the need of social justice,
unemployment insurance has become a keystone in the general
scheme of industrial organisation be more clearly indicated ?
It is from this standpoint that in the Office's view unemployment insurance, which has grown so vigorously during
the last ten years, should be taken up, reconsidered, extended
and developed by the International Labour Organisation.
Circumstances have not allowed the Governing Body to
place this question on the Agenda of the 1932 Session of the
Conference. In order to complete work already undertaken and
prepared, it had to decide in favour of invalidity and old age
insurance. It cannot be long before it brings unemployment
insurance before the Conference. The time has come not
only to correct the few faults and errors inherent in a new
institution and co-ordinate unemployment insurance with employment exchanges and public works policy, but to strengthen it,
1

Cf. p. 3 of the Report of the Director.

70

UNEMPLOYMENT PROBLEMS IN 1931

turn it to the best possible account, and give it its full scope in
the improving conditions of economic organisation.
Public Works
A further direction in which the International Labour Organisation can take, and has already taken, direct measures against
unemployment is in relation to a public works policy. It is not
enough to organise employment exchanges for the unemployed,
to help them to find work abroad, and to pay them unemployment
benefit. The public authorities should make use of all the means
in their power to see that they get work, and if necessary to create
work for them. The practice of unemployment insurance should
in itself promote such action. Economically, if insurance creates
heavy charges, why not endeavour to make this expenditure
productive ? Instead of paying unfruitful benefits, surely it is
preferable, even if the cost is greater for a time, to ensure to the
community the advantage of work voluntarily organised. Psychologically, prolonged idleness on the part of the unemployed
worker is bad. What he wants is regular work much more than
insufficient cash relief. Hence the various measures covered by
the term " public works policy ".
The conception of such a policy dates back to the beginning
of industrialism. It was in fact the underlying idea of the much
criticised French national workshops in 1848. Since then, action
has been more cautious and systematic ; it has been better regulated
and has accordingly proved more effective.
This policy of public works has two aspects, viz. on one side
to reserve for periods of unemployment work undertaken for
public authorities, and on the other to organise and create entirely
new works in periods of depression in order to provide work for the
unemployed.
At its First Session in Washington in 1919, the Conference
recommended " that each Member of the International Labour
Organisation co-ordinate the execution of all work undertaken
under public authority, with a view to reserving such work as far
as practicable for periods of unemployment and for districts most
affected by it ".
The advantages of this policy need no detailed explanation here.
The International Labour Office has recently described its working
and the methods of applying it, in an important publication 1 .
1

Unemployment and Public Works. Studies and Reports, Series C, No. 15.

71

REPORT OF THE DIRECTOR

It helps to mitigate the effects of both boom and slump. It
allows of public economies, work done in periods of depression
usually costing less than that done in periods of great economic
activity; the price of materials and rates of interest are lower,
and possibly wages too may be slightly reduced. Besides, the
saving effected in unemployment benefit must not be overlooked.
It can hardly be doubted that such a policy must have a real
effect on the labour market. Professor Wesley Mitchell* estimates
that during a severe depression production falls by 15 to 20 per
cent. It has also been calculated 2 that by increasing the volume
of public works the Government, local authorities, and public
utility undertakings could make up for a drop of 4 to 5 per cent.
in general production, thus reducing the effect of the depression
by about one-quarter.
Further, besides the workers actually taken on for the works
as such, others find work in producing the necessary materials
and equipment. The British Government estimated that at the
beginning of 1931 the number of persons directly or indirectly
employed in consequence of special public works organised for
the relief of unemployment was 200,000.
It has sometimes been objected that these works do not create
openings of employment but merely result in transferring them,
and that ultimately the quantity of labour employed in private
industry diminishes by the amount of the increase of employment
on public works. This objection is based on the idea that the
money spent on public works would have been used by private
undertakings.
The argument clearly has no application at all in the case of
normal and indispensable public works the execution of which
has been postponed during the period of prosperity preceding the
depression. There may be a difference of opinion, however, in
the case of special public works specifically intended for the relief
of prolonged unemployment. But during periods of depression
there is an excess of capital that cannot find investment, and State
expenditure can accordingly be increased without reducing the
possible expenditure of private individuals. It is precisely because
the spirit of enterprise has abated among private individuals
1

NATIONAL

BUREAU

OF ECONOMIC

RESEARCH:

Business

Cycles and

Unemployment, p. 39.
2
Cf. Dr. Ernst BERNHARD (Soziale Praxis, 1928, No. 28) and Otto
T. MALLERY (Hearings before the Committee on Education and Labour, United
States Senate, pursuant to S. Res. 219, December 1928, January and
February 1929).

72

UNEMPLOYMENT PROBLEMS IN 1931

that the public authorities should take advantage of the opportunity
and carry out works of public interest on profitable terms.
Here the virtue of this policy of public works is clearly revealed.
As has been well demonstrated by M. KeynesL, it acts not merely
as a palliative, but as a positive remedy. Extensive schemes
for works of public interest, by helping in some measure to raise
prices and increasing the demand for materials, stimulate economic
activity generally and produce a psychological reaction that is
far from negligible in economic fluctuations.
Is it possible to develop so effective a policy ? Has the policy
so far been applied to its full advantage ? The volume published
by the Office has indicated what appeared to be the best methods
of applying the policy, the labour conditions (recruitment, hours,
wages, etc.) which it should observe, the need involved in it for
advanced planning of public works programmes, and the necessity
of a suitable banking system for carrying it through. For some
time steps have been taken in Austria, Finland, Germany, Norway,
Sweden and Switzerland. But the policy could be put into operation on a much wicier scale.
The United States Congress quite recently passed an Act to establish
a Federal Board for stabilising employment, and invited the President to ask for supplementary credits for the undertaking of
public works whenever this was rendered necessary by the economic
situation. In many countries works have been put in hand.
Here and there, however, there has been a certain amount of
hesitation, which has negatived the conception or approval of
bold programmes of reconstruction or renewal of national equipment. It would be most instructive to study in detail and in
a critical spirit the controversies which have taken place during
the last ten years or so between, or even within, the political
parties in England.
Perhaps it would be advisable at this stage to approach the
problem from an international as well as the national standpoint.
In its resolution the Governing Body drew attention to " the
possibility of Governments «oming to an agreement through the
appropriate organs of the League of Nations with a view to joint
execution of extensive public works of an international character ".
So far very little has been done in this field. Certain countries
1
Cf. The Times, 7 Aug. 1929, and KEYNES: Treatise on Money, London,
Macmillan and Co., 1931.

REPORT OF THE DIRECTOR

73

have organised on a limited scale an inter-State supply of electricity,
and arrangements have been concluded on this subject between
Switzerland on the one hand, France, Germany and Italy on the
other, and between France and Belgium. In a memorandum
addressed by the Belgian Government to the Commission of Enquiry
for European Union in January 1931, this Government raised
the problem of the future international distribution of electricity.
The construction of an extensive European network of roads is
also being contemplated. Although each State should no doubt
remain responsible for the construction of roads in its own territory,
international financial collaboration would be extremely useful,
not to say indispensable. The position will possibly be the same
some day for the provision of automatic couplings on railway
rolling stock.
The question of international public works may be said to be a
new one, and its study could not fail to be profitable. As Dr. Weigert,
German Government representative, emphasised in the Governing
Body, the question has very important bearings. Some countries,
such as Germany and Great Britain, which have suffered from
prolonged unemployment, are meeting with increasing difficulties
because new national public works of genuine economic value are
beginning to become scarce. The time seems to have come to
contemplate public works that are international in scope and call
for the co-operation of States with adequate financial resources.
Here again the conclusion to be drawn is plain. To carry out a
policy of public works systematically and courageously does not
serve solely as a palliative. The effects of such action ha\e not been
fully realised. It can be made a sure method of effecting economies.
If it is wisely planned it can act as a regulator between periods of
boom and depression, and so help to reduce unemployment.
Moreover, as the world becomes more united and confident, it may
offer a magnificent opportunity for international collaboration
and prove a guarantee of peace.
The above completes the series of direct measures against
unemployment in which the International Labour Organisation
as such has the initiative in its own hands. The foregoing pages,
it is hoped, have shown that those measures have stood the test
of experience and are effective. In the present depression, it is,
in the Office's view, the duty of the Organisation to take steps to
develop and extend them.
As a practical conclusion to the foregoing pages, the Office
ventures to make the following proposals to the Conference:

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

(1) That it should request the Governing Body to convene an
advisory conference of placing experts, with a view to studying
the placing methods followed in the different countries and the
new practices and measures adopted in recent years, and to
establishing co-ordination between national placing systems as
provided for in the Washington Unemployment Convention;
(2) That it should request the Governing Body to instruct its
Permanent Migration Committee to study, with a view to practical
results at an early date, general programmes for promoting
migration and the utilisation of undeveloped land;
(3) That it should request the Governing Body to consider
the advisability of putting the question of unemployment insurance
on the Agenda of an early Session of the International Labour
Conference ;
(4) That it should request, the Governing Body to arrange for the
collaboration of the International Labour Office with the competent
bodies of the League of Nations (Economic Organisation, Transit
Organisation, Commission of Enquiry for European Union, etc.),
with a view to a policy of public works, national and international.
If resolutions on these lines are adopted and if the courses of
action they recommend are pursued energetically, it will soon be
found that these measures are not merely palliatives but that they
are the first steps towards really organising the labour market as a
whole and will produce far-reaching results for the prevention
of unemployment. If the International Labour Organisation set
out to develop them, and them only, it would have deserved well
of the working classes of the world.

IV
Hours of Work, Wages and Unemployment
Another Line of Action for the Organisation
The question remains, however, whether, in addition to the above
direct forms of action against unemployment and its effects,
there are not other measures within its competence which the
International Labour Organisation could take.
There are, for example, measures referred to in Part XIII for the
protection of the workers which, though not specifically intended

REPORT OF THE DIRECTOR

75

for preventing unemployment, could, if put into operation, help
to reduce it or could, by their reactions on the general economic
situation, limit the range and mitigate the gravity of business
slumps.
In face of the seriousness of the present crisis the representatives
of organised labour have, almost instinctively, stressed the idea
—which has always been a plank in their platforrr—of a shortening
of hours of work. The International Trade Union Congress at
Stockholm (July 1930), the Trades Union Congress at Nottingham
{September), the Federal Council of the German Trade Union
Federation (September), the Executive Committee of the Austrian
Trade Union Federation, the Joint Committee of the International
Federation of Trade Unions and the Labour and Socialist International (Zurich), the Executive Committee of the International
Federation of Christian Trade Unions (Bordeaux)—all have
demanded either a 44-hour week, or a 40-hour week, or a 5-day week.
Short Time
In putting forward these claims, the workers seem to have had
two ideas in view, which should be distinguished.
In the first place, they have been struck by the fact that during
the progress of the depression part of the staff employed in certain
industries was working full time and, in some cases, was required
to work overtime, while other groups of workers were out of employment. No doubt, some undertakings had, for technical reasons, to
require overtime in individual workshops in order to keep full time
going in other parts of the undertaking. All the same, the inequalities in the position of different groups of workers were keenly felt,
and it seemed more satisfactory to practise short time for all
the workers in an undertaking. In all countries large numbers
of workers have been compelled to work short time. They work
only 40 hours a week or less still, and their wages are correspondingly
reduced. The workers have accepted this practice, not without
some hesitation. It is in harmony with that spirit of solidarity
which naturally prevails among them and which the trade unions
help to foster and strengthen. It avoids the demoralisation, pessimism and despair which long spells of being out of work produce
in the unemployed, even if they are in receipt of benefit. It also
prevents termination of the contract of employment and the total
instability which that causes. From this standpoint short time
is also advantageous for the employer. In spite of reservations made

76

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

by some of their representatives, who complain of the extra charges
entailed by it, short time makes it possible for employers to keep
their shifts intact and ready for a possible revival of business.
It has accordingly been recommended by some central employers'
organisations.
From the general standpoint, however, short time has certain
disadvantages. It would not seem that it could be recommended
in undertakings or industries suffering from a depression special
to themselves and which lasts for a comparatively long time.
If there is no prospect of an early revival, it is preferable, all things
considered, to terminate the contract of employment rather than
to maintain it with short time, and to take steps, with the help
of public employment exchanges, to transfer as soon as possible
the surplus labour in such depressed undertakings to industries
which are still in full swing.
Another drawback to short time is that it is sometimes difficult to
deal with it for the purposes of unemployment benefit. Its insidious
form and the difficulty of checking it complicate the working of
insurance schemes: it may involve certain risks of fraudulent
collusion between an employer and his staff, while, on the other hand
if no benefit is paid for short time, it may be a source of privation
and distress among the workers affected by it.
Hence, in the Office's view, the desirability of fixing certain rules
for regulating short time. In particular, it would seem desirable
that short time should take the form of a number of whole days off in
the week, fortnight, or month, rather than of a number of hours
off in the day. This latter method, indeed, can hardly be dealt
with at all by unemployment insurance, while the other method
makes it possible to mitigate the workers' loss of earnings by
insurance benefit and may also help to reduce overhead charges.
Some steps have already been taken to regularise short time and
minimise its disadvantages.
In Japan, at the request of the employers in the silk industry,
the Government recently decided to reduce the working day in that
industry by one hour, with a view, as Mr. Yoshisaka, Chairman of
the Office's Unemployment Committee, explained, to re-establishing
equilibrium in the silk market, which is at present glutted. This
measure is regarded as permanent, and will accordingly be kept
in view by the Office. It has certainly been brought about by the
exigencies of the present depression.
Another noteworthy measure is the Act which came into force
in New South Wales on 8 January 1931, and which, besides int

REPORT OF THE DIRECTOR

77

ducing a 44-hour week, prohibits short time in private.undertakings.
In this case a general reduction of hours of work has been preferred to
a short time system which might be arbitrary and perhaps confused.
Germany also seems to be moving in a similar direction. The
committee of experts in that country set up under the chairmanship
of Dr. Brauns, ex-Minister of Labour, to study the unemployment
problem, though it did not endorse the idea of a general reduction
of hours of work to forty a week, recently proposed that an Act
should be passed to authorise the Government of the Reich to
reduce hours of work to forty in the week in industries or trades
where, after consultation with the parties concerned, such a
reduction is found technically and economically possible. This same
committee, though it rejected the idea of completely prohibiting
overtime, which is often necessary, has advocated various measures
for restricting it, including, in particular, the payment into the
unemployment insurance fund, instead of to the individual workers
concerned, of the supplement to wages for overtime.
In this same connection it might be considered whether the
permanent and general international Conventions on hours of work
could not be followed up by Conventions of a limited duration for
individual industries, with a view to international regulation of
short time. If manufacturers in a given country can make agreements for an all-round reduction of hours of work in a particular
industry, in order to meet a temporary depression of the market,
is it not conceivable that agreements could be concluded between
different States with similar industries with a view to reducing
hours of work for the time being to the same extent ? This is only
a suggestion which the Office makes, but which it feels should be
given further consideration.
In any case, it would appear, in regard to this problem of short
time, that the exigencies of the depression have created some
rapprochement between the standpoints of employers and workers,
and that some form of concerted action might well be considered.
The Workers'1 Case: Permanent Reduction of Hours of Work
The situation is not the same with the other idea which the
workers have in mind—the idea of a permanent reduction of working
hours. A study of the origin and growth of this idea, which has
immediately given rise to so much opposition and criticism, would
seem to show that the gist of the workers' argument is this : " Nowadays there is over-production—there are quantities of products
with no markets—if hours were shortened systematically and

78

UNEMPLOYMENT PROBLEMS IN 1931

regularly (and not only incidentally in periods of depression, bysuch expedients as short time), a greater number of wage earners
could be kept in regular employment—the same amount of work,
required by the normal needs of production, with the material
means available, would be distributed among a larger number of
workers ". There is nothing new in this argument. It was used
by the workers' organisations in their earliest campaigns for
reducing hours of work. In those days they demanded an eight-hour
day in order to diminish unemployment. Instinctively they have
put the argument forward in the present depression, and it has been
strengthened by the fact that the depression itself seemed to be
partly due to the extra work done during the boom years and which
choked all the markets. One country, Czechoslovakia, has frankly
drawn attention to the overtime performed by its workers under
the Washington Convention. The Czechoslovak Government states 1
that authorised overtime increased from 1,934,949 hours in 1922
to 17,787,426 in 1927 and amounted to 15,331,331 hours in 1928
and 16,277,873 in 1929 2.
It would be interesting to obtain statistics for other countries
and to see whether work could not have been better regulated and
distributed. . Endeavours are being made to rationalise everything
in economic life, except hours of work, which seem to be forgotten.
There is, however, a second consideration which obsesses the
workers' minds—the development of mechanisation and rationalisation and the consequential increase in the individual worker's
output. Many sets of statistics have been compiled on this subject:
whatever their defects may be, they are impressive and on the
whole probably reflect the actual situation. One of them, which is
recent 3 and comes, like most of them, from the United States of
America, shows that between 1919 and 1929 the value of production
per individual worker in manufacturing industries in that country
increased from 220.5 to 256.2 (100 = production in 1909), i.e.
by 16 per cent. During the same period the index of prices fell by
30 per cent., which means that actual output really increased by
close on 50 per cent. Certainly the increase in individual output
has on the whole been smaller in the important industrial countries
1
Mitteilungen des statistischen Staatsamtes der Tschechoslowakischen Republik,
1930, No. 17.
2
Mr. Czech, Minister of Social Welfare, informed the Budget Committee
on 11 November 1930 that as a remedy for unemployment he considered that
hours of work should be reduced and overtime abolished.
3
Monthly Labour Review, Dec. 1930.

REPORT OF THE DIRECTOR

79

of Europe than in America, but there is no doubt but that it has also
been considerable in Europe during recent years.
In face of figures of this kind and in view of the daily transformations going on in industry, a deep conviction has spread among the
working classes that all this progress can only result in instability of
employment, and in unemployment for the wage earners. As
British trade unions put it, labour considers that it ought to have
its share in the progress of science and civilisation and that this
share should take the form of increased spare time and a further
shortening of hours of work. This idea has become all the stronger
because the substantial reductions in hours of work made during
the last ten years have brought home to almost all countries the
real value of spare time. There has thus been a further reason
for the workers' claim for a shorter working day.
It has been said: " Is this argument sound ? Can you justify
fresh reductions in hours of work like this on the grounds of technical
progress ? Can you measure scientifically the progress of rationalisation per factory or per industry ? Are you to call on the public
authorities to decide whether the progress has been such as to
make shorter hours possible or not ? "
It is easy, no doubt, to give a reductio ad absurdum to the problem
and to make scientific play with the workers' instinctive and
spontaneous claims. But, if the statistics prove correct, the feelings
which they arouse, that justice requires that something should be
done, will have to be reckoned with sooner or later.
When the eight-hour day was generally accepted, no attempt
was made to measure the possible effects on output factory by
factory or industry by industry. The decision was taken on the
strength of the results of experiments in which the system had been
tried out, of a general appreciation of economic possibilities, and,
above all, in the interests of peace and social justice.
The International Labour Organisation must consider what is to
be its attitude towards this claim of the workers as a practical
proposition.
However much the Office may share the worker's view that
regularity in production and stability of employment can be secured
by a reduction of working hours, it frankly considers that it would
be premature to suggest here and now a Convention for a forty
or a forty-four hour week. The International Labour Organisation
as such only embarks on measures of this kind when the trend
of public opinion towards them, experience of legislation on them
and their introduction in industry in the different countries have

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

furnished a sufficient basis for them and prepared the way for
international action on them. It can amplify movements of social
justice and broadcast them throughout the world. It can mould
them into definite shape. It can call them into life by its scientific
investigations and open discussions. But it cannot anticipate
them. In the present instance, what would the proposal be—fortyfour or forty hours ? In either case the required experience and
technical data are not available for such a definite decision.
All the same, it seems clear that failure to regulate or rationalise
hours of work has caused unemployment. It seems equally clear
that hours of work have not been reduced as much as progress in
technical science and industrial organisation required and that this
has undoubtedly caused unemployment. In these circumstances
surely it is desirable, instead of accepting or rejecting for the
moment this or that new formula, simply but courageously and
unreservedly to go ahead with the work begun in 1919, within the
framework of the Washington Convention.
(1) Fresh international endeavours should be made to secure
general ratification of the Washington Convention. The Office took
the liberty of making this suggestion at the Trade Union Congress
in Nottingham. It understands the reasons which impel the workers'
organisations to demand a forty or forty-four hour week. It will
welcome any advance which is made in this direction in the different
countries. But, as long as the forty-eight hour week is not internationally applied, surely the first and paramount duty is to get
that position altered.
(2) The Convention has been accused of a want of elasticity.
But, after the excessive use made of overtime by industry throughout the world, surely the object should rather be to endeavour to
limit overtime more strictly. Reference has already been made to
the case of Czechoslovakia. The situation in other countries is worse.
The time certainly has come to re-consider certain ideas put
forward at Washington for the fixing of a definite maximum of
overtime. If all the struggles which have been going on for years
round the Washington Convention had not in the end exhausted
the Governing Body and induced the majority of its members to
refuse to countenance any revision, whether total or partial, of the
Convention, it is possible that in the light of the present depression
the Governing Body might have suggested that the Convention
should be strengthened and supplemented.

REPORT OF THE DIRECTOR

81

(3) Again, there are industries in which the special conditions
of work or technical transformations of an obvious and striking
character allow of an immediate advance being made on the
eight-hour day rule.
The present Session of the Conference, it is hoped, will approve
the proposal to fix the miner's working day at 7% hours immediately, as well as the proposal to consider a further reduction to
iy2 hours in the near future. Legislation for miners has not infrequently opened the way to progress in labour legislation in general,
and this, it is to be hoped, will be the case this time too.
Similarly, the technical committee set up by the Governing Body
for the question of hours of work in the mechanical glass trade will
have to consider the desirability and possibilities of internationalising the system of four eight-hour shifts. In other continuous
process industries the system of four six-hour shifts is being considered. Here, however, the objection has been raised that such a
system wall have to be extended to all continuous process industries.
But surely justice demands that such special regulations as are
required by conditions of work which are specially arduous, deprive
the worker of the advantages of social and family life, or impose
on him fresh responsibilities should start from the basis that the
eight-hour day is the normal rule for industry generally.
The immediate and future effects of the courses of action suggested
above hardly need any special emphasis.
Wider, if not universal, application of the Eight Hours Convention would protect the workers against setbacks which are always
possible. The British railwaymen, to take the most recent example,
would not have had to accept even temporarily the cut in overtime
rates which has been forced on them if they had been covered
by the clauses of the Washington Convention. Moreover, the
application of the Convention would more and more bring home
to the workers the value of the shorter working day.
International limitation of overtime would safeguard employers
against competition in violation of the rules of justice and humanity.
It would protect them against the instinctive tendency to overproduce. It would serve as a fly-wheel to modern rationalised and
highly productive industry, which it may be said is liable to
become dangerously involved.
Moreover, the practice of a working day of less than eight hours
or a working week of less than six days in industries where conditions
6

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

of labour allow or require it would lay a solid basis for further
progress.
By no means the least of the possible advantages of the method,
or one might say policy, which the Office ventures to suggest, is t h a t
it may be more successful than certain formulae at which employers
take alarm, in leading to a working agreement between them and
the workers, which proved impossible last January.
Official
statements made by employers' representatives during the last
few years would seem to show t h a t they could possibly agree
without much difficulty to such a policy, and t h a t a continuous and
systematic effort to reduce hours of work might follow and
supplement, by a more or less natural development, the exceptional
practice of short time 1 .
The Employers'' Case: Costs of Production
It is probable, however, t h a t employers .will meet even the
proposal for a progressive reduction of hours with the objections
they raised in the January discussions.
A reduction of working hours, they will say, cannot fail to result
in a-considerable rise in costs, unless it is accompanied by a reduction
of wages. In addition to wages there will be increased social charges
on account of the extra number of workers. The increase in overhead
expenses may also be considerable, and it is certainly not during a
period of depression that fresh burdens, in the form of higher production costs, can be contemplated. In the employers' eyes it is in
quite the opposite direction, i.e. in a reduction of costs, that methods
to mitigate or relieve the depression are to be sought.
These arguments were energetically developed in the Governing
Body, especially by Mr. Lambert- Ribot. They appear to be based
on experience acquired during former slumps. When during such
periods prices had fallen sufficiently low, buyers suddenly became
active and the market stiffened and even expanded.
Readers
1
Quite recently a French textile manufacturer publicly endorsed such a
policy. In a speech at Tourcoing, on the occasion of the 150th anniversary
of the foundation of his establishments, Mr. Louis Lorthiois referred to the
extent of the crisis and said : " We producers must take action at once to regularise production, though this will not prevent us later from investigating
means of increasing purchasing capacity among consumers. The most effective
and also the most moral means of regularising production is to abolish for the
time being night work in the textile industry. I mean by that abolishing, for
example, one shift in three in wool-combing and one shift in two in other
textile industries where two shifts are still used. " By this means industrial
production of textiles could be reduced by a good third.

REPORT OF THE DIRECTOR

83

will remember the day when cotton stood at six " sols " *.
The main thing is, therefore, to discover means likely to
lower costs in all branches of industry. It is true that in
attempting this employers agree that it is in their interest
as well as that of the workers that wages should be reduced
only as a last resort. Bat even if wages have ultimately to be
reduced, would this not, when all is said and done, finally benefit
the workers ? If costs are reduced and the price of foodstuffs and
products are brought down at the same time, all consumers, workers
as well as others, would benefit. If wages are reduced the loss of
earnings is counter-balanced by more advantageous prices and living
conditions. And if, thanks to the fall in prices, prosperity returns
later, the labouring classes will benefit twice over.
Such is the employers' argument. But even though it is commonly
accepted by moderate opinion and may seem to be justified by the
experience of past cyclical depressions, can it really be said to be
proof against all criticism ? It appears to be based on two series
of considerations which are of a fundamentally different nature.
In the first place, there is the element of competition. The
undertakings or national industries which seem best able to maintain their sales capacity in face of the extremely keen competition
of a period of depression are those which produce at the lowest
cost. Hence the idea of reducing costs when they are found to be
higher than elsewhere.
But the undertakings which take such steps cannot be certain
that lower costs obtained even by a reduction in wages will be
effective, for their competitors may not have reduced the wages
of their workers to the lowest possible level and may try once
again to get the better of their rivals in this calamitous race. So
that in the long run this attack on decent conditions of labour would
prove not only useless but actually harmful.
Indeed, the situation could be quite different if, instead of allowing
themselves to be influenced by a spirit of panic-stricken competition,
the different competing States came to some agreement based
on the methods laid down in the Peace Treaties to maintain and
safeguard normal conditions of labour. Unfortunately, in spite
of a certain amount of success achieved in this direction by the
Organisation, humanity still seems incapable of making the
1

MICHELET: Le Peuple, First Part, Chap. II, " Influence démocratique de la
manufacture."

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UNEMPLOYMENT PROBLEMS IN 1931

necessary effort, and States are only slowly becoming accustomed to
active international collaboration. And yet exporting countries
cannot solve their difficulties by chaotic endeavours to lower
production costs, especially by means of a reduction of wages.
Adjustments of wages with a view to equalising the rates in the
different countries may be made in various ways, but the method
most closely conforming with the objects of the International Labour
Organisation is certainly not that which tends to lower their general
level.
It may be that, for an isolated country which cannot reckon
on any international collaboration, the adoption of a lower standard
of living may appear to be the only hope of achieving a favourable
balance of trade. But, before recourse is had to such methods,
surely Members of the International Labour Organisation should
first try the measures available through the Organisation itself
for mitigating international differences through raising the
standard of living in the less-favoured countries. It is recognised, of course, that the general level of wages in each
country is largely determined by its physical conditions or by
economic factors inherited from the past. But, although physical
conditions cannot be altered, their effects can be neutralised.
As to inherited burdens, it would seem that a well-organised
system of international credit could rapidly succeed in improving
conditions in the economically backward countries.
In this connection it must frankly be admitted that the Office was
disappointed that the Governing Body did not unanimously approve
the very objective request put forward by the workers' representatives on the Unemployment Committee for the investigation
of " suitable means of raising the remuneration of labour in countries
where it is most inadequate at the present time, with a view to
eliminating one factor of unfair competition and to increasing the
consuming capacity of certain markets ".
A proposal of this kind certainly seems to fall well within the
sphere of action assigned to the Organisation by the Peace Treaties.
And it hardly seems to have deserved the objections made against it
as to specification of the countries to which it referred. There must
surely be some foundation for the repeated complaints of unfair
competition.
Either the machinery of the International Labour Organisation
has been well conceived for really effective purposes, in which case
it must be set in motion, or it is founded on erroneous economic
conceptions and is a mere illusion, in which case the fact must be

REPORT OF THE DIRECTOR

85

frankly admitted. In any case the present attitude does not seem
worthy of the States Members of the Organisation.
However, when employers advocate a reduction in costs as a
remedy for the depression or when they invoke wage difficulties
as an objection to a permanent reduction in working hours, they are
thinking not merely of foreign competition and the interests of
export trade or industries menaced by imports. They believe
that lower prices will stimulate consumption, revive trade and
thereby benefit the workers in their dual capacity as consumers
and producers. This is the second aspect of their case.
But are they sure of obtaining the result they expect ? It is
perhaps not certain that if costs are reduced the price of goods will
also decrease proportionately. It has often been noticed that retail
prices do not exactly follow the curve traced by wholesale prices;
sometimes they even continue to rise when wholesale prices are
falling.
At the end of 1930, although the general index of wholesale
prices in the United States was 24 per cent, lower than the average
for 1925, the cost-of-living index had fallen by only 12 per cent.
At the same period in Germany the fall in wholesale prices was
16 per cent, as compared with the 1928 average, and retail prices
had fallen by only 7 per cent. In Great Britain, compared with the
1924 average, the index of wholesale prices calculated by the
Board of Trade had fallen by 35 per cent, at the end of 1930, while
the fall in retail prices was 11 percent. In Italy, compared with the
1928 figure, the fall was 24 per cent, for wholesale prices as against
a decrease of under 3 per cent, in the cost of living. In France,
wholesale prices showed a decrease of 22 per cent, at the end
of 1930 as compared with the 1928 average, and the cost-of-living
index actually rose by 15 per cent.
If this state of affairs could be remedied and retail prices made to
coincide with wholesale prices, then the grave difference of opinion
between employers and workers on this subject revealed in the
Unemployment Committee would be largely overcome. The gulf
(so clearly described in the memorandum prepared by Mr. G. D. H.
Cole for submission to the Unemployment Committee *) between
the positions taken by employers and workers—purchasing power
on the one hand and costs on the other—could then be bridged over.
As Mr. Jouhaux said in effect in the Governing Body, if the
working classes could have full guarantees that a wages adjust1

See "Wages and Employment", pp. 225-280 of this volume.

86

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

ment would be set off by a fall in the cost of living, perhaps their
hostility towards such adjustments would be less obstinate.
From that practical standpoint which characterises the methods
of the Organisation, the Office ventures to suggest that this
possibility of immediate joint action should be kept in mind.
Action of this sort has, indeed, been taken in several countries,
including Germany, Italy and Poland, with a view to relieving the
present economic depression and unemployment. In the opinion
of the Office the results of these measures have not so far been
sufficiently analysed. It is possible that the steps taken have
not been entirely without success. All the same, they have also
produced reactions tending to negative the object in view. If the
consumer is led to expect that a reduction in prices is coming, this
will encourage a " buyers' strike ", purchases being put off which
are not immediately essential. This effect has been felt in the three
countries mentioned above. In Poland, for example, the Central
Association of Industry recently asked the Government to make a
public announcement that it had terminated the action it was
taking to lower prices of industrial products, and a communiqué
was actually issued by the Ministry of Commerce to this effect and
suggesting that consumers no longer had any reason for abstaining
from making their purchases for the summer in the expectation
of any further reduction. Similarly, in Italy, the Minister of
Corporations on 10 March 1931 sent a circular to the Prefects
and the secretaries of the Fascist Party to the effect that, though
the desirability of some further reductions in the prices of certain
products was being considered, the campaign undertaken for
reducing retail prices generally had reached a "final stage of adjustment and co-ordination " and that local authorities should not
encourage any " inopportune disequilibrium in trade or unwarranted
variations in the level of prices. " It may be suggested that perhaps
the only rational way of narrowing the considerable divergence
which exists in a period of a general slump in prices between wholesale and retail prices would be to reduce the cost of too many
middlemen, and for this purpose more systematic and extensive
use might be made of the co-operative movement in all countries.
Provided that their main object is to reduce the costs of distribution as between the producer and the consumer, measures
for lowering retail prices, if successful, must of necessity increase
the absorbing power of the internal market and promote a business
revival among producers. Even if reducing costs of distribution means
cutting down employment in the trades concerned, it is extremely

REPORT OF THE DIRECTOR

87

probable that this would be more than counter-balanced by
increased employment in industry as a whole.
Moreover, it is surely not beyond the realm of practical possibilities that such action as this should be combined with measures
for systematising and reducing hours of work, and that the whole
policy should be carried out with the co-operation of employers
and workers.
The Level of Wages

The above considerations are intended to suggest lines along
which a solution might be sought for the problem of wages in relation
to hours of work. There remains, however, the further problem
of the relationship of wages as a whole to unemployment. Here the
question has been to ascertain whether the present depression is to
be attributed in part to the fact that the general level of wages has
been forced up too high, or whether, on the contrary, it has been
kept too low.
This big and complex question has given rise to much discussion,
but, as frequently occurs in the social field, investigations have not
been pushed far enough. The Office is therefore forced to admit that
for the present the scientific data available on this subject do not
allow it to form any definite opinion.
Apostles of industry from the United States of America have
preached a new doctrine, the doctrine of "high wages". The
payment of high wages to the workers, they proclaim, infuses new
life into the whole economic system and ensures lasting industrial
prosperity. The wonderful prosperity of the United States is
stated to be due in part to the high level of wages obtaining there.
High wages, it is affirmed, guarantee a high power of consumption,
which in turn ensures regular production and stable employment.
But these prophecies, and even the experience on which they were
based, seem to have been disproved by the present depression.
The prophets have been ridiculed, and the prestige which they
enjoyed for a number of years has gone. Even those who most
admired the American capitalist system have had to recognise its
inability to solve the problem of the correct relationship between
wages and prices 1.
No contribution to the theoretical discussion which has raged
round this question can or need be made in this Report. The Office
1
Cf. speech by Mr. Spinasse in the French Chamber of Deputies,
27 Feb. 1931.

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

has a practical aim in view—to find definite openings for earlyinternational action through the Organisation and suitable subjects
for Conventions or Recommendations.
Just as the Office, despite its sympathy with the movement, has
felt it impossible as a practical proposition to take up a definite
stand for or against the 40- or 44-hour week at the present stage,
so it seems just as impossible, and perhaps more so, to express in this
Report any formal approval of the policy of high wages.
What is a policy of high wages ? What, after all, is a high wage ?
High with reference to what ? What wage, standards are to be
adopted in order to secure an increase in consuming capacity which
will enable it to absorb increased production ?
It may not be certain that an increase in the consuming power
of the working classes will suffice to re-establish the desired equilibrium between supply and demand, for it cannot be said what
proportion of the total consumption of the different countries is
represented by the consumption of industrial wage earners 1 .
Then, again, are all countries and all industries in a position to
adopt a policy of high wages ? Even if a section of the American
workers do enjoy a high standard of living, this situation is sureln
partly due to very special geographical, historical and technical
conditions 2.
Besides, how would countries which desired to give higher wages
to an underpaid working class with a view to increasing production
and abolishing unemployment propose to negotiate the big initial
operation, the general credit operation, if it may be so called, which
will be necessary to give the first stimulus to the consuming power
of their workers and so ensure the desired prosperity as a constant
phenomenon ?
The Office at any rate still has doubts as to the true solution
of these problems. All the same, American statistics and studies,
incomplete and inconclusive as these sometimes are, have brought
out certain facts which have given cause for thought to the workers
and to all who seek to ensure social stability on the basis of justice.
There is first of all the question of the relationship between the
wages paid in America and the general conditions of life in that
country.
1
Cf. Mr. François SIMIAND'S communication to the French Association for
Social Progress, on " Real wages and the policy of high wages ". Les Documents
du2 Travail, Nos. 161-162, Sept.-Oct. 1930.
Memorandum submitted by Mr. Olivetti to the International Chamber
of Commerce, 1931.

REPORT OF THE DIRECTOR

89

When the purchasing power in the United States of America
of the average wage paid in that country is compared with the
purchasing power of the average wages earned by workers in most
other countries, it will probably be found, although this comparison is extremely difficult to make on really scientific lines, that
American wages are on the whole relatively high. It seems much
simpler and clearer, however, to admit that nowadays the general
material standard of living is higher in the U.S.A. than in the
majority of other countries. This being so, it is not at all certain
that an affirmative answer can be given to the question whether
American wages are high in relation to the vast amount of commodities offered to consumers in that country by the national
manufacturing industries.
According to Mr. Ethelbert Stewart, United States Commissioner
of Labour Statistics 1 , the average yearly earnings of workers
employed in the manufacturing industries had increased, in
comparison with 1909, by 128 per cent, in 1921 and by 154.4 per
cent, in 1929. During the same .period the index number of retail
prices had only risen by 72.8 per cent, in 1921 and 76.8 per cent.
in 1929. The increase in real earnings was thus considerable. But
it does not appear to be so large when it is taken together with the
value of individual output per worker, which had increased by
101 per cent, in 1921 and by 156.2 per cent, in 1929. Taking 100 as
the proportion of the total value of production representing wages
in 1909, this proportion had increased to 113.3 in 1921 and dropped
to 99.4 in 1929. The proportion of production absorbed by wages
was thus considerably reduced between 1921 and 1929 2.
It does not necessarily follow that a parallel increase in wages
and output would have sufficed to maintain the balance between
supply and demand on the market for consumable goods, but it
may and has been asked whether some attempt could not be made
to secure a certain amount of equilibrium.
American conditions, moreover, would seem to show that,
during the last few years, the phenomenon of over-capitalisation
which has already been referred to, in other words, the investment of
too large a proportion of the income of production in the development of equipment which is excessive in relation to the purchasing
1

Monthly Labour Review, Dec. 1930.
- A similar conclusion might be drawn for Germany from the statistical
calculations of Messrs. Erkelenz and Woy tinski. {Der Irrtum der Lohnsenkung
by Anton ERKELENZ, Wirtschaftsdienst, 16th year, No. 5, 13 Jan. 1931. Die
Entwicklung der Wirtschaft und das Lohnproblem, by Wladimir WOYTINSKI,
Gewerkschaftszeitung, No. 9, 1 March 1930). •

90

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

power available for the consumable goods produced by such equipment, has been, in addition to those previously dealt with, an
important cause of the economic disequilibrium and of the
unemployment among the workers.
The ambiguity of the formula of " high wages " has already been
referred to. Wages are more or less high in a given economic
milieu according to the value of the production in such area and the
standard of living which accordingly prevails there. On the other
hand, one of the principal problems to be solved for the maintenance of economic equilibrium would seem to be that of the
distribution of the income of production between the upkeep and
development of existing equipment on the one hand and the
immediate purchase of consumable goods on the other. Any
disequilibrium in the one direction or the other may produce
unemployment. If development of equipment is inadequate in
relation to the growth of population, workers will be unemployed
for lack of instruments of labour, and the general material standard
of living will be lowered. If development of equipment is excessive,
there will be over-production for want of purchasing power left in the
hands of the consumers by whom the production should be absorbed.
This problem at present is to a great extent bound up with that
of wages, because in practice capital is being more and more developed by levies made on the gross profit of undertakings, while
wages are still, in a very large proportion, devoted to commodities
and services for immediate consumption.
It is noteworthy that, in the present depression, the attention
of American economists has been increasingly drawn in this
direction.
As has been already indicated, the Office does not wish in any
way to venture on a definition of a wages policy based on the
value of production or of a policy of accurate distribution between
wages and the accumulation of capital. For ten years past, in the
international field especially, the Office has had experience of the
almost insurmountable difficulties in the way of any direct intervention in the matter of wages. The teaching of the pioneers of social
legislation is that action should be taken in other directions and
that it is, so to speak, only by an oblique movement that any
influence can be exercised on wages. The best qualified experts on
wage movements also recommend great patience and prudence 1.
It seems clear, nevertheless, that disequilibrium between wages and
1

Cf. the article of Mr. F. SIMIAND, cited ante p. 50.

REPORT OF THE DIRECTOR

91

production and between wages and capitalisation lies at the root
of the present troubles. Needless to say, the Office would be glad
to welcome in the near future any reliable suggestions or courageous
attempts for discovering the principles of a rational wages policy.
A propos of these last
conclusion to this Report,
tions which it has had in
have guided it in the line

observations, the Office ventures, as a
to indicate briefly the general consideramind in the preceding pages and which
it has taken.

New Considerations
In bringing the serious problem of unemployment once more
before the Conference, the Office has taken pains to keep strictly
within the four corners of the resolution of the Governing Body.
This resolution has been followed, line by line, with a view to
preventing digressions in other directions. A definite field has thus
been mapped out for the discussions of the Conference, and a second
ploughing of it, furrow by furrow, by those discussions will make
it more fertile. This should facilitate the preparation of some
agreement in outlook and action between the different interests.
Further, endeavours have been made to suggest as positive
conclusions only certain practical proposals of a modest and even
commonplace character, but such as should be generally accepted
and can also be carried out or attempted with the means at the
disposal of the International Labour Organisation itself. No doubt,
the political, economic and financial machinery which it is proposed
to set in motion for securing equilibrium between production and
consumption and the harmonious development of both and which
would thus promote stability of employment, will be more powerful
than the means at the disposal of the Organisation. The Office,
however, has not been entrusted by the States with the control
of this machinery. It is slow to get started, and it may take some
time to produce results. What is wanted is positive and immediate
results, even if within a limited field, for the armies of the unemployed. If the Organisation resolutely sets out to get them, even
if it has to go beyond the frontiers of its own province, it will
inevitably stimulate and bring about in other quarters those more
far-reaching measures which are required to bring its own action
to complete fruition. If the Organisation were irresolute and timid
in its own action, the whole war on unemployment might weaken
and languish.

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

Surely, in a report to the Conference, the Director of the
International Labour Office could not follow any other course.
This does not imply that the Office is insensible to the turmoil
of hopes, aspirations and bold conceptions which are at present
agitating men's minds and enlarging their outlook, or that its eyes
are shut to all that is new and unprecedented in these days.
Mr. Weigert, the German Government delegate, remarked one day
in the Governing Body that, in order to deal effectively with the
evil from which the world is suffering, " an entirely new mentality "
was required. Surely the psychological revolution which he
postulated is already becoming a fait accompli.
A few years ago, when cyclical depressions periodically disturbed
modern industrial activity, those who studied them resigned
themselves to treating such phenomena as natural cataclysms which
men felt powerless to prevent and in which the only course of action
they could take was to provide relief for those who were most
closely affected. Socialists themselves declared that there could be
no remedy for such a state of things except the complete revolution
in the system of ownership at which they aimed. Was not this
really the same confession of impotence for immediate action ?
All the experts accepted periodical recurrences of depression and
unemployment as something unavoidable.
Some assistance,
without any definite method, to distressed workers, some incoherent
endeavours at placing, were the only remedial measures that were
contemplated. Vast social measures, such as international placing,
régularisation of migration, unemployment insurance, etc., were
hardly dreamt of. Anyone who had talked of preventing the
recurrence of depressions by a better organisation of national or
international economic activity in the early future would have
been regarded by all parties as a Utopian or mad.
Nowadays, there is practically a unanimous revolt on all sides
against the dogma of the inevitableness of slumps or at any rate
against the idea that it is impossible to mitigate their severity by
systematic action. The horror of unemployment has become
intolerable to the modern conscience. The present situation has
been all the more painfully brought home to men's minds by the
fact that, for some five years past, Europe had been hoping to be
able to effect its recovery and reconstruction and to live in some
degree of certainty and stability, while, on the other side of the
Atlantic, the United States of America in the flush of its fresh
industrial expansion had believed that it could stabilise wealth
and employment together.

REPORT OF THE DIRECTOR

93

In all sorts of quarters thought is running in the same direction.
At its meeting in Zurich from 22 to 23 August 1930, for example,
the Executive of the Labour and Socialist International,
" convinced t h a t the world economic crisis shows the necessity
for the strongest efforts to secure the transition from the capitalist
order, the fundamental cause of unemployment, to a Socialist
economic order," decided to invite the International Federation
of Trade Unions to join with it in preparing a programme for
common action and " the calling of a special world conference at
the earliest practical moment (to which other important bodies of
organised Labour may be invited) with a view to initiating
simultaneous international action."
In the United States of America, Colonel Woods, Chairman of the
President's Emergency Unemployment Committee, expressed the
view t h a t the people of to-day faced two assumptions-—either t h a t
the periods of depression which occur every eight or ten years were
unavoidable or t h a t they were not. If they were not, he declared,
" we will have a hard time justifying our economic system "1.
In the United States, again, a journal with a considerable
circulation in business circles has strikingly expressed the uneasiness
prevailing in such circles:
The important thing in this depression is not the temporary losses to
business or the hardships to labour it brings in its train; it is "the consequence of these things upon men's minds. It is one thing for men
to lose their jobs; another for them to lose their faith.
In that light, this depression is more than a passing circumstance in
our history; it is a crucial turning point in industrial civilisation, not only
for the United States, but for the world. Because of the circumstances in
which it takes place—far more universal in their scope and far different
in their character from any in the depressions of our past—it presents
the first and perhaps final challenge to the economic and political systems
under which the western world has lived for more than a century and a
half. 2
Or again, the President of the United States himself made the
following inspiring statement to the American Bankers' Association
on 2 October 1930:
The economic fatalist believes that these crises are inevitable and
bound to be recurrent. I would remind these pessimists that exactly the
same thing was once said of typhoid, cholera, and smallpox. If medical
science had sat down in a spirit of week-kneed resignation and accepted
these scourges as uncontrollable visitations of Providence, we should
still have them with us. This is not the spirit of modern science. Science
girds itself with painstaking research to find the nature and origin
1
2

New York Times, 11 Jan. 1931.
The Business Week, Oct. 1930.

94

UNEMPLOYMENT PROBLEMS IN 1931

of disease and to devise methods for its prevention. That should be our
attitude towards these economic pestilences. They are not dispensations
of Providence. I am confident in the faith that their control, so far as
the causes1 lie within our own boundaries, is within the genius of modern
business.
And the Churches too have taken a stand against the inevitableness of unemployment. Thus Anglican, Orthodox and Reformed
Churches declared, at the Stockholm Conference in 1925, t h a t the
evils of unemployment are intolerable, t h a t its causes should be
found out and eliminated, and that the Church was profoundly
interested in investigations to remove this evil and had to emphasise their importance to all Christian nations, as the problem was
not insoluble.
Similarly, in his Christmas Message the Pope referred to the
general, indeed universal, financial and economic malaise as one
of the unfortunate features of the time. Appealing for action to
mitigate the considerable sufferings caused by the widespread
unemployment, he specially denounced severe and unbridled
competition as harmful to all concerned, and suggested t h a t what
was needed was a better social and international equilibrium, based
on more justice and Christian charity, and capable of rendering
possible and effective, to the advantage of all, fraternal co-operation
between classes and peoples.
Whether it is expressed in traditional or revolutionary formulae,
the consciousness of the new needs of the present time is vigorously
asserting itself on all sides. There are very few who still dare to say
that "economic crises must be left to run their natural course and t h a t
attempts should not be made to remedy them by artificial means " 2 .
Mr. Lambert-Ribot himself emphasised t h a t such an attitude
could not be adopted b y enlightened employers when he asked
what the champions of the old economic liberalism would say if
they could come back to life now.
They could doubtless only angrily repudiate " the directed
economy ", " controlled economy ", " organised economy ", or
by whatever other name it may be called, which everyone now
believes must be the objective to be kept in view. Even the immediately practicable measures which the Office has ventured to
propose themselves form part of such an organised economy. If
some minds consider t h a t things have already gone too far along
these lines, others on the contrary maintain—and, it would seem,
1

The United States Daily, 3 Oct. 1930.
Bulletin quotidien de la Société d'Etudes et d'Informations
28 Jan. 1931.
2

économiques,

REPORT OF THE DIRECTOR

95

rightly—that the present disorder is due to the hesitations of
producers and Governments to advance in this direction.
Very significant in this connection are the eager discussions,
research and soundings which have taken place recently in the
United States of America.
In the middle of 1929, at the zenith of the wave of prosperity
in t h a t country, the Committee presided over by Mr. Herbert
Hoover on Recent Economic Changes in the United States published
a report which, in the midst of its otherwise categorical conclusions
as to the great and rapid progress which had been made, gave a
hint of certain apprehensions in regard to the future. With a view
to obviating the dangers it feared the Committee suggested a
systematic effort for ensuring continuity of development.
The key idea underlying these suggestions was the establishment
and maintenance of balance between all branches and forces in
economic life.
The outstanding fact which is illuminated by this survey (says the
Committee) is that we cannot maintain our economic advantage, or
hope fully to realise on our economic future, unless we consciously
accept the principle of equilibrium and apply it skilfully in every
economic relation.
or again:
To maintain the dynamic equilibrium of recent years is, indeed, a
problem of leadership which more and more demands deliberate public
attention and control . . .
Our complex and intricate economic machine can produce, but to keep
it producing continuously it must be maintained in balance. During the
past few years equilibrium has been fairly well maintained . . . There
has been balance between the economic forces—not perfect balance, but
a degree of balance which has enabled the intricate machine to produce
and to serve our people.
As long as the appetite for goods and services is practically insatiable,
as it appears to be, and as long as productivity can be consistently
increased, it would seem that we can go on with increasing activity.
But we can only do this if we develop a technique of balance. 1
What exactly is this " technique of balance " ? How far can
" controlled " or " organised " economy be immediately developed ?
How can t h a t " economic co-operation of the peoples " which is
advocated on all sides, both by the Internationa] Labour Organisation and by the League of Nations be instituted ? What are the
precise measures and the first steps for bringing all this about ?
Such are the immediate problems now facing this generation.
1

Report oj the Committee on Recent Economic Changes in the United States,
Vol. I, pp. XX, XXI and XXII.

96

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

The bitter experiences through which it has passed have opened
up for it a vista of practical, economic and social relationships
which its predecessors never suspected, and have suggested possibilities of action which could never have occurred to their minds.
The statistical information which has been published and the
important economic enquiries which have been undertaken, while
only yielding a portion of the material required, have nevertheless
furnished information which was previously lacking, and where at
one time, in the ignorance of the day, class antagonisms, party
disputes and controversies between different schools set one group of
interests at war with another, scientific and disinterested observation
of the relevant phenomena has now revealed here and there bonds
of economic solidarity which could hardly have been expected.
Will it some day soon become possible, in every country and in
every industry, to conceive, in the light of movements in productivity, an adequate distribution of income between capital and
labour, between profits and wages ? Could a properly balanced
development of equipment and consumption, of supply and demand,
be brought about and maintained ? Has the time come when
national and international bodies, furnished with the necessary
information, and on which all the interests affected are represented,
will be in a position to make general proposals of a practical
character which would at one and the same time promote the
regular and continuous development both of the different branches
of production and of the well-being of the masses ?
The situation should not be under-estimated. If the modern
industrial world is to fail to achieve such projects as these, which
have hardly even been outlined and are still vague but which have
been suggested by the prevailing disorder and distress, if it cannot
find the courage and intelligence necessary for creating the new
order, the order of peace and justice, then a spirit of despair, a
spirit of destruction and revolt, for which ready-made formulae
are at hand, will almost inevitably produce most serious upheavals
—just at a time, too, when it has undoubtedly become possible to
create new instruments for organisation and civilisation.
This must and can be avoided. By courageously making a
beginning with joint action, on a modest scale but in the right
direction, and by confidently developing its possibilities, the
International Labour Organisation can show that the strength,
intelligence and faith necessary for discharging the task imposed
on this generation are forthcoming.

UNEMPLOYMENT A N D MONETARY
FLUCTUATIONS

On several occasions, and more particularly in the report on some
international aspects of the unemployment problem 1i presented to
the 1929 Session of the Conference, the Office has drawn attention
to the relation existing between the fluctuations in unemployment
and in the average price-level, taken as an index of the purchasing
power of the monetary unit.
The Office was recently called upon to submit a memorandum
on this question to the Gold Delegation of the Financial Committee
of the League, and this memorandum was also submitted to the
Unemployment Committee of the International Labour Office.
The Gold Delegation to the Financial Committee of the League
of Nations has, according to its terms of reference, to study " the
effects of undue fluctuations in the purchasing power of gold on
the economic life of the nations ".
One of the factors which is most important in the economic life
of nations and which affects so very closely a large number of their
inhabitants is the opportunity for employment.
We attempt to give here a short analysis of the connection between fluctuations in the purchasing power of gold and fluctuations
in the average level of unemployment. In the absence of a precise
definition of the purchasing power of gold, a matter which is a
subject of separate study by the Gold Delegation, indices of wholesale prices have in most cases been used.
It is common knowledge and generally admitted that periods of
falling prices are associated with a high level of unemployment and
conversely that periods of rising prices are associated with a low
level of unemployment.
Theoretical arguments exist and can be found in the works of
innumerable economic writers which explain logically the close
1

INTERNATIONAL

LABOUR

OFFICE:

Unemployment:

Some

International

Aspects, 1920-1928. Studies and Reports, Series C, No. 13. Geneva, 1929.

98

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

connection between fluctuations in the general level of prices and
fluctuations in unemployment. It is not proposed to enter into
these arguments here, but simply to submit statistics which tend
to illustrate this connection.
Unemployment is affected by so many circumstances that one
would not be justified in drawing the conclusion from the figures
given below that the fluctuations in the general level of prices are
the cause of fluctuations in unemployment, as both these series
may be affected in part by a common cause. It is not practically
possible to secure conditions in which one can isolate one factor
from another, so as to enable a satisfactory experimental proof
to be made. Nevertheless, it should be noted that when the
fluctuations in the average level of prices in a large number of
countries synchronised, as was usually the case before the war,
the fluctuations in unemployment also tended to occur at the same
time and in the same direction in these countries. This phenomenon was familiar when the currency units of nearly all countries
were for practical purposes linked to gold. Periods of depression,
accompanied by falling prices and a high level of unemployment,
occurred in all countries at practically the same time, and similarly
periods of prosperity, accompanied by rising prices and a low level
of unemployment, also arose simultaneously in all countries.
In the period 1919-1928, however, this link of the gold standard
was not operating and different countries followed varying monetary policies which allowed of a wide divergence in price levels
which were often observed to move in opposite directions in
different countries. It was also to be observed in this period that,
instead of rising and falling simultaneously in various countries,
as had formerly been the rule, unemployment figures now rose in
some countries at the same time as they fell in others. The increase
in unemployment in most cases was associated with a falling price
level, and unemployment as a rule was at a lower level when priceswere risings—always provided that inflation had not reached such
a pitch as completely to disorganise the mechanism of exchange
and trade.
The following data showing the relation of the average level of
wholesale prices to unemployment will, therefore, be given separately for the three main periods for which figures are available :
I. Previous to 19131. In this period the currencies of the
countries considered were linked to gold and fluctuated in a more
1

For the United States up to 1925.

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

99

or less parallel manner in all the main countries. Unemployment
rose and fell in all these countries simultaneously and an association
of falling prices with high levels of unemployment and conversely
is apparent. In the case of Great Britain, at any rate, it is possible in this period to examine the effects of a long period trend
in prices on the average level of unemployment.
II. 1920-1928. In this period the link between monetary
systems was severed and price levels were able to take widely
divergent courses in different countries. Unemployment ceased
to occur simultaneously in a large number of countries, but a
strong tendency is found for it to grow when the price level of a
country was falling and to diminish when prices were rising.
III. 1929-1930. In this period most countries had returned
to some form of gold standard and price levels have again moved
simultaneously in different countries. They have, in fact, fallen
sharply in all countries but one. In all those countries, with a
few minor exceptions, unemployment is found to have increased.
I. — Previous to 1913
Data on employment are only available for the United States
from 1903 to 1925 (1877 to 1924 in the case of the relation between
fluctuations in prices and an index of trade); from 1851 to 1913
for Great Britain; from 1903 to 1913 in Germany; and from 1895
to 1913 in France.
UNITED STATES
Information on the connection between prices and employment has
already been collected by Professor Irving Fisher, of Yale University,
who published it in an article contributed to the International Labour
Review 1. He shows that there is a very strong correlation, expressed
as being 0.90 (Pearson coefficient) between price 2 changes in the United
States and industrial employment 3 in that country. In order to show
this correlation clearly, it is necessary to compare, not actual prices,
1
International Labour Review, Vol. XIII, No. 6, June 1926. This statistical
investigation is the only one of its kind and the International Labour Office
can accept no responsibility as to the validity or accuracy of the author's
statistical methods.
2
UNITED STATES BUREAU OF LABOUR STATISTICS: Wholesale Prices.
3
According to the Statistics of the Harvard Committee of Economic
Research, the material for which was obtained from various sources, including
statistics both of employment and unemployment. These were put
together into one index after verifying the strong inverse correlation between
them.

UNEMPLOYMENT PROBLEMS IN 1931

100

but the rates of change of prices, with employment. " It is not a high
price level that makes for full employment, or a low price level that
makes for unemployment . . . We might have a price level ten times as
low as our present price level, and yet, if it remained there, it would not
tend to create depression of trade or unemployment. But if we sink
from one level to another, then during the time of falling we do produce
depression of trade and unemployment. Conversely, if we rise from one
level to another, then during the period of rising we do for a time produce
more employment. " l
CHART I

E
•35•30•Z5•zo•15•10• 5u
- 5-10- 1 •ñ

F
-35

A

Jh

d

~*JU

-25
-20

\

• 1*1

(

P
^
/

'i

/

-ZD/
-Z5- •
-30-35-40- 130] 1904 905 9ÜE 90719011909 1910 1911 1812 I8U 1814 1915 9161917 1916

r\

/

<\l

-ID
- 5

u
- 5
-10
rv
- IR
/
-Z0
/
--25
-3D
-35
919 8201921 1322 1921 1824 I82Í - 4 0

\J

V

K

'

Ï

E = employment; P = price change projected in time.
Professor Fisher gives a curve which is derived from prices in two
stages : first by taking the rate of change of the prices curve 2, and
secondly by assuming that the effect of a change in prices on employment
will not be felt immediately, but will be felt to its maximum extent
a certain time after the change has occurred and thereafter to a decreasing extent throughout the later months, this yielding a curve which
takes this distribution of the time-lag into account 3 .

i International Labour Review, Vol. XIII, No. 6, p. 788.
2
The slope for any given month is measured by subtracting the index
number for the preceding month from that for the succeeding month and
reducing the result to a percentage of the given or intervening month. This
percentage being for two months is multiplied by six to give a per annum
rate.
3
The method of applying the system is described in detail in an article
on " Our Unstable Dollar and the So-called Business Cycle " in the Journal
of the American Statistical Association, Vol. XX, 1925, p. 198, note.

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

101

Professor Fisher points out in the International Labour Review that
" it stands to reason that correlating with a fixed lag is an extremely
inadequate method, for if at any one time inflation is going on rapidly
the effect of employment will not certainly wait for seven months and
then suddenly explode or be felt all at once and after that not be felt
at all. Instead, its effect will be distributed. "
By the use of this distributed time-lag of the effects of a price change,
it is found that the maximum correlation obtained (that is by using the
formula for the distribution of the lag which yields the best results in the
period 1915-1925) is 0.90 in the period 1915-1925 and 0.766 in the period
January 1903 to August 1915.
Professor Fisher chose the period 1915-1925 as the basis of his calculations chiefly because the factor of price change was so conspicuous in
that period. " Tt stands to reason that in the period of large and rapid
fluctuations in the price level this one great factor would throw all others
into the shade. The statistical fit found in such a period would, therefore,
come nearer to expressing the true relationship between the two curves
which we lare seeking to discover than in a period of relative price
stability. " As control of prices of individual commodities by rationing
was not a disturbing factor in the price level in the United States, a
period including the war period may be used, though it would be wrong
to do so in other countries.
For the same reason it may be expected that the correlation will
be lower in periods of relative price stability.
If the method of the distributed time-lag is not used and a fixed timelag of four months (which is the period giving the highest correlation)
is used, the correlation is 0.79 for the period 1915-1925.
" The correlation (between unemployment and prices) is sufficiently
high to enable us to say that for the period considered between 1915
and the present (1925) changes in the purchasing power of the dollar
may very largely explain changes in employment . . . 2
" We may, therefore, feel certain that changes in the price level do
definitely foreshadow or anticipate changes in employment . . .
" In short, facts and theory both indicate that in the ' dance of the
dollar ' we have the key, or at any rate
a very important key, to the
major fluctuations in employment. " 3
Professor Fisher originally applied the method of using the rates of
price changes with effects distributed in time in connection with the
correlation of price changes to trade 4.
The index of trade 5 used being one that is very representative of the
condition of employment, including as it does employment itself and data
recognised to be relevant to the state of employment in the country,
such as pig iron production, cotton consumption, freight, etc., we may
quote the figures here as proving a connection with employment.

i Journal of the American Statistical Association, Vol. XX, 1925, pp. 194-195.
- International Labour Review, Vol. XIII, No. 6, p. 787.
3
Ibid., pp. 791 and 792.
*5 Journal of the American Statistical Association, Vol. XX, 1925, pp. 179-202.
Index of trade of Professor Persons, corrected for secular trend and
seasonal variation and published in the Harvard Review of Economic Statistics,
April 1923, pp. 71 et seq.

102

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

The correlations thus obtained by the use of the method described
above in connection with employment are set out below for different
periods between 1877 and 1924. In each case the formula chosen for
the projection in time of the effects of a price change was that which
gave the best results for the period 1915-1923, in which the effects of a
price change ceased after twenty-five months.
1877-1899
1903-1915
1915-1923
1923-1924
1903-1924

0.60
0.79
0.95
0.92
0.81

" Seldom before has correlation so high been found in the efforts
to explain the business cycle. It seems certain, humanly speaking, that
whenever the dollar—our yardstick of commerce—suffers wide fluctuations in purchasing power, those fluctuations largely predetermine,
or at any rate precede closely, related fluctuations in trade. " 1

GREAT BRITAIN
The comparison between prices and unemployment in Great Britain
in the pre-war period can be made back to 1851, the following data being
used for the purpose: for prices, Sauerbeck's Index of Wholesale Prices,
which is used because it is sensitive to economic conditions and also
because it is available over a long period, each year of this series, being
given in terms of percentage of the preceding year, thus expressing the
rate of change in prices 2; for unemployment, the proportion of unemployed among reporting trade unions, as quoted in the Seventeenth
Abstract of Labour Statistics; this refers only to certain trades and to
registered trade unions; these two series of figures are plotted on
Chart II.
In making a year-by-year comparison of the direction of the movements
of the annual averages of unemployment figures and of price level
indices in each year from 1851 to 1913, we find a considerable measure
of agreement. In the 62 years under consideration the annual average of
wholesale prices, as compared with the previous year, rose in 29 years,
fell in 27 years and remained constant in 6 years.
In the 29 years in which the annual average of wholesale prices rose
as compared with the previous year, the annual average of unemployment
fell in 18 years and rose in 11 cases.
In the 27 years in which the annual average of wholesale prices, as
compared with the previous year, fell, the annual average of unemployment rose in 18 cases and fell in 9 cases.
It will be seen that there are a certain number of exceptions to the rule
that unemployment rises when prices fall, and conversely. These are
indicated in Chart II and can in most cases be explained. The comparison

1

Journal of the American Statistical Association, Vol. XX, 1925, p. 179.
Whenever the curve is below 100, prices are falling; whenever it is above
100, prices are rising.
2

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

PRICES

AND

UNEMPLOYMENT

Year

Sauerbeck's
Index
of Wholesale
Prices

1850
1851
1852
1853
1854
1855
1856
1857
1858
1859
1860
1861
1862
1863
1864
1865
1866
1867
1868
1869
1870
1871
1872
1873
1874
1875
1876
1877
1878
1879
1880
1881
1882
1883
1884
1885
1886
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
1898
1899
1900
1901

107
110
108
123
138
133
137
142
127
128
132
131
135
137
140
135
136
133
132
131
128
133
145
147
136
128
127
125
116
111
117
113
112
109
101
96
92
91
93
96
96
96
91
91
84
83
81
83
85
91
100
93

IN

GREAT

BRITAIN

Rate or
change in
Sauerbeck's
Index

Percentage
of trade union
unemployed

103
102
114
112
96
103
104
90
101
100
101
103
101
102
97
101
98
99
99
98
104
109
101
93
94
99
98
93
96
105
97
99
97
93
95
96
99
102
103
100
100
95
100
92
99
98
102
102
107
110
93

3.9
6.0
1.7
2.9
5.4
4.7
6.0
11.9
3.8
1.9
5.2
8.4
6.0
2.7
2.1
3.3
7.4
7.9
6.7
3.9
1.6
0.9
1.2
1.7
2.4
3.7
4.7
6.8
11.4
5.5
3.5
2.3
2.6
8.1
9.3
10.2
7.6
4.9
2.1
2.1
3.5
6.3
7.5
6.9
5.8
3.3
3.3
2.8
2.0
2.5
3.3

103

104

UNEMPLOYMENT PROBLEMS IN 1931

PRICES AND UNEMPLOYMENT. IN GREAT BRITAIN (COM.)

Year

Sauerbeck's
Index
of Wholesale
Prices

Rate of
change in
Sauerbeck's
Index

Percentage
of trade union
unemployed

92
92
93
96
103
107
97
99
104
107
113
113
113

99
100
101
103
108
104
91
102
105
103
105
100
100

4.0
4.7
6.0
5.0
3.6
3.7
7.8
7.7
4.7
3.0
3.2
2.1
3.3

1902
1903
1904
1905
1906
1907
1908
1909
1910
1911
1912
1913
1914

'

CHART II. — PRICES AND UNEMPLOYMENT IN GREAT BRITAIN
Rate of changes in prices

Unemployment

rate of change in prices.
percentage of unemployed in trade unions (graph reversed).
The small horizontal lines at the top of the chart show the years in which there is a
simultaneous increase in unemployment and the level of prices.
The corresponding lines at the bottom of the chart show the years in which there is a
simultaneous decrease in unemployment and in the level of prices.
N.B. — The full-line curve shows an increase in prices, whether it is moving upwards
or downwards, whenever it is above 100; it shows a decrease in prices whenever it is below
100. The upward and downward movements of the curve show changes in the rale at
which prices are falling or rising.

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

105

of the movement of unemployment in any year with that of prices for the
same year does not allow for the possibility of the time-lag and thus
underrates the essential concordance of movement. Moreover, the
increase or decrease in the average level either of unemployment or
of prices as compared with the previous year depends to a large extent
on the time of year at which the change of direction takes place.
We find that when allowance has been made for abnormal cases and
for the possible difference of a year between the movements (based on
annual averages) of the two series, there are very few exceptions to the
rule that do not admit of some explanation, and we can only point out
two cases in the sixty-two years, 1861 and 1895, in which we find the
unemployment figures not moving inversely with the price fluctuations
of either that year or the year immediately preceding or following it.
On the other hand, an increase in the proportion of years of falling
prices has the effect of raising the average for unemployment in such
a period as compared with a period in which prices show a tendency
to rise.
For Great Britain, this is shown below:
Period

Tendency of prices

Prices rising
Prices falling
Prices rising

1851-1873
1874-1896
1897-1914

Average
of annual averages
of unemployment
4.36 p e r cent.

5.13
4.14

„
„

„
„

One cannot attach much importance to these figures or draw any
definite conclusions from them, but they do point to the probability
of the direction of the long-period trend of prices exercising some influence
on unemployment.
Professor Wesley Mitchell and Dr. Thorp in Business Annals have
established the fact that during the periods in which the trend of prices
is downwards, the number of years of prosperity as compared with years
of depression decreases. The downward trend of prices tends to accentuate and prolong the depression phases of the trade cycle. Thus, using
information based on consular reports, pamphlets and publications of
the time as a criterion of " depression " or " prosperity ", Professor
Mitchell and Dr. Thorp work out the proportion of the years of prosperity
to those of depression as follows:
United States

England

Period

Prices

1790-1815*
1815-1849
1849-1873
1873-1896
1896-1920*

rising
falling
rising
falling
rising

Years of
prosperity per
years
of depression
1.0
0.9
3.3
0.4
2.7

Period

Prices

1790-1815
1815-1849
1849-1865
1865-1896
1896-1920*

rising
falling
rising
falling
rising

Years of
prosperity per
years
of depression

* These periods are partly falsified by the inclusion of war years.

2.6
0.8
2.9
0.9
3.1

106

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

" These results are so uniform and so striking as to leave little doubt
that the secular trend of the wholesale price level is a factor of great
moment in determining the characteristics of business cycles. " '
GERMANY
The fluctuations of unemployment and of prices in Germany can
only be compared since 1903 and the data available are shown in
Chart III. For prices the weighted average of a large number of series
of the prices of industrial raw materials and half finished goods is used 2.
For unemployment the percentage of unemployment among reporting
trade unions is used. These figures refer only to a small number of trade
union members (400,000 in 1903, 1,000,000 in 1905, 2,000,000 in 1911).
It is probable that these figures underrate the real extent of
unemployment in the country 3.
The comparison between the two series of figures is rendered difficult
by the intensity of the seasonal increase in unemployment which takes
place each year during the months of December to February.
The general direction of the movements of unemployment and prices
is shown to be concurrent, except during the years 1912 and 1913 when
unemployment showed a tendency to increase while prices also showed a
tendency to rise. This may be partly explained by labour troubles which
occurred in 1912 and by the fact that the short recession shown in
prices in 1913-1914 had already been shown in employment in 1912 ".
In the 1906-1907 crisis the unemployment percentage began to rise
five or six months before prices began to fall. Similarly in 1908-1909,
unemployment diminished three or four months before prices began
to rise again. (See table on pages 107-108.)
FRANCE
The data for the comparison of unemployment and prices in France
are rather inadequate. Such figures as are available are plotted in
Chart IV. They are, for prices, rates of change 5 of wholesale prices,
based on the customs valuation of 43 commodities imported prepared
by M. March; for unemployment, annual percentage of unemployment
among reporting trade unions ; these cover only a very limited number
of workers 6.
The parallelism between the two series is, as will be seen from
Chart IV, very close indeed, except during the years 1896,1897 and 1898,
where certain divergencies are noted, as was the case for the corresponding figures in Great Britain. The only other exceptions to the rule that
unemployment and prices move inversely was in 1899, when prices
(expressed as an annual average) continued to rise until 1900, whereas
unemployment had already begun to rise in that year; and in 1913,
when unemployment continued to fall although prices had already
1
2

Business Annals, p. 66.
Cf. Die weltwirtschaftliche Lage Ende 1925, p. 211, published by the

STATITISCHES
REICHSAMT.
3

Ibid., p. 211, June 1903-1906, quarterly figures, from Deutsches
Statistisches Zentralblatt, Erg. 6, p. 39.
4
Cf. THORP and MITCHELL: Business Annals, p. 215.
6
Each year expressed as a percentage of the preceding year.
6
Annuaire statistique de France.

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

107

PRICES AND UNEMPLOYMENT IN GERMANY

Prices of
industrial
raw
materials 2

Unemployment
(per cent.
unemployed
among
trade unionl 2
members)

90.5
90.6
91.0
90.4
90.2
89.4
90.3

2.32
—
—
1.84
—
—
2.24

July
Aug.
Sept.
Oct.
Nov.
Dec.

90.6
90.6
91.0
91.1
90.4
89.5
89.3
89.1
88.9
88.9
89.7
89.5

—
—
1.57
—
—
1.46
—
—
1.51
—
—
2.09

1905
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

91.5
90.0
89.0
89.3
89.1
89.6
90.5
91.1
91.2
92.3
94.9
96.1

—
—
1.36
—
—
1.25
—
—
1.00
—
—
1.62

1906
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.

96.2
97.0
98.6
99.5
99.4
100.2
100.1
100.9
102.2

—
—
0.99
—
—
1.2
0.8
0.7
1.0

Year
and month

1903
June
July
August
Sept.
Oct.
Nov.
Dec.
1904
Jan.
Feb.
March
April
May

Juñe

Prices of
industrial
raw
materials 2

Unemployment
(per cent.
unemployed
among
trade unionl 2
members)

1906 (cont.)
Oct.
Nov.
Dec.

105.1
108.0
109.1

1.1
1.1
1.6

1907
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

109.8
110.3
111.5
112.7
113.2
114.2
114.2
113.7
113.9
112.5
110.5
107.3

1.7
1.6
1.3
1.3
1.4
1.4
1.4
1.4
1.4
1.6
1.7 '
1.7

1908
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

104.6
103.3
102.4
101.3
100.3
100.2
99.3
99.5
99.1
98.2
96.4
95.8

2.9
2.7
2.5
2.8
2.8
2.9
2.7
2.7
2.7
2.9
3.2
4.4

1909
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

95.3
94.8
94.5
94.9
94.5
94.7
95.5
96.4
97.6
98.2
96.9
97.2

4.2
4.1
3.5
2.9
2.8
2.8
2.5
2.3
2.1
2.0
2.0
2.6

Year
and month

1
From June 1903 to June 1906, quarterly, from the Ergänzungsheft zum deutschen
statistischen
Zentralblau, No. 6.
2
Unemployment after 1906 and prices as quoted in Die weltwirtschaftliche Lage Ende

1925, p. 211, issued by the STATISTISCHES REICHSAMT and the INSTITUT FÜR KONJUNKTURFORSCHUNG.

108

UNEMPLOYMENT PROBLEMS IN 1 9 3 1
PRICES AND UNEMPLOYMENT

Prices of
industrial
raw
materials 2

Unemployment
(per cent.
unemployed
among
trade union
members) 1 2

1910
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

98.8
98.4
98.7
98.4
98.2
97.2
96.9
97.8
97.8
96.7
97.0
96.9

2.6
2.3
1.8
1.8
2.0
2.0
1.9
1.7
1.8
1.6
1.6
2.1

1911
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

96.9
96.9
96.9
97.0
97.8
98.0
98.3
98.3
98.8
99.1
100.3
101.6

2.6
2.2
1.9
1.8
1.6
1.6
1,6
1.8
1.7
1.5
1.7
2.4

Year
and month

IN GERMANY

(COTlt.)

Prices of
industrial
raw
materials 2

Unemployment
(per cent.
unemployed
among
trade union2
members) i

1912
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

103.8
109.9
110.0
111.3
110.6
110.9
110.5
111.0
112.7
114.9
116.2
118.5

2.9
2.6
1.6
1.7
1.9
1.7
1.8
1.7
1.5
1.7
1.8
2.8

1913
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

115.7
114.9
114.1
116.1
117.1
115.5
114.8
115.7
117.0
116.6
114.5
113.5

3.2
2.9
2.3
2.3
2.5
2.7
2.9
2.8
2.7
2.8
3.1
4.8

Year
and month

For footnotes, see preceding page.

Prices

CHART III. — PRICES AND UNEMPLOYMENT IN GERMANY
Unemployment
s
1

.,"A

IV-J

J

r
N

-^^>

LA

\
'\— I ls~ \

s ..J \ /

s ry

- A

l\

n
f

Index of prices.
Percentage of unemployed in trade unions (curve reversed).

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

109

broken in 1912. There are thus in all five year¿ out of nineteen in which
a parallel movement between prices and unemployment (inverted) is not
noted.
PRICES AND UNEMPLOYMENT IN FRANCE

Year

Index of prices

l

Kates of change
of prices

Unemployment 2

7.0
6.7
6.9
7.3
6.6
6.8

1895
1896
1897
1898
1899
1900

85
83
84
86
94
100

98
101
102
109
106

1901
1902
1903
1904
1905
1906
1907
1908
1909
1910

95
94
95
94
99
105
108
104
105
111

95
99
101
99
101
106
103
95
101
106

1911
1912
1913

117
121
118

105
103
98

7.8
9.9
9.4

10.2
9.0
7.6
7.0
8.6
7.3
5.8
5.7
5.4
4.7

1
Based on customs valuation of certain commodities on importation, prepared by
M.2 March, recalculated to base 1900 = 100.
Annual percentage of unemployed among trade unionists, including miners, as quoted
in the Annuaire statistique de France, 1913, p. 183 (recap.).

CHART IV. —

PRICES AND

UNEMPLOYMENT IN FRANCE

Rate of changes in prices

Unemployment

/

120

/
>

/"-•..

110

/ • *

100

>

\

A

/
\ /
1895

-

\

r

1&96 itti

so

y

l»9d

^

l« M

1900

1905

fi^*
1910

Index of prices, expressed as a proportion of the index for the previous year.
Percentage of unemployed in trade unions (curve reversed).

HO

UNEMPLOYMENT PROBLEMS IN 1931

II. — 1920 to 1928
The post-war period has enabled the link between monetary
fluctuations and unemployment to be observed under new conditions, owing to the fact that during the greater part of this period
nearly all countries had abandoned the gold standard and were
following monetary policies leading to divergent price levels.
Before the war when unemployment occurred in any large industrial country it was also to be found in other industrial countries.
In the years following the war, however, unemployment no longer
hit all countries at the same time or to the same extent and by
comparing these irregular movements it is possible to some extent
to isolate one factor from another just as one seeks to do in a
laboratory experiment.
It is recognised that the fact that the gold standard was no
longer a link between currencies was in itself a disturbing factor,.
as fluctuating exchange rates naturally affect the exporting industries in a very direct manner. When a country was undergoing
a period of inflation, there was a tendency for its internal price level
to rise at a slower rate than that at which the value of its currency
in terms of gold fell. This would render it a cheap country in
which to buy commodities, thus giving a stimulus to its export
trade and reducing unemployment. An exception to this rule
must be made in cases of exceptional inflation such as that of
Germany and Austria, which tended to disorganise completely the
mechanism of exchanges and trade. Conversely, in periods of
deflation the price level tended to fall at a slower rate than that at
which the value of their currency tended to rise in terms of gold,
thus making the country undergoing deflation one from which
it was relatively expensive to buy, thus leading to severe
unemployment in its exporting industries.
Even allowing for the predominant importance of the position
of the exchanges, it nevertheless remains true that a fall in the
level of wholesale prices is associated with a rise in unemployment,
and conversely.
This is brought out in an analysis of the fluctuations of wholesale
prices and of unemployment figures in seventeen countries published
in a report prepared by the International Labour Office: Unemployment : Some International Aspects 1920-1928 *. In its conclusion, this report states, among other things, that " of the 41 cases
1

Studies and Reports, Series C, No. 13. Geneva, 1929.

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

111

in which there was a fall in the general price level (of more than
4 per cent, as compared with the level of twelve months earlier),
25 were accompanied by an increase in unemployment, and only 7
by a decrease.
" Of the 33 cases in which there was a rise in the general price
level (computed in the same way), 21 were accompanied by a
decrease in unemployment and only 6 by an increase.
" Of the 51 cases in which the general price level neither rose nor
fell by more than 4 per cent., 25 were accompanied by a decrease
in unemployment, 15 by stationary unemployment and only 11
by an increase. " *
In the course of a description of the movement of unemployment and of wholesale prices in the different countries considered,
a considerable number of the exceptions mentioned in the above
paragraphs were explained by special circumstances.
It is not intended here to repeat this analysis, but to give a
certain number of examples showing the close connection between
fluctuations in prices and unemployment during this period.
The post-war boom of 1919-1920 affected almost all countries at
roughly the same time and was followed in 1921 by a rapid fall in the level
of wholesale prices in the great majority of countries. In this year
unemployment stood at a very high level almost throughout the world.
The following table compares wholesale prices and unemployment
between June 1920 and June 1921. This period covers the slump in
most countries and ensures comparison without seasonal variation.
Country

Wholesale prices
June 1920

Australia
Canada
Denmark
France
Great Britain
Netherlands
Norway
Sweden
United States

233
258
380 2 3
500 2
330 2 a
300
382'
366
269 s

June 1921
170
165
253 3
332
198 a
180
294'
222
142 8

i Unemployed per 100 trade unionists.
2
Approximate.
3
Finansliden.de.
* 000's omitted, unemployed in receipt of relief.
6 Board of Trade.
6
Unemployed per 100 insured persons.
7
Oekonomish Revue.
8
Bureau of Labour Statistics.
s Employment index: 1923 = 100.
1

Page 36.

Unemployment
June 1920
6.2 1
2.1 i
2.1«
0.1 4
1.2i
5.9«
0.81
3.41
118.0 »

June 1921
12.5 1
13.2 i
16.1 «
47.0*
17.8«
8.1 o
20.61
27.7 1
85.0»

112

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

In Belgium, Italy and Switzerland unemployment increased considerably with the fall in prices, but the necessary statistics are lacking
and cannot therefore be included in the table on page 111. In June 1921,
there were 22.9 per cent, of insured persons totally and partially unemployed in Belgium, and 389,000 registered unemployed in Italy.
At the same time, four countries escaped the slump : Austria, Czechoslovakia, Germany and Poland. These were the only four countries
in which prices had continued to rise. Thus, in Germany unemployment decreased from 6 per cent, in July 1920 to 0.6 per cent, in June
1922, the lowest level recorded in that country since the war, whilst
prices were rising at a very rapid pace indeed.
Finland may here be cited as another example. Its price level remained
steady and unemployment remained at an insignificant figure (the
number of unemployed in receipt of relief rose from 475 persons in
June 1920 to 937 persons in June 1921) even though its Scandinavian
neighbours who had experienced a fall in prices had suffered from
high unemployment.
It will be noticed that Belgium, France and Italy, whose prices
were then falling, shared the unemployment crisis of 1921, but from
the end of 1921 Belgium, France and Italy entered a period of rising
internal prices which continued to rise with occasional relapses for a
number of years (until 1927 in Belgium and France and 1926 in Italy).
During these years these three countries had a very low level of unemployment even though other countries at some time or another in
the same years were suffering severely from it. The table below will
show this:
June

June

June

June

June

1922

1923

1924

1925

1926

Belgium
Wholesale price index
Totally or partially unemployed per
100 insured persons

356

484

565

552

761

6.0

2.6

3.3

5.9

3.1

France
Wholesale price index
Unemployed in receipt of relief
(000's omitted)

332

417

475

554

754

4

2

1

1

0

Italy
Milan Chamber of Commerce index
of wholesale prices
Registered unemployed
(000's omitted)

504

539

537

634

654

372

216

131

86

83

In 1922-1923, there was a period of generally rising price levels
and this was accompanied by a relative decrease in unemployment
in nearly all countries. Austria, Czechoslovakia, Germany and Poland
continued to see their price levels rise at a rapidly gathering pace.
In these countries also unemployment at first remained at a low level.
When, however, inflation in Austria and Germany had reached such
a pitch that the economic life of these countries was severely shaken
and the mechanism of exchange and trade could no longer function
normally, unemployment assumed enormous proportions.

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

113

After this period of inflation in the central European countries comes
a period of currency reorganisation involving a fall in the wholesale
price level. This was in every case associated with considerable
unemployment.
Czechoslovakia was the first country to take this step. The index
of wholesale prices (base 1913) dropped from 1,433 in June 1922 to 949
in June 1923 and the number of unemployed in receipt of relief rose
from 108,000 to 246,000 at the same dates after having touched 441,000
in January 1922.
In 1924 Germany and Poland also reorganised their currencies with
the result that in Germany the number of unemployed in receipt of
relief which was 139,000 in July 1923 reached 1,533,000 in December 1923
and was down to 402,000 in May and 526,000 in July 1924. Since then
it has remained at a very much higher level than during the period of
rising, prices.
Similarly, in Poland the number of registered unemployed rose from
76,000 in June 1923 before the restoration of the currency to 138,000
in June 1924 after this had been effected. This figure continued to
rise apart from seasonal variations until February 1926.
It may be noticed that in the year from June 1923 to June 1924
prices rose only in four countries and in three of them (Denmark, France
and Norway) unemployment decreased. The only exception of the
year was furnished by Belgium, where a rise of 17 per cent, in the general
level of wholesale prices was accompanied by a slight increase of
unemployment which, however, still remained at a very low level
(3.3 per cent., as against 2.6 per cent, for the preceding year).
The year 1925 provides a new example of countries adopting an
independent monetary policy. Norway and Denmark express their intention of returning to a pre-war parity of exchange and go in for a deflationary policy. In these two countries the rise in unemployment is very
marked, whereas in other countries the unemployment fluctuations
are not remarkable. In Denmark and Norway the fall in prices continued
for several years, and unemployment remained at a very high level.
This is shown in the following table:

June 1924 June 1925 June 1926 June 1927
Denmark
Wholesale price index (Finanstidende)
Unemployed per 100 insured
persons

220

206

141

142

5.0

9.1

15.6

17.9

Norway
Wholesale price index (Oekonomisk Revue)
• Unemployed per 100 trade
unionists

264

258

195

159

4.9

8.9

22.1

22.5

Great Britain also reverted to the gold standard in 1925 and experienced
a fall in wholesale prices from 1924 to 1927, which was accompanied
by increases in unemployment.
8

114

UNEMPLOYMENT PROBLEMS IN 1931
June 1924

Great Britain
Wholesale price index (Board of
Trade)
Unemployed per. 100 insured
persons
1

June 1925

June 1926

163

157

147

9.4

12.2

14.61

Influenced by stoppage in coal industry.

Later, other countries took steps to stabilise their currencies. In 1927
France and Italy did so, an operation which involved a certain fall
in the general price level. For the first time since 1921, these two
countries experienced unemployment. It did not express itself in very
high figures, but the phenomenon had been practically unknown during
previous years.
Thus, in France the number of unemployed in receipt of relief, which
for several years had averaged less than 1,000, rose to 81,000 in
February 1927, after which it dropped again rapidly, the usual low
figure being reached again in the spring of 1928.
In Italy unemployment also rose rapidly at the same time as the
wholesale price level was falling, when steps were taken to stabilise
the currency.
June 1926

Italy
Wholesale price index (Milan Chamber
of Commerce)
Registered unemployed (000's omitted)

654
83

June 1927 June 1928

509
215

493
247

The figure for unemployment reached 439,000 in January 1928, an
increase much greater than can be warranted by the usual winter
seasonal increase.
It will be observed that from 1921 to 1926 fluctuations in unemployment have been closely similar in Belgium, France, and Italy.
The fluctuations in the wholesale price indices have also been closely
related, but in 1927, when prices fell in France and Italy, they
did not fall perceptibly in Belgium. This latter country did not share
in the unemployment wave which occurred in 1927 in France and
Italy. When, in 1928, Belgium took steps to stabilise her currency,
she did so at a rate of exchange at which no reduction in the internal
price level occurred, and Belgium escaped the increase in unemployment which had characterised the stabilisation in France and Italy,
in which countries there had been a fall in the level of wholesale prices
at the time of stabilisation. Thus in Belgium in June 1928 there were
only 3.6 per cent, of the insured persons unemployed (3 per cent.
partially and 0.6 per cent, totally unemployed).
Apart from the cases mentioned above, there was no outstanding
change in the movements of prices amongst other countries in the
years from 1926 to 1928. Comparative stability of prices was gradually
becoming more and more general as one country after another linked
up with the gold standard, and by 1927 or 1928 monetary stability may
be said to have triumphed.

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

115

The divergencies in the changes in the unemployment figures which
accompanied monetary policies differing from country to country now
cease to exist, and all countries suffer from unemployment in varying
degrees at about the same time. This has been particularly evident during
the world-wide fall in wholesale prices which has occurred since 1929.
III. — 1929 to 1930
The fall in wholesale prices which has occurred since 1929
is considered by certain authorities to be the most rapid fall
which has ever occurred in monetary history.
Almost all countries are suffering from severe unemployment and
are seeking remedies for this problem, and public opinion as well
as the recognised opinion of economic experts have repeatedly
ascribed the severe unemployment prevailing at present to the
fall in prices.
The consequences of this fall in the wholesale price index are
aggravated in a number of countries, of which Great Britain is
a conspicuous example, by a growing disparity between the retail
and wholesale price indices.
The annexed table sets out for all countries for which unemployment and wholesale price indices are available the index of wholesale prices and the absolute figures or the percentage of unemployment for the most recent month in 1930 for which these figures are
known, and for the corresponding month of 1929. This method
is used to remove the factor of seasonal variation. It is striking
to see that wholesale prices have fallen in everyone of the twentythree countries listed, with the exception of the U.S.S.R.
Unemployment has risen in all but six cases. In four of these
cases (Denmark, Estonia, Norway, Yugoslavia), unemployment
has to all intents and purposes remained stationary. In Latvia
unemployment has decreased from 1,205 to 607, but the total
figures are so small that no conclusions can be drawn from them
at all.
In the case of the U.S.S.R., however, where prices rose by
4.4 per cent, owing to the fact that the control exercised over the
foreign exchange market enables that country to have a rising
internal price level whilst maintaining artificially a fixed exchange
rate with other countries in which prices were falling, the number
of unemployed remaining on the live register decreased between
July 1929 and July 1930 from 1,310,600 to 633,400.
From 1929 to 1930, therefore, a single important industrial country
saw its rate of unemployment diminish considerably, and that is the
only country which did not participate in the general fall in prices.

C O M P A R I S I r OF WHOLESALE PRICES AND OF

UNEMPLOYMENT (SUMMER

Wholesale prices 3
Country i

Month 2
1929

1930

Reference to
Fall (—) or unemployment
figures
rise ( + )
(in per cent. (see footnotes)

1929

01 la29

level)

Australia
Austria
Belgium

Canada
Czechoslovakia
Denmark
Estonia
Finland
France
Germany
G r e a t Britain
Hungary
Italy
Latvia
Netherlands
N e w Zealand
Norway
Poland
Sweden
Switzerland
United States
U.S.S.R.
Yugoslavia

III
VIII
VII
VI
VI
VIII
VII
VII
VIII
VIII
VIII
VIII
VIII
VII
VII
V
VII
VII
VII
VI
VII
III
VII

164.7
132.0
124.9
144.7
134.8 6
150.0
118.0
97.0 "
121.1
138.1
136.0'
114.0
119.3 8
119.1
141.0
146.5
152.0
113.2
140.0
139.3
140.4
180.0
99.7 6

151.4
118.0
106.5
137.5
119.7
128.0
100.0
90.0 6
108.2
124.7
117.8'
93.0
103.3 8
96.0
115.0
145.7
142 0
99.4
121.0
126.2
120.3
188.0
88.8«

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
+
—

8.1
10.6
14.7
5.0
11.2
14.7
15.3
7.2
10.7
9.1
13.4
18.4
13.4
19.3
18.4
0.5
6.6
12.2
13.6
9.4
14.3
4.4
10.9

1
Includes all countries for which both unemployment and wholesale
price statistics are given in the Monthly Bulletin of Statistics and the
International
Labour Review,
2
The most recent month for which statistics are to hand is given.
» Monthly Bulletin o{ Statistics. Base 1913 or 1914 = 100.
+ International Labour Review.
6
Converted to gold basis. Figure published 922.
a Base 1926 = 100.
' Board of Trade.
8 Bachi.

(9)
(10)
(11) (15)
(9)
(11)
(H)
(12)
(12)
(10)
(10)
(13)
(14)
(12) (15)
(12)
(10)
(9)
(12)
(16)
(9)
(11)
(9)
(12)
(12)
9

9.3
101,845
3.2
2.9
1.9
9.
780
1,188
403
883,002
10.
9.
236,316
1,205
3.
9.
12,417
9.
6.
19.
1,310,600
7,652

Percentage unemploye
io Number unemployed
» Percentage unemploy
unemployment
insurance s
13
Number unemployed
!3 Percentage unemploy
insurance system.
" Percentage unemploy
i» Wholly and partially
i« Percentage wholly u
industries.

UNEMPLOYMENT AND MONETARY FLUCTUATIONS

117

In order to illustrate the fall in prices in the last sixteen months,
the figures of wholesale prices and of unemployment are given
month by month in Great Britain and in Germany. These countries may be taken as examples owing to their comparatively
complete unemployment statistics. A considerable seasonal reduction in unemployment which should have been experienced
in Great Britain in the spring of 1930 never took place at all, the
unemployment percentage continuing to increase. In Germany a
certain seasonal fall took place, but was very much smaller than
usual, the number of unemployed being approximately 1,000,000
more in 1930 than in the corresponding months of 1929.
UNEMPLOYMENT

AND PRICES

IN GREAT

BRITAIN AND GERMANY

Great Britain

Germany

Percentage
Wholesale
unemployment
prices
(Board of Trade) among insured
workers

Wholesale
prices

Number
in receipt
of benefit

1929
May
June
July
August
September
October
November
December

135.8
135.6
137.4
135.8
135.8
136.1
134.0
132.5

9.9
9.8
9.9
10.1
10.1
10.4
11.0
11.1

135.5
135.1
137.8
138.1
138.1
137.2
135.5
134.3

1,010,781
929,479
863,594
883,002
910,245
1,061,134
1,387,079
1,984,811

1930
January
February
March
April
May
June
July
August

131.0
127.8
124.5
123.7
122.0
120.7
119.2
117.8

12.6
13.1
14.0
14.6
15.3
15.8
17.1
17.5

132.3
129.3
126.4
126.7
125.7
124.5
125.1
124.7

2,482,648
2,655,723
2,347,102
2,081,068
1,889,240
1,834,662
1,900,961
1,947,811

The examples which have been given, drawn from different
periods and from different countries, give striking evidence of the
association of the falling price level with unemployment and
point to the necessity of taking steps to prevent a future occurrence
of periods of intense depression and fall in prices.

INEQUALITIES IN T H E INTERNATIONAL
D I S T R I B U T I O N OF CAPITAL AS A CAUSE OF
UNEMPLOYMENT
By Prof. Dr. L. Albert HAHN, Frankfurt (Main)

INTRODUCTION

It might seem best to deal with the question of the relationship
between the international distribution of capital and unemployment
by the inductive and statistical method. On closer consideration,
however, it appears that the inductive and statistical method would
not lead us to our goal. Even if it were possible to give statistical
data for the distribution of capital—and this can hardly be the
case—and even if it were possible to find a correlation between the
relative shortage of capital and unemployment, it would be impossible to draw any conclusions from these facts, for we should have
to enquire in each case whether unemployment in the country in
question is not due to quite different causes. Moreover, it may be
stated in advance that any agreement of the statistical data on
unemployment on the one hand and shortage of capital on the
other, apart from chance, could hardly be found. Reference may
be made in this connection to the notable fact that the United
States of America at present has a large number of unemployed
and at the same time a big capital equipment, while Belgium and
France, with a capital equipment which is certainly no bigger,
have hitherto had practically no unemployment.
I am of the opinion, therefore, that only the analytical and deductive method can be of any use in this question. This method, however,
can only be used within the limits of a comprehensive theory
of unemployment. It is not possible to present such a theory at the
present time, and, moreover, it would be undesirable for me to do
so in order to avoid too violent a collision with the reports which are

120

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

being prepared by other people. I may refer the Committee for t h e
general theoretical views on unemployment on which the present
investigation is based to my little book, which appeared a few
months ago, entitled Ist Arbeitslosigkeit unvermeidlich ? ( " Is Unemployment Inevitable ? "), which gives the relevant theoretical
basis, if not exhaustively, at least in such a way as to make it
sufficiently clear for those who are acquainted with the subject.
This theoretical basis is the same as t h a t on which, since the time
of Ricardo, the political economists of all liberal schools have
based themselves. The correctness of the underlying principles
has, moreover, never been contested. I should also like to refer,
for the theoretical views on capital on which the following investigation is also based, to my book Volkswirtschajtliche Theorie des
Bankkredits ( " Economic Theory of Bank Credit "), particularly
pages 127 et seq.
There is not a great deal of literature on the subject. The essays
which deal with related questions treat the problem now under
discussion only incidentally. Reference may, however, be made
to the following publications:
Heinrich D I E T Z E L : Bedeutet Export von
Produktionsmitteln
volkswirtschaftlichen Selbstmord ? Unter besonderer Berücksichtigung des Maschinen- und Kohlenexports
Englands
( " Does the Export of Means of Production mean Economic
Suicide ? With Special Reference to the Export of Machinery
and Coal from England "). Berlin, 1907.
E. VARGA: Die UeberSchätzung der wirtschaftlichen
Bedeutung
des Kapitalexports und des Imperialismus
( " The OverEstimation of the Economic Importance of the Export of
Capital and of Imperialism "). Die Neue Zeit, 34. Jahrg. 1916.
James W. AN GELL: The Theory of International Prices. Harvard
University Press, Cambridge, 1926.
Melchior PALYI : Zur Frage der Kapitalwanderungen
nach dem
Kriege ( " The Question of the Migration of Capital after
the War "). Schriften des Vereins für Sozialpolitik, Band
171, Munich and Leipzig, 1926.
Fritz RZESNITZEK: Zur Theorie des Kapitalexports
(" The
Theory of the Export of Capital "). Berlin, 1928.
Hermann B E N T E : Die marktwirtschaftliche
Bedeutung
der
Kapitalanlage im Auslände ( " T h e Economic Importance
of the Investment of Capital Abroad "). Weltwirtschaftliches
Archiv, Band 32, Heft 1, 1930.

INEQUALITIES IN INTERNATIONAL DISTRIBUTION OF CAPITAL 1 2 1

INEQUALITY IN THE DISTRIBUTION OF CAPITAL

The question of the relationship between unemployment and the
unequal distribution of capital can only be considered if we are
perfectly clear as to what we mean by the terms capital and unequal
distribution of capital.
With regard to capital, we cannot, of course, discuss and lose
ourselves in the mass of definitions of capital which have been given.
We must confine ourselves to a statement that what we mean by
capital is the means, by a suitable use of purchasing power, of
carrying on production and consumption in more roundabout
ways. Capital is therefore in no way identical with particular capital
goods, factories, and so on. It is important to note this because
formerly controversies concerning the economic desirability of the
import and export of capital always centred round the question
of the desirability of importing or exporting particular " manufactured means of production " (see, for example, the above-mentioned
book by Dietzel). In reality, manufactured means of production can
be imported without a single penny of capital coming into the
country, and, vice versa, considerable amounts of capital may be
introduced into a country without involving any importation
of capital goods. The question as to the desirability or undesirability
of the importation and exportation of such goods is part of the
problem of the international exchange of goods. The discussion
on this question relates to commercial policy, which includes a
consideration of the pros and cons of customs tariffs and export
premiums, and not to the question of capital policy.
The idea of the unequal distribution of capital seems at first
sight to be perfectly clear. On further consideration, however, it
will be seen that there may be quite different, and in some cases
very complicated, facts. The layman*—and, above all, the
merchant—will consider that there is inequality in the international
distribution of capital if he sees different rates of interest in different
economic areas. This phenomenon is certainly an extremely
important one. It is the principal object of our investigation.
We must, however, understand clearly that differences in interest
rates are in the first place only an indication of differences in price
for the use of capital, and not of the unequal distribution of capital
—provided, of course, that by unequal distribution we mean something different from unequal prices. If in one country there are
higher rates of interest than in another, that proves that the supply

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

of and demand for capital balance at different price levels in the
two countries concerned. And it also proves that for some reason
or other the capital does not move from the country with the lower
interest rate into the country with the higher interest rate up to the
point at which the prices are equalised. It proves, therefore, that
in the one country the effective demand for capital can be satisfied
by certain offers of interest, while the same demand for capital would
remain unsatisfied in another country. If, however, in two countries
similar interest rates exist, no conclusions can be drawn concerning
the relative saturation of the country concerned with capital,
provided that the standard by which we judge is not the relative
satisfaction of those seeking capital at equal rates of interest, but
includes other fundamentally more natural factors.
What are these other factors ?
The opinion might be expressed that a discussion of the inequality
in the distribution of capital which occurs even when interest
rates are equal should remain outside the scope of an essentially
economic thesis, because it is hardly possible to conceive of any
practical means of correcting this unequal distribution. While
recognising the justice of this objection, we may, for the sake of
theoretical completeness, and in order to avoid many misunderstandings which exist in this field, make the following brief remarks :
(a) By equality or inequality in the distribution of capital, we
may mean in the first place the relative amount of capital existing
in different countries. In so far as amounts of capital can be
expressed in terms of money (and this will neither be contested nor
admitted), inequality in the distribution of capital would exist,
for instance, as between France and Belgium if the amount of capital
in use in Belgium could be expressed as 50,000 millions and that in
France as 300,000 millions. It is clear that an inequality in this
sense is important only from the point of view of the relative
political strengths of the two countries, and not from an economic
point of view. Provided the economic structure is the same in both
cases, less capital will, ceteris paribus, be invested in a small country
than in a large one. Unless there is some other inequality to
be noted, this particular fact will have no economic consequences.
(b) Another standard which may be used in connection with the
international distribution of capital is that of capital .equipment in
relation to the size of the country. Thus, we might quite rightly
make the statement that in America, in relation to area, more or
less capital would be invested than in Germany; a statement which

INEQUALITIES IN INTERNATIONAL DISTRIBUTION OF CAPITAL 1 2 3

would, above all, be of importance in connection with the discussion
of agricultural questions.
(c) A further standard for measuring the distribution of capital
is that of capital equipment per head of the population. This
standard is by far the most important. It is in particular the one
which must be taken into consideration in discussing the relationship
between unemployment and capital equipment.
Three observations, which, for a consideration of this whole
problem, are not without importance, may be made here.
If two countries have the same rate of interest, this means,
apart from pure chance, that it would be no advantage to a person
seeking capital to turn to a foreign country for it, and that it would
be no advantage to a person with capital available to invest it in
another country. It does not, however, mean that, in relation
to one of the principles given above under (a) to (c), an equal
capital equipment exists in the different countries.
For principle (a) this is obvious, and does not require to be
considered any further.
With reference to (b), the following may be observed: the equality
of interest rates means only that the last portion of the demand for
capital which receives satisfaction is in a position to take an amount
of capital per unit of land at the same rate of interest. It does not,
however, give any information on the question whether the dose
of capital which is satisfied is a first, second or later portion of
the demand for capital per unit of land. It is therefore quite
conceivable that a country with an agricultural system involving
an intensive use of capital and another country with an agricultural
system involving an extensive use of capital might have the same
rates of interest. It would, nevertheless, be true that in the country
with an intensive use of capital ten doses of capital might be used,
while in the country with an extensive use of capital only one dose
of capital might be used. In the latter country, in that case,
only a first dose of capital equipment would be just as profitable
as a much later dose in the country with intensive use of capital,
and this later dose would nevertheless bring a corresponding
increase in profitableness.
With regard to principle (c), the equality of interest rates means
that the last portion of the demand for capital which receives
satisfaction per head of the population is in a position to take capital
at equal rates of interest. This does not in any way mean that an
equal capital equipment per head of the population is in existence.
It is quite conceivable that a country with smaller capital equip-

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

ment per head and a country with a higher capital equipment per
head might have the same interest rates. In spite of the equality
of interest rates, ten doses of capital might be used per head in
the one country, while in the other only one dose of capital would
be used. In the latter a first dose of capital equipment would be
as profitable as a tenth dose of capital equipment in the other
country.
An objection might be made to the foregoing argument that an
unequal distribution of capital cannot exist if the marginal use
of the capital yields the same amount. In answer to this, it may be
said that, from a universal point of view, and considering the whole
world as a single economic area, a distribution of capital which
arises as a result of equal rates of interest would undoubtedly
be the optimum. This, however, does not in any way alter the fact
that a single country may have great interest in a relative increase
in the amount of capital at its disposal. As a result of an increase
in the amount of capital and a fall in its price, land and labour,
which have hitherto been excluded from production on account
of unprofitableness, would be rendered profitable.
THE CAUSES OF THE UNEQUAL DISTRIBUTION

From the foregoing remarks it will be seen that the unequal distribution of capital is due fundamentally to two quite different sets
of causes.
An unequal distribution of capital which expresses itself in
inequality of interest rates is due to the fact that equilibrium on the
capital market as between country and country is upset. This
disturbance of equilibrium, may be due to a number of different
causes. The best known and most discussed cause is that the
country with a surplus of capital declines to invest its capital
abroad on account of distrust, or that movements of capital are
governed by political considerations. In either case it is clear that
a distribution of capital based on a correct calculation of interest
rates has not taken place for special and mostly non-economic
reasons. We need not go into this question in detail, however
interesting and important it may be, because it is without importance in relation to the effects of the unequal distribution of
capital.
With regard to the different forms of the unequal distribution
of capital referred to under (a) to (c) above, we may, for the sake
of theoretical completeness, say the following:

INEQUALITIES IN INTERNATIONAL DISTRIBUTION OF CAPITAL 1 2 5

(a) The unequal distribution of capital between a large country
and a small one having the same or similar economic structure is
obvious, and needs no further consideration.
(b) The varied nature of the capital equipment in relation
to the area of land is brought about, ceteris paribus, by the fact
that in the one country a later dose of capital is profitable, while
in the other country only a first dose of capital is profitable.
The reason for this is that in the one country a larger quantity of
agricultural produce is obtained from a unit of land than in the
other one. In other words, it is ultimately due to the density
of population and the consequent prices obtained for agricultural
produce.
(c) The varied nature of capital equipment per head of the
population is due, ceteris paribus, to the relative differences in the
level of wages in the countries concerned. Where wages are low,
the advantages of a labour-saving use of capital is smaller. The
interest which has to be paid for the use of capital can be paid only
for a somewhat but not much larger capital equipment.
SURPLUS

AND LACK

OF CAPITAL

AS CAUSES

OF UNEMPLOYMENT

However we may define inequality in the distribution of capital,
such inequality always means too much capital in one country.
and too little in another. The question arises, therefore, how far
a surplus of capital on the one hand and a shortage of capital on the
other (shortage and surplus relatively to an imaginary norm) may
bring about unemployment. Opinions are by no means so unanimous
as might be supposed.
' (a)

Surplus of Capital as a Cause of Unemployment

Quite frequently the view is expressed that a surplus of capital
may cause unemployment. This view, which seems a paradox
to the trained reader, is based on the idea that an increased use of
capital saves labour and causes a certain number of workmen to be
dismissed. This view is based on an inorganic idea of the cooperation of the factors of production. It is of course true that
increased use of capital saves labour. But the mechanism by which
the increase in capital works is as follows.
The increase in the supply of capital involves a fall in the rate
of interest. The fall in the rate of interest causes certain methods
of production, which were previously unprofitable on account

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UNEMPLOYMENT PROBLEMS IN 1931

of their length, now to become profitable. It also has an effect in
broadening the roundabout methods of production. This is done
without the roundabout methods of production being lengthened;
workshops become profitable although they have hitherto been
unprofitable on account of the prevailing rates of interest. These
workshops which thus become profitable absorb the workmen who
are rendered surplus by the increased use of capital. These
operations take place simultaneously, so that as a general rule there
is not even any temporary increase in unemployment. In fact there
is no proof that an increase in capital causes unemployment in any
country. On the other hand, the opposite view is also wrong,
namely that an increased use of capital absorbs labour because new
factories, etc., have to be erected. The lengthening of the
roundabout methods of production only means that workmen are
employed in a different way and not that they are employed to a
greater extent. If, however, during the upward swing of the trade
cycle, an absolute increase in employment in the industries for the
manufacture of means of production takes place, that is so because a
broadening of the streams of goods makes itself felt at the same time.
(b) Shortage of Capital as a Cause of Unemployment
A shortage of capital means too little capital relative to an
imaginary normal situation. Let us consider for a moment
employment or unemployment in an imaginary normal situation
of that kind.
The normal situation from which we must start is a state of
equilibrium in which the three factors of production—land, labour
and capital—unite for the purposes of production, and in which
no considerable amount of either of these factors remains unutilised.
This does not mean that all the land, all the capital and all the
labour in the country concerned will be used. On the contrary,.
of each factor of production only those quantities would be
used for which the utility is greater than the cost. For each
factor of production there is a marginal amount beyond which the
factor in question will not be utilised. This has been explained
times without number, and it is unnecessary to go into the arguments here. I will confine myself to the following essential remarks.
If we leave out of account for the moment the question of land
and consider only the relation between capital and labour as factors
of production, we find that the employer who possesses a certain
quantity of capital x, or who can obtain it on credit, can employ
all those workmen whose work in conjunction with the capital x will

INEQUALITIES IN INTERNATIONAL DISTRIBUTION OF CAPITAL 1 2 7

bring a greater yield than, or at least the same yield as, the total
amount of the wages paid (the capital being for the moment
considered as constant) and the remuneration of the employer. All
workmen with lower wages will therefore be employed ; the marginal
workman will also be employed. The more expensive workmen will
remain unemployed. This statement rather over-simplifies the
problem and neglects differences in quality and productivity of
the workmen. Such as it is, it shows that in a state of equilibrium
by no means all the labour in the country will be employed, but
only a certain amount. Similarly not all land will be used, but
only the best land up to and including the marginal land.
If in such a state of equilibrium a shortage of capital shows
itself—or rather, as an absolute shortage of capital cannot exist,
if a decrease in capital takes place—the results will be as follows.
The capital equipment per workman employed will be smaller,
and consequently his productivity and the yield of his labour will
also be smaller. The employer must therefore lower the wages he
offers if his business is to remain profitable. As long as the wage
demands of the workmen remain constant certain marginal workmen will necessarily become unemployed because the wages they
ask are higher than the wages offered. Unemployment therefore
increases in the first place through a shortage of capital or through
a decrease in the quantity of capital.
This situation, however, only lasts as long as workmen do not alter
their demands. If the workmen reduce their wage requirements
in proportion to the diminution in capital equipment or in the
productivity brought about by that equipment, then the workmen
can be reinstalled. Unemployment will again decrease to its
former level. In the process, however, a characteristic change
in the utilisation of capital will take place. While in the
transitional period during which unemployment is increasing the
amount of capital used per workman employed remains the same,
it will now decrease. The capital which was formerly used in
comparatively lengthy roundabout ways of production will now
be used in shorter roundabout ways of production.
Exactly the opposite process will develop if the amount of capital
increases instead of decreasing. As a result of the increase in capital
equipment and of the consequent increase in the productivity of
labour, higher wages can be paid, with the result that unemployed
workmen will become marginal workmen. If, however, the workmen
ask for an increase in wages proportionate to the increase in productivity, then the amount of employment will remain exactly the same.

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UNEMPLOYMENT PROBLEMS IN 1931

Our conclusions are therefore as follows. Increase and decrease
in the amount of capital—which can be obtained at the same
rate of interest—influences unemployment only to the extent t h a t
the wages have not adjusted themselves to the altered capital
equipment 1 .
The situation of any particular country with regard to capital
is therefore only a relative and never an absolute reason for
unemployment. Even without any capital equipment at all every
workman might theoretically be employed, if the workmen were
content to receive the starvation wage which would correspond
to the yield of methods of production without capital.
It follows t h a t the unemployment which appears to be due
to a shortage of capital equipment in any country is really due
to an insufficient adaptation of wages to the inadequate capital
equipment.
SHORTAGE OF CAPITAL, W A G E S BEING INELASTIC

However incontestable theoretically the foregoing arguments
may be, from a practical point of view the fact remains that
the amount of capital equipment in any particular country is
extremely important in its effect on the employment situation.
This is the case because wages are and can be only theoretically
sufficiently elastic. A standard of living which has once been
achieved by the workman can be lowered, especially if the system
of collective agreements prevails, only as a result of a very severe
political struggle. If wages are fixed and if other costs of production
are also fixed, the question whether at a particular rate of interest
less capital, or what is the same thing the same amount of capital
at a higher rate of interest, is obtainable, is of decisive importance.
How decisive it is, that is to say, what changes in the number of
workmen employed will be brought about by a given increase or
decrease in the amount of capital, is a question which cannot be
answered on the basis of precise figures. For the necessary investigations in all factories and workshops in order to discover how many
additional workmen could be engaged as a result of a given decrease
in the rate of interest cannot in practice be made. Moreover, the
1

Cf. for instance E. VARGA, op. cit., p. 516, where he says: " The export of
capital diminishes the opportunities of employment, drives wages downwards,
depresses the standard of living of the workman, lessens the purchasing power
of the home market, and curtails, in consequence, the income of the so-called
middle classes. " (Translated in the International Labour Office.)

INEQUALITIES IN INTERNATIONAL DISTRIBUTION OF CAPITAL 1 2 9

development of the German economic situation in the last ten
years provides proof enough of the extent to which the employment
situation of a country depends on its capital equipment. It can,
however, be stated that if, and as long as, wages are inelastic, a shortage
of capital must cause unemployment.
From this we may draw another conclusion relating to the effect
of a sudden export of capital from a country. However elastic
the wages in a country may be, they can never immediately adjust
themselves in practice to sudden and intermittent increases in
rates of interest. If, however, as a result of a sudden feeling of
distrust or for political reasons money belonging to a country rich
in capital is withdrawn from a country which is poor in capital,
that must under all circumstances lead to serious damage to the
economic situation of the latter. This is the case not only because
of the resulting unemployment, but also because every change
in the rate of interest necessitates alterations in the methods of
production of the economic area concerned. Investments which
to-day may be considered as perfectly reasonable will, at a different
rate of interest, prove to be bad investments. Moreover, in the
change from longer roundabout methods of production to shorter
roundabout methods of production, a certain " frictional " unemployment will arise and this unemployment may be extensive and
last a considerable time.

THE EFFECT OF THE UNEQUAL DISTRIBUTION OF CAPITAL

Quite a different question is raised by the effect of the migration
of capital from one country to another. If capital migrates from
one country to another, the increase in the amount of capital
in the one country is countered by a corresponding decrease
in the amount of capital in the other. If, however, we were to
assume that in consequence there would be an equal increase
and decrease of unemployment in the two countries concerned
we should be wrong. It is clear that, in the country in which
capital is increased, the increase in employment must be greater
than the increase in unemployment in the country from which
capital has been taken. There are very simple reasons for this.
Each new portion of capital involves an absolute increase in
the productivity of labour, but an increase which becomes relatively
less and less. The last dose of capital which is taken from the
country which has hitherto had the larger capital equipment
9

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

causes, in the country to which it is brought, a larger increase
in productivity than it formerly brought in the country from which
it is taken.
The whole question, therefore, as to the relationship between
the unequal distribution of capital and unemployment depends
on how much greater the increase in productivity of one dose
of capital is in the country which has hitherto had the higher rate
of interest than the decrease in productivity brought about in
the country with the lower rate of interest as a result of the export
of capital. This question can naturally be solved only on a basis
of empirical investigations. Such an investigation, however,
would be practically impossible, for it is clear that the change
in productivity of the migrating capital is far less important
in its effect than other causes of unemployment. The smallest
alteration in the amount of taxation in a country, the smallest
changes in the capital and credit conditions, arising out of the
economic situation of the moment, the smallest variations, above
all, in the level of wages, would so alter the situation that no
conclusions could be drawn from it at all.
Fundamentally, however, the following may be assumed. The
migration of capital from a country rich in capital to a country
poor in capital, as, for instance, from the United States to Germany,
will increase the number of persons employed in the country poor
in capital without bringing about anything like a corresponding
decrease in the number of persons employed in the country which
is rich in capital. This is the case because, as already stated, the
increase in productivity of the marginal capital is greater in
Germany than in the United States, and this has certain consequences on the relative power of the employers in the two countries
to pay wages. Then it may also be expected that in a rich country
in which the standard of life of the workman is higher, a decrease
in wages will have far less influence on the demand for labour than
in a country in which wages are low and in which therefore a reduction of wages can only be carried through with difficulty. As a
matter of fact, all kinds of arguments have been brought forward
in the United States against the export of capital from that country
to Germany, but never the argument that it would lead to an
increase of unemployment in the United States. There is, however,
evidence that the disadvantages of an export of capital, even from
a very rich country, may be considerable, as witness the opposition
which is shown in Switzerland, particularly in agricultural circles,
to the export of capital from that country.

INEQUALITIES IN INTERNATIONAL DISTRIBUTION OF CAPITAL 1 3 1

One more point should be mentioned. The disadvantages of
the export of capital to the exporting country, whether they are
considerable or only small, disappear altogether if the capital in
the rich country is not drawn from the industry of that country,
but from some other source, such as the Central Bank. This will
happen if the rich country finds itself in a period of depression,
in which the available possibilities are not being exploited to the
full, and in which the credit reserves of the banks of issue are not
being fully used. In such a situation, which appears to exist at the
present time as between France and Germany, the unequal distribution of capital is entirely disadvantageous for the poor country,
without being correspondingly advantageous for the rich country.
WHAT CAN AND SHOULD HAPPEN

1. In the first place it is clear that it would be undesirable
to correct the distribution of capital as long as the rates of interest
are equal in the different countries. However unequal the distribution of capital may be for the reasons given on pages 6 et seq.,
from a world point of view that use of capital which brings about
equal rates of interest is the best. For with such a distribution
capital best fulfils its function, namely, to save the cost of labour
or the cost of the utilisation of land.
2. With regard to the unequal distribution of capital as a result
of hindrances in the way of the migration of capital, always assuming that the rates of interest are unequal, we can put forward
the obvious demand from the economic point of view that political influences in connection with purely economic matters should
be avoided. How far these demands must and should be dealt with
in the field of international capital policy is of course a question
which is just as hard to answer as is the question as to the justice of
protective tariffs.
3. The most important reason which hinders the free circulation
of capital to the place of highest productivity is distrust of the
economic and political future of the country which requires the
capital.
Neither compulsory measures nor exhortations are of any use
against such distrust. The only remedy is to pursue a policy
that will attract and retain the confidence of the capitalists
of the world. Whoever thinks that he can attract capitalists while
constantly threatening capital overestimates the imprudence of
the capitalists which undoubtedly exists.

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UNEMPLOYMENT PROBLEMS IN 1931

To sum up, and in order to avoid misunderstandings, I will
conclude as follows.
However great the hindrances to an adaptation of the rates of
wages to capital equipment may be, this adaptation will in the long
run, under pressure of increasing unemployment, take place. In
the long run, therefore, the consequences of the unequal distribution
of capital are to be seen not so much in the number of workmen
employed in a country as in the standard of living of the population.
Ultimately, therefore, we are not so much concerned with the
problem of unemployment as with the problem of the unequal
conditions of life in the different countries of the world. How far, as
a consequence of this inequality, human migration will take place in
the future to places with superior capital equipment is a question
which cannot be discussed here. Considerations of this kind are
idle, if only because the unequal distribution of capital is a
phenomenon which, through the differences in the rate of interest,
brings into existence forces that are working for an alteration
in the situation, so that such an unequal distribution can in no
way be considered as a permanent phenomenon.

D I S T U R B A N C E S I N I N T E R N A T I O N A L TRADE
AND THEIR EFFECTS ON U N E M P L O Y M E N T
By Prof. Maurice ANSIAUX
University of Brussels

INTRODUCTION

Countries have now become so closely interconnected economically that it can a priori be stated with certainty that employment
must have been affected by the disturbances of all kinds from
which international trade has suffered since the restoration of
peace.
Unemployment is doubtless due to different causes. If,
for instance, we glance at the century linking two world wars, the
one ending in 1815 and the other beginning in 1914, we shall
be struck both by the frequency of serious unemployment and the
infrequency of serious disturbances in international trade. But
some disturbances there certainly were. The most important of
these had its origin in the United States: it was the blockade of
the Confederate States by the Federals during the American Civil
War. The British cotton industry, which obtained most of its
raw material from America, and could not make good the deficiency
from other sources except with the greatest difficulty and quite
inadequately, had to curtail its operations enormously. Thus, the
serious trade disturbance that has been called the " cotton famine "
resulted in extensive and protracted unemployment in Lancashire.
Towards the end of 1862 Richard Cobden estimated the loss
in wages due to the shortage of cotton to be over £7,000,000.
In spite of relief on a generous scale there was terrible suffering
among the unemployed 1 .
1

Cf. Elijah HELM : Article on the " Cotton Famine " in Palgrave's Dictionary
of Political Economy, 1925, pp. 439-441.

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

The growth of unemployment during the long period of falling
prices extending from 1873 to 1896, a period broken only by two
slight recoveries of brief duration, may be ascribed partly—but
only partly—to the return, which dates from 1878-1880, of protection in an aggressive form on the Continent of Europe. More
than one British economist of the time expressed the view
that the abandonment of free trade by the Continent was not
entirely free from responsibility for the gravity of the chronic
unemployment from which Great Britain was then suffering.
Furthermore, although in most cases obstacles to world trade
were not the chief and regular cause of the outbreaks of unemployment that occurred in the nineteenth century and the opening
years of the twentieth, it would be unreasonable to conclude that
the effect of such obstacles, where they exist, has not been to
swell the reserve of labour. On the contrary, it is reasonable to
assume that every obstacle to international trade will lead sooner
or later to a slackening of economic activity and consequently
to a decline in employment. It will be seen later that this
assumption is confirmed by recent and contemporary events.

The Notion of Normal Conditions
The notion of a disturbed state of affairs is the antithesis of
that of. a normal state. What, then, should be the definition of
normal conditions in international trade ? On this point differences of opinion must be expected. In some quarters it will be
held that by normal conditions is meant the total absence of
barriers to international trade, particularly customs barriers, only
unrestricted freedom of trade being quite devoid of anomaly.
However alluring it may be from the theoretical or ideal standpoint,
this is certainly a sweeping view. According to others, protection
is in no way abnormal so long as it is applied with moderation.
Going a step further, it is possible to consider normal conditions
as exemplified by the pre-war situation. The advantages of this
solution of the problem lie in its practical character. If it is
adopted, comparison of the pre-war and post-war situations is
all that is required to justify our considering as disturbances all
factors which constituted barriers to international trade in the
later period, but which were unknown or much less serious before
1914. Although purely empirical, and even questionable from the
standpoint of logic, this second conception of normal conditions

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135

is none the less the simplest and clearest and most in accord
with present-day problems. Do not many theorists and even
many of the interests concerned see in the restoration of the
status quo ante in tariff policy the remedy for present ills ? Taking
as a first point for comparison the conditions in which international trade was carried on in the opening years of the twentieth
century, it will be relatively easy to draw up a list of the
disturbances from which such trade has suffered since the restoration of peace. But it is desirable to depart from this basis of
comparison so far as dumping is concerned, for this has always
been considered an abnormal and a disturbing practice; and the
same is true of certain forms of indirect protection that have been
denounced in the past as violating the normal conditions of trade.

Classification of Disturbances
Let us now review the various disturbances from which international trade has suffered during the last ten years and try to
discover the effect of each on the demand for labour. These
disturbances are due to widely differing causes and for this very
reason have not all had the same results. For the sake of clearness
it is indispensable to classify the origins of the disturbances.
First of all two main categories should be distinguished, i.e.
(1) obstacles to trade set up by legislative or administrative
measures, and (2) changes, due to other causes, in the pre-existing
normal conditions of international trade.
Many restrictive measures have been taken by different national
Governments in the decade under consideration. After the cessation of hostilities they were either maintained in force or renewed.
In fact a sort of contagion soon spread them far and wide. The
explanation, if not the excuse, for these measures lies in the
unprecedented difficulties of a period devoted to the rebuilding of
destroyed factories, the replacement of livestock, the reconstitution of stocks of raw materials, and the acquisition of provisions
and manufactured goods of all kinds—a task as urgent as it was
costly, and one that the inadequacy and the exorbitant price of
foreign exchange sometimes complicated to the extent of rendering
it almost impossible.
The encroachments on the freedom of international trade can
also be classified in two distinct groups. The first will comprise
barriers properly so called, which are something more even than

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

a strengthened protection. Protection is followed by a rise in
prices ; barriers cause an artificial shortage. In the one case
the obstacles are surmountable if the buyer or seller is resigned
to a monetary sacrifice, and in the other case they are insurmountable except by smuggling.

PART I

Legal or Administrative Restrictions on International Trade

BARRIERS PROPERLY SO CALLED

Unquestionably the most insurmountable barriers are import
and export prohibitions. Immediately after the war their object
was:
(a) to ensure the provisioning of the population ;
(¿>) to reserve to national industries the raw materials produced
in the country, so as to enable these industries to recover
more quickly and to compete more easily with like industries
abroad; or
(c) to stop, temporarily but completely, all imports, more
especially with a view to safeguarding industries that were
created during the war, and that Governments, bound by
their pledges, wished to shield from overwhelming
competition.
In Great Britain, up to 1 September 1919 there were import
prohibitions applying to 170 different articles. On 1 November
of the same year the British Government modified its policy, and,
as from this date, raised the embargo on the importation of these
articles but made such importation subject to special licence.
This scheme applied to 17 classes of articles, including all chemicals,
all dyestuffs and colouring matters, optical glass and instruments,
scientific instruments, glass or porcelain articles for laboratories, etc.
In 1920 a special Act relating to synthetic organic dyestuffs, colours,
colouring matters, and intermediate products for their manufacture
(Dyestuffs Import Regulation Act) authorised importation only
by special licences, issued for each consignment by a Committee
under the Board of Trade (Dyestuffs Advisory Licensing

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137

Committee) 1 . In this case the aim was obviously to protect a war
industry. Austria and Germany introduced import and export prohibitions when their respective paper currencies were depreciating.
Here and there legislatures have tried, by prohibiting exports, to
prevent the sale by auction to aliens of transferable national wealth.
The prohibition of imports was a desperate but vain attempt to
save a paper currency that was approaching utter worthlessness.
Rationing is less drastic than absolute prohibition. It consists
in limiting to a certain quantity, usually a very greatly reduced
quantity, the imports and exports of a given raw material, semimanufactured article, or finished article. In the years immediately
after the war it was a fairly common practice; it respected the
interests of the national buyers or sellers, and, in return for the
authorisation granted, ensured certain imports or exports necessary
to the country. It is a scarcely mitigated form of alarmed national
egoism. Another milder development of the prohibition regime is
seen in export or import licences or permits. These trade barriers
owe their existence to the same reasons as the measures just
described. The German Government, for instance, resorted to
licences, as it did to prohibitions, to prevent the country from being
drained of its resources when the paper mark was collapsing.
The control of foreign exchanges that came into play in various
countries when paper money began to waver was frequently
accompanied by import restrictions. The. reason was that the
anxious problem then obsessing Governments was how, at all costs,
to improve the balance of trade in the hope—the vain hope—of
enhancing the value of their paper currency, or at least of stopping
its fall. Purchases abroad were therefore brought within a system
of licences issued in advance by an official body set up for the
purpose. This body sifted applications thoroughly, inexorably
rejecting all those for the importation of superfluous commodities.
The effect on foreign industries was greatly lessened, although not
entirely counteracted, by the many frauds to which this control
of exchanges gave rise; but, as this system was of short duration,
we shall not dwell upon it.
The monetary confusion which arose in Europe on the cessation
of hostilities, but which became really serious a little later, and in
several countries ended in a veritable catastrophe, exercised a more
or less highly depressing influence on the demand for labour. For
1
PARANAGUA: Politique commerciale internationale, pp. 54 et seq. Kundig,
Geneva, 1930.

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UNEMPLOYMENT PROBLEMS IN 1931

the moment mention will be made only of monetary disturbances
connected with the barriers considered above. This connection
exists when foreign trade has been subordinated to the control of
foreign exchange. Control may take two distinct forms:
(1) Authorisation is required for an exporter to exercise his
right to dispose of foreign currency representing payment
for goods sold by him;
(2) Authorisation is required for an importer to acquire the
necessary foreign currency to pay for the purchases that he
proposes to make abroad. Consequently, the demand for
foreign goods and foreign labour is restricted, perhaps very
seriously.
It should be added that monetary disturbances^—depreciation
and instability of paper money—are sometimes the cause of some
of the measures mentioned above, such as for instance rationing
and prohibition.
The common aim of the barriers hitherto in question is in a given
country to limit or completely suspend certain imports or exports.
Let us first consider barriers to imports. In the case of prohibition,
the market is closed to foreign goods; or, if it was closed during
the war, it is not reopened, at least not immediately after the
restoration of peace.
In the cases of rationing, licences and controlled exchanges the
door is only half shut, or perhaps merely ajar.
The effect of these barriers on the demand for labour can apparently be inferred quite clearly. So long as such practices remain
in force in many countries the demand for labour on the part of
exporting industries will contract very substantially if the foreign
market is partly or entirely closed; or will remain very contracted
if the market continues closed, or at least is only rarely opened.
It could be argued that unemployment resulting from these
measures would be set off by the development of the national
industry so energetically protected by prohibitions, licences and
quotas. Once free from foreign competition, the home industry
will develop to the full extent required by the national market;
whereas it would have been injured by foreign competition and
large numbers of workers would have been discharged.
The classical reply to this objection is that the influx of foreign
goods has the curious property of being possible only if it results in
a corresponding outflow of national goods into foreign countries.

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139

But there is this unquestionable advantage in such mutual commercial penetration : each country devotes itself to the manufactures in which it excels, so that output increases on all sides. This
leads to a world increase in production—i.e. an increment of new
wealth that would not have been obtained without freedom
of trade.
It must be admitted that this conclusion is in the nature of
abstract truth, and that the too abrupt importation of foreign
goods on a large scale is in theory likely to cause a twofold ill:
monetary disturbances, with which this article is not concerned,
and very extensive, and possibly even chronic, unemployment.
What is nevertheless probable is that direct barriers to trade have
been multiplied precipitately and excessively. Above all it should
be remembered that the aim has been to preserve war time industries that could not survive in normal conditions. Hence prohibitions, quotas and licences have often prolonged a state of relative
inefficiency, the ultimate consequences of which could only be to
weaken the aggregate world demand for labour; since, in the long
run, this demand is a function of the aggregate income, and is
indeed identical with it, although it may be distributed in variable
proportions*—represented by savings and expenditure—among the
industries producing capital goods and those producing consumption
goods. In any case, measures which hinder expansion of the aggregate demand for goods unquestionably tend to prevent—or at
least to hamper.—the normal development of employment
possibilities.
Further, as will soon be seen, the far-reaching effects of barriers
that reduce the volume of trade do not differ from those protectionist measures which aim more particularly at an artificial
increase in the price of imports or at a decrease in that of exports.
It will now be well to consider the effect of barriers in the strict
sense, when they are put in the way of exports. In this case the
goods affected may be raw materials of which a shortage is feared;
or, when the national currency is falling precipitately, various
commodities the sale of which at very low prices is anticipated.
With regard first of all to raw materials, it is obvious that the
foreign industries deprived of them or too sparingly supplied with
them will be obliged to curtail their output. At this stage there
comes into play the law of complementary goods and services,
according to which the dearth of one complementary commodity
limits the demand for the others. If A, B and C are three articles
indispensable to a given manufacturing process, the demand for B

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

will be limited by the supply of A or C, and conversely. If the
screening of a ton of mineral requires the services of one worker for
one working day, the possibility of obtaining 10,000 tons of this
mineral will enable an undertaking to utilise 10,000 man-days.
Should the mineral in question be rationed, the undertaking could
only utilise, say, 5,000 man-days.
Here again it might be objected that an international adjustment takes place automatically and results in more intensive
production in the country producing the commodity of which
exportation is prohibited, rationed or subject to licence. But
we shall reply as before that this adjustment cannot be adequate
unless the productivity of labour is identical in the two countries.
Further, and there will be occasion to return to this point in
connection with protectionism, it should be remarked that an
international aggravation of unemployment is inevitable if the
country holding back the raw material cannot make industrial use
of it except by attracting into the factories agricultural workers
who are already being employed. The result is, then, unemployment in the country deprived of the raw material and a dearth
of agricultural labour in the country prohibiting or restricting
the export of this raw material; in other words a twofold ill and
a clear increase in unemployment.
Prohibition of export of consumption goods<—whether the
consumption is rapid or slow does not matter—is quite exceptional
and it would be difficult to saddle measures of this kind, generally
in force for a short time only, with responsibility for any serious
unemployment. In the case in point what is required is to prevent
a sort of pillage that yields ill-gotten gains to those engaging in
it. The most that can be said is that the prohibition in question
temporarily restricts the purchasing power of those who would
have sold furniture, works of art, etc., to buy necessaries. Here
there is no lasting effect on the volume of employment.
PROTECTIONISM

That the tariff situation has become worse during the last
ten years is undeniable. The fact was formally placed on record
in 1927 by the International Economic Conference, both the
Final Report laid before the Conference and the resolutions adopted
being couched in terms that leave no room for doubt. Moreover,
it is common knowledge that the appeal made by the Conference
met with no response. Since its session at Geneva not only have

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141

there been no general reductions in tariffs, but there have been
actual increases, the most drastic of which are contained in the
quite recent American tariff embodied in the Hawley-Smoot Act.
The International Economic Conference by no means confined
itself to deploring the excessive rise in import duties; it also
regretted the absence of a common nomenclature, the complexity
and instability of tariffs, the vexatious measures and formalities
encountered in the application of tariffs, customs duties disguised
as fiscal charges not applicable to home production, and lastly
export duties. Furthermore, the Conference showed t h a t the
conclusion of commercial treaties for excessively short terms, and
the omission from existing treaties of a most-favoured-nation
clause, constitute serious drawbacks; and it condemned the too
frequent practice of dumping, and discriminations made by the
transport system, to which it might well have added systems
involving differential treatment.
It is true t h a t some improvements have taken place since 1927
in the disturbances resulting from tariff policies and the abuses
to which they lead. In this connection Mr. Parker Gilbert, the
Agent-General for Reparation Payments, makes the following
remarks in his report of 21 May 1930 *:
The increase, year by year, in the foreign trade of Germany has been
due to a large extent to the progress made in the conclusion of commercial
treaties and arrangements with other countries. Only five years have
passed since Germany recovered its freedom of action with regard to
commercial policy, for it is only since 10 January 1925 that it has been
liberated from the obligation imposed by the Treaty of Versailles to
grant, without reciprocity, most-favoured-nation treatment to the
Allied Powers. This interval of time and the conclusion of commercial
arrangements have put an end in almost all countries to the discrimination made to the detriment of German goods, and generally speaking
German trade takes place now on a most-favoured-nation basis. The
principal exception, which continued until quite recently, concerned the
relations with Poland, but after long negotiations, a concrete result has
been arrived at in the form of a commercial treaty signed on 17 March
1930,
Mr. Parker Gilbert next mentions a series of agreements concluded by Germany with various other States, but a detailed
examination of their provisions would lead us too far from our
subject. The essential thing is to make it clear that, in spite of a
visible improvement as regards barriers and impediments placed in
the way of her foreign trade, and in spite of substantial expansion
1

Translation from the French made by the International Labour Office

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of her foreign trade, Germany is suffering from extremely heavy
unemployment, which, moreover, has recently become heavier.
It is obvious that this aggravation of conditions cannot be ascribed
to the barriers that have gradually ceased to obstruct German
exports since 1925. There remains, however, the possible influence
of the heightening of tariff walls, the American for instance,
from which Germany has suffered in common with all other States.
From the point of view of the present article, the measures of
protection, principal or auxiliary, open or concealed, that were
condemned by the International Economic Conference may be
divided into three classes. The first comprises tariff complexity,
difficulties inherent in the multiplicity of nomenclatures, and
vexatious customs formalities, the effects of all of which are
similar to those of the trade barriers considered above. Such
measures reduce or tend to reduce the volume of international
trade; and at the very least they are likely to hamper its normal
expansion. In thus limiting the volume and total value of international trade, or retarding its expansion, they act in the same
way as prohibitions, quotas, licences, etc. It would be superfluous
to repeat here what has already been said above; the theoretical
analysis is the same.
Protectionist measures of the second class, on the contrary,
act directly on the cost of production. Import duties, for
instance, raise the cost price of foreign goods for importers in
the protected country. That the ultimate result will be a decline
in the volume of international trade is probable, not to say
certain; but the immediate result is a relative dearness, not a
shortage, of imported goods. The difference is very considerable,
particularly for goods for which the demand is not elastic, i.e.
not likely to be reduced, or likely to be only slightly reduced, in
the case of a rise in price.
Other factors, such as export duties, export bonuses and subsidies, dumping and discriminatory transport rates, exert a similar
influence'—a little more complex, however, in the last case. To
these factors must be added the opposite effects of a revalorisation
and devaluation of the currency.
Finally, the third class comprises certain features of tariff
systems that involve risks for importing and exporting firms.
Such features are, for instance, the exclusion by agreement of the
most-favoured-nation clause, instability of tariffs, instability of
treaty regimes due to the excessive shortness of the terms for
which the treaties are concluded, and finally the obscurity of

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143

tariff nomenclatures. To the same class should be assigned the
instability of depreciated paper currency, that is, until stability
is an accomplished fact or possibly after pre-existing stability
has been abandoned.
Import Duties
The first question to arise is whether during the last ten years
tariff levels have risen abnormally. Assuming that moderate
protection may be regarded as the normal pre-war state, during
these ten years has there been excessive, out-and-out protection ?
That there have been increases is indisputable, and not only
nominal increases that are no more than readjustments to depreciated currency—known in France as " coefficients of increase "
(coefficients de majoration)—but actual increases, often substantial,
and applied either openly, or covertly in the form of excessively
high coefficients or otherwise.
In respect of the period before May 1927 the material collected
for the International Economic Conference furnished decisive
proofs that the increases in duties were real. The Final Report
of the Conference is very emphatic in this respect. It states that
" tariffs . . . which in recent years have shown a tendency to
rise, are for the most part higher than before the war and are
at present one of the chief barriers to trade. The increase in
most countries is almost wholly due to higher duties on manufactured articles "*.
Hardly any attention has been paid to the solemn recommendations of the Conference in favour of lower customs barriers.
Although concessions have been made here and there, in general
it may said that the world has continued to cling to the injurious
policy of higher tariffs.
There is no need to describe here the customs measures recently
taken in various countries, and it will suffice to recall that
many countries have raised import duties since 1927 and that the
increases have frequently been imposed on agricultural produce.
Among these countries are Germany, Poland and Spain. Others
have raised the duties on certain manufactured articles, among
them being Australia, Canada, France (flour, sugar, motor-cars, etc.),
Italy (gloves, motor-cars, hemp yarn and cloth) and the United
States. The adoption of the Hawley-Smoot tariff in the United
States has already led to reprisals. In fact retaliatory increases
1

P . 27.

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

can no longer be counted; the most striking are those in import
duties on motor-cars. Although there have as a rule been no
general tariff revisions, there are a certain number of examples.
For instance the Rumanian tariff of 1 May 1929 is the fifth since
the war. In the United States what is virtually an entirely new
tariff came into force on 17 June 1930. Moreover, there is no
end to tariff instability, which was also condemned at Geneva
in 1927. In the United States, even, it has become chronic as a
result of the " flexible " provisions of the tariff, which empower
the President, on a report of the Tariff Commission, to raise or
lower the duties fixed by Congress.
But in analysing the causes of this recrudescence of protection
we are noticeably wandering from our subject. It will suffice to
indicate them briefly. The main cause is the appearance of economic nationalism, which is a legacy of the war. Its aim. may
be expressed in one word—self-sufficiency; it is an aim that gives
concrete form to all the preoccupations born of the dislocation
or complete interruption of international trade during hostilities.
To obviate the risk of a shortage of provisions, munitions, dyestuffs, manures, scientific instruments, etc., their production on
the national territory is demanded, and this cannot be brought
about without guaranteeing effective protection to infant industries.
Although the industries here in question were created during
the war and their production costs are higher than those of the
same industries in former enemy countries, it is held to be absolutely necessary to safeguard them. Some Governments gave
formal pledges to this effect when the industries were set up.
Similarly, European States try to ensure the prosperity of agriculture, which is endangered by the overwhelming competition
of the oversea countries. Some even try to develop it by exploiting
districts hitherto unproductive or abandoned to sparse cultivation.
Moreover, national ambition vies with the fear of shortage in
pressing forward the policy of self-sufficiency. This leaven can
be seen at work among the nations recently liberated, restored
or enlarged by the treaties of peace ; the aim of each is to constitute
an economic unit as powerful and as manifold as possible, and,
above all, capable of meeting the principal needs of the population.
Another preoccupation, to be found among the Anglo-Saxon
peoples, is the maintenance of the high standard of living of the
working class. The preamble to the explanatory memorandum
accompanying the Bill amending the Fordney tariff (1922), introduced into the House of Representatives in Washington on 9 May

DISTURBANCES IN INTERNATIONAL TRADE

145

1929, declared that this tariff had enabled millions of people to
earn the highest wages ever known in history.
In addition, the natural features of protectionism have remained
active during the past decade. According to an English theory,
resistance should be offered to exceptional competition that leads
to serious unemployment *. The countries whose currencies are
tottering make use of import duties to limit importations and
reduce the adverse balance of trade. This is what Uruguay is
doing to-day. State intervention is all the more easily secured
in that the heightening of the tariff promises substantial additions
to revenue.
What should be the effect on the employment of manual workers
of this almost universal and exaggerated application of customs
tariffs ?
Before a reply to this question is attempted, two remarks are
called for. The first is that, independently of its effect on tariff
levels, nationalism has exercised and still exercises a direct and
aggravating influence on the separatist trend of production in the
different countries that fall under its sway. The second concerns
a no less aggravating circumstance, namely, the political readjustments that have changed many frontiers and increased the number
of separate customs units from 20 to 27 2. The political justice of
these adjustments is not under discussion here, but it cannot be
disputed that they have separated certain producing centres from
their former home markets, which have since been closed against
them by the erection of a customs barrier. Egged on by aggressive
economic nationalism, the protectionist movement has become
stronger since the war and could not but lead to over-production
and over-equipment within national frontiers. As the American
economist, Hadley, very rightly remarked many years ago, the
protective system has doubled the means of production and curtailed opportunities of trade 3 . This injurious maladjustment
generally becomes apparent only too late. Moreover, certain
countries, or at least certain national industries, succeed, as will
be seen, in passing on its mischievous consequences, in particular
the burden of unemployment, to other countries. However this
may be, it will suffice to say that protection unquestionably contributes to the over-production from which all parts of the world
1
Quoted by PARANAGUA, op. cit., pp. 56-57, from the White Paper of
3 February 1925 on the Safeguarding of Industries.
2
Final Report of the World Economic Conference, p. 27.
3
HADLEY: Economics, p. 435. New York and London, 1900.
10

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

are now suffering. And now the vicious circle into which countries
have been led by this policy can be clearly perceived. Depression,
falling prices and unemployment together lead producers to
demand, and not without vehemence, additional customs protection. They ask for higher duties so as to be able to give work
to those who have none; and it is a fact that these demands are
often listened to. Thus the economic depression brought about
by out-and-out protection is a cause of unemployment, and this
very unemployment serves as a ground or a pretext for an intensification of protection and for the vicious practice of dumping.
Effect of Extreme Protectionism

on

Unemployment

It is now time to enquire what actually is the effect of unduly
increased protection on unemployment.
The raising of import duties does not necessarily result in an
increase, and still less a proportional increase, in home prices.
It is thus desirable to examine in succession the effects of increased
duties on unemployment in three different eventualities: (a) t h e
duties produce their full effect, i.e. cause an exactly equivalent
rise in home prices; (b) they produce no effect at all, i.e. are not
followed by any change in home prices; (c) they cause a certain
rise in prices but not in proportion to the increase in the tariff.
(a) In the first case an increase of, say, 20 per cent, in customs
duties causes a rise of 20 per cent, in prices 1 . When this is so r
no interruption of imports occurs. By raising prices exactly
20 per cent, the protected producers show that they do not seek
to discourage imports, as they would if they raised prices proportionately less than the duties, say 15 per cent, or even 19 per cent»
But it is by no means certain t h a t the volume of imports will
not fall. Having been placed on an equal footing with foreign
competitors in the matter of production costs, the protected
industry will secure a larger share of the home market. In addition, if the demand for the protected articles is elastic, i.e. likely
to be reduced in the event of their costing more, the rise in pricesfollowing from the duties curtails this demand to a greater or
less extent 2 . This is a dual cause of falling imports. Even if the.
1
Although specific duties are imposed at flat rates, it is a simple matter
to convert into proportional figures the increases or decreases they undergo.
The
value of the currency is, of course, assumed not to vary.
2
Assuming that general protection causes all prices to rise in the same
proportion on the market protected, it can be taken that this uniform rise
will not limit the volume of any demand. But this assumption is purely
theoretical.

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147

demand were inelastic, or nearly so, the sharing of the protected
market with the home producers in these unfavourable conditions
would of itself suffice to make the business of foreign producers
dwindle.
Consequently they would probably find themselves
obliged, sooner or later, to discharge part of their staff.
It is true t h a t in practice the net result of a similar but
independent variation of several of the forces in play can be to
neutralise the effects of the increased duties on the employment of
labour by the foreign producers. This is so when for other reasons
the demand is increasing rapidly; but, inversely, independent
influences may accentuate the contracting of the demand for
foreign goods and consequently aggravate the resulting unemployment.
(¿>) It sometimes happens t h a t the increase in duties is not
followed by a rise in prices, or at any rate not by a lasting rise.
This is the position when super-protectionism leads to a considerable growth of home competition. In this extreme case,
exports to the protected country would become impossible and
so cease. Hence, the foreign producers would be forced sooner
or later to suspend operations, at least to the extent to which
they were supplying the markets closed to them. Such suspension,
even if partial, is likely to deprive a certain number of workers
of employment.
Matters would be different only if these foreign producers could,
without incurring loss, bear the whole of the extra costs resulting
from the heightening of the tariff in the importing country. Speaking
generally, this is very unlikely, unless the aggravation of protection in the importing country coincides with technical progress
in the exporting country. It is also conceivable that the burden
of the increased tariff in the first country might be passed on to
the workers in the second'in the form of a fall in wages. Then
unemployment would to some extent be avoided. This is also a
very remote possibility at the present time when the workers
are strongly organised for the defence of their interests.
(c) Lastly, let us assume t h a t the position is intermediate
between those analysed above: import duties are increased by
20 per cent, but prices rise only 10, 15 or 18 per cent.
This case, which is probably the most frequent, has, of course,
varying consequences. Foreign imports will not cease but diminish
to a greater extent than if, as assumed above, the price level
adjusted itself exactly to the higher import duties. In fact, a
rise in prices proportionately less than t h a t in import duties

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implies that the home industries have obtained protection in
excess of their needs, a circumstance that enables them to oust
those of their foreign competitors whose costs are the heaviest,
and obliges those whose costs are lower to bear, without compensation, a part of the supplementary duty. Or, if the rise in
prices, although not in proportion to that in duties, is yet enough
to^give an impetus to home production, foreign competitors will
be in constant danger of elimination, since the growing severity
of home competition may at any moment bring about a fall in
prices. In this third case there will inevitably be a tendency
to unemployment among the workers in the foreign industries
exporting to the country increasing its protection, but the
unemployment will vary more or less in extent.
In practice, especially as regards agricultural produce, allowance
must be made for fluctuations in prices, which at one time permit
a resumption of importation and at another not. This is a fairly
common type of trade disturbance 1, and one likely to lead to
instability of employment among the foreign producers' workers.
In point of fact, however, since we are for the moment dealing
primarily with agricultural produce, this intermittent unemployment seems scarcely likely to assume large proportions; otherwise
it might be very serious. But it will be preferable to revert to
this point in the general survey, which will be undertaken in due
course, of the effects on unemployment of various unstable factors
of foreign trade.
So far no account has been taken of the consequences, doubtless
indirect but apparently unquestionable, of generalised customs
protection on home production costs. For instance, protection
of the chemical industry makes manures dearer for agriculture;
duties on machinery make the extension or renewal of plant,
and hence redemption of capital, a more costly business (this is
true of many industries, e.g. the manufacture of textiles and all
kinds of utensils); and duties on corn and meat often result in
an increase in the cost of living, and concurrently an increase
in money wages.
Consequently, production costs rise by degrees and neutralise
the protective effect of the tariff. Only, it should be observed
that the inequality and irregularity of the incidence of the duties
on the different industries is reflected in the lack of uniformity
of the increases in costs. Some industries suffer but slightly from
1

PERLMANN: Die Bewegung der Weizenpreise und ihre Ursachen. 1914

DISTURBANCES IN INTERNATIONAL TRADE

149

the increase and continue to enjoy a clear balance of protection;
others are harder hit, and in their case the advantages of protection may be nil or even be turned into disadvantages. In these
latter industries foreign competition may well end by regaining the
ground lost and even making fresh gains. But if this is to happen,
the other factors of the situation must be quite invariable, which is
a purely theoretical hypothesis. To convince oneself of this, one
has only to think of the frequent changes in consumers' habits
and in the choice of semi-manufactured articles, the replacing of
raw materials and manufactured goods by others, the endless
readaptations and inventions called for or induced by the
complexity and freakishness of economic evolution.
Among these readaptations, special mention should be made of
those in industries excluded from foreign markets surrounded by
tariff walls. In most cases these industries will bend all their
energies to lowering production costs and rationalising the processes of manufacture or cultivation. It is open to question,
however, whether they will always succeed, now that markets
are contracting and bulk sales of standardised products are becoming more and more difficult. Will there not be rather an increase
in production costs due to the shrinking turnover, and ultimately
a tendency to revert to small or medium-scale industry ? The
fact is that each case must be considered separately. According
to circumstances, the readaptation will be progressive or regressive.
In the first alternative it is very likely that unemployment, the
consequence of a rise in import duties, will be purely temporary.
In the second, on the contrary, some workers in the declining
industry will be definitely discharged.
In general, therefore, the answer to the question whether extreme protection aggravates unemployment in exporting industries
in foreign countries is clearly affirmative. The strength of the
reaction on employment undoubtedly depends on the movement
of home prices after the heightening of the tariff. If prices rise,
the reaction may be weak, and will be so more particularly when
the rise in prices is general, and is reflected in the protected
country by a substantial increase in all production costs. It can
thus be laid down that the greater the number of articles protected,
the less dangerous does protection become for foreign labour, especially over a fairly long period. The danger will subside all the
more in that the rise in costs in the protected country will make
it easier for the foreign producers from whom it imports to adapt
themselves to the new conditions. On this point the above pro-

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

position can be supplemented by affirming that a customs tariff
does most harm in its initial period. Unfortunately, countries
pursuing a policy of protection do not fail to realise the growing
inefficacy of the duties imposed, and after a few years proceed
to raise them. For this reason, it may be remarked incidentally,
a prolonged customs truce would be a considerable social benefit.
To the general conclusion reached above concerning the effects
of super-protection on unemployment, a specious objection can
be raised. This objection has already been encountered in connection with the other disturbances in international trade, but
detailed examination of it was deferred. First, let us restate its
terms : admitting that protection really does lead to unemployment
abroad, it none the less provides work for unemployed workers
at home. Can it not be argued, therefore, that the sole effect of
an increase in import duties is the employment of more national
but less foreign workers ? If this is the case, increased customs
protection does no more than shift the area of unemployment.
A thousand workers that were unemployed in country A are now
working, and a thousand working in country B are now unemployed. Looked at from the standpoint of the world economic
situation, the protective measure has in no way aggravated
unemployment: its effects exactly cancel out one another.
The weakness of this reasoning is apparent as soon as it is
remembered that one of the chief grounds for increasing customs
duties is a country's desire to become industrialised so as to free
itself from dependence on foreign industries. But to become
industrialised a country must turn not to unemployed who do
not and cannot exist but to agricultural workers. Hence, in reality
the growing unemployment abroad is not neutralised by decreasing
unemployment at home. In fact, the increase in the number of
unemployed abroad has no other effect at home than to bring
about a dearth of labour on the land. The net result of two opposite
and growing evils that spring from a common cause is not nil
but, on the contrary, a double aggravation. Even if this statement is contested, or at least its general validity impugned, it
must still be admitted that neutralisation will very probably not
occur in the conditions set out above. It is more likely that an
increase in tariffs will lead to a contraction in the aggregate world
consumption. If a practically prohibitive duty stops the importation of Belgian cement into the United States, is not the sole
consequence an increase in the price of cement on the American
market ? And is not this increase likely to reduce sales on this

DISTURBANCES IN INTERNATIONAL TRADE

151

market ? True, it will be asserted that the shrinking sale of Belgian
cement should result in a fall in prices conducive to greater consumption in Belgium. Nevertheless, this assertion is false, for it
is in the nature of exporting industries to be incapable of increasing
their sales on the home market, the purchasing power of which
is very limited. This is true in Belgium of cements, mirrors, glassware, firearms, and many other articles besides. It is also true
of agricultural produce in countries subsisting on the exportation
of such produce. Lastly, even if the increase in import duties
does not reduce consumption in the protecting country, it may
at least hinder its expansion. But the modern industrial system
is designed for continually expanding markets, and the natural
increase in the population automatically results in unemployment
if this expansion does not occur.
Nevertheless, the foregoing remarks are not applicable to the
economic development of the United States, the largest protectionist country in the world. But it is precisely to its hugeness
and the high purchasing power of its population that the United
States owes its almost complete independence of a law that finds
strict application in smaller protectionist countries.
We shall not have considered the problem in all its aspects if
we omit one of the most frequent consequences of the overproduction that ensues at home from the excessive impetus'given
to industry or agriculture by a large decrease in import duties.
This consequence is the position in which a number of undertakings find themselves of having to sell a large part of their
production abroad, since they are no longer able to find an adequate outlet on the congested home market. Imperialism and
dumping have been spoken of in this connection, but perhaps in
most cases the root cause is sheer necessity. If so, exportation
is seen to be no longer the objective of a campaign of economic
conquest, but an expedient. And this expedient does not necessarily take the Machiavellian form of dumping.
In any case the point is of no importance: what is certain is
that such an influx into the world market of surplus production
unsaleable on the reserved market causes an immediate and
formidable disturbance in the world economic system, and is
likely to result in a general outbreak of unemployment. A striking
feature of this sequence of events is the sudden and extensive
dislocation caused by heavy selling without any reasonable price
limits. Production is thrown into complete disorder; it becomes
a game of chance, and one played against heavy odds. This being

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UNEMPLOYMENT PROBLEMS IN 1931

so the closing down of factories will often be a matter of necessity
and masses of workers will be discharged.
Will these disastrous consequences be aggravated when there is
resort to dumping in the strict sense, i.e. selling on the foreign
market at a price appreciably lower than that ruling on the home
market ? This is not certain, for large sales of exported goods
at prices lower than production costs in the countries in which
the sales take place are in themselves enough to disorganise
industry and to throw numbers of workmen out of work. The
question whether the abnormal prices at which such clearance of
stocks takes place are equal to or less than those of the home
market is of secondary importance. The fact that there was no
actual dumping in a given case would in no way reduce the volume
of unemployment caused by selling off on a large scale.
The only point that really requires to be given prominence is
that the initial cause of such outbreaks of unemployment is the
unhealthy over-stimulation, by extreme protection, of the industry
or branch of agriculture concerned.
True, the existence of dumping is undeniable, and in particular
the fact that thanks to protection and cartels it is possible to
burden home prices with the fixed production charges. But it
is also true that the protectionists of one country often invoke
the alleged dumping of others in order to induce the legislature
to enact an increase in duties.
Dumping is a bogey that is conjured up too frequently.
The influence of pathological monetary phenomena such as the
rise in foreign exchanges that accompanies the depreciation of
paper currency is rather similar to that of import duties. This
rise is equivalent to a rise in the price of imported goods, but
prices of similar goods made in the country do not adjust themselves immediately to the lower value of the paper currency.
A similar and still more marked effect is produced by the
collection of customs duties on a gold basis, so long, at least, as
the paper money continues to fall. In the event of revalorisation
the effect is naturally the reverse.
Export duties raise the price of goods on the importing market.
The difference between this type of protection and import duties
is that the latter aim at protecting the industries of the importing
country and the former those of the exporting country. Export
duties are for the most part levied on raw materials. The policy
of the principal countries producing these materials is to confer
an advantage on the national industries working them up, by

DISTURBANCES IX INTERNATIONAL TRADE

153

supplying them to foreign countries only at prices swollen by the
duties. Export duties may also be levied on articles of consumption such as household coal. In this case it is the national consumer
whom the Government desires to benefit by restricting the export
of such articles by means of export duties.
Export duties have hardly been of any importance except
during the years immediately after the war. For the most part
they reflect a temporary dearth of raw materials in those countries producing them whose production had been hampered during
the war either by the military service of the workers or the
absorption of all their energies by the needs of national defence.
Once peace was restored, the countries producing raw materials
took care to enable their manufacturing industries to replenish
their stocks on better conditions than their foreign competitors.
It may also be admitted that the urgency of foreign needs was
such that a Government imposing export duties could be sure
that it was restricting neither the volume of exportation nor the
profits of exporters.
Export duties may also be purely fiscal. This appears to be
the nature of those levied on Chilian saltpetre, Bolivian tin and
bismuth, and Mexican petroleum 1 .
The effect of these duties on unemployment in countries importing the raw materials on which they are levied may not perhaps
have been very great, but, on the other hand, it was probably
not negligible. Raw materials are the complement of labour, 2
and it is certain that the dearness of one complementary article
tends to reduce the demand for the other. At least this is so if
the common demand is at all elastic, and contracts when prices
rise. It is for this reason that the protectionist countries generally
admit raw materials duty free. They fear a rise in the price of
the manufactured article and the ensuing shrinkage of trade and
employment.
The revalorisation of depreciated paper money temporarily
produces effects comparable to those of export duties. This is to
be explained by the fact that revalorisation immediately weakens
the foreign exchanges, the currencies in which exports are paid
for, but does not immediately result in a corresponding fall in
retail prices and rents, and, consequently, wages. Home production costs therefore are burdened with a surcharge similar to that
1

PARANAGUA, op. cit., p. 99.

2

Ibid., p. 8.

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

constituted by export duties, but whereas export duties are levied
only on certain materials in great demand, of which a partial
monopoly at least is possessed by the exporting country, revalorisation strikes blindly at all exports of national goods. Its action
is both to stem their flow and diminish their volume during the
whole of the period required for the adjustment of home prices
and wages to the higher exchange value of the national currency.
The result is persistent unemployment.
Export bonuses, unlike export duties, apply not to raw materials but to manufactured or semi-manufactured articles. Consequently the disturbances in international trade ensuing from
them directly affect the industries of the importing country.
Subsidised foreign competition is waged in abnormal conditions
t h a t it is often difficult to counteract. If the same industry exists
in the importing country, unemployment there will be a natural
if not an inevitable consequence.
The subsidies, direct or indirect, granted to certain national
industries react on the labour demand abroad in the same way
as export bonuses, but with less marked effect when these subsidies are not in proportion t o the volume of exports *. The same
must be said of the depreciation of paper currency, when it is
taking place; and also, at least for a time, of devaluation, i.e.
stabilisation of paper currency at a rate approximating to its
actual depreciated value, and with no attempt at revalorisation.
If this is so, it is due to the lag, already pointed out, between the
rise in foreign exchanges and t h a t in retail prices and wages,
which may not occur until long after (three or four years for
example) the financial reorganisation. When two or more countries have decided at the same time, or nearly so, one on revalorisation and the other or others on devaluation, the whole
sequence of events is as if the revalorising country had granted
an import bonus on commodities t h a t were in receipt of an export
bonus in the countries with devaluated currency.
The consequence in the first country is a very severe outbreak
of unemployment and one destined to last until home prices in
all the countries concerned are adjusted to the world level. Further,
complications may ensue, such as the obstinate refusal of the
1

The same remark applies to protection disguised as reduced railway
rates for exports, and the discrimination existing in certain cases between the
treatment of national and foreign vessels respectively. (Gf. the resolution
framed by the Dutch delegate, Mr. Heldring, at the session of the International
Chamber of Commerce held in Amsterdam, July 1929, p. 77 of the report of the
proceedings.)

DISTURBANCES IN INTERNATIONAL TRADE

155

workers in the country with the revalorised currency to accept
a reduction in their nominal wages, and the inactivity of the
workers in the country with a devalued currency, especially in
the face of a gradual rise in retail prices or of controlled rents.
Thus, the dislocation may be protracted and be complicated by
a loss of morale on the part of the unemployed in respect of
relief, and the waning of their productive capacity. A case of this
kind is thus a cause for anxiety.
RISKS INVOLVED IN CERTAIN SYSTEMS
OF INTERNATIONAL TRADE

Lastly, an examination may be made of those features of
customs policy that beget uncertainty and imply or entail risks
likely to arouse the fears of importers or exporters, and in consequence considerably reduce the volume of international trade.
In the first place, mention must be made of fluctuations in
the rate of duty.
It will be remembered that this type of instability exists in
two distinct forms: commercial treaties concluded for too short
a term; and the right that a State reserves to itself, in a world
of autonomous tariff regimes, to alter rates of duties by unilateral
decision, even if bound by treaty to apply to another country
the minimum tariff or a tariff intermediate between the maximum
and the minimum. In the last case, *there is no escape from tariff
instability, unless minimum tariff rates have been consolidated
by treaty, which implies an undertaking not to alter them for the
entire term of the treaty.
Apart from this consolidation, instability is complete. And the
position is almost the same if the treaty consolidating the duties
is concluded for a short term.
Unemployment is doubtless not an immediate and direct consequence of tariff or treaty instability, but it may be the indirect
consequence. This is primarily due to the fact that constant
changes in tariffs make it impossible to place long contracts x.
But this is not all: importers and exporters hesitate to incur
the expenditure entailed by business organisation, always costly,
if they are not certain of access to foreign markets for the length
of time required for the redemption of the capital invested in
1

Final Report of the World Economic Conference, 1927, p. 27.

156

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

their plant. Such expenditure is in the first place commercial:
it includes the high cost of advertising campaigns which, if they
are to be effective, must be extensive and persistent. To this
must be added all the expenditure, which may be very heavy,
on the plant itself. The costs of industrial organisation appear
to be heavier still. Access to new markets obtained by agreement
with a foreign country is likely to lead to important extensions
of factories and workshops, the engagement of skilled or unskilled
workers, the conclusion of contracts of employment with engineers
and other officials, and orders for equipment and raw materials.
Further, all these developments must be preceded by schemes
and plans drawn up by experts and representing a considerable
expenditure of time and money. Generally speaking, the growth
of capital locked up in modern undertakings will depend upon
the prospects of a regular output over a long period. Failing
any guarantee at all, only the boldest employers will be inclined
to break new ground. They will probably be few, and consequently
the volume of exports will be small, and the market being what
it is, it will not be possible for employment to reach or remain
at a high level. Unemployment will loom on the horizon.
It can thus be affirmed that the effect of the instability of
tariffs or treaties is to oblige factory owners to be sparing in
providing employment for an increasing population. Instability,
then, tends to result in an inadequate increase in the supply of
employment opportunities in the face of a demand which, in view
of the increase in the population, should normally expand.
Following upon the restoration of peace, several important
countries systematically refused to include in their treaties the
most-favoured-nation clause, although before 1914 this clause had
almost become a matter of course. It furnished the exporting
industries of the countries covered by it with a valuable guarantee
—that of being placed on an equal footing with foreign competitors as regards the level of duties levied by the contracting
parties at their frontiers. Thus, Italian wines would not have to
pay a higher rate than German, Hungarian or Spanish wines
on entering France or Switzerland. Doubtless the guarantee was
only partial, at least if the protecting country, in granting others
the most-favoured-nation regime, reserved the right of increasing
at will the degree of protection enjoyed by its own industries.
Nevertheless, equality with other countries exporting the same
commodity to the same market was and still is regarded as a
valuable advantage, especially if the import duty is more fiscal

DISTURBANCES IN INTERNATIONAL TRADE

157

than protective, i.e. when the country levying it does not itself
produce the article concerned (Great Britain: tobacco), or produces
only insignificant quantities.
The possibility of preferential treatment being subsequently
granted to a redoubtable rival is ipso facto eliminated. If this
guarantee is lacking the exporting industry finds itself in the
same position as in the cases of tariff or treaty instability considered above. The foreign market in which it was confident of
doing a large amount of regular business may be lost to it at
any moment. Consequently there will be a very natural reluctance
to incur the outlay on new plant indispensable if such a market
is to be kept regularly supplied. As a result not many new workers
will be engaged and if the competition which is feared becomes
a reality following upon more extensive tariff concessions made
subsequently by the importing country to a third party, the
exporting industries of the first contracting party will be obliged,
other things being equal, to discharge some of its workers.
It must be admitted that at the present time the return to
commercial treaties concluded for a longer term and including
the most-favoured-nation clause is eliminating a dual cause of
the instability in question. But it appears indisputable that this
instability has restricted or tended to restrict employment in the
exporting industries in the last ten years. It is not necessary
to press the point further, since the remedy has already found
wide application.
The instability of foreign exchanges, or more exactly the
irregular and unequal alternation of rises and falls, is beyond all
doubt one of the most serious risks and one likely to diminish
the volume of international trade. This remark is justified the
more in that unstable rates of exchange hamper the international
circulation of capital, lenders being particularly nervous in these
circumstances of incurring considerable losses, especially when
their loans mature, if the amounts are specified in foreign paper
money in the agreements. Now, it has often been observed that
the movement of goods follows that of capital. The connection
is indirect but unquestionably very strong. Hence unstable foreign
exchanges are assimilable to unstable tariffs and to treaties concluded for too short a term, in so far, that is, as they all help to
restrain international trade and in consequence the employment
of industrial and agricultural labour.
As much must be said of the obscurity and complexity of tariff
nomenclature, rightly condemned by the Economic Conference

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

in 1927, and more recently by one of the delegates, Mr. Trendelenburg, in the journal VEconomie internationale 1 . Such obscurity
and complexity are due to the many and various terms in which
articles subject to duty appear in the tariffs. It is plain t h a t if
importers are liable to make mistakes as to the amount of duty
payable on certain classes of goods t h a t are not clearly defined
in the tariff, or in different countries are in different classes or
rated differently, they will be inclined to cut down their orders
from abroad. Here again, then, is a contingency that has often
put a curb upon trade, to the great prejudice of workers seeking
employment 2 .

PART

II

Disturbances in International Trade Originating in the War
The legal and administrative barriers and obstacles to international trade introduced since the war have so far been considered
without reference to any others.
It would, however, be wrong to assume t h a t the trade disturbances, of which the possible effects on unemployment are under
consideration here, are always due to the direct intervention of
legislatures or Governments.
It cannot be doubted t h a t t h e
present system bears the deep impress of the vast havoc which
a long world war had wrought in trade as carried on previously.
To support this assertion it will certainly be necessary to define
what is here meant by disturbances, namely, any change in economic conditions that was due to the war and continued or even
extended after the conclusion of peace. The facts to be borne
in mind in this connection are of great importance. Furthermore,
it will be expedient to classify under the same head other disorders
of a political origin t h a t have a repercussion on international
trade and consequently on the demand for labour.
In its Final Report the International Economic Conference of
1927 threw full light on the phenomena now under consideration.
1
2

Oct. 1929, pp. 584-593.
Finally, among the disturbances in international trade that render it
hazardous may be classed alleged veterinary regulations, which may make it
possible to suspend at will the import of foreign cattle.

DISTURBANCES IN INTERNATIONAL TRADE

159

It will be appropriate to quote the views expressed in the Report
in this connection before going further:
European opinion is beginning to realise that the war has hastened
changes in the world situation which had begun in the early years of
the twentieth century. After a whole century, during which other continents had been willing to supply Europe with raw products in return for
the manufactures which Europe alone was in a position to make, a careful
observer in 1905 or 1906—or possibly twenty years earlier in the case
of the United States—could have perceived that a new chapter was
opening in the history of these distant countries, the chief characteristic
of which was the endeavour to establish manufacturing industries of
their own. The war greatly stimulated this development by restricting and
diverting foreign trade between Europe and the rest of the world1.
The result is, as was also pointed out by the Conference, that
certain parts of Europe have lost their former markets 2.
The most striking cases of the development of important industries outside Europe in consequence of the war, which paralysed
European industry and agriculture and drove European manufacturers off the market, are the manufacture of cotton goods
(Japan, India, and China) and of cane sugar (chiefly Java and
Cuba).
" The Japanese cotton industry ", says Mortara, " is
carried on in more favourable conditions than its European competitors, thanks to the large profits earned during and immediately
after the war, when the European industries were deflected, or
directly prevented, from exporting. These profits, in addition
to allowing of high dividends, made it possible to redeem
a large proportion of the capital and to build up substantial
reserves " 3 .
The Far Eastern and Indian competition furthered by the falling
off in British exports during the war was ruinous for the Lancashire
cotton mills. Their exports of cotton yarn fell from 953,000 cwt.
in 1915 to 768,000 in 1928; and of cloth from 5,502,000,000 square
metres in 1913 to 3,233,000,000 in 1928. The decline in the consignments of cloth to India, Ceylon and the Straits Settlements
was 45 per cent. On the other hand Japan exported 326,300,000
metres to India in the financial year 1928-1929 as against 8,100,000
in 1913-1914 4 .
1
2

Report, p. 18.
Ibid., p. 19. See also André SIEGFRIED: America Comes of Age, 1927,
p. 209 : " A whole group of countries which formerly gravitated more or
less3 about the old world are now turning for good or ill to the United States. "
MORTARA: Prospettive economiche, 10th year, 1930-VIII, pp. 165-167,
Milan.
4
E. FRANCK: " La Situation de l'industrie cotonnière du Lancashire ",
Revue économique internationale, March 1930, p. 481.

160

UNEMPLOYMENT PROBLEMS IN 1931

In a report to the Manchester Statistical Society, Professor
Daniels and Mr. Jewkes estimated the respective percentages of
British and Japanese exports to various markets to be the following:
India
Year

China

Great
Britain

Japan

96
97
97
87
92
90
82
86

1
1
1
10
6
7
9
13

1911
1912
1913
1921
1922
1923
1924
1925

Great
Britain

55
50
27
32
28
30

Dutch East Indies
Japan

Great
Britain

Japan

18
23
57
54
59
58

48
46
45
36
36
33
33
35

1
1
1
19
17
18
25
25

Concurrently with the shrinkage of the British cotton industry's
share of the most, important Asiatic markets is to be observed an
abnormal number of unemployed in this industry. Mr. Ernest
E. Franck finds that the falling output of the cotton industry is
reflected in a decline in employment. In the spinning and weaving
mills the decline is about one-sixth, and is all the more striking
seeing that in 1919 the hours of work were reduced from 55% to
48 per week.
1912 . . . .
1923 . . . .
1924 . . . .

Number of Workers Employed
621,516
1926 . . . .
567,440
1927 . . . .
517,232

574,980
569,950

The unemployment figures have undergone many fluctuations,
but even the lowest are relatively high:
1924 (December)
1925
„

39,364
38,652

The highest before the present depression were:
1923 (June)
1926
„

122,186
143,991 1

The depression of 1930 aggravated the evil very considerably:
on 25 August 1930 there were registered as unemployed in the
British cotton industry 257,879 persons, of whom 83,066 were
men and 174,813 women, or the impressive proportion of 46.5 per
1

Ibid., p. 477.

DISTURBANCES IN INTERNATIONAL TRADE

161

cent, of all persons insured (41.4 per cent, for men and 49.4 per cent.
for women). In other words, half the women and over two-fifths
of the men were out of work.
It is not open to doubt that while, as just stated, the severity
of the catastrophe is due to the appearance on the scene of an
aggravating cause, the share attributable to the remote but unquestionable effects of the great commercial upheaval of the war
period is unfortunately still very great. It is common knowledge
that the deepest-seated causes, which are the most potent, produce
effects that are not fully manifest immediately. There is an
instance ready to hand that is worth pondering.
The example of the sugar industry is no less conclusive than
that of cotton spinning and weaving. There was almost
complete paralysis of the export and even manufacture of German,
Austrian, Belgian and French (the occupied northern departments)
sugar during the war years. The consequence was a very marked
rise in prices, which was maintained for some time after the war.
The cane sugar industry, to which the abolition in 1903 of Continental export bonuses for beet sugar had given a first impetus,
was again powerfully stimulated by a shortage of stocks that
spelled prosperity for it. It took advantage of this situation to
accomplish remarkable technical progress, extending to the cultivation of the cane, with the result that in certain districts output
rose by 30 per cent. Several producing countries in Europe—
Germany, Czechoslovakia, Italy—tried to keep out the oversea
sugar by means of import duties, but without steering clear
of difficulties which, as usual, necessarily tended to cause
unemployment.
The disturbances in international trade created by the war, and
still exercising a highly restrictive influence on the demand for
labour among the ex-belligerents, are not due solely to the appearance of new competitors in the field, but also to the weakening
of the purchasing power of European markets and to political
upheavals.
The impoverishment of countries that suffered directly from
the war is too well known to need labouring here, but it was so
serious that a brief reference to it is indispensable. Assuredly,
Europe has in some measure remedied the evil of under-consumption that marked the first post-war years; but none the less
there is a lag in the progress of prosperity that has not yet been
entirely made good.
Other extremely important and generally known facts should
it

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UNEMPLOYMENT PROBLEMS IN 1931

also be recalled here. In the first place, there is the economic
isolation of the U.S.S.R. which for several years has reduced
both its exports and imports to insignificant figures. In consequence of the shortage of Russian supplies, flax rose in price to
catastrophic heights, and the linen industry has seen its markets
almost completely closed owing to both the inaccessible prices of
its manufactures and the triumphant competition of cotton yarns
and cloths. The discharged workers have probably been able to
find work fairly quickly in the cotton mills.
The economic position of the U.S.S.R. has apparently changed
sufficiently to allow it to resume exports, particularly of flax and
grain 1 . It is difficult to know exactly what the real reasons for
this resumption of exports are, or what new conditions make it
possible. What is sure is that the imports and exports of Soviet
Russia are not governed by the economic laws that govern international trade in the rest of the world. It is a Government economic
authority, the Vniéchtorg, t h a t possesses the monopoly of foreign
trade, and determines the quantities to be bought or sold.
From the point of view of private trade, which prevails everywhere but in Russia, the price policy of the Vniéchtorg may be
characterised as literally disorganising, but this term must not
be taken to imply any appreciation of its intrinsic value. It
cannot be questioned t h a t this policy acts on the world economy
as a foreign body disturbing its normal functioning. It may be,
as already stated, that in this case there is no real dumping in
the strict and technical sense of the term; but it is none the less
probable t h a t the costs of production bear no fixed relationship
to the prices of Russian exports. As regards imports, matters
are different, since the minimum prices are fixed by European
exporters 2 . Only, these imports remain considerably lower in volume
and value than formerly, and this also means a shrinking of the
markets for the workers of the rest of the world. To this must
1

Importation of Russian flax into France:
Year
Former Russian Empire
1913
U.S.S.R.
1926

Tons
91,240
24,580

1927
1928
1929

12,980
10,090
14,650

Cf.
La France économique, Year Book for 1929, p. 724.
2
The Soviet Government often imposes unacceptable credit conditions —
too long a term, absence of guarantees — that lead to the breaking off of
negotiations, and consequently the contraction of markets.

DISTURBANCES IN INTERNATIONAL TRADE

163

be added the element of uncertainty produced by the unfailingly
arbitrary nature of the interventions of the Soviet Government
on the world market.
The Chinese civil war has had similar consequences, but on a
much smaller scale. It has been remarked that political disturbances (India, Far East, Russia, Mexico) have deprived manufacturers in Europe and America of markets consisting of about
1,000 million consumers 1. The boycotting of British goods in
India, and the revolutions in various South American States have
added still further to commercial difficulties, and led manufacturers to curtail output and reduce their staffs. These disturbances
are too recent for it to be yet possible to discern all their repercussions on employment. Up to the present, moreover, they
appear to be much more superficial than those that China and
more especially Russia have experienced or still have to experience.

PART

III

The Extent of Net Unemployment Due to Disturbances in
International Trade

The purpose of the foregoing theoretical considerations is to
show the reality of the connection between international trade
and the demand for labour. The principle may be laid down that
disturbances in international trade during the decade now drawing
to a close have invariably resulted in a tendency to a decrease
in the employment of manual workers, particularly in the exporting
countries.
The use of the word tendency is intentional; for it still remains
to be demonstrated that each of the disturbances in international
trade referred to above is followed, as regularly as clockwork, by
the appearance or the extension of unemployment.
In order to establish a correlation between these two sets of
circumstances, would it not suffice to bring out their general
parallelism ? The Economic Conference of 1927 noted the shrinkage
1
Bulletin mensuel de la Société de Banque suisse, Oct. 1930. Mortara
(op. cit., p. 168) points out the difficulties of Turkey, which have restricted
her foreign purchases.

164

UNEMPLOYMENT PROBLEMS IN 1931

of international trade from 1913 to 1925, which it estimated at
11 per cent. It stated t h a t during the same period, the population
of Europe increased only by 1 per cent., although the labour
supply had undoubtedly increased at a higher rate owing to the
spread of female labour and the relegation to the working classes
of a large number of ruined members of the middle classes. On
the other hand, the volume of unemployment during the same
period was considerable. Is it not possible to consider the correlation between the decline in European international trade 1 ,
the relatively moderate increase in the supply of labour, and the
serious increase in unemployment, a sufficient demonstration of
the relationship t h a t has existed for ten years between the many
disturbances suffered by international trade and the plague of
unemployment, which has become almost endemic in certain
exporting countries ?
This type of proof, based on very general agreements, is not
quite decisive: it is not exact enough.
In fact, the concordance between the progress of economic
nationalism and the progress of unemployment should not distract
attention from the simultaneous effects on the latter produced
by other causes 2 . How, then, are we to measure the share of
the evil assignable to disturbances in international trade ? On
this point the following testimony of the Federation of Belgian
Mechanical Glass Works (V Union des Verreries mécaniques belges)
is significant: " T h e Belgian glass industry, which exports its
manufactures to all parts of the world, is suffering from the economic depression and political troubles prevalent in many countries,
but has also been handicapped by the entry into force of the
new American customs tariff. In these circumstances it is not
possible to estimate accurately what proportion of unemployment
should be ascribed to the customs policy of the United States. "
Is it possible to reach more definite conclusions b y other methods ?
This would be difficult for the following reasons. There is plainly
1
In spite of the increase in the number of European States, which has
converted a part of the former home trade (Austria, Hungary, Baltic States,
etc.)
into foreign trade.
2
This difficulty was much smaller in other times when there was not the
same complexity of economic obstacles. Thus, it is a positive fact that the
McKinley tariff (1891) resulted in much distress in certain European industries,
notably, the Saxon textile industry (cf. HERKNER, article entitled " Krisen ",
in the Handwörterbuch der Staatswissenschaften, 3rd edition, p. 419), the
English woollen industry, and the Welsh tin industry (Tougan BARANOVSKY:
Studien zur Theorie und Geschichte der Handelskrisen in England, Jena, 1901,
p. 167).

DISTURBANCES IN INTERNATIONAL TRADE

165

no direct relationship between barriers to international trade and
unemployment in exporting industries. And it may happen t h a t
the natural tendency of the barriers in question to give rise to
unemployment is inoperative. This may be due to the fact t h a t
manufacturers decide not to close down except in the last resort.
Plant that lies idle deteriorates; the fixed charges of the undertaking continue; the discharged workers scatter, and it may be
feared t h a t it will be impossible to re-engage them if work is
resumed 1 . Or again the hope, well founded or not, of an improvement, not too distant, in the position, decides employers not
to close down but to accumulate stocks, trusting to find markets
for them later. Lastly, the closing of one market may be set
off by the opening of another.
In these circumstances it is not surprising t h a t direct proofs
of the effects on unemployment of disturbances in international
trade are rarer than might be expected.
In the light of these remarks certain facts t h a t have come to
the writer's knowledge may be cited.
An official report of the Swiss Federal Government announced
that in August and September 1930 there was an unquestionable
increase in unemployment " almost entirely confined to certain
exporting industries "2.
In the front rank of these industries must be placed the textile
industry (particularly the manufacture of silk ribbon) and above
all watch-making, both of which for some months have suffered
from rather serious unemployment.
The depression in the watch-making industry, " the principal
cause of which appears to be the obstacle t h a t the new customs
tariff constitutes to the export of watches to this country (United
States), formerly one of the chief customers of the Swiss watchmaking industry, " has had the following very clear result. The
number of applicants for employment (in this industry) on the
books of the public labour exchanges was 2,223 at the end of
September 1930 as against 98 at the same time in 1929; and the
return for the end of August showed t h a t 8.6 per cent, of the
members of the occupational unemployment funds were completely
1

In the Belgian plate-glass works, which were hard hit from 11 February
1929 onwards by the Coolidge duties (very slightly reduced in 1930 by the
new tariff), the employers have arranged to keep all their workers by employing them only a part of the week. The writer does not know whether these
workers
are registered as partially unemployed.
2
Cf. Industrial and Labour Information, Vol. XXXVI, No. 6, 10 Nov.
1930, pp. 224-226.

166

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

unemployed and 38.5 per cent, working on short time. It would
seem that the tariff and the " fantastically high duties " and
" vexatious measures " that it comprised have not yet caused the
greatest harm that the Swiss watch-making industry has to fear.
Belgium also furnishes a number of typical examples of barriers
to international trade that constitute causes of unemployment.
The example of the plate glass works is a striking one. In their
case the depression is deepening. American manufacturers adjust
their prices to the tariff rates: the slight decrease in duty decided
upon by the American Congress in June 1930 was immediately
followed by a corresponding reduction in home prices. But, as
stated above, the slump in the motor-car industry, which accounts
for 60 to 75 per cent, of all plate glass sold in the United States
complicates any analysis of the situation. Moreover, the cost of
plate glass in America had already undergone a very considerable
decline owing to the introduction of the Libbey-Owens process of
manufacture. The recent collapse is due to the general depression.
Then the blame for the reduction in Belgian imports attaches to
this depression just as much as to the imposition of high duties.
According to an expert consulted by the writer, " it would seem
that the unemployment resulting from the entry into force of the
Coolidge duties can be estimated to be at least 15 to 18 per cent."
It should, however, be added that these excessively high duties
have made possible American dumping in Canada, Japan and
other countries, thus restricting Belgian exports of plate glass to
those countries..
As regards the textile industry the Revue du Travail (Belgium)
of 30 June 1930 states that unemployment among weavers is
growing rapidly ; and at the same time reproduces a letter addressed
by the Federation of Belgian Textile Industries (Association des
groupements textiles de Belgique) to the Minister of Industry and
Labour and to members of Parliament. This letter contains the
following passage : " The textile industry exports the larger part of
its output and we are anxiously watching the growing scarceness of
markets for our goods, a consequence of the customs barriers that
are being set up all over the world. " The Federation draws particular attention, first to a drastic protective measure taken by
Italy against the penetration into her territory of hemp and flax
yarns and cloths, and secondly to the " already prohibitive "
character of the American tariff *.
1

P p . 878-879.

DISTURBANCES IN INTERNATIONAL TRADE

167

The Belgian match industry has also suffered very much from
the revival of protectionism in oversea countries during the last
ten years. This may be illustrated by a few figures:
Belgian Exports
Country
of Destination

Before
the raising
of duties

After
the raising
of duties

British India. . .

595,000
(1913)

0
(market
practically
closed

United States . .

141,000
(1913)

Raising of Duties
Year

Amount

1922

from 5 to
200 per cent.
ad valorem

April
1930

from 3 to 20
cents the gross
or 50 per cent.
ad valorem
concealed
protection

0
Australia

. . . .

77,000

since
the war
0

The parties concerned have testified to the effects on unemployment, but it cannot be considered that the rise in the customs
duties is the principal cause of the aggravation of unemployment.
It should be remembered that in 1927 there was a change in the
assessment of the British duty which put a stop to a fruitful export
trade in match boxes containing fewer matches than those manufactured in England. A certain number of factories had been
set up in Belgium to profit by this somewhat doubtful traffic.
The exports, which had been 20,800 tons in 1926, fell to 5,531 tons
in 1928. In consequence, of the introduction of practically prohibitive import duties, the Belgian industry was reduced to onequarter its former size and the few factories remaining open worked
for the home market. In August 1927 more than 50 per cent.
of the insured workers were reported unemployed. On 23 March
1928 two factories had completely closed down and in the
others there was heavy unemployment.
There was also heavy unemployment in the Belgian glass industry
in 1930. A report of 23 June on the Charleroi district states that
" at present only three furnaces out of seventeen are working ".
At Moll 106 workers out of 126 are unemployed and the American
and Czechoslovak markets are lost. On 13 October the situation
was still very bad, but with some prospect, of improvement. Nevertheless, the extinction of the Jemappes glass works furnace was
reported. Moreover, the National Emergency Fund (Fonds national

168

UNEMPLOYMENT PROBLEMS IN 1931

de crise) is obliged to continue assisting unemployed workers whose
rights to allowances from their respective funds are exhausted.
On the other hand, the Belgian flax industry, although seriously
affected by the customs policy of the chief consuming countries,
suffers but slightly from unemployment. It is true that output
decreased by 50 per cent, after the war, but there has been a shortage
of workers for some years. This shortage and the sacrifices made by
the employers have in this case delayed an outbreak of unemployment,
although it is particularly acute in the other textile industries. The
Chairman of the Executive Committee of the Central Office for
Belgian flax, hemp and jute mills, who communicated this information to the writer on 28 November, added : " At present, of the
12,000 workers normally employed by the firms affiliated to our
organisation there are 1,600 on short time (i.e. one, two or three
days' unemployment per week) ; and, owing to the stoppage of two
mills, for some few days past there have been 600 wholly unemployed. These, however, will shortly be able to find work in our
industries. "
The harmful effect of dumping is denounced with greater
frequency.
For instance, since May 1929 1 the application of short time in the
smaller spinning mills (probably those in which production costs
are the highest) has been connected with the appearance of two
wagon-loads of Soviet flax yarn at Ghent. " The Russian yarns
were offered for sale at prices 25 per cent, below the lowest Belgian
price. " From another source, which the present writer is unable
to vouch for, it is pointed out that in forcing up exports of manganese the Soviets have succeeded in almost completely ruining
their rivals. Many foreign mines are no longer worked 2.
In July 1930 in the Belgian brick industry " several works were
closed or had reduced their working hours to one a day. The fall
in price is mainly set down to the dumping of French bricks. The
French brick makers pour their surplus on to the Belgian market
at prices 40 francs below those ruling in France. Industrial circles
estimate the number of bricks introduced freely into Belgium at
60 million. " 3
1
Revue du Travail (Belgium), May 1929, p. 683. But Mr. Jules Vanderstegen,
opposing the campaign against Russian dumping, asserts that quite obviously
" flax cannot remain dear when cotton is cheap " (La campagne antüoviétique
et la filature de Un, Oct. 1930, Ghent, pp. 5 and 8).
2
Supplément économique de l'Indépendance belge, 1 Oct. 1930, quoting
the proceedings of the Seventh Session of the Council of the " Entente Internationale contre la I I I m e Internationale Communiste ".
3
Revue du Travail (Belgium), Aug. 1930, p. 1136.

DISTURBANCES IN INTERNATIONAL TRADE

169

The following remarks in the Revue du Travail (Belgium) on the
milling industry in August 1929 are also worthy of note. " The
situation of the Belgian milling industry has become disastrous
owing to the arrival of large quantities of French flour, which enter
Belgium by means of customs permits under bond. If this situation
is not remedied most of the Belgian flour mills will soon have to
close down two days per week. " 1
Lastly, mention should be made of the international competition
of countries which, not having been directly affected by the war,
were able to profit by the fact and organise themselves for a victorious economic campaign after the cessation of military operations.
On this point, the Indian jute mills may be instanced. These mills,
many of them erected during the war, have repaid almost all their
capital. Doubtless Indian competition is also favoured by normal
factors such as overhead charges and labour costs, which are much
smaller than in Europe. As from 1 July 1929 the working week
has been raised from 48 to 60 hours. Nevertheless, the abnormal
fact of almost complete repayment of capital appears to weigh much
heavier in the balance than the longer hours of work or lower
wages, for Indian workers are naturally less productive. It wrill
also be observed that this example dates from 1929, before
the present depression started. It is therefore all the more
significant.
In the special case under consideration the remote but certain
consequence of the vast disturbance in international trade constituted by the Great War was the following: " Intermittent unemployment is reported in the Roulers jute mills, especially among
female cop winders. . . . Further a jute mill is short of
women spinners, while many women attracted by the higher
wages to be earned there go off to work in the French woollen
industry. " 2
These last cases have been quoted to show once more that in
certain circumstances workers may escape the incidence of commercial disturbances by a relatively simple change of employment. If
this had not been possible, instead of a shortage of spinners a surplus
and more or less extensive unemployment would have been recorded
from July 1929 onwards. In November, the Revue du Travail
(Belgium) observed : " At Roulers a few women employed in the
jute mills are subject to frequent stoppages of work. In consequence
1
3

Ibid., Sept. 1929, p. 1310.
Ibid., Aug. 1929, p. 1197.

170

UNEMPLOYMENT PROBLEMS IN 1931

there is a certain amount of short time. " 1 In 1930 the economic
depression reached the jute industry and henceforth this factor
obviously dominates all others.
Another instance is furnished by the Belgian cement industry
whose ability to export has been impaired by the raising of a foreign
tariff, and which in order to avoid discharging workers limits the
reduction of its output and adds a certain proportion of its reduced
output to stock. Its output (July-August 1930) was 30 per cent.
less than in 1929. " Of this already reduced output 70 per cent.
was sold in July and 65 per cent, in August. Accumulated stocks
must therefore be high. " Moreover, there can be no doubt that this
grave situation is due to a " trade barrier ". " The loss of the
American market is making itself felt: whereas in June and July 1929
exports amounted to about 76,000 tons, they were no more than
796 tons in the corresponding months of 1930. In 1928, the
American market accounted for 14.7 per cent, of the total exports,
and in 1920 10.3 per cent. " 2
Lastly, mention may be made of the paralysing influence of the
excessively high cost of raw materials imported from a country
with a high rate of exchange. Mr. Oblath, who draws attention to
this point, connects it with the growth of Italian unemployment in
1921, but observes that this unemployment, especially in the metalworking industries, is also due to the competition of countries with
depreciated currencies. From April to June 1921, the number
of unemployed rose from 27,519 to 60,771, and in October 1921
reached the maximum of 79,816 3.

Conclusions

The facts cited above seem to be genuinely typical. An international enquiry on a larger scale than that which the writer has
been able to conduct in a necessarily limited time would probably
not lead to different conclusions, but would assuredly confirm
those expressed in this report. The tendency to cause unemployment is inherent in all measures restricting international trade,
1

Ibid., Dec. 1929, p. 1741.
Cf. Bulletin d'information et de documentation de la Banque nationale de
Belgique, 25 Oct. 1930, p. 229.
3
International Labour Review, May 1930, pp. 658-670.
2

DISTURBANCES IN INTERNATIONAL TRADE

171

whether these measures relate to restrictions followed by an
artificial scarcity of raw materials, semi-manufactured articles or
finished articles; or result in raising the cost of production; or,
again, give rise to risks that paralyse business or are reflected in a
rise in production costs. On the first point there is no room for
doubt. But the question whether the tendency to create unemployment will really be operative cannot be answered by an unqualified
affirmative. It is only natural that the variety of circumstances
should bring about a variety of effects. Nevertheless, on the whole,
it does not seem to be in the least doubtful that a large proportion
of world unemployment is due to the disastrous and obstinate
policy of trade restrictions that was so justly censured by the
International Economic Conference of 1927, but is so far from
being overthrown that the very growth of unemployment serves
as a pretext for pursuing it more rigorously.

POPULATION AND UNEMPLOYMENT
By L. HERSCH

Processor of Statistics and Demography
at the University of Geneva

I
Even before the world war the old Malthusian doctrine had
again become the fashion in certain quarters in the United States,
owing to the restrictions on immigration imposed as a result of
the nationalist sentiments that have grown with the rising prestige
of the country since its war against Spain. A million immigrants,
and sometimes even more, landed every year in the ports of that
country. An increasing proportion, already amounting to threequarters, of this enormous " new immigration " consisted of persons
coming from the east and south of Europe, to whom the race,
language, religion, political and moral traditions, standard of
culture, education, tastes and needs—in brief, the physical and
moral standards of the established population of the United
States—were alien. In these conditions, the Malthusian doctrine
was one that could be used to justify opposition to this tremendous
influx without having to lay too much stress on nationalist
arguments.
At the same time trade unionists in the new countries of America,
South Africa, Australia and New Zealand saw their relatively
high and hard-won standard of life threatened by the competition
of masses of unorganised labour streaming into the country from
the less advanced areas of Europe. They therefore demanded
with ever greater urgency and success that the frontier should be
closed to immigrants who in their eyes were trying to rob them
of their seat at life's feast, or at least to force them to surrender
a share of the good things of life. Like many other Marxist or

174

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

humanitarian dogmas, that of the international solidarity of the
workers was given a special interpretation adjusted to the needs
of the case. For instance, the representative of the New Zealand
workers at the World Migration Conference convened by the
International Federation of Trade Unions in London in June 1926
said that while the European workers were fighting capitalism at
home they could count on the support of the workers of New
Zealand, but that the latter would with all their strength fight
their admission to New Zealand. In other words, Marx had to
give way to Malthus.
Another factor that could not fail to make an impression lay
in population statistics, which have steadily improved in comprehensiveness and accuracy. Certain theorists with a liking for
simple generalisations, whose very simplicity gave them a reputation, noted the extremely large increase in the population of
certain parts of the world, in particular Europe, during the last
two or three generations and gave the alarm. By a most simple
arithmetical calculation it was in fact easy to show that if there
were no change in the rate of development, in a few centuries
there would be no more room for humanity on the earth, and that
even in some decades the situation would become intolerable.
As a matter of fact, during the nineteenth century the population
of Europe had doubled, rising from nearly 200 million at the
beginning of the century to 400 million towards 1900 (Sundbärg
estimates the population of Europe at 188 million in 1800 compared
with 401 million in 1900 1 ). In other words, during the nineteenth
century alone the population of Europe increased by over 200 million
persons, a figure equal to, if not greater than, that of the aggregate
increase during all the many centuries since the human race
appeared in Europe. And this figure leaves out of account the
enormous number of European emigrants during the nineteenth
century who with their descendants peopled oversea continents
and islands, thus changing the age-old distribution of the human
race on the surface of the globe. In the twentieth century, up
to the time of the world war, European emigration became more
intense than ever. All the great racial migrations known to
history pale before this modern migration that from year to year
took about a million and a half Europeans to oversea countries,
often to the remotest spots. In spite of this, the population of
Europe itself continued to grow with extraordinary rapidity.
i Aperçus statistiques internationaux, p. 33. Stockholm, 1908.

POPULATION AND UNEMPLOYMENT

175

By 1910 it had passed 447 million 1, which meant the unheard-of
increase of over 45 million in ten years. The world war itself,
with the terrible epidemics and other devastating diseases that
accompanied it, which, taken as a whole, cost Europe the lives
of over 24 million persons, military and civilian2, quite apart
from the heavy fall in the birth rate to which it led, was nevertheless
powerless to arrest the growth of the European population for
any length of time. According to the censuses (and estimates)
made in 1920, the population of Europe at that date was 450 million3.
To-day, at the end of 1930, that population has reached approximately 500 million 4. Thus in a short time, in spite of war and
migration, the population of 1800 will be trebled. In spite of
war and migration both unparalleled in history, the European
population has thus increased by about 100 million during the
last third of a century, or a single generation. In view of these
facts, it is perhaps not surprising that even certain university
professors, especially in the Anglo-Saxon countries, have believed
that the spectre of absolute over-population is imminent.
At this very time the Western world is suffering from a terrible
wave of unemployment, striking not only practically every
European country, but also the United States and other American
countries, the British possessions in South Africa and Australia,
and even reaching as far as Japan. In some countries the
unemployed can be counted in millions. Never before has unemployment been so widespread and lasting. Its end cannot as
yet be discerned, and even its decline is not yet visible.
It is not surprising that in various quarters, among business men
as well as among trade unionists, the anxious question should be
asked whether this severe crisis of unemployment is not fundamentally due to an over-rapid increase in the population of Europe.
In the United States the advocates of restriction congratulate
themselves on having arrested in time the process of mass immigrai PERMANENT OFFICE

OF THE INTERNATIONAL STATISTICAL INSTITUTE:

Annuaire International de Statistique, I. Etat de la population (Europe), p. 2.
The Hague, 1916.
2
Cf. L. HERSCH: " La mortalité causée par la guerre mondiale. " Reprint
from the international statistical review Metron, Rome, 1925 and 1927.
3

PERMANENT OFFICE

OF THE INTERNATIONAL STATISTICAL INSTITUTE:

Aperçu de la démographie des divers pays du monde, p. iv. The Hague, 1929.
4
Ibid., in which the population for 1928 is given as 478 million. The
International Statistical Year-Book published by the Economic and Financial
Section of the League of Nations gives (p. 23) for December 1928 the figure
of 526 millions as the population of Europe and Asiatic Russia (the population
of the latter in 1926 was 32 million).

176

UNEMPLOYMENT PROBLEMS IN 1931

tion, when they consider the vastness of existing unemployment,
which would apparently be even more serious if some ten million
immigrants had been added to the working population.
Should the present unemployment, therefore be attributed
largely to the over-rapid increase in population ? And will the
future demographic evolution in countries of Western civilisation
actually threaten absolute or relative over-population ? These
are the two burning questions of particular urgency in these days
of unprecedented unemployment.

II
Obviously, no one can seriously maintain that the formidable
unemployment from which the United States is suffering is even
now due to over-population. This country, so wonderfully rich
in natural resources of all kinds and exceeding in area threequarters of the whole of Europe (including European Russia),
has a population equal to only one-quarter of that of Europe.
The average density of the population in the United States is only
15 persons per square kilometre as against 49 in Europe if Russia
is included, and 64 if Russia is excluded. It is even more obvious
that there can be no question of over-population in Australia or
New Zealand. The most densely populated State of the Australian
Commonwealth, Victoria, has only 7.6 persons per square kilometre,
and New Zealand has 5 persons per square kilometre. The United
States may therefore be considered without exaggeration as a
country three-quarters empty, and Australia and New Zealand
as nine-tenths empty. The fact that such countries, and in particular the United States, are now suffering from intense unemployment in itself appears to suggest that the reasons for the prevalent
world unemployment are quite different from the alleged excessive
population.
But although compared with territory the present population
of the United States is certainly not too high, it may perhaps be
asked whether when compared with the existing population the
increase, which in this country was particularly rapid owing to
immigration, may not have been the cause or one of the causes
of the unemployment now prevailing there. In other words,
it may perhaps be maintained that the new sections of the population, produced by natural increase and immigration, are too large

POPULATION AND UNEMPLOYMENT

177

compared with the old population, among whom they have to
make their way. The actual rate of increase in the population of
the United States from one census to another (increase in proportion
to the population) has in fact been as follows:
Period

Increase per cent, of
population
1840-1850
36
1850-1860
36
1860-1870l
23
1870-1880
30
1880-1890
26
1890-1900
21
1900-1910
21
1910-1920
15
1920-1930
16
1
The Civil War.

This shows that compared with the existing population the rate
of increase in the United States may be said to have fallen steadily
since 1840. During the last two decades (in 1910-1920 under the
influence of the war, and in 1920-1930 under the influence of
restrictive immigration legislation, not to mention the heavy
fall in the natural increase of the American population) the real
relative increase in the population of the United States was smaller
than ever, indeed much smaller. In view of this fact it is perhaps
tempting to ask, on the contrary, whether there is not some causal
connection between the recent sudden fall in the rate of increase
in the population and the present recrudescence of unemployment.
This is an altogether different question, however, to which we
shall return later.
The problem is obviously more complicated in the older continent
of Europe, and should therefore be considered more closely.
In the first place, it must be pointed out that for this examination
Russia and the Balkan States should be left out of account for the
twofold reason that the density of the population is low (about
50 persons per square kilometre in Bulgaria, Rumania, Yugoslavia
and Greece, and only 25 in European Russia) and that these
countries, especially Russia, are at present not suffering from any
marked degree of unemployment. Attention should therefore be
concentrated on the rest of Europe.
Now, out of the 5% million persons who during the last few
years have constituted the natural annual increase in the European
population (i.e. not deducting the figures of oversea emigration),
12

178

UNEMPLOYMENT PROBLEMS IN 1931

nearly half, or over 2 % million 1 , were in European Russia, and
half a million in Bulgaria, Rumania and Yugoslavia 2 . The
natural increase of the population of all the rest of Europe therefore
is now less than 2 % million a year. In a population of 300 million,
this increase of 2.4 million means an annual addition of 8 persons
to every thousand. That such a slight increase can produce
widespread unemployment is in itself unlikely. Furthermore, it
should not be forgotten t h a t 700,000 to 800,000 Europeans
(excluding Russians) leave for oversea countries every year.
This leaves a real annual increase of not more than 1.7 million,
or 5 to 6 persons per thousand. This is obviously much too small
to be the cause, or one of the essential causes, of the terrible
unemployment of to-day.
But instead of keeping to general statements, we may consider
in turn the principal European countries now suffering from
unemployment. Unfortunately, for a detailed consideration of
the problem it will often be necessary to make use of the census
data collected about 1920. For, except Germany, where a general
population census was taken in 1925, and France, which had one
in 1926, nearly all the other central and western European countries
are not having a new census until the end of 1930 or the beginning
of 1931, the detailed results of which will not be known until a few
years later. In many cases, however, it is possible to supplement
the data of the 1920-1921 censuses by figures showing the changes
in the population in the period 1921 to 1929.
Ill
Among the more important European countries there is one
where a heavy increase in population, combined with other
i In 1927, the last year for which data are available, the number of births
in the European part of the Soviet Union was 4,979,000, and the number
of deaths 2,411,000, giving a natural increase of 2,568,000 (Statistichesky
spravochnik S.S.S.R. za 1928, p. 76: published by the Central Statistical
Office of the U.S.S.R., Moscow, 1929). According to estimates in the same
source (p. 19), however, the population of the whole Soviet Union rose from
143,649,000 in 1926 to 147,098,000 in 1927 and 150,450,000 in 1928, a real
annual increase of 3.4 million for the whole Union, and about 2.75 million for
European Russia.
2
The natural increase of the population in Bulgaria was 71,000 in 1927 and
99,000 in 1928. The corresponding figures for Rumania were 210,000 and
272,000. Yugoslavia has no statistics showing the change in population
(a lack due to the war. for previously the former Austrian provinces as well
as Serbia published regular population statistics) ; but it is probably not too
far from the truth to assume that the rate of increase in Yugoslavia is the
average of those for Bulgaria and Rumania. Taking the average for the two
years, the annual increase is thus seen to be about 80,000 for Bulgaria*
240,000 for Rumania and 180,000 for Yugoslavia, or together 500,000.

POPULATION AND

179

UNEMPLOYMENT

important factors, might in fact be considered as a cause of
unemployment. That country is Italy.
According to the last three censuses the changes in the population
of the territory of pre-war Italy have been as follows 1 :
Beai increase
Year

1901
1911
1921

Population

32,475,000 \
34,671,000 Í
37,143,000)

Actual flgures

Per cent.
of population

2,196,000

6.8

2,472,000

7.1

It must not be forgotten t h a t the war had a devastating effect
on the Italian population. The number of military and civilian
victims was about 1,700,000 2. It should further be noted t h a t
the war led to a heavy fall in the birth rate. Even allowing for
its revival in 1920 and 1921, the number of births in the period
1916 to 1921 was 1,400,000 below the normal figure at the time
when Italy entered the war 3. Yet in spite of this, the Italian
population not only had not fallen in 1921 as compared with 1911,
but the real increase during the decade 1911-1921 taken both
absolutely and relatively was higher than during the preceding
decade (of course, excluding the increase of 1,568,000 persons
representing the present population of the " redeemed " territories) ;
in the pre-war territory, the population of Italy increased by
2,196,000 from 1901 to 1911 and by 2,472,000 from 1911 to 1921,
or by 6.8 per cent, in the first decade and 7.1 per cent, in the second.
But an increase of 7.1 per cent, in ten years should not in itself
be considered a cause of unemployment. The phenomenon is
seen to be much more serious, however, if instead of considering
the whole population only, t h a t group is taken which by age and
sex constitutes the principal labour factor, namely, the male
population between the ages of fifteen and fifty-nine years. The
figures for this group are as follows 4 :
i Annuario Statistico Italiano, 1928, p. 19.
Out of this figure about 700,000 were military victims, and slightly over
1 million were victims of the rise in the death rate of the civilian population
as compared with the normal death rate (cf. L. HERSCH, op. cit., pp. 12-13
and 98-105).
» Ibid., p. 99.
* Figures calculated from the data in the Annuaire international de statistique, published by the Permanent Office of the International Statistical
Institute, The Hague, 1916, pp. 82-83, and the Aperçu de la démographie des
divers pays du monde, published by the same Office, The Hague, 1929, p. 77.
2

180

UNEMPLOYMENT PROBLEMS IN 1931

Year

1901
1911
1921 i

Male population
15 to 59 years

8,946,000 \
9,262,000 Í
10,465,000 }

Real increase
Actual figures

Per cent.

316,000

3.5

1,203,000

13.0

1
The figure for 1921 is approximate. The male population between 15 and 59 years
of age in 1921 in the whole of Italy was 10,905,000. As the population of the pre-war
territory formed 96 per cent, of the total population of the Kingdom in 1921 (37,142,886 out
of 38,710,576), the same proportion has been taken for the male population of fifteen to
fifty-nine years of age in the pre-war territory (10,905,000 x 0.96 = 10,465,000).

Thus, the male population of Italy between the ages of fifteen
and fifty-nine years showed in 1921 an extraordinary increase
over 1911. This increase of much the most active section of the
population was nearly four times as high in the decade 1911-1921
as in the preceding decade. In spite of the 700,000 Italian soldiers
who fell during the war, the increase in the male population in
this age-group during the 1911-1921 decade was larger than that
in the 1901-1911 decade by nearly 900,000 \
It must be admitted that such a sudden and heavy increase
in the working population of one of the most densely populated
countries of Europe (129 persons per square kilometre in 1921),
and by no means one of the richest, may produce far-reaching
disturbances in the labour market.
The above figures concerning the male population between
fifteen and fifty-nine years of age, as well as those concerning
the total population, may perhaps appear rather puzzling. How
has it been possible for the population to continue to grow at the
same, and even an increased, rate while there has been such a
substantial fall in the birth rate and such a terrible increase in the
number of deaths ? And how is it that the very section of the
population which by sex and age suffered most from the war is
precisely that which shows a particularly high numerical, increase
compared with its previous increases ? These facts are explained
quite naturally by the cessation of the enormous Italian emigration
during the war and by the return of a large number of Italians
who had emigrated earlier. The number of Italian emigrants
during the ten years 1912-1921 (the period between the last two
censuses) was 2V£ million (2,532.000) less than during the preceding
1

The male population from five to fifty-nine years of age (calculated in
the same way) increased by 563,000, or 4.5 per cent., during the period 19011911 and by 1,537,000, or 11.8 per cent., during the period 1911-1921.

POPULATION AND UNEMPLOYMENT

181

ten years (1902-1911), and four-fifths of this drop, or nearly 2,000,000
(1,988,000), may be ascribed to the fall in oversea emigration 1 .
Now, the vast majority of Italian emigrants were men of working
age 2. Although a very large proportion of the Italian emigrants
emigrated only temporarily, returning t o their native country
after some time (the proportion of temporary emigrants was not
so high among oversea as among Continental emigrants), it is
nevertheless true t h a t about half of these large contingents
remained abroad, especially in oversea countries 3 . The cessation
of emigration and t h e return of former emigrants thus more than
filled the gaps produced by t h e war 4 . The falling off in emigration
from Italy has continued up to the present owing to the restrictions
in force in t h e principal countries of immigration (in particular,
the United States and certain European countries, such as Germany
1

The following table shows the number of Italian emigrants in the two
periods (in thousands):

Period

Total

Oversea
emigration

Emigration
to places in Europe
and t h e
Mediterranean Sea

1902-1911
1912-1921

6,027
3,496

3,498
1,986

2,529
1,510

711
873
479
146
142
46
28
253
615
201

403
560
233
67
74
13
4
106
409
117

308
313
246
80
68
33
24
147
205
84

1912
1913
1914
1915
1916
1917
1918
1919
1920
1921

{Annuario Slolisitco italiano, 1928, p. 387.)
2

Thus of 2,285,000 Italian immigrants into the United States during the
period 1899-1910, four-fifths (79 per cent.) were men and five-sixths (84 per
cent.) were between fourteen and forty-four years of age (HERSCH: Le Juif
errant d'aujourd'hui, pp. 66 and 72; Paris, 1913).
3
During the seven years from 1 July 1907 to 30 June 1914, the number of
Italian immigrants into the United States was 1,471,882, of whom 670,564,
or 45.9 per cent, of the arrivals, re-emigrated, resulting in a net immigration
of 801,308 in seven years, or an average of 114,474 a year (according to the
data in the Annual Reports of the Commissioner-General of Immigration,
published by the United States Department of Labour, in particular those
contained in the report for the fiscal year 1923, Washington 1923, pp. 117-121).
4
Another demographic feature of post-war Italy, unique of its kind, may
similarly be explained by migration movements. Whereas everywhere else
in Europe the inequality between the sexes (higher number of women) was
much accentuated by the war, in Italy, on the contrary, this inequality,
which was very marked before the war, became much less so after the war. Ac-

UNEMPLOYMENT PROBLEMS IN 1931

182

and Switzerland) and to the Italian Government's own policy
of restricting emigration 1.
If, therefore, there is in Italy a real causal connection between
population and unemployment, it must be sought in the changes
in the migration movements of t h a t country and must be studied
in relation to the problem of migration which will be discussed later.
As to the natural increase of the population, i.e. excess of births
cording to the censuses of 1911 and 1921 the numbers of men per thousand
women (for all ages and for the age groups from 15 to 59 years) were as follows :
Age-group
Year

All
ages
15-19

1911
1921

964
991

932
1,009

20-24

25-29

30-39

40-49

50-59

15-59

916
955

865
871

903
889 '

946
963

970
984

923
944

For purposes of comparison the corresponding figures for France and
Germany are given, where the situation was naturally just the reverse, that
is to say, the number of men per thousand women fell after the war.
Age-group
Country

Year

All
'ages

15-19

20-24

25-29

30-39

40-49

50-59

15-59

France

1911
1921

999
906

998
1,007

978
856

980
793

992
839

974
933

944
933

977
895

Germany

1910
1919

974
910

1,004
991

1,001
792

997
744

996
847

969
950

900
936

980
882

(These figures are calculated from the actual numbers contained in the
aforementioned publications of the International Statistical Institute and
in the International Statistical Year-Book for 1927, published by the League
of Nations, Geneva 1928, pp. 28-31.)
i An idea of the fall in Italian emigration compared with pre-war conditions
may be obtained from the following figures:
Oversea
emigration
Total
Total

1911-1913
1926-1928
Per cent, of
1911-1913

United
States
and
Canada

2,117,888 1,225,651 873,173
642,428
329,384 119,713
30.3

26.9

13.7

Emigration to places in Europe
and the Mediterranean Sea

Total

France Switzer- tîermany
land

892,237
313,044

222,404
217,386

268,054
47,216

220,894
2,260

35.1

97.7

17.6

1.0

The total number of Italian emigrants is thus at present only 30 per cent.
of what it was just before the war. It is still clearly tending to fall still
further, having dropped from 264,000 in 1926 to 228,000 in 1927 and 151,000
in 1928. The oversea emigration is about one-quarter (26.9 percent.) of the

183

POPULATION AND UNEMPLOYMENT

over deaths, it will be seen that in Italy, as in other countries of
Western civilisation, far from increasing steadily, it is now tending
to fall not only in proportion to the population but in actual
figures. Leaving out of account the exceptional ravages of the
war, the annual changes in the Italian population are as follows:
Actual figures (in thousands)
Average
for the period

Live
births

Deaths

Excess
of births

Per thousand inhabitants
Live
births

Deaths

Excess
of births

1911-1914 i

l,116i

6641

452i

31.7

19.1

12.6

1921-1925
1926-1928
1929

1,117
1,086
1,036

652
654
661

465
433
375

29.2
26.8
25.2

17.1
16.1
16.0

12.1
10.7
9.2

i The figures for 1911-1914 relate to the pre-war territory of Italy. To obtain figures
for the present territory, to which the 1921-1929 figures apply, the 1911-1914 figures may
be increased in the ratio of 100:96 (in proportion to the population), thus giving the
following figures: 1,163,000 births, 692,000 deaths, and 471,000 as excess of births over
deaths.

Compared with 1911-1914, the birth rate and the death rate
have fallen in Italy, but the birth rate has fallen more than the
death rate, so t h a t the natural increase of population has fallen
steadily and heavily. In 1929 the rate of natural increase was
only three-quarters of what it was in 1911-1914 (9.2 per thousand
inhabitants as compared with 12.6). In actual figures, for the
present territory of Italy, the natural increase of population in
1929 was about 100,000 less than the average for 1911-1914
(375,000 as against about 471,000) 1 . This great and rapid decline
pre-war figure. The number of emigrants leaving for North America is not
even one-seventh (13.7 per cent.) of the 1911-1913 figure. The Continental
and Mediterranean emigration is 35 per cent, of what it was before the war.
Only the emigration to France has remained more or less unchanged. That
to Switzerland has fallen to one-sixth (17.6 per cent.), and that to Germany to
barely one-hundredth of the pre-war figure. Italian emigration to France,
which was tending to increase even before the war, reaching the figure of
83,000 in 1913, rose even further immediately after the war and was over
200,000 in 1924 (201,715); since then it has fallen steadily, being 146,000 in
1925,111,000 in 1926, 57,000 in 1927 and 49,000 in 1928. (Annuario Statistico
Italiano, loe. cit.)
i Before the war, on the contrary, the natural increase of the population
was rising rapidly. It is true that the number of births remained nearly
stationary during the three decades before the war, but the number of deaths
fell rapidly during the same period, as will appear from the following annual
averages (in thousands):
Period

Live births

Deaths

Excess of births

1886-1890
1896-1900
1906-1910
1911-1914

1,118
1,085
1,106
1,116

812
732
718
664

307
353
388
452

184

UNEMPLOYMENT PROBLEMS IN 1931

in the natural increase which is characteristic of the present period
in Italy is all the more significant because, as was pointed out
above, the young adult element is more strongly represented in
the population of Italy and the equilibrium between the sexes
is much closer than before the war.
IV
The increase of population may still less be regarded as one of
the important causes of the terrible unemployment at present
prevailing in Great Britain.
In England and Wales the population at the three last censuses
was as follows (in thousands) :
Real increase
Year

1901
1911
1921

Population

32,528 X
36,070 {
37,885 >

Actual figures

Per cent.

3,542
1,815

10.9
5.0

During the decade 1911-1921, the real increase of population of
England and Wales was thus only half that of the preceding decade.
In actual figures it was less than that of the decade 1901-1911
by 1,727,000. The ravages caused by the war among the military
and civilian population and the heavy fall in the birth rate to
which it led (though less than in the other principal belligerent
countries) were the main reasons for this substantial fall in the
increase of population l.
What is of interest here is not so much the total population as
the male population of working age. We may therefore consider
in particular the male population which at the time of the censuses
was between the ages of five and fifty-nine years (survivors of
the population between five and fifty-nine years of age in June
i According to the statistics of The Military Effort of the British Empire
during the War (p. 237), published by the War Office (London, 1922), the
number of British soldiers and sailors who fell during the war was 702,410.
The higher mortality of the civilian population meant the death in the United
Kingdom of 292,000 persons in excess of the normal figure, 250,000 being
in England and Wales, 20,000 in Scotland and 17,000 in Ireland. The fall
in the number of births due to the war, allowing for the rise in 1920-1921,
should be estimated at 600,000 for England and Wales. For the effects
of the war on civilian mortality and the birth rate in the United Kingdom,
see HERSCH: La mortalité causée par la guerre mondiale, pp. 93-97.

185

POPULATION AND UNEMPLOYMENT

1921 being now about fifteen to sixty-nine years). The figures
of this population in England and Wales at the last three censuses
were as follows (in thousands) 1 :
Real increase

Male population
from 5-59 years

Year

1901
1911
1921

12,576 \
14,223 {
14,813 )

Actual figures

Per cent.

1,647

13.1

590

4.1

The real increase of the male population of working age during
the decade 1911-1921 was thus three times less than in the preceding
decade, or in actual figures 1,000,000.
In view of these facts it seems very difficult to agree that British
unemployment to-day is to any great extent due to over-rapid
increase of the population.
The phenomenon becomes even clearer if instead of comparing
only the results of the censuses, the data showing the natural
increase of population are considered. The following table gives
the changes in the births, deaths and natural increase of the population of England and Wales since the beginning of the twentieth
century 2 :
CHANGES IN THE POPULATION

OF ENGLAND AND WALES

DURING THE PERIOD 1901-1929
(Annual Averages)
Actual figures (in thousands)
Years

Per 1,000 inhabitants

Live
births

Deaths

Natural
increase

Live
births

Deaths

Natural
increase

1901-1905
1906-1910
1911-1913

939
921
879

534
515
507

404
406
372

28.1
26.3
24.1

16.1
14.7
13.9

12.0
11.6
10.2

1921-1925
1926-1928
1929

766
669
644

467
466
533

299
203
112

19.9
17.1
16.3

12.2
11.9
13.4

7.7
5.2
2.9

1
The male population between fifteen and fifty-nine years of age was
9,166,000 in 1901, 10,628,000 in 1911, and 11, 209,000 in 1921, corresponding
to a real increase of 1,462,000, or 16 per cent, in the first decade and only
581,000,
or 5.5 per cent., in the second.
s
As for Italy, the war period (1914-1920) is expressly left out of account,
in spite of the exceptional fall in the birth rate and increase in mortality
during that period, so as to bring out better the " normal " tendencies.

186

UNEMPLOYMENT PROBLEMS IN 1931

Since the beginning of the century the number of births and
deaths has fallen considerably, not only in relation to the population,
but absolutely. During the period considered, however, the number
of births fell more than that of deaths; and what is even more
important, while the fall in the death rate has of late become
very slight (perhaps even tending to stop), the fall in the birth
rate is continuing. In these conditions the natural increase of
population is still falling relatively and absolutely, passing from
over 400,000 a year at the beginning of the century to only 112,000
in 1929, and from 12.0 per 1,000 inhabitants to 2.9. Since vital
statistics were first compiled in England, the natural increase has
never been so low, relatively and absolutely, as during the last
few years. In 1929 it was only one-fourth of what it was a quarter
of a century earlier. Looking at the last column of the table, it
is difficult not to think that the natural increase of the English
population is rapidly tending to zero, if not actually becoming
negative, i.e. an excess of deaths over births 1.
Similar observations, although perhaps less pronounced, may
be made for Scotland. The censuses give for this country a total
population of 4,472,000 in 1901, 4,761,000 in 1911, and 4,882,000 in
1921, or a real increase of 289,000 in the decade 1901-1911 and
of only 121,000 in the decade 1911-1921, being 6.5 per cent, for
the first decade and only 2.5 per cent, for the second. The male
population between five and fifty-nine years of age rose from
1,760,000 in 1901 to 1,876,000 in 1911, and 1,910,000 in 1921,
the real increase thus being 116,000 in the first decade, or 6.6 per
cent., and only 34,000 in the second, or 1.8 per cent. The changes
in the natural increase of population were very similar to those
in England 2. Taking only the first and last dates appearing
in the last table (i.e. 1901-1905, 1926-1928 and 1929), it is seen
that the annual average number of live births was 132,000 in
1901-1905, 99,000 in 1926-1928 and 93,000 in 1929. That of
deaths was 77,000 in 1901-1905, 65,000 in 1926-1928, and 71,000
in 1929. The natural increase was thus 55,000 in 1901-1905,
34,000 in 1926-1928 and 22,000 in 1929. Per 1,000 inhabitants,
the birth rate for the periods in question was 29.2, 20.2 and 19.0
respectively, the death rate 17.1, 13.3 and 14.5, and the natural
increase 12.1, 6.9 and 4.5.

i The general tendency remains, even though the last data in the table,
referring to 1929 only, are exceptionally unfavourable.
2

Cf. table in Appendix.

POPULATION AND UNEMPLOYMENT

187

For Great Britain as a whole (England, Wales and Scotland)
t h e natural increase of population, which in 1901-1905 had been
443,000 a year, was not more than 134,000 in 1929, or only 30 per
cent, of what it had been a quarter of a century before.
If it is further remembered that during this time there has been
no cessation in emigration from Great Britain, t h a t the net emigration averages about 100,000 persons a year 1, the conclusion seems
inevitable t h a t the increase of population plays no great part in
t h e severe unemployment in that country.

V
For Germany the comparison of the pre-war and post-war data
is complicated by the changes in territory produced by the war.
In addition, the data of the last census t h a t can be considered
relate to 1925 and not to 1920 or 1921, so that the interval separating
them from those of the last pre-war census (1910) is fifteen years.
An attempt to compare the real increase in the total population
of Germany during two equal periods, one before and one after
1910, gives the following results:

Real increase

Total population
(in thousands)

F o r m e r territory
P r e s e n t territory

1895
1910
1910 1
1925

52,280
64,926
57,798
62,411

1
/
1
J

Actual figures
(in thousands)

Per cent.

12,646

24.2

4,613

8.0

i The figures for 1910 for the present territory of Germany are also to be found in the
International Statistical Year-Booh of the League of Nations (in particular 1929, pp. 26-27).

The German population has thus increased considerably since
1910 (taking the same territory), in spite of all the horrors of the
war, its ravages among the civilian as well as the military popula-

i During the ten years 1920-1929,1,812,000 British citizens emigrated from
the United Kingdom of Great Britain and Northern Ireland; 626,000 British
emigrants returned to the Kingdom, giving a net emigration of 1,186,000, or
an average of 119,000 a year (the average annual net emigration, however,
was 145,000 for the period 1920-1924 and 93,000 for the period 1925-1929).
(Cf. the emigration statistics in the International Labour Review, e.g. the number
for November 1930, pp. 683 et seq.)

188

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

tion, and the fall in the birth rate to which it led 1 . Yet, this
increase was during the period after 1910 one-third of t h a t in the
preceding period.
This heavy drop in the increase of the German population was
due, however, to the fall in the birth rate, particularly during the
years of the war, rather than to the losses among the military
population directly caused by the war. An absolute diminution
of population in 1925 as compared with 1910 may be observed
in particular for persons in the younger age groups born during
and after the war. Thus, for the present territory, the number of
persons between five and nine years of age, i.e. born in 1901-1905
and in 1916-1920 fell from 6,519,000 in 1910 to 3,986,000 in 1925,
an absolute drop of over 2 % million (2,533,000). The number
in the age-group 0-4 years fell from 6,969,000 in 1910 to 5,872,000
in 1925, an absolute fall of nearly 1,100,000 (1,079,000). This
means t h a t for the adult population the fall in the increase from
1910 to 1925 was much smaller t h a n for the whole population.
In particular, the data for the male population which at the time
of each census formed the age-group 10-59 years (whose survivors
—in the case of the 1925 census-—now form the age-group
15-64 years) are as follows:
Real increase
Male population
of 10-59 years
(in thousands)

Former
territory
Present
territory

1900
1910
1910
1925

18,850
22,132
19,729
22,572

1
J
\
/

Actual number
(in thousands)

Arithmetical
average per year
ner
1,000 inhabitants
in the age-group

(in 10 years)

3,382

1.74

(in 15 years)

2,843

0.96 1

i If, as before, the male population between Ave and fifty-nine years is taken instead
of that between ten and fifty-nine years (which the present writer considers less correct,
since the census was taken in 1925), about the same average annual increase would be
obtained for the period 1900-1910 (1.72 per 1,000), while that for 1910-1925 would be
only 0.48 per 1,000.

i According to the present writer's calculations, Germany lost in the war
about 2,750,000 men, of whom 2,000,000 were in the Forces, and 750,000 were
civilians, the loss of the latter being the result of the increased death rate
among the civilian population. The influenza epidemic, in particular, led
to the death of nearly 400,000 persons, and the number of deaths from
tuberculosis increased by 160,000, of whom 140,000 were civilians (cf. HERSCH,
op. cit., pp. 23-24 and 62-63). The fall in the number of births, compared
with the normal figure, during the period 1915-1922 must be estimated at
2,400,000 for the former territory of Germany and about 2,150,000 for the
new territory (in addition to the " normal " fall in the birth rate in Germany,
allowance having already been made for the rise in the birth rate during the
period 1920-1922).

POPULATION AND

189

UNEMPLOYMENT

Thus, in actual fact the increase in the male population of
working age fell much less than that in the whole population.
Nevertheless, in Germany too, this increase has fallen substantially.
For the period 1910 to 1925 it was only half ( J ^ | = 0.55).of what
it was before 1910. And in the near future, when the persons
born in 1915-1919 (i.e. the age-group 5-9 years in the 1925 census)
will have entered active life, the slowing down in the increase of
the population of working age will be felt even more.
The general tendency of the birth rate and death rate in Germany
gives even less ground for the hypothesis that the terrible unemployment now prevailing in that country is due to too rapid
an increase in population. The following table shows the net
increase in the German population since the beginning of the
century (leaving out of account, as usual, the period 1914-1920) :
CHANGES IN THE POPULATION OF GERMANY,

1901-1929

(Annual Averages)
(A = Former territory; B = Present territory)
Actual figures (in thousands)
Live births
A

B»

1901-1905 2,011 1,790
1906-1910 1,988 1,769
1911-1913 1,860 1,655
1921-1925
1926-1928
1929

1,365
1,191
1,147

Deaths

Per 1,000 inhabitants

Natural increase

A

B i

A

1,165
1,101
1,055

1,037
980
939

846
887
805

820
744
806

Bl

Natural
Live
inbirths Deaths crease

753
789
716

34.3
31.6
28.1

19.9
17.5
16.3

14.4
14.1
11.8

545
447
341

22.1
18.8
17.9

13.3
11.8
12.6

8.8
7.1
5.3

1
The figures of births and deaths for the present territory of Germany for the period
1901-1913 are estimates. As the population of that territory was in 1910 89 per cent., of
the total population of the former territory (57,798,000 out of 64,926,000), this ratio has
been applied to the figures of births and deaths for 1901-1913.

The tendency is thus very similar to that observed for Great
Britain. Since 1901 there has been a heavy fall in the number
of both births and deaths, but the number of births has fallen
more than that of deaths, so that the natural increase has dropped
with extraordinary rapidity. In actual figures the natural increase
is now not more than half what it was at the beginning of the
century; in proportion to the population it is nearly one-third
of what it was in 1901-1905. If unemployment has now become
much more widespread in Germany than ever before, the reasons
must be sought elsewhere than in too rapid an increase of population.

190

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

VI
On the other hand, it cannot be said t h a t a rapid increase in
population is a safeguard against unemployment. There are
countries which have had a very marked increase in population
and which are also suffering from unemployment. In Europe
this is true, for instance, of the Netherlands, Denmark and Norway
on the one hand, and Poland on the other. As in many others,
unemployment is at present very high in these countries x, and
at the same time the increase in their population has been particularly marked. For Denmark and Norway, which have d a t a
based on population censuses since 1769, and for the Netherlands,
where the first census took place in 1830, it may even be said
that there has never been such an increase in the population as
during the decade 1910-1920. It will be sufficient to compare
this increase with that in the preceding decade:
Denmark

Netherlands
1899

1909

Total population
(in thousands)
5,104 5,858
Real increase
(in thousands)
Per cent.

754
14.8

1920

6,865

1,007
17.2

1901

1910

2,450 2,757

307
12.5

Norway
1920

1900

1910

1920

3,268 2,221 2,388 2,650

511
18.5

167
7.5

t

262
11.0

The great rise in the increase in population was, however,
in these countries, as in Italy, above all due to the setback toemigration during the war 2. For the excess of births over deathscontinued to fall in these countries, too, during the period under
consideration, not so much in the Netherlands, but very heavily
i Cf. the unemployment statistics published every month in the International
Labour Review.
2
It is difficult to determine the net annual emigration of these countries,
particularly the Netherlands. During the nine years following the 1920census (i.e. 1921-1929) the number of oversea emigrants from Denmark
was 56,000 and from Norway 83,000.

POPULATION AND UNEMPLOYMENT

in Denmark and Norway.
table :

191

This will appear from the following

CHANGES IN THE POPULATION

OF THE

NETHERLANDS,

AND NORWAY PER 1,000 INHABITANTS,
Netherlands

DENMARK

1901-1929

Denmark

Norway

inNat. inNat. inBirths Deaths Nat.
crease Births Deaths crease Births Deaths crease
1901-1905
1906-1910
1911-1913

31.5
29.5
28.0

16.1
14.3
12.8

15.4
15.2
14.9

29.0
28.3
26.3

14.7
13.7
13.0

14.3
14.6
13.3

28.6
26.3
25.5

14.5
13.9
13.3

14.1
12.4
12.2

1921-1925
1926-1928
1929

25.5
23.4
22.9

10.4
9.9
10.8

15.1
13.5
12.1

22.2
19.9
18.6

11.3
11.2
11.2

10.9
8.7
7.4

22.0
18.7
17.5

11.5
10.9
11.2

10.5
7.8
6.3

In these three countries, as in those considered above, the
birth rate and death rate has fallen heavily since the beginning of
the century, but in the Netherlands since the war, and in Denmark
and Norway since the beginning of the century, thè birth rate fell
more rapidly than the death rate. Since the war, the death rate
in these three countries appears to have become stabilised round
about 10-11 per 1,000, while the birth rate has continued to fall
at an even greater rate. The natural increase is thus tending
to fall very rapidly in these countries too. In Denmark and Norway
it was in 1929 only about half of what it was before the war.
The table for Sweden, where unemployment is also severe, is
similar to that for the other two Scandinavian countries, although
the natural and real increase is much smaller. The following
figures show the population in 1900, 1910 and 1920:

Year

1900
1910
1920

Population
(in thousands)

5,136 \
5,522 {
5,904 ) '

Real increase
Actual figures
(in thousands)

|
|

pF e r

c e n tt

-

386

7.5

382

6.9

There was thus no rise in the real increase of the Swedish population during the decade 1910-1920, but in fact a slight fall as

192

UNEMPLOYMENT PROBLEMS IN 1931

compared with the preceding decade, in spite of the setback to
emigration during the war 1.
The changes in the natural increase of the Swedish population
appear from the following table:
CHANGES IN THE POPULATION OF SWEDEN, 1901-1929
(Annual

Averages)

Actual figure (in thousands)

Per 1,000 inhabitants

Live
births

Deaths

Natural
increase

Live
births

Deaths

Natural
increase

1901-1905
1906-1910
1911-1913

136
137
130

81
77
79

55
60
51

26.1
25.5
23.1

15.5
14.3
14.0

10.6
11.2
9.1

1921-1925
1926-1928
1929

115
100
93

72
74
75

42
26
18

19.1
16.4
15.2

12.0
12.2
12.2

7.1
4.2
3.0

The fall in the death rate, which was low even at the beginning
of the century, has since been comparatively slight, and the death
rate appears to have become stabilised since the war. The natural
increase of the Swedish population, like that of the English
population, thus appears to be rapidly approaching zero. From
11 per 1,000 at the beginning of the century it fell to 3 per 1,000
in 1929.
Here again there is no reason to attribute unemployment to an
over rapid increase in population.
In Switzerland, unemployment, which, at least hitherto, is
far from having reached the level in the countries considered above,
is becoming worse and is giving rise to anxiety for the near future.
Yet the real increase in population during the period 1910-1920
was much lower than in the preceding decade, as will be seen from
the successive census data (in thousands) :

i During the nine years 1921-1929 the number of emigrants was 123,000
and of immigrants 55,000, resulting in a net emigration of 68,000, or an average
of 7,600 a year, that is to say, nearly 30 per cent, of the whole natural increase
during the period (236,000).

POPULATION

AND

Year

Population

1900
1910
1920

3,315 \
3,753 I
3,880/

193

UNEMPLOYMENT

Real increase
Actual flgures

Per cent.

438

12.8
3.4

127

The real increase of population in the second decade was thus
barely one-quarter of t h a t in the first1. This fall in the real
increase was more marked among t h e male population between
five and fifty-nine years of age than among the rest of the
population, as will appear from the following figures (in thousands) :
Real increase

Male population
(5-59 years)

Year

1900
1910
1920

Actual figure

Per cent.

197

15.2

52

3.5

1,298 \
1,495/
1,547 j

Thus, owing chiefly to the departure of many foreigners, among
whom the male element predominated, the relative increase in the
male population of working age during the second decade was
hardly more than one-fifth of t h a t in the preceding decade.
The natural increase of population displayed a similar tendency 2.
CHANGES IN THE POPULATION OF SWITZERLAND, 1901-1929
(Annual Averages)
Actual figure (in thousands)

Per 1,000 inhabitants

Live
births

Deaths

Natural
increase

Live
births

Deaths

Natural
increase

1901-1905
1906-1910
1911-1913

95
95
87

60
58
55

35
36
32

27.8
26.0
22.7

17.5
16.0
14.3

10.3
10.0
8.4

1921-1925
1926-1928
1929

76
70
69

49
48
50

27
23
19

19.4
17.6
17.2

12.4
12.0
12.6

7.0
5.6
4.6

i This heavy drop in the increase of population was due very largely to
the fact that many foreigners left the country owing to the war. The number
of foreigners resident in Switzerland fell from 552,000 in 1910 to 402,000 in
1920,
an absolute reduction of 150,000.
2
As usual, the war years, during which the birth rate fell heavily, are left
out of account. (In 1918, the year of the influenza epidemic, the number
of deaths even exceeded that of births.)
13

194

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

Switzerland thus repeats with impressive regularity the same
tendencies observed, in varying degree, for all the countries
considered above: a heavy fall in the death rate, slowing down a t
the end of the period under consideration, an even heavier fall
in the birth rate, appearing to accelerate at the end of the period,
and in consequence a rapid and continuous fall in the natural
increase of population.
VII
In Belgium, the 1920 census indicated a certain absolute fall
in the population compared with 1910. These are the figures
(in thousands) of the Belgian population obtained from the 1900,
1910 and 1920 censuses:
Increase ( + ) or decrease (—)
Year

Population
Actual figures

1900
1910
1920

6,694 \
7,424 {
7,406 >

Per cent.

+

730

+

10.9

—

18

—

0.2

This fact makes any more detailed analysis unnecessary 1 .
We may consider, however, the changes in the natural increase of
population, especially with reference to the period after 1920.
CHANGES IN THE POPULATION OF BELGIUM,
(Annual Averages)
Actual figures (in thousands)

1901-1929

Per 1,000 inhabitants

Live
births

Deaths

Natural
increase

Live
births

Deaths

Natural
increase

1901-1905
1906-1910
1911-1913

193
182
171

118
117
115

75
65
56

27.7
24.6
22.4

17.0
15.9
15.1

10.7
8.7
7.3

1921-1925
1926-1928
1929

156
147
146

102
106
116

54
41
30

20.5
18.6
18.1

13.4
13.3
14.4

7.1
5.2
3.7

i From 1910 to 1920, the male population fell by 36,000; the female
population increased by 18,000. The population of both sexes fell in the
following age-groups : from 0 to 4 years (fall in the birth rate due to the war)
by 246,000; from 5 to 9 years (partly owing to the war, but chiefly to the normal

195

POPULATION AND UNEMPLOYMENT

Here, too, the tendency strongly resembles t h a t observed
elsewhere, especially in Switzerland. In 1929 the rate of increase
was only one-third of what it was in 1901-1905.
It is obvious t h a t no one can claim t h a t any unemployment
in France must be the effect of an over-rapid increase of the
population, since the population of t h a t country is almost stationary,
and owing to the war the absolute number has fallen by the large
figure of 2,400,000 1.
Ireland, may be considered as briefly. This country suffers from
severe unemployment and the population has steadily fallen at
a varying rate for nearly a century, a unique phenomenon in
Europe. The drop has been from 8,175,000 in 1841 to 4,228,000
in 1926, 2 i.e. by nearly half in eighty-five years. The comparison
of the population figures obtained from the 1926 census with those
from the last two pre-war censuses gives the following table:

Population
(in thousands)
1901
1911
1926

4,459 1
4,390 j
4,228 ]

Reduction
(in thousands)

(10 years)

69

(15 years) 162

The fall in the population of Ireland during the period 1911-1926
was thus nearly 60 per cent, larger than during the preceding
ten years.
fall in the birth rate), by 126,000; and from 10 to 14 years by 45,000. In
addition, the male population in the age-group 25 to 39 years fell by 14,000
(direct effect of the war). All the other age-groups increased. The male
population from five to fifty-nine years taken as a whole showed a slight
increase of 62,000 (as against 342,000 in the preceding decade) or 2.1 per cent.
as against 13.0 per cent, from 1900 to 1910), but this increase was only one-sixth
of that of the preceding decade.
i This reduction has taken place in spite of the increase in the number of
foreigners resident in France. For persons of French nationality, the reduction
from 1 January 1914 to 6 March 1921 (census date) was over 2 y2 million (taking
the present ninety departments). Their number in 1921 was 37,660,000,
" i.e. a figure lower than that recorded by any previous census since 1866.
In absolute figures, the Frenchmen of France have thus been set back to the
position of sixty years ago. No other country has suffered a similar disaster ".
(HEHSCH, op. cit., pp. 88-89.)
2
Of the latter figure, 2,972,000 are in the Irish Free State, and 1,257,000 in
Northern Ireland.

196

UNEMPLOYMENT PROBLEMS IN 1931

VIII
It appears to the present writer that the figures considered
above show clearly enough that the unprecedented unemployment
from which the countries of Western civilisation are suffering
cannot be ascribed in any great measure to an over-rapid increase
of population in these countries, since this increase, owing to the
war and its " normal " tendencies during the last few decades,
was on the contrary much smaller than before the war, when
there was no occasion to complain of such widespread chronic
unemployment. Furthermore, the natural changes in the population of these countries during the last few decades, and in particular
the recent heavy fall in the excess of births over deaths, show that,
save perhaps in a few exceptional cases, there is no reason either to
fear unemployment on account of an over-rapid increase of the
population in any near future.
This could not be otherwise. Those who, struck by the extraordinary increase in the population of Europe during the last
years of the nineteenth and the first years of the twentieth centuries,
imagined that the future would be an indefinite prolongation of
this state of affairs, were guilty of an elementary mistake. They
took the natural increase of population to be a simple phenomenon,
whereas by its very nature it is the result of two factors acting
in opposite directions : the birth rate and the death rate (neither of
which, moreover, is a simple factor). It would therefore have
been justifiable to expect a permanent rise in the natural increase,
or its stabilisation at the high level reached, if the rise was the
effect of a rise in the birth rate. In actual fact, however, the
birth rate has been steadily falling in most European countries
and the United States for half a century. The natural increase
has risen in spite of the tendency of the birth rate to fall, and
because of the fall in the death rate, a fall which at the end
of the nineteenth century, and in some countries also at the
beginning of the twentieth century, was greater than the fall
in the birth rate. But as man is mortal, there is an insurmountable limit to the fall in the death rate. There are very
serious reasons for believing that the death rate will never fall
below 7 or 8 per thousand inhabitants. With the approach to
this minimum, the fall in the death rate must inevitably become
much slower, and the high rate of natural increase will thus tend
to disappear. Since the birth rate shows a strong tendency to
fall and the death rate will in time fall more slowly, the margin

POPULATION AND UNEMPLOYMENT

197

between the curve of births and that of deaths must inevitably
begin to diminish. And the more rapid the fall of the death rate
at first, the sooner will it reach the slowing-down period.
Another inevitable effect of the heavy fall in the death rate
accompanied by a fall in the birth rate, such as has been observed
for all countries of Western civilisation, is to reduce the proportion
of young age-groups and increase that of older age-groups, whose
death rate by the nature of things is higher. This means that
the time will come when in a population which has already attained
a very low death rate, not only will any further reduction of the
death rate become practically impossible, but the general rate
for the population of the country as a whole may even tend to rise
again slowly.
The actual position is this: at the beginning of the process of
demographic evolution sketched above, which is characteristic
of modern civilisation, when the death rate is still very high, and
new ideas are still encountering much opposition, the fall in the
death rate usually makes rapid progress, while that in the birth
rate is only hesitant. The excess of births over deaths thus tends
to increase. Later, on the contrary, the fall in the death rate
slows down for the reasons mentioned, while that in the birth
rate becomes accentuated, reaching ever wider sections of the
population, thus leading to almost complete collapse. The excess
of births over deaths then melts away with extraordinary rapidity.
Diagrammatically, the demographic evolution of modern Western
States may thus be simply represented by
two curves, both falling, but the one A,
A
B
representing the birth rate, is convex, and
the other B, representing the death rate,
is concave; the margin between the two, i.e.
%
,
the excess of births over deaths, thus tends
c
at first to increase (and this is what has
brought Malthus into fashion again), but at
a certain point it begins to diminish rapidly (the natural increase
thus obtained is represented by the curve C).
Is there also a natural minimum limit to the birth rate curve,
below which it cannot fall ? This is possible, not to say probable.
But the fact remains that it cannot yet be descried even from afar.
Whereas the fall in the death rate in the more advanced European
countries has already slowed down considerably, the birth rate
continues to fall with excessive rapidity. Considering that the
distance between the birth rate and death rate curves for the

198

UNEMPLOYMENT PROBLEMS IN 1931

countries of north-eastern and north-central Europe is already
small, there is reason to conclude t h a t in these countries at least
the higher curve (birth rate) will in a very short time touch the
lower curve (death rate), and probably even fall below it. In
other words, in the very near future it is likely t h a t in these countries
the natural increase of population will disappear, and very probably
even be replaced by an excess of deaths over births, an absolute
decrease of the population. This process has already often taken
place, and is taking place with increasing frequency, for the native
population of large towns, which in many respects indicates what
will subsequently happen to the rest of the population 1.
From now onwards the number of new-born children in certain
countries is seen to be lower than that of persons in the reproductive
age-groups. In these countries, which are tending to become more
numerous, the population is already virtually falling, since even
without any further fall in the fertility rate (though this appears
inevitable), and even assuming against all likelihood that the
present rate will be maintained, it has already been seen t h a t the
number of infants who- arrive at the reproductive age will be
lower than the present population of t h a t age.
In all likelihood, therefore, the countries of Western civilisation
should not expect distress and unemployment because of a population t h a t is too large and growing too fast, but the very opposite :
a stationary population, and very likely also a diminution.

IX
This does not mean, however, t h a t all countries of Western
civilisation are equally near to this state of affairs. As in their
general evolution, so in their demographic evolution the various
nations are not at the same stage. Some are more advanced,
others less ; some evolve more rapidly up to a certain date, others
up to another; yet others merely follow the example of their
predecessors at varying rates. The position with regard to the
natural changes in population is the same.
France was the first country to enter on the process of a falling
i The present writer expressed these views for the first time before an
international audience at the World Population Congress held in Geneva
in September 1927. (Cf. Mrs. M. SANGER: Proceedings of the World Population
Conference, pp. 51-52 and 282-284 (London, 1927). Cf. also in this connection
GINI: The Cyclical Rise and Fall of Population, in the series on "Population " published by the University of Chicago Press, Chicago, 1930.

POPULATION AND UNEMPLOYMENT

199

birth rate and death rate. During the whole of the nineteenth
century the birth rate and the death rate continued to fall slowly
but surely from one decade to another, practically without intermission. During about half a century it was nearly the only
country displaying this evolution. The low birth rate and its
continual fall were long regarded as a French speciality, " a Parisian mode ".
But from the last quarter of last century onwards the birth rate
and the death rate began to fall in nearly all countries of Western
civilisation (see table on p. 217). At first the death rate fell much
more heavily than the birth rate, and so far as the death rate
is concerned, the countries t h a t have recently developed in this
direction (Great Britain, Switzerland, Germany, the Scandinavian
countries) have entered on this path with a rush, soon out-distancing
the progress made in France. Next came the turn of the fall
in the birth rate, which at the beginning of the twentieth century
became a precipitate collapse in these countries. During the ten
years preceding the war the birth rate fell in Germany nearly as
much as in France during about a century 1. After the war the
fall continued actively, and one after another of various countries
found their birth rate falling below t h a t of France 2. The natural
increase of population in these countries thus showed (see graphs)
towards the end of the nineteenth and sometimes even at the very
beginning of the twentieth century a tendency to rise (the death
rate falling more than the birth rate); after this period of rise,
came with the twentieth century 3 a period of fall in the natural
increase (the birth rate falling more t h a n the death rate), which
was accentuated immediately before the war, and since the war
has tended to bring the increase down to nothing. Towards the
end of the nineteenth and the beginning of the twentieth
centuries, it was customary in certain quarters to contrast the
fertility of the Germanic race with Latin (i.e. French) sterility,
thus mistaking a difference in the degree of evolution for a

i The French birth rate fell from 32 per 1,000 inhabitants in 1811-1820 to
21 in 1901-1910. In Germany it fell from 36 in 1901 to 27 in 1913. In
Saxony, the country which during the nineteenth century had been one of
the most fertile in Europe, the birth rate fell from 37 in 1901 to 24 in 1914.
This was a most far-reaching revolution in the essential vital forces of the
population in western and northern Europe.
2
In Europe this is now true of England, Norway, Sweden, Estonia, Saxony,
Austria and Switzerland.
3
In England, however, the fall in natural increases had begun earlier,
thus preceding that observed in Germany.

BIRTHS ( A ) , DEATHS ( B ) AND NATURAL INCREASE OF POPULATION
(C) PER THOUSAND INHABITANTS ( 1 8 8 1 - 1 9 2 9 )
Germany

Switzerland

36

35

\
"N

33

^
\

......
1

V
\

SO

^

2fl

\

26
25

\

\

2 3-

\

\

">
•
»V
\
\

*\r\

"

'

c

^

•

s.

^

fc:
_S

v

i

\ /
^
* • - . ' • • '

s.
\

O

??ll?ll?liïli?lï?i^
England and Wales

^
>

'i\9\m\m\&
Scotland

BIRTHS ( A ) , DEATHS ( B ) AND NATURAL INCREASE OF POPULATION
(C) PER THOUSAND INHABITANTS

(1881-1929)

Sweden

Belgium

oj i ¡51 | î

Denmark

Norway
33
32
31
?S
27
26
2S
24
23
22

V
^ ^
s

L-—<

•

—

i

^

kri\

D> L.

16
15
12

*
\

V

20
IS

\ '•*.

.S .

LS:

V-

/c

À z2
*"^

>•<-

^L
1

in
9
6
7

^ "-~<
,
^^
\
^^

5
4

1

2
_

i
i

?II *I!Hi ?lí % 3 là

m

•
I

m

N

9

202

UNEMPLOYMENT PROBLEMS IN 1931

constant racial characteristic. To-day the Germanic nations are
already among the least fertile in the world.
Italy would appear to be about fifteen years behind Germany
and the Northern countries, but the fundamental features of
its evolution, as was to be expected by any observer analysing
the facts, were the same as in countries whose demographic evolution
was more advanced. Here again it was first the death rate that
fell more rapidly. This fall became particularly marked on the
eve of the war. After the war the rate was even lower than the
French figure 1.
But after the war the birth rate in turn began to fall more
rapidly. In 1921-1928 the birth rate and death rate curves
displayed almost exactly the same tendencies as those of England,
Germany, etc., in 1906-1913. The curve showing the natural
increase of population, after rising up to the war, began to fall
and is falling at an increased rate (see graph), although it is still
about at the level of the natural increase of the northern countries
just before the war. There can no longer be any doubt as to
what the tendency is. Those who in Italy immediately after
the war had followed the earlier German example and contrasted
the young Italian " race ", fertile and vigorous, with the French
" race ", old and sterile, using this as an argument for some
distinctly dangerous doctrines, were thus soon compelled to seek

i It may be of interest to compare the changes in the fall in the death rate
in France on the one hand with those in Germany and Italy on the other.
This gives the following table :
NUMBER OF DEATHS PER 1,000
1881-85 1886-90 1891-95

Germany
France
Italy

25.7
22.2
27.2

24.4
22.0
27.0

23.3
22.3
25.4

18961900
21.3
20.7
22.9

INHABITANTS PER ANNUM
1901-5 1906-10 1911-13 1921-25 1926-28
19.9
19.6
22.0

17.5
19.2
21.2

16.3
18.2
. 19.4

13.3
17.3
17.1

11.8
16.8
16.1

In the nineteenth century the death rate in France was much lower than
in the other two countries, but it has fallen too slowly, and in this respect
France has been outstripped first by Germany (in 1906-1910) and then by
Italy (1921-1925). To-day the French death rate is 42 per cent, higher than
the German (16.8: 11.8); for every two persons who die in Germany, three die
in France. Of all European countries, excluding eastern Europe and the
Balkan and Iberian Peninsulas, France is to-day the one with the highest
death rate. This is the really abnormal demographic feature of France
to-day, much more than the low birth rate, which it has been the tradition
to inveigh against, although quite in vain. A fall in the death rate is the aim
to pursue, for here considerable progress is still possible, as appears from the
example of all Western nations by which France has been outdistanced.

POPULATION AND

UNEMPLOYMENT

203

for less fugitive arguments than this alleged youth. Yet another
detail may be observed. Never has the fall in the birth rate in
Italy been so marked as during the last few years—a patent
BIRTHS ( A ) , DEATHS ( B ) AND NATURAL INCREASE OF POPULATION
(C) PER THOUSAND INHABITANTS

Netherlands

(1881-1929)

Italy

39,
»?

36
34

S^.

A

32
31
30

-

2ft
27
26
25
24.
23
22
21

"M

19
IS
17
16

.
S.
^

tuN

14
13
12
II
10

S,
' ,,
>
-^.
' «^ t

vx.

e
6
3
2

5m

.,.,,g-JM
lo
So m

1 «o

I

^L.
_
8Ï1
»Is 21=i

sioM ItoM4

demonstration of the powerlessness of the public authorities
in such matters, and the deeprootedness of the new demographic
evolution of the Western nations.
The demographic evolution of the Netherlands, Czechoslovakia
and the Ukraine has been more or less parallel with that of Italy :
the increase of population is already tending to fall owing to the
growing fall in the birth rate. Spain, the Balkans, and most of
the Slav nations, on the contrary, still seem to be at the point
where Italy was on the eve of the war. It is to be hoped that the
lesson of experience will have been learnt, and that the present
Slav fertility will not be used as an argument against " the decaying

204

UNEMPLOYMENT PROBLEMS IN 1931

West ". From what has been shown above, there seems little
doubt of the future demographic evolution of the Slav nations
themselves.
The difference between the different nations of Europe (at least),
from the demographic point of view thus appears to be altogether,
or very largely, a difference in the rate of progress and the stage
of evolution reached: the yesterday of some is the to-day of others,
the to-morrow of yet others, and perhaps the day after of those
who are still hardly affected by Western civilisation. As to the
countries where the new tendencies are most advanced, it has been
shown that they are approaching a cessation of all natural increase
and possibly even a new era of diminishing population.
The spectre of distress, unemployment, and famine resulting
from an unlimited increase of population thus disappears from
the future prospect. The troubles that are beginning to appear
on the horizon seem rather to be of the opposite kind.
X
But does this mean that in future the world will be freed from
unemployment in general ? Does it follow at least that in future
unemployment and the periodical crises that distinguish the
capitalist system will tend, owing to the cessation in the increase
of population, to become less acute ? A conclusion of this kind
appears at the least premature. There is every likelihood even
that it will often prove completely erroneous.
It is true that the number and increase of the population is one
of the determining factors of all economic conditions, and therefore
also of unemployment. But it would simplify the facts too much
to regard the size of the population as a factor determining only
the supply of labour (from which certain neo-Malthusians draw
the conclusion that the more the increase in population is reduced,
the more too will unemployment be reduced and therefore the
price of labour, that is, wages, be raised), Wage earners are at
the same time consumers, and the population does not consist
of wage earners only; on the other hand, everybody is a consumer.
A smaller number of inhabitants therefore means a smaller market.
A setback to the increase in population also means less resilience
in the market, a resilience on which existing production bases its
calculations and which is essential to the prosperity of modern
industry. It thus helps to produce a crisis and unemployment.

POPULATION AND UNEMPLOYMENT

205

On the other hand, in countries whose natural resources are still
far from exhausted (and this is true of nearly all Western countries),
a larger number of inhabitants promotes greater division of labour
and specialisation; it allows of carrying out various work
(construction of many railways, canals, tunnels, etc.) that would
be unprofitable for a less dense population; it facilitates mass
production on a larger scale, and in all these ways results in a very
great increase in productivity and output per head, thus helping
not only to multiply the openings for employment, but to raise
wages expressed in utility value, which is the only value of significance from the point of view of the workers' standard of living.
A smaller number of inhabitants obviously acts in the opposite
direction.
True, the contraction of the market due to a relative or absolute
diminution of population may in certain cases be compensated
by an intensification of the market, that is, by an increase in the
purchasing power of the population, produced, for instance, by the
so-called policy of high wages. There can, of course, be no question
here of entering on a general discussion of this policy. It should not
be forgotten, however, that, on the one hand, a factitious rise in
wages is usually accompanied by a rise in prices, and the apparent
increase in the purchasing power of the working population is
thus largely illusory, and that, on the other hand, international
competition and the demand for " reasonable " profits on capital
fix an insurmountable maximum for the rise in wages, even
nominal wages. By a system of selling on credit on the security
of future wages the purchasing and consuming power of the
working class may be artificially extended for the time being. It
is clear, however, that a procedure of this kind does not increase
its true purchasing power, but rather postpones the day of
reckoning, which when it comes will be felt all the more hardly.
Similarly, by customs barriers international competition may be
dammed up for a certain time; but barriers that are not a
temporary protection for a rising industry in need of consolidation
to meet international rivalry, barriers that are intended to be
permanent and to maintain an artificial economic system within
the frontier, ultimately cost too much to the country establishing
them, quite apart from the fact that they bear the germ of the
most serious dangers, and by their very nature cannot apply to
export industries, which they thus deprive of vitality.
In the modern community, which, in spite of all private and
public monopolies, is still based very largely on the system of

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

competition and where production is driven, so to speak, to expand
unceasingly if it is to exist at all, a constant reduction in the natural
increase of population therefore seems most likely to aggravate
the periodical crises of over-production and unemployment
and to create, in particular, a permanent depression in agriculture,
especially as regards the crops essential for human food (cereals,
potatoes, etc.), for which a fall in price cannot lead to more than
a very slight increase in the consumption per head. Thus, to
the old fundamental contradictions of our economic system
a new one is now being added: the contradiction between production, which under the system of competition tends to expand
with extraordinary rapidity, and population, whose increase in
Western countries is now rapidly tending to disappear 1. Hence
crises of over-production, and hence unemployment, arising out
of the smallness of the population (in spite of the paradoxical
appearance of this conclusion), as long as our economic conditions
continue to be governed by competition.

XI
There can of course be no question here of examining or simply
mentioning even the principal factors that have contributed and
are contributing to the present formidable unemployment : chronic
unemployment inherent in modern society; unemployment due
to the business cycle inherent in capitalist evolution; seasonal
unemployment; unemployment due to various historical conditions
of our time created by the world war and its direct and indirect
after-effects ; unemployment due to recent changes in the technique
of production and to rationalisation in general, to the customs policy
of various countries, etc.
But in addition to the recent evolution of the natural increase
of population, there is another point of considerable importance
that should be considered here. It is the distribution of the
population according to the various kinds of economic activity,
for in modern society this- distribution has far more influence
on unemployment and its scope than the absolute size of the
population.
Tn a factory where the various workshops are interdependent,
a shortage of workers in one shop will lead to a stoppage of work
i A singular reversal of Malthus's " progressions " !

POPULATION AND

UNEMPLOYMENT

207

and unemployment in the other shops dependent on it. Similarly,
an excess of workers in one shop will mean a shortage in the others
deriving their material from the first, in which the unfinished goods
are thus held up and accumulate. The mutual adjustment between
the various workshops, their productive equilibrium, may be
restored in one or all of three ways: (1) by the transfer of part
of the staff of the workshop where there are too many workers
to those where there are not enough; (2) by the engagement of
new workers in the shops where there are not enough (expansion
of production) ; (3) by the dismissal of workers in the shops where
there are too many (absolute or relative contraction of production).
The choice of method, especially as between the last two (engagement of new workers, dismissal of old), and the extent to which they
are applied will depend on the available capital and the conditions
of the market, which determine whether it is possible to expand
production or not.
The position is the same in the modern community, which is
based on a most highly developed social division of labour, the
different economic branches and categories of work being closely
linked up with each other. At each technical and social stage
of economic life there is a given distribution according to which
the active economic population should be divided among the various
branches and categories of work. Since the actual distribution,
especially in an individualistic society, is mainly settled by the law
of supply and demand and not by a systematic plan, the approach
to the optimum distribution for a given technical stage is only
very approximate. A certain measure of unemployment is thus
inevitable. But what is more, it is characteristic of the system
of large-scale industry that there is a continual change in the means,
methods, and organisation of production, necessitating in turn a
continual change in the economic distribution of the population.
It follows that the population, impelled by unemployment itself,
is constantly tending towards the optimum distribution, but this
point of equilibrium always evades its grasp. Unemployment
must therefore be a permanent feature of modern society.
The tendency towards equilibrium (or, if preferred, better
equilibrium), towards a better distribution of the population among
the various branches of national economy, is displayed in the same
ways as that towards a better distribution of the staff among the
different workshops of a factory. There is first the transfer from
one industry to another; the most notable example of this during
the last century has been the movement from agriculture to

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UNEMPLOYMENT PROBLEMS IN 1931

industry and commerce: the principal consequence of this being
the rural exodus to large towns and industrial centres. Then there
is emigration, which as it is greater or less tends to restore the
economic equilibrium of the country by a greater or smaller
relative reduction of its economic activity (in Ireland during the last
century there was an absolute reduction). There is finally immigration: recourse is had to foreign labour for the categories of work
where there is a shortage; this is the tendency to establish
equilibrium on a larger scale of production than would be possible
with the national population alone.
Here, too, the three methods can be, and are, actually combined.
To go no further, reference may be made to Switzerland, which is
distinguished at once by advanced industrialisation and urbanisation, by a substantial volume of immigration of certain classes
of workers (especially before the war), and by a relatively substantial emigration of certain others.
It may also happen, in view of its capital resources, its facilities
for selling in international markets, etc., that one and the same
country will seek the economic equilibrium of its population
(apart from transfers from one branch of work to another), at one
date chiefly in emigration, and at another chiefly in immigration.
This was, for instance, the case in Germany, which during more
than half a century, up to about 1890, was one of the countries
with the highest emigration figures in the world, sending oversea
large numbers of skilled workers, and which, during the next
quarter of a century, became a country of immigration, attracting
masses of Polish agricultural workers and semi-skilled Italian
workers (largely navvies). Similarly, France has made exceptional
use of foreign labour (chiefly agricultural and mining) since the war.
As a general rule, however, in the older countries of Europe,
where natural resources are least abundant and least easy to
exploit, which are divided by customs barriers into comparatively
small areas, where new methods of production have met with,
and still meet with, innumerable obstacles of routine and centuryold deeply rooted economic tradition, and particularly in countries
suffering more or less from a shortage of capital (e.g. Italy, former
Austria-Hungary, and the Russian Empire), the population sought
economic equilibrium (in addition to transfers from certain branches
to certain others), above all in emigration. In new countries on
the contrary, especially in America, where natural resources are
over-abundant, promising a rich reward to those who exploit
them, where a vast area is free from customs barriers, where

POPULATION AND UNEMPLOYMENT

209

capital, therefore, flows in from all sides, where routine is almost
unknown and everything promotes boldness, production is given
a maximum impulse, and the economic equilibrium of the population
is sought at the highest level, that is, by recourse to immigration.
International migration, and in particular oversea migration,
which before the war transplanted every year nearly one and a
half million Europeans to oversea countries was thus a powerful
help in the alleviation and prevention of excessive unemployment,
both in Europe and in oversea countries. The migration movements thus satisfied the needs of both sides. Ultimately, and in
spite of certain more or less exceptional cases, it satisfied in particular the mutual interests of labour in the new world and the old.
But the workers of the new world saw things in a different light.
The mass of immigrants, most of whom came from the more
backward European countries, very often from remote country
districts, being accustomed to a lower standard of living and
often completely illiterate, seemed to be to the American workers
dangerous rivals, seriously threatening their high wages and the
comparatively high standard of living they had achieved at the cost
of hard and incessant struggle during many decades. " How can you
expect usto open the doors to immigrants," said the delegate of the
Australian workers to the World Migration Conference in London
1926, " when we are already suffering from economic depression
and agricultural unemployment ? ", and this argument appeared
to him irrefutable. Yet this very statement showed that a whole
rich continent, still almost unpopulated, was already suffering
from agricultural depression and unemployment. Could a more
obvious proof be desired that agricultural depression and unemployment are not inevitably the result of a high density of
population ?
But in the opinion of the writer there is even more. If the
country were not closed to immigration, which as a rule concentrates in the towns; if, therefore, the towns and industrial centres
of Australia had been developed much more than has actually
been the case, the Australian farmer would have had a much wider
home market for the sale of the raw materials and foodstuffs he
produces, and he would not suffer, or would suffer much less, from
agricultural depression. On the other hand, the improvement in
the welfare of the agricultural population and the general increase
in population due to immigration would have increased both the
purchasing power and the size of the home market also for manufactured goods, and would thus have helped to reduce unemployment.
14

210

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

But the country, not having been able to realise the economic
equilibrium of the population on a higher level, by expanding
production, owing to the lack of sufficient immigration, was
compelled, as in the older countries, to seek this equilibrium on a
lower level, by restricting production, the result being economic
stagnation, agricultural depression, and unemployment.
" The million immigrants who before the war were added yearly
to the population of the United States enlarged the home market
of the country by that amount. From the selling point of view,
this influx of immigrants was more than equivalent to the annexation every year of a new country with a population of a million,
since sales to a million immigrants entailed neither distant transport
nor other special expenditure." 1
Similarly, in the opinion of the present writer, the notorious
" depressing effect of immigration on wages and the standard
of living of the national workers of new countries is generally
pure illusion, justified neither by the actual facts (since during the
long period of mass immigration in the United States wages
continued to rise in that country) nor, in spite of its apparent
logic, by a more thorough analysis of economic factors. For since
the immigrants who are so much feared come from backward
countries and offer chiefly unskilled or semi-skilled labour, they
help to increase proportionately the demand for skilled national
labour—and thereby to raise the wages of the latter and facilitate
its transfer from lower-grade occupations to others of highergrade with better pay—much more than they increase the supply." 2
Under the pressure of the workers' organisations, mistaken
though they may have been as was shown above, and still more
for non-economic reasons whose discussion is not in place here,
the United States, however, definitely adopted the policy of
restricting immigration immediately after the world war, a policy
that has been followed more or less resolutely by certain other
oversea countries that had hitherto been open to European
immigrants.
As the present writer stated to the Committee that drafted the
resolutions for the London Migration Conference: "If the United
States and other Anglo-Saxon countries insist on closing their
doors to European immigrants they will become acquainted with
the rural exodus. In the United States, Mexicans and negroes
i

HERSCH:

" Les migrations internationales comme facteur de paix et de-

guerre
", in the Revue internationale de Sociologie, Sept.-Oct. 1928.
2
Ibid.

POPULATION AND UNEMPLOYMENT

211

will take the place of Italians and Slavs, capital will leave the
country, wages will be depressed, unemployment will become more
acute and prolonged, and instead of immigration there will be
emigration; in brief, from being new countries they will become
old ones."
The industry of the United States more than that of any other
country had impetus and boldness, was free of routine and the
status quo, had wide views, and was tending to expand more and
more. This impetus presupposed a constant and rapid increase
of population. It was, in fact, largely the result of this rapid
increase of population in the United States, which rose from
7 million in 1810 to 92 million in 1910; and at the same time it was
largely due to it that such an increase of population was possible.
Now, the natural increase of population, particularly that of the
white population, has been falling very rapidly in the United
States as in Europe, particularly since the war. As in the countries
of northern Europe, it is the birth rate that is falling extremely
fast, while the death rate, already fairly low, has of late been
tending to become stabilised (between 11 and 12 per thousand
inhabitants for the whole population and round about 11 per
thousand for the white population) 1 . By hampering immigration
at the same time, and by placing ever more obstacles in its way,
the demographic foundation for the rapid rise of the American
economic system has thus been destroyed 2.
For some time it was possible to make up for this lack of expansion
in the home market, an expansion that had always previously
been available for American production, by artificially intensifying
the market. There was first the above-mentioned policy of high
wages. But to carry out this policy artificially it became necessary
to raise prices excessively, and this in turn led to an altogether
extraordinary rise in customs tariffs so as to ensure " reasonable "
profits on capital, too; with the result that the rise in wages,
having become very largely fictitious, was no longer sufficient
to expand the market to the extent necessary for industrial
progress. The chief effect of sales on the instalment system, which
was then carried beyond all reasonable limits, was that of injecting
a dangerous stimulant into the economic organism. The day of
i For the absolute number of births and deaths the following interesting
fact may be observed. Whereas in nearly all the States of the Union the
absolute number of births is falling compared with 1921-1925, in the large
majority
of the States that of deaths is rising, and hardly anywhere is it falling.
2
In the author's opinion, present day political economy generally lays
too little stress on the demographic factor in analysing economic phenomena.

212

UNEMPLOYMENT PROBLEMS IN 1931

crisis was put off for a little, but when it came, it was felt all the
more severely and the evil was all the more far-reaching.
At the same time, there was shifting of the productive population within that gigantic factory to which the United States
may be compared. For the first time the rural exodus made
disturbing progress in that country.
According to the data of the 1930 census, the preliminary
figures of which have just been received, the States of the interior,
in particular the agrarian areas of the west, the prairie States
and the south, have been particularly affected by these changes.
" The population of Montana has fallen, and the increases in
Iowa, Kansas, Missouri, Arkansas, Minnesota, Idaho, and in the
south, South Carolina and Georgia, are very small for a country
like the United States. In point of fact, in these States only the
towns show an increase; the countryside is becoming depopulated,
an effect of the prolonged agricultural depression." 1
With the beginning of the world war, which paralysed all international migration movements, the negroes in the southern States
of the Union began to move in large numbers to the north and
east central States. At the time of writing, the 1930 census data
showing the results of this negro migration within the United
States are not available ; but even at the time of the 1920 census
the phenomenon was sufficiently clear, although much less marked
than to-day. " In practically every large city in the country
there was a marked growth in the negro clement " ; " the migration
of negroes, however, tended principally to the large industrial
centres of the north. The negro population of Chicago increased
from 44,103 in 1910 to 109,458 in 1920; that of Detroit increased
from 5,741 in 1910 to 40,838 in 1920; and Cleveland, with 8,448
negroes in 1910, reported 34,451 in 1920. New York City having
91,709 negroes in 1910, showed an increase to 152,467 by 1920." 2
From 1910 to 1920 the number of negroes fell absolutely in all the
east south central States, their States " of origin " : in Mississippi
by 74,000 or 7.4 per cent., in Kentucky by 26,000 or 9.8 per cent.,
in Tennessee by 21,000 or 4.5 per cent. Similarly, in Louisiana
(south west central) it fell by 14,000 or 1.9 per cent. On the other
hand, their number increased during this period by 91,000 or
i Journal de Genève, 8 Dec. 1930 (article on the American census received
from the United States correspondent).
2
William S. ROSSITER: Increase of Population in the United States 19101920, p. 127. Census Monographs I. Government Printing Office, Washington, 1922.

POPULATION AND

UNEMPLOYMENT

213

47 per cent, in Pennsylvania, by 75,000 or 67 per cent, in Ohio,
by 73,000 or 67 per cent, in Illinois, by 64,000 or 48 per cent.
in the State of New York, by 43,000 or 251 per cent, in Michigan,
etc. 1 The reduction of European immigration, which in the eyes
of many Americans was to help to keep the white population of
the United States pure, has thus created a negro question in many
States where it could hardly be said to have existed previously.
It is clear, however, that this shifting of population and change
of economic activity within the United States could not and cannot take the place of the mass immigration of foreigners before the
war. This immigration had formerly allowed of the continued
development of production on the principle of seeking the economic
equilibrium of the population at the higher level ; but now that
this is no longer possible, it is necessary to seek such equilibrium
at a lower level by restricting the productive impulse. The
reduction of immigration in the United States has thus clipped
the wings of American economy, broken its impulse to renew and
act, and very largely helped to put the brake on industry, maintain
a state of stagnation in business, aggravate and prolong unemployment, and—in a future that no longer seems very distant—
will drive certain elements of the population to emigrate.
The barriers against immigration will thus, in spite of the
incalculable, untouched natural resources of the United States,
transform that country from a new one into an old one.
The position is the same, though to a varying extent, in certain
other so-called new countries.

XII
Among measures proposed for relieving the present unemployment crisis there are also some relating to the number and
composition of the population, in particular, the working population. A few brief observations may be made on the more important
of these proposals.
1. In countries of immigration the first measure demanded
and adopted is naturally the complete or partial prohibition of
immigration. Without in the least wishing to discuss the expediency of such a remedy at a time of acute crisis, it should,
1

Ibid., p. 225.

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

however, be pointed out that the above analysis shows that this
measure applied in the long run (like the under-feeding of the
individual organism) results in the enfeeblement and premature
decrepitude of the national organism, so that the evil it is supposed
to combat is in fact aggravated.
2. In countries with an old-age pension system it has been
proposed to reduce the age at which a pension becomes due,
so as to allow young workers now out of work to take the jobs
of the pensioned workers. In normal conditions the. pensioning
of old workers is justified by a variety of reasons, chiefly humanitarian. It is doubtful, however, whether this measure can effectively
combat unemployment, particularly at a time of crisis. For there
are two alternatives : either the cost of maintenance must ultimately
be borne by the working class, in which case it will be equivalent
to a reduction in wages without relieving the costs of production
of industry ; or else it will have to be met by capital, in which case
it will impose new burdens on industry, still further restricting
the possibility of selling goods during a crisis of over-production,
thus reducing the demand for labour, and still further aggravating
unemployment.
(3) It has been suggested that the school age should be raised,
thus postponing the age at which young workers engage in active
economic life. This again would be an undeniable social advance,
but this measure too seems an unsuitable means of combating
unemployment during a crisis. For the numbers of unemployed
will be reduced only on paper, since boys and girls, although no
longer on the register, still exist in fact. And if the adult unemployed who take their place receive wages equivalent to those
of juvenile workers, there can be no advantage to the working
class; it is even likely that there will be a certain fall in wages.
If, on the other hand, the adult unemployed receive for this work
higher wages than those paid to juvenile workers, industry will have
to bear additional burdens at a time of crisis, burdens that cannot
but aggravate the crisis.
The lowering of the pensionable age and the raising of the school
age should certainly be included among those labour demands that
are in the higher interests of the whole of civilisation. They are
independent of the fight against unemployment and the conditions
at the present time, which seem on the whole unfavourable to them.
4. In certain quarters it has been proposed (to public administrative departments and undertakings, social organisations, impor-

POPULATION AND

UNEMPLOYMENT

215

tant private firms, etc.) that a large proportion of the female staff
which has grown considerably since the war should be discharged,
and that their place should be taken by male workers and
employees. At the present time, this measure would have all
the disadvantages mentioned under (3) concerning the displacement of young workers. It wrould change the individuals
unemployed, but not their number. At the moment, it might
be used as a starting point for a partial reduction of wages. If
the men are paid for equal work a higher wage than the women,
industry will suffer from additional burdens, still further aggravating
the crisis. Furthermore, such a policy has not the general
humanitarian justification that can be adduced in favour of
prolonging the school age and lowering the pensionable age.
At the present time, in particular, it looks more like an egoistical
attempt on the part of the stronger to transfer the burden of
unemployment to the shoulders of the weaker.
The only measure of a demographic kind that appears to the
present writer likely to combat unemployment, to prevent it
and alleviate it to any real extent, is that relating to migration
(not to mention changes in industrial activity).
To attract foreign capital could no doubt help, and in certain
cases has in fact helped, to increase the demand for labour in the
older countries of Europe that suffer from a shortage of capital.
But it is clear that in a general way these are not the countries
in which investments are most profitable, at any rate not the
European countries with much capital that are suffering from
the present depression. Free trade, by abolishing the obstacles
to the circulation of goods between different countries, would
in a general way allow of the reduction of unnecessary costs, of
production on a larger scale, and increased production. Unfortunately, we live in a time of exaggerated protection. But if the
goods produced cannot circulate to reach the countries where they
would find their natural markets, it is the producer who, being
unable to employ his labour power in his own country, ought to
circulate, that is to say, emigrate. If neither goods nor producer
are allowed to circulate, the latter is kept in a state of prolonged
unemployment, and when a crisis breaks out it is rendered more
serious and lasting.
This is unfortunately the present situation: neither free circulation of men nor free circulation of goods, to the great injury not
only of the older countries, the countries of emigration, but, as
the writer believes he has demonstrated, also of the younger

216

UNEMPLOYMENT PROBLEMS IN 1931

countries, the countries of immigration. Yet the fact that there
is no freedom of migration is almost entirely due to the wishes of
the countries of immigration, which wrongly believe that immigration generally threatens their standard of living. It is therefore
impossible to lay too much stress on the point that freedom
of migration is generally completely compatible with the interests
of countries of immigration as well as those of emigration. The
present writer also believes that modern international migration
movements have served and will continue to serve the interests
of immigration countries even more than those of emigration
countries: for the latter the advantages are more immediate,
for the former they are much more lasting.
Clearly, in recommending freedom of migration it is not
intended to take this term in the absolute sense, it is not suggested
that it is possible to apply it always and everywhere. Just as
free trade in practice does not mean the absence of all regulations,
and does not exclude either international treaties or protection
in specified cases, or even prohibition strictly defined and loyally
carried out (e.g. for reasons of public health), so, too, freedom of
international migration does not in practice exclude international
treaties, or strictly defined restrictions, and still less legal protection
of emigrants themselves against all sorts of abuses. And just as
existing customs barriers cannot be abolished at a stroke without
leading to far-reaching disturbances and crises, so too it would
be dangerous suddenly to abolish all the restrictions on immigration
that unfortunately exist to-day. It is not even certain that the
most difficult moment of an economic crisis is the best time for
abolishing existing restrictions, as in the case of customs barriers.
The question is ultimately one of a principle that must serve as
a guide for practice. If it is desired to reduce and prevent
unemployment to any appreciable extent, we must try in the
demographic field to promote freedom of migration, just as in
the more strictly economic field we must try to promote international freedom of trade.

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T H E EFFECTS OF RATIONALISATION
ON EMPLOYMENT

For various reasons it is very difficult to determine the precise
effects of measures of rationalisation on employment. In the
first place, the exact scope of the term " rationalisation " has
not been strictly defined. A number of different kinds of things
are covered by the general term, and how far they are to be included
or excluded is largely a matter of personal opinion. The measures in
question are, broadly speaking, scientific management, improvements in machinery and other technical improvements in
factories, standardisation and simplification of the manufacturing
processes, the more efficient organisation of an industry (industrial
concentration, agreements, etc.) either nationally or internationally,
improvements in methods of transport and marketing. Probably
these should all be considered as falling within the sphere of rationalisation, but it will be pretty clear that measures of one kind may
have very different effects on the labour market from measures of
another kind. On the other hand, many of these measures are not
new; for instance, mechanisation has been going on for a century
at least, although it seems to be taking place at a greater rate now
than ever before. What is new is the amalgamation of firms in a
particular industry coupled with the elimination of relatively
inefficient factories, mines, etc. This would appear at the present
time to be the most important point of all, but it is also the point
on which there is least experience and least information.
The second difficulty which faces the investigator on this questio n
is that in many countries adequate statistics for the purpose required
are either of very recent date and therefore not suitable for comparative purposes, or are non-existent. It is important to know not
only whether rationalisation brings about a change in the total

220

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

number of people employed, but also what effects it has on the
relative sizes of the age groups and the proportions of men and
women or skilled and unskilled workmen, and so on. It would, of
course, be possible to consider the figures of the decennial censuses,
but what would they show ? A comparison of employment in 1921
with that of 1911 would simply provide us with information
concerning the consequences of the war on the labour market and
nothing more. A comparison of employment in 1921 with 1931
would enable us to draw conclusions as to the effects of the events
of the decade 1921-1931 on the labour market, but even in those
countries where rationalisation measures have been adopted on
a wide scale it would be impossible to say how far measures are
responsible for the changes in the labour market. Moreover,
it must be realised that the situation in certain countries at the
present time is abnormal. Great Britain, for instance, has since
the war had to adapt itself to an entirely new economic situation,
and this process of re-adaptation is still in its early stages. It
may also be recalled that rationalisation has made comparatively
little progress there during the last ten years. The British
unemployment statistics based on the employment exchanges
and the unemployment insurance scheme are very good, but no
conclusions can be drawn from them with regard to any long range
movement until conditions become more normal, and even then it
is not certain what information can be obtained from them on the
subject of rationalisation. In Germany the situation is very similar.
There it has also been necessary to go through a process of
re-adaptation to new economic conditions produced by the war, and
this process is still going on. In Germany, however, unlike Great
Britain, there has been rationalisation on a wide scale.
A third difficulty in dealing with this question which has already
been hinted at above is that of relating causes to particular consequences. It may be possible to say that during a certain period
there has been an increase or a decrease in the number of unemployed in certain industries and that during the same period
rationalisation measures have been adopted in those industries, but
that is all. It cannot be said for certain that the rationalisation
measures have brought about the increase or decrease in unemployment, for other causes are operating at the same time, and it is
impossible to separate the unemployment due to one cause from that
due to another. There may under certain circumstances, however,
be exceptions. If, for instance, in Great Britain rationalisation
is undertaken on a big scale in a particular industry, such as the

EFFECTS OF RATIONALISATION

221

cotton industry, which is largely concentrated in one part of the
country, some information of value might be obtained from a
comparison of the numbers of temporarily stopped and of wholly
unemployed at different dates. Rationalisation in the British cotton
industry is only in its initial stages at present, but it will be
interesting to follow these figures in the future.
The only way to find out what is happening is to make a series
of special investigations into the situation in particular factories or
industries and to follow up any persons who may lose their employment as the result of rationalisation measures in order to
determine how long they remain unemployed, whether they are
re-absorbed in the same industry or taken on in another industry
after a certain time. This was the method employed for the enquiry
carried out in 1929 by the German Federal Institution for Employment Exchanges and Unemployment Insurance. The results of this
enquiry are not yet available, however, but use is made below of
some of the preliminary data. An attempt to do the same thing
on a small scale and in a very general way in Great Britain was
made by the British Section of the International Association for
Social Progress in 1926-1927 and in the United States by the
Brookings Institution of Washington in 1929 and by the Institute
of Human Relations of Yale University in 1930. The results of these
investigations are summarised below. The facts brought out
are very interesting and enable provisional conclusions to be
arrived at.
The main questions to which answers are required are the
following: (a) How many men and women are discharged in
consequence of rationalisation measures ? (b) How long do they
remain unemployed ? (c) How many return to the same establishment ? (d) How many return to the same industry ? (e) How
many find employment in a different industry ? (/) How many
are placed on a different kind of work in the same establishment ?
(g) To what extent are the proportions of (1) men and women,
(2) skilled and unskilled workmen, machine tenders, etc., (3) the
different age groups affected by rationalisation measures ? (h) How
does stability of employment compare in rationalised and nonrationalised industries ?
A very limited amount of information on the above points
is already available, but far more is required, and as has already
been pointed out, it is impossible in the absence of special investigations to isolate rationalisation as a cause of changes in the
composition of the labour market from other causes which are at

222

UNEMPLOYMENT PROBLEMS IN 1931

the same time producing similar results. It is easy to show, for
example, that the output per workman is increasing and that a
larger output can be achieved with a smaller number of workmen, but
at the same time the increase in output brought about by the
rationalisation results in a greater number of transactions in
goods and services rendered and therefore in the employment
of more people in commerce and other occupations. Similarly,
since less effort goes to the production of the necessaries of life,
new luxury industries can be developed. Evidence on this point
is available in the United States as will be seen below. It is
also comparatively easy to show that in the past the number
of workmen employed has tended to increase in particular industries
in spite of the introduction of labour-saving machinery. These
may be considered pointers showing us our way, but they cannot
be considered as anything more than that.
With regard to the development of machinery there is, of course,
nothing new in this; the substitution of machinery for hand
labour has been going on since the beginning of the nineteenth
century. The immediate effect of it is to increase the output of each
worker employed, sometimes to an enormous extent, and it always
threatens a certain number with unemployment. As a matter of
fact, the real unemployment caused by improvements in machinery
is generally much less than might at first sight be feared, for several
reasons. In the first place, the introduction of new machinery
in an industry as a whole generally takes place gradually. The old
technical processes are often kept on side by side with new ones
for a long time, and they are replaced only by degrees. This makes
it easier for the workers to adapt themselves to the new conditions.
On the other hand, the increase in keenness of competition is
compelling undertakings to adopt any technical improvement
made by one of them with very little delay and the interval that
formerly elapsed before the use of certain machines became general
seems to be becoming shorter.
In the second place, the construction, maintenance and renewal
of the new machinery entail the employment of a certain number
of workers who would not otherwise have been needed. The number
will obviously be less than that of the workers set free by the introduction of the machinery or otherwise this would not have been
economically justifiable. It may also take some time for the workers
who lose their work for this reason to learn a new job and, if
necessary, remove to another district with a view to finding employment in another industry. For instance, while the manufacture

EFFECTS OF RATIONALISATION

223

of bottle-making machinery may lessen unemployment among
metal workers, the immediate result of using this machinery
must nevertheless be to throw many glass workers out of
employment until they can find work in another industry.
Such unemployment does not always last a very long time,
for the introduction of the machinery leads necessarily to a lower
cost of production. This means in practically every case a fall in the
selling price, which may in turn lead to increased demand and
therefore to increased production. The introduction of typesetting machinery, for instance, which at first threw a certain
number of compositors out of work, ultimately did much to develop
the printing industry which now employs many more workers than
before the introduction of this machinery. Some other facts of a
similar kind are given below. In some industries, however, such as
agriculture, where the demand is not elastic, the growing use of
machinery generally leads to a permanent reduction in the number
of workers employed. Against this it should be remembered that
there has hitherto been hardly any unemployment in agriculture,
except seasonal unemployment.
If the demand for the products of a mechanised industry is not
elastic, the fall in selling prices due to the fall in the cost of production will enable people to buy other products which they had
been unable to buy previously. The increase in the demand for
these other products will involve an increased demand for labour.
In an industry with an elastic market, this factor also comes into
play, but only so far as the total sum spent on the purchase of
this product is less under the new system of production than under
the old, in spite of the increase in consumption.
On these grounds it seems possible to conclude that the process
of mechanisation, which is constantly going on, must at any given
moment necessarily throw certain groups of workers out of employment. Their return to work will depend on the extent to which
the workers can adapt themselves to new jobs and on the extent
to which the conditions of the market change. A certain time must
necessarily elapse before workers who have been discharged can
once more obtain jobs. Consequently, although in the long run
mechanisation probably does not cause unemployment but rather
the opposite, it is almost certainly the cause of an amount of
unemployment which is relatively small, but which never ceases
to exist.
Scientific management in the sense of measures to increase the
worker's output by improved division of labour and training based

224

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

on motion study, has an effect on the labour market which is not
very different from that due to improvements in machinery.
On the one hand it may be said that the results are certainly less
intense and sudden, and will therefore lead to less unemployment.
On the other hand, if scientific management means that even an
increased demand for a given product can be satisfied with a
smaller number of workers, it constitutes an economy of labour,
for there is no question in this case of compensatory employment
in the manufacture and maintenance of new machinery. Improvements may also be introduced in the economic organisation of a
particular factory with a view to adjusting its work more closely
to the needs of the market. This should tend rather to decrease
unemployment. On the other hand, measures have been adopted
for the purpose of ensuring to the workers an increased stability
of employment. Examples of this are to be found particularly in
seasonal industries, in which many employers have realised the value
of organising their sales in such a way as to obtain long enough
terms for delivery to allow them to distribute the work over a longer
period of the year and also to counteract any unavoidable seasonal
conditions in the manufacture of certain goods by making other
goods for which the demand is more constant or which can be
produced during other seasons. Interesting results have been
obtained on these lines in the United States by Mr. Dennison,
manufacturer, of paper and cardboard goods, and others.
Finally, we come to measures for the more efficient organisation
of an industry, and this, as has already been pointed out, is the
newest feature in rationalisation. A number of agreements covering
the operations of a particular industry have been arrived at, the
result of these agreements being that instead of competing with
one another the various undertakings in the industry agree to
specialise in those branches best suited to each of them and to
standardise their products. Such agreements should therefore lead
to more stable employment, although, as will be seen below,
stability of employment is not always high in rationalised industries.
On the other hand, industrial agreements may lead to the elimination of certain undertakings which are relatively inefficient and
which therefore have the highest costs of production. They may
therefore cause a certain amount of unemployment which, however,
is not likely to be permanent. The rationalisation of the coal
industry which has taken place in some countries has involved the
closing down of certain less productive pits. This has caused
unemployment, as a result of which special efforts have been made

EFFECTS OF RATIONALISATION

225

to transfer the unemployed labour elsewhere, often to another
occupation altogether.
We may now set down a few facts and opinions which may enable us
to draw some quite tentative conclusions but which will be mainly
indications of the points on which further investigation is required.
In Great Britain, the British Section of the International
Association for Social Progress, in order to prepare a report for the
annual conference of the Association held at Vienna in 1927, sent
a questionnaire to seventeen firms namely: Messrs. Rowntree and
James Pascali in the confectionery industry; the Shredded Wheat
Company in the food industry; Messrs. Arthur H. Lee and Sons,
manufacturing power-made tapestries and hand embroideries;
Messrs. Mander Brothers (Varnish and Paint Works), and Howard
and Sons in the chemical industry; Electric Control, Limited, and
Messrs. Hans Renold, Limited, in engineering; Messrs. J.Wedgwood
and Sons, pottery works; the South Metropolitan Gas Company;
the United Dairies, Limited; Messrs. Hazell, Watson and Viney,
Limited (printers and binders) ; the Melingriffith Company,
Limited, tin-plate manufacturers; and a chocolate factory, a
sweet factory, and two knitting yarn mills, which desire to remain
anonymous. Most of them were found to be making an increasing
use of machines and mechanical contrivances. Standardisation in
the sense of reduction in the variety of patterns and qualities
of product was, however, by no means universal and the replies
to all the questions brought out some notable differences both
in the extent to which the developments in question had proceeded
in various directions and in the effects upon labour.
. With regard to mechanisation, most of the employers replying
were in practice substituting machine work for hand work wherever
possible and in their experience had not found that unemployment
resulted. The labour displaced from the hand processes was said
to be absorbed on machine work by reason of an increased output.
Many of the firms replying pursued a deliberate policy of absorbing
the workers that machinery displaced by transferring them to
other departments where the work would be increased through
the additional output of the machines. Other firms did not state
whether the individuals displaced were immediately transferred
and it is possible that though the total number employed remained
the same, the two totals were composed of different persons. In that
case, some of the old employees would be suffering unemployment
at least for a time.
15

226

UNEMPLOYMENT PROBLEMS IN 1931

With regard to standardisation, Messrs. Hans Renold provided
some interesting figures showing that this had led mainly to a
transfer of work from semi-skilled and unskilled men to women.
They stated : " The same number of fully skilled craftsmen are
employed now as in 1913 and mainly on the same work, viz. making
tools and maintaining equipment. This class, moreover, bears the
same proportion to the total personnel now as in 1913 though the
output of the factory has increased 30 to 40 per cent. " The
figures are given below:
Men
Year

1913 . .
1927 . .

Total
men

Fully
skilled
craftsmen

1,000
680

250
250

Semiskilled
Unskilled
machinists
350
185

300
85

Women
Clerical

100
160

310
680

Messrs. Renold are thus employing 50 more persons than in 1913,
but the proportion of women to men has risen from 31 per cent.
to 100 per cent. The male clerical staff has increased, but the
number of semi-skilled and unskilled men has fallen off considerably.
An interesting feature is the stability in the number of the skilled
craftsmen.
In its conclusions as to the effects of modern industrial developments on unemployment the report says that the evidence of the
employers who sent replies is to the effect that the number of their
employees has not decreased. The very complete statistics of
unemployment that are officially obtained in Great Britain under
the unemployment insurance scheme do not lend any colour to the
suggestion that rationalisation has caused unemployment. The
highest percentage of unemployment is rather in those industries
like coal-mining, and ship-building, where there has been little
rationalisation. The substitution of machines for men and agreements to limit production, continues the report, are the measures
most likely to cause unemployment. If care is taken to adopt these
measures gradually labour can probably be immediately reabsorbed
directly or indirectly at each stage, as several employers report they
have done. Should these measures be introduced suddenly on a
large scale unemployment would have to be met by palliatives.
Most of those unemployed would eventually, owing to the increased
efficiency of the industry, find employment again and meanwhile

227

EFFECTS OF RATIONALISATION

destitution should be avoided by means of the Unemployment
Insurance Scheme which was originally planned precisely to meet
temporary unemployment and not the long-drawn-out
" disemployment " existing to-day *.
A good deal of interesting information on the subject of rationalisation is to be found in a book written by Mr. Walter Meakin 2.
The author states that " in so far as the first steps towards rationalisation have been taken in the British coal industry by closing
those mines and seams to which the heaviest losses were attributed,
the inevitable effect of labour displacement on a substantial scale
has created a violent prejudice against rationalisation among the
mine workers ". This shows " the kind of difficulties that will arise if
rationalisation is carried out in long-drawn-out stages without any
general plan of co-ordination, with no effort to secure the co-operation of the unions and with no realisation of the obligation of the
community expressed through the Government to restrict hardship
to the narrowest limits and to mitigate by every possible means
that which is inevitable ".
Mr. Meakin concludes that, while it appears certain that for some
time to come at any rate the output of coal must be adapted to a
restricted market, there is no reason whatever save a refusal to adapt
manufacturing processes to new conditions why nearly all other
industries (in Great Britain) should not expand continuously in
correspondence with a rising demand for commodities made
possible by cheaper production resulting from the higher efficiency
attainable in organisation and equipment.
The whole question of rationalisation has been discussed very
widely in Great Britain and many manufacturers, bankers and
others are urging a considerable development on these lines. The
Balfour Committee on Industry and Trade in its final report issued
on 11 March 1929 recommends steps for the recovery and maintenance of financial strength and for the reconditioning and
re-equipment of such industries as iron and steel, coal and coke.
That Committee recognises that rationalisation in its early stages
may involve an increase in the number of the wholly unemployed,
but it considers that in the long run the industries which have
regained their prosperity will be more than able to reabsorb those
who have been displaced 3. Moreover, it refers in its Report on
1

INTERNATIONAL

ASSOCIATION

FOR SOCIAL

PROGRESS

(British

Section):

Report on the Effects upon Labour of Modern Industrial Developments,
- W a l t e r M E A K I N : The New Industrial Revolution, 1928.
3
Final Report of the Committee on Industry and Trade, 1929.

1927.

228

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

Industrial Relations to the case of the glass-bottle makers. A close
inspection of unemployment tables, says the Committee, suggests
a caution against hasty generalisation based solely on the averages.
For example, during the year 1924-1925 the average percentages
of unemployment in tin-plate making and in glass-bottle manufacture were about the same, viz. 20 per cent., but while the percentage
for glass-bottle making never fell far below or rose far above the
average, that for tin-plate fluctuated between 2.7 and 45. Plainly,
the causes in the latter case were connected with violent but
temporary market movements, whereas the continuous high
level of unemployment in the glass-bottle trade is known to be
connected with the gradual encroachment of automatic machinery
on hand labour 1 . Other evidence of a still more recent date is
available on the subject of the glass industry. According to a
declaration made by Mr. R. Fenton, Secretary of the National
Federation of Glass and Allied Trade Unions, between December 1920
and January 1928 70 per cent, of the highly skilled trade unionists
of the British glass industry lost their employment owing almost
entirely to the development of automatic and semi-automatic
machinery 2. Elsewhere, it has been stated that glass and glassware
is now being made on a great scale by less skilled and specialised
labour. The trade is a small one and though the change through
which it has passed has little effect on the general volume of
employment it is nevertheless worthy of notice that there has been
a big contraction in the total number of workers employed in
the trade. Thus, the first effect of any large measure of industrial
reconstruction designed to bring plant and equipment up to date
is likely to be an increase in the volume of unemployment. Nor can
the displaced workers necessarily look for re-employment in their
old trades at a later stage. Their hope lies in a general improvement
which will create in other industries an increased demand for
labour 3.
On the other hand the Conference on Industrial Reorganisation
and Industrial Relations (known as the Melchett-Turner Conference)
examined this question on several occasions. In the Joint Interim
Report agreed to on 4 July 1928 that Conference approved the
resolutions on rationalisation of the World Economic Conference
held in Geneva in 1927 and added : " It is recognised that certain
1

COMMITTEE ON INDUSTRY

AND T R A D E : Survey

1926, p . 34.
2
Daily Herald, 8 Oct. 1928.
3
New Statesman, 13 Oct. 1928.

of Industrial

Relations,

EFFECTS OF RATIONALISATION

229

measures of rationalisation may tend to displace labour or to
modify in undesirable ways conditions of work and that safeguards
are therefore necessary to ensure that the interests of the workers
do not suffer by the adoption of such measures. It is therefore
agreed that schemes for providing such safeguards should be
considered as part of the general question of the displacement of
labour. " It was this report which was placed before the Trade
Union Congress in September 1928 when it decided to continue
the conversations with Lord Melchett's group of employers 1 .
Still more important is the reference of the Melchett-Turner Conference to this question in the special Report on Unemployment
issued on 12 March 1929. This report emphasises the need for
rationalisation in the widest sense of the term. It states that the
problem of the immediate displacement of labour by the rapid
adoption of labour-saving devices and methods is a very pressing
one. Steps to safeguard the workers should proceed simultaneously
with the changes leading to displacement. -As a provision for normal
times it is recommended that all firms or in appropriate cases the
industries to which such considerations are applicable should set
aside a reserve fund for the purpose of assisting displaced workers,
such funds to be invested outside the business and vested in
independent trustees.
Reference may also be made to an address delivered by
Sir Mark Webster Jenkinson, a director of Vickers-Armstrongs, at
Sheffield, on 8 March 1929. It may be recalled that VickersArmstrongs had at that time recently gone through a process of
rationalisation2. Special interest may therefore be said to attach to
the remarks made by Sir Mark Jenkinson. He said that rationalisation by an increase in the consumption and use of commodities
as the result of a reduction in production cost should effect an
increase in the number employed in an industry. Before this could
be effected there must of necessity be a displacement of labour
following the closing down of inefficient works and the introduction of labour-saving machinery. For this reason any general
rationalisation of industry could only be carried out with the
co-operation of the trade unions and the Government, otherwise
the number of unemployed would be a source of trouble which
would prejudice public opinion and increase the burden of
1

TRADES UNION CONGRESS: The General Council's Report to the Sixtieth

Annual Congress to be held at Swansea on 3 September 1928 and five following
days.
2
Statist, 16 Feb. 1929, "Banking and Commercial Review".

230

UNEMPLOYMENT PROBLEMS IN 1931

taxation which industry had to bear. He considered that the
Government and the labour leaders should assist in devising
means to bridge the unemployment gulf which would open in the
process of the change over 1.
Mr. Beaumont Pease, Chairman of Lloyds Bank, Limited, in his
speech at the annual meeting of the Bank on 1 February 1929, said
that it was true that prospects of improved trade for the iron and
steel, coal, and textile industries were brighter but he doubted
whether an increase in employment would immediately follow
better trade. The methods which were being pursued of amalgamation, the elimination of superfluous units, rationalisation,
reduction of overhead charges and better organisation not only
on the productive but perhaps more especially on the distributive
side provided helpful auguries for the increased prosperity of the
industries themselves, but these processes might in some cases
mean temporarily an actual increase in the numbers of unemployed
in the immediate future and we might have to wait a little time
before the results of present proposals materialised and before those
industries which were now passing through difficult days were in a
position to offer greater employment 2 .
Mr. Henry Clay, Director of Economic Research in the
Securities Management Trust of the Bank of England, writing
in 1929, considered that the only remedy for the post-war unemployment problem in Great Britain was rationalisation. He believed
that that unemployment was largely due to the fact that costs had
not fallen in proportion to prices ; moreover he was of opinion that
it would increase because a great deal of employment in the export
industries was being given at a loss and rested therefore upon a
precarious and uncertain tenure. Wage rates had been kept up,
but on the other hand wage revision offered little chance of reducing
costs unless it was undertaken as part of a general reorganisation in
which other parties in industry contributed equivalent sacrifices.
To wage rates must be added employers' contributions to national
insurance funds and local rates and interest payments. There was
little prospect of reducing costs in any of these respects and a
new way must therefore be found of effecting a reduction. Such
a new way was offered by rationalisation. Briefly it implied
industrial combination with the object of securing, not monopoly
prices, but certain productive economies 3.
i The Times, 9 March 1929.
2
Statist, 9 Feb. 1929.
3
Henry CLAY: The Post War Unemployment Problem.

Macmillan, 1929.

EFFECTS OF RATIONALISATION

231

Finally, Mr. T. E. Gregory, Professor of Banking in the
University of London, in an address to the British Association
in September 1930, quoted the following figures showing that in
Great Britain, as elsewhere, production is increasing more rapidly
than employment. Between 1924 and 1929, the Combined Index
of Production of the London and Cambridge Economic Service rose
from 100 to 116.2, while the employed population over the same
period increased from some 9,500,000 to about 10,020,000 persons
or some 7 per cent., and unemployment increased by nearly
4 per cent. He said that in the short run rationalisation was not
a remedy for unemployment, but on the contrary was itself a
factor making for unemployment except to the extent that it
stimulated demand in the constructional and equipment industries.
But since a loss of markets due to progressive reductions in prices
by rationalised industries in other countries also added to the
volume of unemployment in Great Britain the short run evil of
unemployment in that country changed in character rather than
grew in volume. Rationalisation reduced costs but until the lower
costs had helped the industries in question to regain their market and
expand it, unemployment would remain. In the long run, however,
since rationalisation effected a lowering of real costs there was
no reason to suppose that the volume of unemployment would
not again fall. But in the absence of any definite knowledge of the
elasticity of demand for different products we could not foretell
in what direction an increased demand for labour would manifest
itself. The most optimistic view of the situation must take into
account the fact that a grave transfer problem was involved
and that monetary and other circumstances might accentuate
the difficulties of transition 1.
The general idea underlying the above expressions of opinion
is that rationalisation may lead to temporary unemployment but
not to permanent unemployment. On the other hand, the view
is sometimes expressed in certain labour circles, that rationalisation
must necessarily lead to widespread unemployment of a more or
less permanent character. Thus, in Great Britain, Mr. A. J. Cook,
Secretary of the Miners' Federation of Great Britain, writing in
the Miner for 8 December 1928 quotes figures for Germany showing
an increased annual output of 26,000,000 tons of coal in the Ruhr
from 1924-1927 accompanied by a reduction of 24,000 in the number
of workers employed, and adds: "The tendency is clear. An
1

Economic Journal, Dec. 1930.

232

UNEMPLOYMENT PROBLEMS IN 1931

increased output and a decreased working personnel ; 26,000,000 tons
per annum more, 24,000 workers less. Is this the general tendency
of rationalisation ? I think so. "
Again, in the Workers' Life for 8 March 1929, Mr. H. Lee, writing
on the creation of the Lancashire Cotton Corporation, Limited,
quotes Mr. J. L. Tattersall, late President of the Cotton Yarn
Association and one of the Directors of the new Corporation, as
claiming that the Corporation will be able to co-ordinate production
by the closing down of mills and to run some of the more
" economic " concerns full time. Mr. Lee says that this can only
lead to widespread unemployment of cotton workers. The estimates
that have been made, he says, show that there are already 100,000
surplus workers in the cotton industry, judged by the orders that
it is possible for the Lancashire cotton trade to obtain.
Mr. J. A. Hobson, in his recent book on rationalisation and
unemployment x, says that at present " there can be no ground
for holding that rationalisation as a whole tends to a distribution of
income favourable to the workers, either through raising wages or
lowering prices. . . All the economic evidence tends to show that
rationalisation carries with it a net diminution of employment,
the substitution of a large proportion of low-skilled for high-skilled
workers, and a distribution of the product which increases the
proportionate share of capital and reduces that of labour ".
Full productivity and employment, says Mr. Hobson, can only
be obtained in such a country as Britain by a combination of two
lines of economic policy. " An internal policy of higher wages and
of taxation directed to secure for public expenditure a large share
of rents and other surplus incomes would, by increasing the current
consumption or demand for commodities, at once permit fuller
employment of all existing productive resources, and stimulate
employers and their brain-workers to discover and apply the best
methods of technique and organisation. " But this assumes that
other industrial nations are not cutting their costs of production
by operating the new technique without any corresponding measures
for the better and more equal distribution of consuming power.
Rationalisation, therefore, operated by private capitalism in the
interest of profits, requires to be brought under a social control
which must in the long run be international, so as to correspond
with the area of the economic system.
1

HOBSON: Rationalisation and Unemployment;
London, Allen and Unwin, 1930.

An Economic

Dilemma.

EFFECTS OF RATIONALISATION

233

In Germany rationalisation measures have been adopted on a very
wide scale. It is not without reason that a writer in the Manchester
Guardian has described the term " rationalisation " as " a new
word, made in Germany ". While most industrial countries, in fact,
during the post-war period, made more serious efforts than ever
before to introduce methods capable of increasing their output of
manufactured goods, there are few in which the efforts put forth
were more systematic, better concerted, and more general than
in Germany.
Another characteristic of the process of rationalisation in Germany
is the rapidity of the transition from theoretical research to practical
application on a large scale. German industry, impelled by imperious economic necessity, was allowed no respite in which to space
out successive stages. Forced, by the menace of complete collapse,
to adapt their methods, their productive capacity and their prices
to profoundly changed conditions, whole industries, imbued with the
necessary spirit of co-operation by the force of circumstances,
rationalised the entire mechanism of production simultaneously;
in some cases in an astonishingly short time.
This general movement towards rationalisation occurred as the
country was emerging from the inflation period ; and for this very
reason, some of the most serious difficulties that in other countries
still confront any attempt on so vast a scale were smoothed away.
Inflation facilitated not only the renewal of equipment—an essential
condition of rationalisation—but also the movement towards industrial concentration, and, hence, the elimination of undertakings
whose yield was inadequate.
The very fact that the principal phase of rationalisation occurred
during the period of monetary stabilisation, when the labour
market was under the influence of so many other factors, explains
the exceptional difficulties of making an analysis of the effects of
rationalisation on employment from the official statistics; and of
singling out this particular cause of unemployment from among all
other causes. Hence all investigators in this domain have hitherto
been compelled to confine themselves either to isolated surveys
of the general problem; or to the study of a single industry, or even
a single undertaking. The following statement, similarly, will
do no more than furnish a few examples.
Two questions will occur to the mind at the outset: (1) what is
the effect of rationalisation on the volume of employment ? and
(2) what is its effect on the proportion of skilled to unskilled workers
in the aggregate labour force ?

234

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

On the first point a certain amount of general information is
furnished in the reports for 1927 of the factory inspectors, who had
been instructed by the Ministry of Labour to pay special attention
to rationalisation measures and their effect òn the workers. These
particulars, scanty as they are, have been collected together in a
general survey published by the journal Soziale Praxis l. The
first impression derived from these reports is that " nowadays no
undertaking can escape from rationalisation; although the degree
of rationalisation may vary in different undertakings according
to the amount of capital at their disposal, the level at which their
credit stands and their ability to grasp the significance of the
problem ".
It is undeniable that, in many cases, one of the first results of
rationalisation has been the dismissal of employees; but, as the
report goes on to say, " It is impossible to give numerical estimates,
if only because rationalisation measures were introduced at the
beginning of a slump in trade; and the increase in output that
eventually followed from them frequently led to the re-employment
of the dismissed employees ". In the engineering shops at Esslingen,
for example, the ratio of workers to output first of all fell by
two-thirds; but afterwards the total number of workers rose to
double the pre-rationalisation figure in consequence of a large
increase in orders.
Below are given some of the most important instances of
dismissals of workmen reported by factory inspectors, and quoted
by the Soziale Praxis. Measures of rationalisation have enabled
gas works to reduce their staff by a third, or even a half, without
affecting output. Similarly, a rubber factory has been able to
maintain its output, although it reduced the number of its employees from 14,000 to 10,000; and a margarine factory, likewise,
with 1,000 workers instead of 1,600.
In many undertakings reductions in the number of employees
have chiefly affected men employed in handling and conveying
goods. One large factory was able to dispense with 50 per cent.
of the men engaged on these kinds of work; and an undertaking
manufacturing linen goods, by similar means, found it possible
to dismiss 20 per cent, of its transport workers.
Elsewhere the reductions effected have been mainly among
certain grades of unskilled workers—bottle washers and fillers in
1
Dr. Frieda WUNDERLICH: "Der Einfluss der Rationalisierung auf die
Arbeitnehmer nach den Berichten der Gewerbeaufsichtsbeamten für das Jahr
1927. " Soziale Praxis, 18 and 25 Oct. 1928.

EFFECTS OF RATIONALISATION

235

breweries and dairies for instance. A slaughterhouse equipped on
the American pattern now employs 22 slaughterers and 15 assistants
to kill and dress 1,000 pigs in eight hours, whereas 150 slaughterers
were formerly required to do the same work in the same time.
Before the war a factory in Saxony employed 46 workers to make
4,000 mouse-traps a day; under the new system 15 girls turn out
10,000 a day. A film factory has reduced its staff by one-third;
a factory manufacturing glass ware, by one quarter. In a sugar
refinery, unloading mechanism controlled by a single man does the
work of a gang of twenty.
It is not only among manual workers that rationalisation has
led to dismissals (which, it may be said, are not always final, and
do not always mean unemployment for those affected) it has also
been applied to commercial work, and has brought about the
discharge of salaried employees, who, by reason of their age and their
specialised duties, sometimes find it much more difficult to obtain
other employment. In fact rationalisation in occupations staffed
by salaried employees usually means the introduction of machines
—calculating, shorthand, accounting, addressing machines, etc.—
the manipulation of which, though it doubtless requires an elementary acquaintance with the technical details of the commercial
side of industry, calls primarily for mechanical aptitudes. Thus,
Dr. Paul Gerster, Privatdozent in the Berlin Commercial High
School, observes in the August 1925 issue of the journal Betriebe
und Organisation that " the use of accounting machines compels
the complete reorganisation of the accounting department. It is
hardly possible merely to tell off men hitherto employed on accounting work to operate these machines. On the contrary, their manipulation requires a person, who while possessing some knowledge of
accountancy, is above all skilled in the use of machines—an
experienced shorthand-typist for example. " This is as good as
saying, as in fact Dr. Bruno Rauecker 1 does say, that the result
of introducing machines into office work is not to bring about the
dismissal of unskilled workers with essentially mechanical training;
but the dismissal of the most highly skilled employees, whose
specialised qualifications actually render them unfitted for transference to other occupations. According toa special enquiry undertaken by the Ministry of Labour in the autumn of 1925, of a
total of 55,978 salaried employees out of work, 24,028 were
higher-grade employees.
1
Dr. Bruno RAUECKER: Rationalisierung und Sozialpolitik, Berlin-Zehlendorf, Sieben-Stäbe-Verlag, 1926.

236

UNEMPLOYMENT PROBLEMS IN 1931

The federation of unions of salaried employees (AFA-Bund)
undertook an enquiry among its members in the autumn of 1926
on the social consequences of rationalisation; and the results were
published in the AFA-Bundeszeitung of June 1927. This enquiry
covered 166 undertakings ; consequently it is of a very fragmentary
nature, but the methods employed were such that the results may
be considered as fairly typical.
One fact that emerges from the enquiry is that, of the 166 undertakings covered, 89, or more than half, had introduced no rationalisation measures since the war. In the metal-working industry
this is true of 47 undertakings out of the 93 included in the enquiry.
Among those that had adopted rationalised methods, 28 had
introduced office machines, which in 17 cases had led to dismissals.
In wholesale commerce, banking, and insurance, 12 undertakings
out of 18 had introduced machines. As far as commercial and
insurance undertakings are concerned this step does not appear to
have affected the size of the staff; but in banks it was invariably
accompanied by dismissals. As regards the chemical industry,
the enquiry reveals that amalgamations of concerns appear to be
mainly responsible for reductions in staffs.
In this connection the factory inspectors' reports already referred
to state, as a rough measure of the unemployment among salaried
employees, that in many instances the introduction of machines
for office work has enabled the services of four employees out of
five to he dispensed with.
It is apparent, then, that only fragmentary data are available
for the purposes of measuring the effects of rationalisation on the
volume of employment. For a few industries, however, such as coal
mining and metal working, somewhat more precise material exists.
The following information has been taken from Walter Meakin's
book The New Industrial Revolution, the greater part of which is
devoted to Germany. Mr. Meakin observes, first of all, that the
extent to which displacement of labour occurs in consequence
of rationalisation measures depends essentially on the circumstances of each industry. Thus in the coal-mining industry where
the number of men employed, already large owing to the need
of coal for war purposes, was rapidly increased by the engagement
of demobilised troops, the growth of productive capacity at a time
when the demand for coal was steadily declining was bound to lead
to dismissals on a large scale in the post-war period. In the Ruhr
mines, for instance, the number of men employed rose from 397,000
in 1913, to a maximum of 553,000 in 1922 ; but fell to 463,000 inl924.

EFFECTS OF RATIONALISATION

237

In this year plans for the concentration and rationalisation of the
industry, involving the closing down of inefficient or costly mines,
were put into execution; and the number of men employed fell
to 396,000 in December 1925, and again to 355,000 in May 1926.
There was a temporary rise to over 400,000 (418,000 in March 1927)
owing to the British coal stoppage, but the figures had fallen again
to 398,000 by December 1927. These figures, it will be seen,
represent a displacement of 198,000 workers between 1922 and
May 1926; and of 108,000 between 1924 and 1926. It should be
added that the technical and commercial staffs of coal-mining
undertakings have not escaped from the consequences of rationalisation: the number of salaried employees fell from 28,000 in 1922
to 23,500 at the end of 1927.
According to Mr. Meakin, no exact information is available
to show what happened to those dismissed workers who were not
taken back by the mines. All that can safely be said is that there
was a revival of trade in certain industries—machine making,
building, the electrical industry, etc.—and doubtless some of
the unemployed miners found work in these industries; while
others returned whence they came, to agriculture, which had
been stimulated by an abundant supply of cheap synthetic
fertilisers.
Although men were also thrown out of employment in the
metal working industries as a result of rationalisation measures,
dismissals in these industries were not so numerous as in the coalmining industry, nor had they the same finality. Here rationalisation led to so rapid an expansion of trade in 1926 and 1927
that a not inconsiderable number of the men paid off were taken
back into employment. Thus, in the steel trust, for example, the
number of men employed at the end of 1927—that is, after the
principal phase of rationalisation-—was 198,000, or 25,000 more
than at the beginning of 1926, before rationalisation measures had
been introduced.
The investigators of the German Federal Institution for Employment Exchanges and Unemployment Insurance, previously
referred to, are still in the stage of collecting data. But the report
of the Institution for 1929, without formulating premature conclusions, mentions certain specially striking effects of rationalisation
reported by the local exchanges.
Thus in Saxony, in 1929, in the area covered by one exchange
only, 12,000 workmen lost their jobs owing to the adoption of
rationalisation measures in the manufacture of locomotives, textile

238

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

machinery, motor-cars, and motor bicycles that involved a transference of the undertakings owing to their amalgamation with others
situated outside Saxony. Various musical instrument making
firms, employing mainly home workers, decided to form a limited
company with a view to replacing home work by chain work. The
result will be, it is estimated, the loss of their jobs by about half
the persons hitherto employed. A Rhenish coach factory,
normally employing 600 to 700 workers, decided to close down and
to turn over its work to two other factories, which are far from
working to their full capacity. A Rhenish artificial silk factory
closed its research laboratory as no longer needed after the amalgamation with another firm, and dismissed 90 persons. The introduction of machinery in two Hessian quarries led to the dismissal
of 320 stoneworkers. In the same district, 60 furnacemen were
dismissed owing to the modernisation of boilers. In a lignite mine
in the Rhineland, the dismissal of 100 workers was made possible
by using electricity instead of steam to work the machinery for
transporting the lignite. Important amalgamations in the cigarette-making industry led not only to the dismissal of many
workers in this industry, but to short time for about 1,000 workers
in the paper industry. A large Saxon bakery mechanised its
production and dismissed half its staff.
According to the report, these few examples drawn from the
material sent in by the employment exchanges may be easily
supplemented by observations from ordinary daily life. It is
sufficient to mention the unemployment among musicians caused
by the increasing use of mechanical instruments, the effects of
banking concentration on the labour market for banking employees,
and the substitution of office machines for human labour.
The information available shows that the effects of rationalisation
on employment are varied : sometimes it leads to many dismissals
without visible compensation; sometimes the better-paid workers
are replaced by an equal or smaller number of workers at lower
rates of pay; sometimes it leads to geographical changes in the
demand for labour, whether accompanied or not by a fall in the
number employed or in wage rates.
In Czechoslovakia, some information concerning the effects of
rationalisation on the labour market in that country, especially
with reference to the glass industry, was given by Mr. Tayerle,
General Secretary of the Czechoslovak Federation of Trade Unions,
at the ninth Congress of the Federation held in Prague from 21 to

EFFECTS OF RATIONALISATION

239

24 September 1930. He said that in 1920 the production of window
glass by hand gave employment to 4,000 skilled workers in fifteen
undertakings, with an equal number of assistants, and production
amounted to eight or ten million square metres a year. To-day production by hand had ceased. In the five great undertakings forming
the cartel, 70 Fourcault machines served by 3,200 unskilled workers
were producing twenty million square metres a year. The number
of workers employed had decreased by 60 per cent., while production
had increased by 100 per cent. The cartel fixed the prices of window
glass, and this had some influence on the building industry also.
Similarly, the bottle-glass industry in 1920 employed 3,000 skilled
workers and 5,000 assistants in seven undertakings for the production of fifty to sixty million bottles a year. At present, in four
undertakings there were ten Owens machines each one of which
produced 25,000 to 30,000 bottles in 24 hours and did the work
of 80 or 90 men, together with twenty-three machines of other kinds.
The output exceeded 100,000,000 bottles a year, and had increased
by 40 to 45 per cent., while the number of workers employed had
declined by 60 per cent. The number of skilled workers was only
one-eighth of what it had been in 1920. It was fortunate that even
at that time the Union had recommended restrictions on admission
to the trade. The cartel had raised prices by 25 per cent. It was
thus clear that public supervision of the activities of cartels was
essential1.
In the United States the problem of machine-displaced labour
has attracted special attention for some time. Mr. J. J. Davis, who
was at that time the Secretary for Labour, referred to the matter in
his annual report for the year ended 30 June 1928. He states
that a remarkable change has taken place in the economic structure in practically all lines of industry and in the year under
review these changes had a marked effect in causing unemployment. It will require the best minds of the country and
earnest students of economics to work out the problem of
readjustment which necessarily must follow such widespread
installation of machinery so as to minimise the hardship
felt by men relieved of employment through this medium. The
United States Employment Service has experienced much difficulty
in finding new employment for those who have been obliged to
adjust themselves to changed conditions. He points out that
while many of the co-operating States are well equipped to take
1

Pravo Lidu, 23 and 24 Sept. 1930.

240

UNEMPLOYMENT PROBLEMS IN 1931

care of this additional demand upon them, the services of many
States are inadequate for the purpose 1.
In the Monthly Labour Review for September 1927 Mr. Davis
had already devoted a special article to this subject. He refers to
the situation in the glass industry, and says that as a result of the
introduction of automatic machinery in the case of one type of
bottle 41 times as much can be produced per worker as with the
hand process and the machine production requires no skilled glass
blowers. The glass industry is only one of many industries that have
been revolutionised in this manner. The Bureau of Labour Statistics
in the Department of Labour studied 11 typical industries and found
that since 1914 their average production had been increased
68 per cent. In the previous seven years American productivity
as a whole had increased about 40 per cent. " If our productivity
had remained what it was even in the year 1919 the country would
need about 140 men to do the work formerly done by 100 . . .
but even with the 10 million more consumers that we now have our
factories are supplying the nation's needs with 7 per cent, fewer
workers. This is something which should give us thought. In the
long run new types of industries have always absorbed the workers
displaced by machinery but of late we have been developing
new machinery at a faster rate than we have been developing
new industries. " 2
An example of a similar displacement of workers in a tool-making
factory is given in a more recent issue of the same periodical 3 .
It is stated there that the elimination of lifting of material by hand
through the installation of material-handling equipment has
greatly reduced the number of workers per unit of output in the
factory of the Vlchek Tool Company, Cleveland, Ohio. It is reported
that in 1918 the Company had 16 drop-hammers and employed
480 men. By 1927 the number of drop-hammers had been
increased to 22 and the working force reduced to 280 men. During
this period the output increased 30-40 per cent. The increased
production is attributed partly to the use of more rapid machine
tools and partly to better facilities for handling materials.
In this connection it is interesting to compare the general increase
in productivity in certain manufacturing industries in recent years
and the corresponding changes in the number of workers employed.
1

UNITED STATES DEPARTMENT OF LABOUR: Annual

ended 30 June 1928.
2
Monthly Labour Review, Vol. XXV, No. 3.
3
Ibid., Vol. XXVI, No. 5.

Report for the Year

EFFECTS OF RATIONALISATION

241

The following table shows the index numbers of the Federal
Reserve Board for the quantity of manufactured products, the
number of workers employed in manufacturing industries, the
output per worker, the total wages paid and the wages paid per
worker for the years 1919-1929:

Year

1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929

. . .
.
.
.
.
.
.
.
.
.
.

Manufactured
products

Workers
employed
in
factories

Output
per
worker

(1)

(2)

100
104
80
104
120
112
125
129
126
132
142

100
101
77
84
97
90
93
94
92
91
94

Wages paid
per
worker

(3)

Total
wages
paid
(4)

100
103
104
124
124
124
134
137
137
145
151

100
120
79
83
105
98
103
106
104
104
110

100
119
103
99
108
109
111
113
113
114
117

(5)

For a proper appreciation of these figures it should first be remembered that between 1919 and 1925 the total population of the
United States increased by 10 per cent and it has continued to
increase at about the same rate since then. It will be seen from
column 1 that in 1925 the increase in manufactured products as
compared with 1919 was 25 per cent., that the proportion rose to
29 per cent, in 1926 and then fell slightly to 26 per cent, in 1927
rising again to 42 per cent in 1929. The output per worker is
given in column 3, the figures being obtained by dividing
those in column 1 (multiplied by 100) by those in column 2. It will
be seen that output rose steadily from 1919 onwards and that
in 1929 a worker produced on an average 51 per cent, more than in
1919. This increase in labour output was particularly high in
certain branches of production. According to the figures of the
Department of Labour the increase from 1914-1925 was 211 per
cent, in rubber tyre factories and 172 per cent, in motor-car factories.
Thus, output was increased with the employment of less labour, for
column 2 of the above table shows that in 1929 the index of factory
employment was 6 per cent, below the 1919 figure. This fall does
not necessarily mean that unemployment as a whole increased.
The index number of employment refers only to manufacturing
industries.
16

242

UNEMPLOYMENT PROBLEMS IN 1931

As a matter of fact, the newer service industries are providing
employment for many of the workers discharged from productive
or manufacturing industries. According to a report of the United
States Bureau of Foreign and Domestic Commerce at the end of
1928 1 , United States factories had since 1920 decreased the number
of their employees by more than 900,000, partly as a result of
better machinery, greater experience in the workers, and better
shop management and executive direction. Since 1920, 240,000
men had been released from the pay rolls of the United States
railways, due largely to more efficient methods in locomotive
construction, roundhouse operations and freight services. At
the same time, however, the higher wages earned by the workmen
retained had increased the demand for automobiles, wireless
apparatus, telephones, films and other similar products, and as a
result more than 1,280,000 men had found employment since 1920
as chauffeurs or wagon drivers and in running automobiles. The
number of employees attending to (not manufacturing) electrical
refrigerators, oil heaters and similar household appliances had
increased by more than 100,000 since the War. The increased
insistence upon education accounted in part for the 185,000 more
teachers of all sorts as compared with 1919. Partly because a
considerable proportion of the increase in wages for factory workers
goes into savings and life insurance, 100,000 more life insurance^
agents were employed than in 1919.
In this connection reference may be made to a recent report by
Mr. L. Urwick, Director of the International Management Institute2..
In the United States, between 1920 and 1927, he says, about
1,300,000 persons left agriculture for non-agricultural employment,
but at least a million of these were impelled by the movement of
agricultural prices, which was partly due to political influences..
It may therefore be said that about 300,000 persons left agricultural
occupations on account of technological improvements. At the same.
time about 585,000 persons left manufacturing occupations for the
same reason. There was a total increase in unemployment during thesame period, exclusive of agriculture, amounting to about 600,000;.
it may therefore be said, after making certain allowances, that.
about 1,485,000 persons were displaced from their employment.
as a result of technological changes.
1
Quoted in the Bulletin of the International Management
Jan. 1929.
2
L. URWICK: Rationalisation does not lead to Unemployment.
International Management Institute.

Institute,,
Geneva,.

EFFECTS OF RATIONALISATION

243

On the other hand, the enormous growth of motoring led to the
absorption of 1,300,000 persons in new jobs in that industry.
There was a great increase in the medical and allied professions
(407,000), hotels and restaurants, moving pictures, and banking
and insurance (616,000). Mr. Urwick estimates that about 1,907,000
new positions were created in this way as a result of rationalisation,
as against 1,485,000 which had been eliminated.
Very little information is available as to the extent to which the
men and women displaced in the manufacturing industries have
turned to these new kinds of employment and how far the increased
number of employees in certain branches referred to in this paragraph are new workers who have never done anything else. It is,
however, probable that a good many of the displaced workers
have actually taken on different jobs.
An interesting enquiry has been made by the Institute of Economics of the Brookings Institution of Washington with a view to
ascertaining " whether the industries and the service trades which
have experienced so phenomenal a growth in recent years have
been reabsorbing those workers who have been discharged from other
industries and those who have migrated from the farms to the cities."
The results of this enquiry were submitted to the Senate
Committee on Education and Labour, which made an investigation into the problem of unemployment and issued its report in
February 1929. The conclusions are based upon data collected in a
special survey in which 754 workers in Baltimore, Chicago and
Worcester, Massachusetts, who had been discharged because their
services were no longer required, were interviewed. It is admitted
that the group surveyed is a very small one, but it is suggested
that it includes a fairly representative section of workers in the
industrial centres of the United States. The findings of the investigation are summarised in the report of the Institute of Economics
as follows :
(1) The dispossessed workers do not easily find new employment.
Forty-five per cent, of those interviewed had found employment
when seen by our investigators.
(2) Even those workers who secured new employment had
difficulty in finding jobs. Only 11.5 per cent, were idle for less than
one month and more than one-half had been idle for more than three
months before being reabsorbed by industry.
(3) Workers discharged from industry are moving in large
numbers to factories which produce products different from those

244

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

made in the industries with which they were formerly associated.
Less than 10 per cent, of those surveyed were re-employed at their
old jobs. Two-thirds went into entirely different industries.
(4) The rapidly growing " newer " industries and service trades
are not absorbing the dispossessed workers as quickly as is generally
believed. Approximately 15 per cent, of those surveyed went into
these lines of activity.
(5) Although labour is mobile as regards its movements from
industry to industry, approximately one half of those who found
newT jobs succeeded in getting employment at tasks which were
similar to those they had formerly held, that is to say, the general
requirements as to skill and training were like those of their earlier
jobs. The remaining half of those who found work became employed
at tasks which bore no relationship to their former work.
(6) A large majority of dispossessed workers supported themselves and their families during the earlier period of unemployment
by accumulated savings. Approximately one-third found temporary
work of one sort or another to supplement their income before
getting a permanent position.
(7) The transition from one type of employment to another was
in most cases made with a sacrifice of income. Almost one-half of the
workers received lower wages at their new jobs than at their old.
Eighteen and eight-tenths per cent, benefited by the change and
were earning more. Less than one-third experienced no change in
income.
(8) The age of the worker appears to be a significant factor in
affecting the ease with which labour is reabsorbed. As compared
with the younger workers, relatively fewer of those over 45 years
of age were able to secure new employment. As a whole, a larger
proportion of the older workers were out of work for longer periods
of time than was true in the case of workers below the age of 45.
A more recent enquiry of a similar kind has been made by the
Institute of Human Relations of Yale University into the readjustment of more than 1,200 industrial workers discharged by the
United States Rubber Company in New Haven and Hartford.
These workers were discharged because under the stimulus of new
management, the company decided to concentrate its production
in fewer, larger, more highly mechanised, and generally more
efficient factories. A small number of women workers did not
look for new jobs at all, but, of 1,109 workers who did seek fresh
employment, 676 found jobs within three months; of 902 workers

EFFECTS OF RATIONALISATION

245

who gave information with regard to their wages, only 174 obtained
jobs paying wages which were as high as those they had previously
been earning. A certain number of workers received a dismissal
wage from the firm amounting to one week's pay for each year
of service. It was found that these workers were just as aggressive
in looking for work as any of the others, and, on the average,
found new jobs rather more easily than their fellow workers. Those
who used the dismissal wage payment to go into business for
themselves were generally unsuccessful. It should be noted that
the above enquiry took place at a rather unfortunate moment in
some ways, as it covered the earlier part of the world depression.
The discharges took place in April and September 1929 and the
enquiry itself was held just one year later in each case. Great care
is therefore needed in interpreting the results. It may, however,
be said that they tend to confirm the conclusions arrived at by the
Brookings Institution investigation which is quoted above 1.
In agriculture there has also been a great development in
mechanisation in recent years, particularly by the introduction
of the " reaper-thresher ", generally known as the " combine ".
In 1914 only 270 of these machines were manufactured in the
United States, but by 1929 the number had increased to 36,957.
Official figures have been published showing the saving in labour
consumption as a result of the use of combines. They show, for
all processes of harvesting wheat (at 15 bushels per acre), 0.75 manhours per acre with a combine as compared with 3.8 and 4.6 with
a header and binder respectively. Increased expansion of cultivation areas is, however, not required at the present time, because
increased markets do not exist. Hence the labour-saving properties
of the combine must necessarily lead to a decrease in the amount
of human labour used 2.
When unemployment increased considerably in the United
States at the end of 1927 and the beginning of 1928, the trade
union press had a great deal to say about this problem of the
displacement of labour by machinery. In the Monthly Labour
Review 3, articles on this subject in ten trade union organs are
summarised.
Certain trade unions, with an aggregate membership of about
1

CLAGUE

and

COUPER:

" The Readjustment of Workers Displaced by Plant

Shut-Downs " in Quarterly Journal of Economics, Feb. 1931.
2
Cf. L. E. MATTHAEI " More Mechanisation in Farming ", in International
Labour Review, March 1931, where figures are also given for Argentina and
Germany.
3
Vol. XXVI, No. 5.

246

UNEMPLOYMENT PROBLEMS IN 1931

500,000 spread over 23 localities, began to record the number of their
unemployed and found that at the end of 1927 the proportion was
13.8 per cent. ; in January and February 1928 it rose to 17.8 per cent.
A statistical enquiry was decided upon by the Senate and this led
to the conclusion that the number of workers employed in
January 1928 in all trades and industries was about 1,875,000 less
than the average number of workers employed in 1925. Assuming
that the average number of unemployed in 1925 was 1,750,000,
there must have been about 3,500,000 unemployed in January 1928.
Senator Wagner, speaking in the Senate on 20 April 1928, thought
that there might even be as many as 5,800,000 persons unemployed.
The enormous difference between these estimates shows how
important it is to have adequate unemployment statistics. However,
unemployment subsequently decreased until the crisis of 1930,
so that the situation prevailing at the end of 1927 and the beginning
of 1928 cannot be entirely attributed to rationalisation.
Mr. William Green, President of the American Federation of
Labour, in an address at the University of Michigan at the beginning
of 1928, stated that the introduction and use of improved machinery
had affected the unemployment situation to some extent. It was
known that the development of new industries had created a demand
for additional workers, and consequently many thousands who
would be unemployed otherwise had been able to find employment
in the newer industries. Many of these were unskilled workers,
who were able to render service in mass production industries.
In the survey made of this situation, he was impressed by the
fact that while it was impossible to interfere with industrial progress
and scientific management, they would be confronted with the
problem of displacement in a most acute form. When these new
industries reached the point of saturation, a very serious problem
of continual displacement of men through the use of improved
machinery must be constructively met and settled.
This question was considered by the Executive Council of the
American Federation of Labour at its meeting in Miami, Florida,
in February 1929. Mr. Green said on that occasion that the Council
would consider the methods of replacement of men displaced by the
increased introduction of machinery into industry, and the unsound
economic conditions prevailing in some industries, particularly
coal-mining, textiles and shoe manufacturing. Mr. Green explained
that by unsound economic conditions in certain industries, he meant
over-development, over-production and over-organisation 1.
1

New York Times, 19 Feb. 1929.

EFFECTS OF RATIONALISATION

247

Mr. Magnus Alexander, President of the National Industrial
Conference Board, an important employers' organisation, referring
in particular to the views expressed at the beginning of 1928 that
the severe unemployment at that time was due to mechanisation,
says that the facts disprove that idea. According to official statistics of American manufactures in 1925, the production obtained
in 1914 by 100 manual workers and 100 higher employees was
obtained in 1925 by 71 manual workers and 82 higher employees.
What became of the 29 per cent, of manual workers whose work
has been rendered unnecessary by the increase in output ? Statistics
show them to have been absorbed and more than absorbed by the
industrial development resulting from the increased output.
While the output per wage earner increased by 40 per cent.
between 1914 and 1925, manufacture and production as a whole
increased during the same period by 65 per cent, and necessitated an
increased labour force of 1,500,000 wage earners. In other words,
while 71 workers in 1925 were able to produce as much as 100
in 1914, the demand for manufactured products at the lower prices
made possible by the decreased cost of production, developed to
such an extent that not only the 29 per cent, of workers already
referred to were absorbed but 1,500,000 new workers in addition 1.
It may be remarked in this connection that account must also
be taken of the increased population during the period in question
and the mere fact that during a certain period labour forces
increased is not conclusive evidence that unemployment has not
increased at the same time.
A point of considerable importance is the effect of rationalisation
on stability of employment. So far as the concentration of production in large units is concerned, investigations made by the National
Bureau of Economic Research show that employment fluctuations
are greater in large concerns than in smaller ones.2 With regard to
other forms of rationalisation, the Monthly Labour Review has
published a number of studies which aim at measuring the degree
of regularity of employment in certain industries, and to ascertain
whether there has been an improvement in these industries in this
respect in recent years. One of the most interesting of these from
the point of view of the present report was an enquiry into the
automobile industry, which is essentially a rationalised industry.
Stability is measured by comparing the average of employment
1
2

See Les Documents du. Travail, Jan.-Feb. 1929. Paris.
Cf. Willard L. THORP in American Economic Review, Vol. XXI, No. 1,
Supplement, p. 196.

248

UNEMPLOYMENT PROBLEMS IN 1 9 3 1

during a particular year with the number of employees in the months
of maximum employment. Thus, if during a particular year a given
factory had an average of 90 employees, and the maximum number
in any month was 100, then the stability of employment may
fairly be said to be 90 per cent. In the automobile industry the total
number of establishments considered was 78. They represent all
establishments engaged in the manufacture of automobiles, trucks
(lorries), buses, bodies, or some substantial part of an automobile,
for which data are available. Automobile accessories and specialities
were omitted in order that the establishments included might be
fairly comparable as regards working conditions and market
influences. It was found that the annual averages showed consistently bad conditions, with little or no improvement apparent. The
average percentage of full time employment was 82.3 in 1923
and 80.8 in the twelve months ending November 1928. The industry
as a whole did not vary much from year to year in respect of stability
of employment, but the individual establishments fluctuated widely
and inconsistently with one another. For every year since 1923,
with the exception of 1926, the stability index for more than one
half the factories was under 85. Only two plants had a record as
good as 90 per cent, for each of the six years 1.
In connection with this industry it is interesting to note the
experience of the Ford factory. An interesting article on this
subject appeared in the Survey Graphic for March 1928 by Mr, Paul
U. Kellogg, who deals with the situation in the Ford works at
Detroit at the time when the new model A car was being prepared.
Between January 1926 and June 1927 the number of workmen
on the pay roll fell from 120,275 to 82,890, a difference of about
37,000. These totals take no account of local companies supplying
Ford parts, some of which shut down entirely. Mr. Kellogg quotes
a social worker as saying that the total number of workmen
displaced altogether probably amounted to about 60,000. It is
certain that employment in Detroit as a whole, as measured by the
Detroit Employers' Association, showed a reduction of 10,000
in September 1926 as compared with 1925, of 40,000 in October,
and of 60,000 in December. These reductions may of course not be
entirely due to the situation in the Ford works. There was some
improvement at the beginning of 1927, but in November of that
year there was again a decline of 70,000 persons employed as
compared with 1925. These figures are based on reports from firms
1

Monthly

Labour Review, Vol. X X V I I I , No. 2.

EFFECTS OF RATIONALISATION

249

whose employing strength includes approximately two-thirds of
the working force of the factories in the Detroit district. What
happened at the Ford works and to the Ford workers, adds
Mr. Kellogg, was packed with meaning as to how much security,
humanly speaking, we have in our industrial civilisation ; and more
especially how precarious mass production proves to be as a basis
for livelihood. It is hardly necessary to point out not only how great
the hardship was for the unemployed themselves, but also for
large numbers of other workers dependent upon their purchases
for a livelihood.
On the other hand, it was announced at the beginning of 1929
that Henry Ford, while continuing the five-day week so far as the
individual workmen were concerned, was operating his works
on a six-day schedule by adding 30,000 employees instead of extending the hours of those already at work. The importance of this
information is that if the experiment proves successful it will show
the possibility of working a factory six days in the week with a
labour force each member of which does not work more than five *.
In view of the world depression it is hardly possible to judge the
results of the experiment yet.
It is interesting to compare the stability of employment or lack
of it shown in the automobile industry with the situation in a
certain number of other industries.
On the railways the percentage of full time employment in 1927
on ten specified railways was 95.7 for clerks, 95.7 for telegraphers,
81.8 for section labourers, 95.1 for machinists, 86.4 for road freight
firemen, and 91.4 for yard brakemen. The figures, however, vary
very considerably according to the railway in question, and it is
interesting to note that for each of the six occupations specified
above the Southern Railroad and the Louisville and Nashville
Railroad show percentages exceeding 90 2.
In the iron and steel industry, in 32 factories for which statistics
were available the average percentage of full time employment
rose from 88.9 in 1923 to 91.2 in 1925, and ranged around 94 during
the subsequent three years. There was also a great increase in the
number of factories with high records of regularity during the period
from the beginning of 1923 to the end of August 1928 3.
In the men's clothing industry stability of employment is found
to be bad, and conditions showed no improvement in the six years
1

New Republic, 9 J a n . 1929.
Monthly Labour Review, Vol. X X V I I , No. 2.
s Ibid., Vol. X X V I I , No. 5.
2

250

UNEMPLOYMENT PROBLEMS IN 1931

1923 to 1928 covered by the investigation. Thus the average
stability for the 64 factories reporting was only 87.9 in 1923 and
in no subsequent year was the percentage as high as t h a t 1 .
The changes in proportions of skilled and unskilled workmen
employed as a result of rationalisation measures is also important,
because, if the proportion of skilled workmen decreases, it may be
very difficult for the displaced men to find fresh employment, even
though industry expands and the total number of workers increases.
An interesting article which touches on this point appeared in the
Annals of the American Academy of Political and Social Science, for
November 1924, Vol. GXVI, No. 205 2. The author points out
that " in no industry has mechanical development been *so rapid
or so far reaching in its effects upon workers as in the automobile
industry. Here is an absolutely new industry, free from all traditional methods, bringing into being a product which . . . lends
itself nicely to almost complete standardisation. " An investigation
was made of the situation in the machine shops and assembling
plants, but the author points out that this is a somewhat limited
use of the term automobile industry, for the so-called antecedent
plants of automobile manufacturing, such as ore mines, coal mines,
coke plants, blast furnaces, open hearths, rolling mills, wire
mills, etc., are becoming more and more an integral part of the
automobile industry. Taking the industry, however, in the narrower
sense, the author found that over a period of eleven years, 1912
to 1923, the machine tenders and the assemblers increased considerably in the percentage of total workers, while the skilled workers
and the common labourers had greatly fallen off. " In one of the
most modern of plants over 200 different kinds of mechanical
devices are found carrying and conveying material and product.
This same plant reported that the percentage of trade skilled
employees had been more than halved during the last ten years.
Here, then, we find skill or long experience at the top and brawn
at the bottom, both greatly lessened. "
It may be noted that the machine tenders are estimated to represent from 25 to 40 per cent, of the working force, the assemblers
from 10 to 15 per cent., the skilled workers from 5 to 10 per cent.,
inspectors and testers about 5 per cent., helpers about 15 per cent.,
and labourers from 10 to 15 per cent.
1
2

Ibid., Vol. XXVIII, No. 1.
"Machinery and its Effect upon the Workers in the Automotive Industry",
by Charles REITELL, of the School of Business Administration, University of
Pittsburg.

EFFECTS OF RATIONALISATION

251

Professor Paul H. Douglas has also investigated the problem of
rationalisation and unemployment recently 1. He considers both
the long-run effect and the short-run effect. With regard to the
former, he says that the displacement of workers from their former
occupations because of technological changes will be greater
(1) the less the quantity demanded of a commodity increases with
a given reduction in price per unit; (2) the less is the proportion
which labour costs form of the total expenditures; (3) the less is
the degree to which a reduction in costs will reduce price; and
(4) the less important is the operation to the whole industry.
In the long run the improved machinery and greater efficiency of
management do not throw workers permanently out of employment
nor create permanent technological unemployment. Instead they
raise the national income and enable the level of earnings and of
individual incomes to rise.
In the short run the situation is quite different. It takes time
for the readjustments to be made, and during this period many
individuals suffer. Thus, even in industries where more workers
will ultimately be employed, there will be a transitional period of
unemployment. It takes time for the lower prices of goods at the
factory to reach the consumer in the form of lower prices of the
commodities which he buys, and a still further period is needed
before the buying public reacts to the reduced price by buying more.
While the contraction of employment takes place fairly quickly,
it may require some time before employment rises again even in
that industry. The process by which the workers are re-absorbed
involves a large number of separate shifts, in which some time is lost
at virtually every stage. Thus, those who have left the clothing
and textile industries have tended to enter other industries, where
they displace other workers, who in turn find work elsewhere,
displacing others in the process. During this intermediate series
of shiftings, time will probably be lost at every stage, and theaggregate of unemployment which results will certainly be considerable. Moreover, the decline in some industries involves changes
of work and of residence which most workers are generally reluctant
to make. Finally, even if labour is ultimately transferred and
absorbed, it is frequently on a job which pays a lower wage, and
which is less satisfactory than the one which is left. It follows,
therefore, that, while a given set of workers may not be permanently
unemployed because of technical progress, there is likely to be a
1
Paul H . D O U G L A S : "Technological U n e m p l o y m e n t " , reprinted from the
American Federationist,
Aug. 1930.

252

UNEMPLOYMENT PROBLEMS IN 1931

transitional period of unemployment of considerable length, and
that more workers will be lower paid at the new jobs they find than
they were at those they left.
In the international sphere a number of interesting resolutions
have been passed on this question. For instance, the International
Federation of Commercial, Clerical and Technical Employees,
at their third Congress held in Dresden on 15-18 September 1928,
adopted a resolution stating that rationalisation and especially
its misuse by profit-seeking private employers is a threat to salaried
employees no less than to manual workers. It menaces them with,
among other things, an increase of unemployment which may only
be temporary but under certain circumstances would be permanent.
The Congress therefore suggested the establishment of public
employment exchanges and State unemployment insurance, adequate compensation for salaried employees or manual workers
who are deprived of employment as a result of rationalisation,
the right of consultation as to the selection of those employees
to be dismissed, legislation for the protection of the older employees
and State measures for training in some other trade or profession
of those employees who lose their work as a result of rationalisation1.
The International Federation of Christian Miners at their Congress
held in Munich on 20-22 September 1928 declared that the advantages of rationalisation should serve not only the interests of capital
but rather the welfare of the community and of the human beings
employed in the mines. Any rationalisation measure which does not
take account of this principle should be rejected as being immoral
and should be resisted. The competent organisations are invited
to protect miners against the harmful physical and moral
consequences which rationalisation may involve for them 2.
Finally, reference should be made to the resolution of the
International Association for Social Progress, which in dealing with
the social consequences of rationalisation at its Vienna Congress
in 1927, expressed the wish that in order to improve or reduce the
unemployment of which rationalisation might be the cause, credit
institutions should supervise the situation attentively in order to
ensure that the purchasing power of consumers should develop
in proportion to the development of production; that the public
authorities should facilitate by all means in their power the
re-employment of workers who may be discharged and obliged
1
2

Cf. Industrial and Labour Information, 19 Nov. 1928.
L'Internationale syndicale chrétienne, Nos. 11-12, 1928.

EFFECTS OF RATIONALISATION

253

either to change their occupation,or to emigrate and that these
unemployed should receive suitable compensation; finally, that
employers should take the initiative in facilitating the application
of these measures x.
To sum up in conclusion, it may be said that rationalisation
is in the first instance a cause of temporary disturbance and
instability in the labour market. In the long run, however, if it is
to deserve the name, it must tend to ensure that the employment
of the available labour will be as regular and complete as possible.
The term " rationalisation " itself implies a tendency to eliminate
all waste, and no waste can be more serious than that resulting from
unemployment. For this reason rationalisation cannot be limited
to any one undertaking, or even any one industry. The only true
rationalisation is that which takes in the control of all economy,
both national and international. But this ideal conception of
rationalisation is still far from being realised. In the meantime it
must be recognised that the various measures taken in its name
during the last few years in the organisation of industry have
resulted in a serious degree of unemployment. It may be admitted
that this unemployment is temporary. The dismissed workers have
many chances of fairly speedy re-engagement, either in their old
occupation or in another, in consequence of the growth in business
produced by technical progress. But the effect of constant new
progress being made is also that new workers are constantly being
dismissed, even before the others have been able to find a new job.
This appears to be what has happened during the past few years
in several countries where rationalisation measures have been
adopted at a very rapid pace.
It is possible that this tendency will continue in the future, and
will become more and more general and distinct. The consequent
unemployment should then be considered to an increasing extent
as a sort of physiological unemployment. By this we mean a sort
of unemployment that must be accepted as normal, since its causes
cannot be abolished without injuring general progress. This
idea affords an additional argument in favour of developing
unemployment insurance for granting fair compensation to the
victims of an evil for which society as a whole is responsible, and
which to some extent is inherent in progress itself.

1

Les Documents du Travail, Oct. 1927.

WAGES AND EMPLOYMENT
By G. D. H. COLE,

Reader in Economics, Oxford University

The classical theory of wages represents the employer as
constantly pushing his willingness to employ labour to a marginal
point determined by its productivity in relation to that of the
other factors of production. The employer, we are told, is always
seeking to combine these factors in the most economical proportions, in order to reduce his costs to the lowest possible point.
Consequently, it appears, the cheaper labour is, the more of it
will be employed, both because, at any given level of production,
more of it will be used and less of other factors, such as land or
machinery, and also because cheaper labour, by lowering total
cost, will enable the employer to lower prices, and so produce and
sell more goods. Low wages, looked at from this standpoint,
appear as an unmixed blessing, and as the means to greater production and therefore to greater wealth.
Every economist, however, is well aware that this argument
cannot be accepted at its face value. It involves at least three
evidently fallacious assumptions. The first of these is that the
productivity of labour bears no relation to the amount of wages
paid to the labourer. The second is that the elasticity of demand
for commodities is unaffected by the level of wages. And the
third is that labour can be treated as a mere aggregate of homogeneous units, and differences of quality between labourer and
labourer simply ignored.
Nor is this, in practice, by any means the total of the fallacies
involved in the familiar crude generalisation that high wages
mean less employment, and less wages more employment. It
may often be true that a particular employer, or group of
employers, could get more trade on profitable terms if they could

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lower wages, without any corresponding action on the part of
their competitors; but it may be quite untrue that a general
lowering of wages, over the whole competitive field, would have
this effect. In this as in many other parts of the economic field
it is fallacious in the extreme to argue directly from the particular
to the general.
What, then, can we say with safety about the relation between
wages and employment ? We had best say nothing at all, until
we have attempted to define our terms more clearly.
WAGES

The dual character of wages is apt, unless we are careful, to
introduce a great deal of confusion into the argument. For
wages are, from the employer's standpoint, a cost, and, from the
workman's, income—a means of life. What matters to the
employer is not the rate of wages that he pays, but the return
which he gets for each shilling, or mark, or franc, or dollar, in
terms of productive result. And, subject to certain reservations,
what matters to the worker is not the rate of wages either, but
the amount of earnings he receives in return for each unit of
energy he is called upon to expend. These reservations are,
however, important. The worker has usually only his labourpower to purchase him the means of life. It will therefore not
profit him to sell a very little of it even at a high rate : he must
sell enough to give him a tolerable living. In other words, it will
not pay the worker to be casually or discontinuously employed,
except at a very high rate of remuneration for each unit of effort
that he expends.
There is a further reservation, which applies to both parties,
but does not affect them quite in the same way. What matters
to the employer, fundamentally, is not the absolute cost of labour
in terms of its productive efficiency, but this cost in relation to the
conditions on which he is able to sell his goods. And what matters
to the workman is not the absolute sum of money which he receives,
but the purchasing power of this money over the particular sorts
of goods and services that he wants to buy. In other words, the
willingness of the employer to pay wages and the willingness of the
workman to work for a given wage are both affected by the level
of prices. But not by the prices of the same things, or in the same
proportions. The workman is interested primarily in the cost
of living, and the employer in the prices of the particular goods he

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257

makes or uses at the particular stage of production or distribution
with which he is particularly concerned. It is often said, by way
of contrast, that the employer is interested chiefly in wholesale,
and the workman in retail, prices. But this is not a fair way of
stating the contrast. Very broadly, we may measure the purchasing power of wages by means of a generalised index number,
purporting to measure the "working-class cost of living"; and this
will work well enough as a rough approximation, though it will
tend to break down if we attempt to apply it to the salaried and
professional classes. But in the case of the general body of employers there can be no even reasonably correct approximation
by means of a single index number. For each group of employers
is affected quite differently according as a movement in "general
prices" results from varying movements in the prices of different
commodities and services.
Moreover, labour is, from the employer's standpoint, only one
among the factors of production; and his willingness to afford
employment is affected by the prices of all these factors. It may
be true enough that if labour becomes relatively dear, and some
other factor of production that can be substituted for it relatively
cheap, there will be a tendency to use more of the latter factor,
and less labour. But this substitution cannot operate over anything
like the whole field of productive costs. An employer cannot
usually make use of less labour and more raw material, or vice
versa; and only within certain limits can he use less labour and
more machinery, or more labour and less machinery. Commonly,
the employment of more of one factor involves the employment
of more of others, even if the relative proportions are changed.
And a fall in the relative price of, say, machinery or raw materials
may, accordingly, often mean the employment of more and not
less labour, even if the price of labour rises absolutely as well as
relatively. Indeed, the total employment of the various factors
of production commonly moves in the same direction, and not in
opposite directions; and this tendency is usually too strong to
be offset by changes in the relative prices of the various factors.
The different meanings of the term "wages" become especially
important as soon as we attempt to look at the question of wages
and employment from any international standpoint. For attempts
to compare the wages of workers in different countries have,
so far, usually been based on one of two principles, neither of
which can yield a fully satisfactory answer. The first method,
adopted in certain calculations published regularly by the Inter17

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UNEMPLOYMENT PROBLEMS IN 1931

national Labour Office, attempts to measure and compare the
purchasing power of wages in different countries. It is a comparison of "real wages", taking account of the difference in the cost
of living, and attempting, by a somewhat rough and ready method,
to allow for the differing standards and composition of working-class
budgets in the'various countries. The second method is to express
the wage-level of each country in terms of gold, or in a dollar
equivalent, without regard to differing price levels or standards
of consumption. The first of these methods regards wages purely
as incomes, and thus comes nearest to the working-class point
of view. The second comes nearer to regarding them, as the
employer does, as costs; but it ignores the differences both in the
efficiency of labour, and in the amount of effort demanded from
the worker in return for his wage.
There is the further difficulty that countries do not compile
their wage-statistics on a uniform basis. Some countries work
on a basis of wage-rates, and others on a basis of earnings; and
there are other difficulties, such as the adoption of hourly, daily
or weekly standards, and the classification of the available figures.
Some countries have separate figures for skilled and less skilled,
and for male and female, workers; while others lump all the
industrial figures together into a general estimated average.
In face of these differences, and of the imperfections of the
statistics themselves, it is exceedingly difficult to institute any
reliable comparisons of wages on an international basis, or to reach
any comparative conclusions concerning the effects of high or
low wages on the international incidence of unemployment. I have
spent a good deal of time in recent years in vain attempts to arrive
at useful results by the comparison of the available figures;
but my only conclusion is that, from this as from many other
points of view, there is urgent need for further progress in getting
countries both to compile and publish fuller statistics of wagerates and earnings, and to adopt a more nearly comparable basis
for their figures.
The fact, however, remains, that, though the figures are capable
of great improvement, no such improvement can possibly yield
a purely statistical measurement of the relative levels of wagescosts in different countries. It may be possible to measure the
amount of gold wages in a ton of crude steel in Germany, Belgium,
France, Great Britain, and the United States; but it will certainly
not be possible to present a clear picture of the relative cost of
a unit of labour-efficiency in general in these countries. Indeed,

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259

the very conception is highly abstract. For the wages-cost of
production depends not only on the efficiency that belongs to the
labourer in relation to his wage, but also on the efficiency of the
utilisation of labour—that is, of the plant and machinery with
which the labourer has to work, of the management that gives
him his orders, of the buying and selling mechanism, and of the
total economic system within which his work is carried on.
It is hardly possible to hope for complete clarity of expression
about so complex a matter; but, as far as in me lies, I shall use
distinct terms for the various senses of the term " wages " that
have been mentioned above. When I am speaking of the amount
for which the labourer has contracted to work for a certain period
of time, or (in certain cases) to perform a certain piece or stint
of work, I shall speak of wage-rates. When I refer to the amount
actually earned by the labourer over a certain period of time,
with or without full employment, I shall speak of wage-earnings,
or simply earnings. When I am dealing with what either of these
will buy, I shall speak of real wage-rates, or real earnings, as the
case may be. When I am discussing wages from the employer's
standpoint, I shall speak of wage-costs, meaning thereby the
actual money cost attributable to labour in any given unit of
production. For the purpose of comparing wages internationally
in terms of purchasing power, it is best to speak of computed cost
of living wages, and when the comparison is on a basis, not of
purchasing power, but of gold equivalents, to speak of gold wages.
But it is not possible to speak with precision of real wage-costs
either nationally or internationally; for no means exist of measuring
either. Nor can we speak of wages per unit of labour productivity ;
for the intrinsic productivity of labour cannot be separated from
the efficiency of plant or management.
Some of this may seem to be an instance of unnecessary splitting
of hairs; but there has been so much talk about an undefined
something called "wages" that I would sooner run the risk of
making too many distinctions than too few.
EMPLOYMENT

Turn now for a moment to the other factor we have to consider.
We are dealing with the relation between " wages " and " employment ". What is employment ? Clearly it cannot be measured
by the number of persons employed; for their employment may
be more or less continuous and intensive. In one country or

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industry employment may be spread over a large number of
persons by means of casual labour or systematic short-time,
whereas in another the same volume of total employment may
be shared out among a far smaller number of individuals, working
full-time or, perhaps, adding overtime to the ordinary working
week. The weekly hours of labour may be longer in one country
or industry than in another. And, what is hardest of all, there
may be very different amounts of labour in an hour's work, according to the intensity with which the labourer is driven, and to
his own habits of industry or the reverse. This intensity of labour,
be it noted, is something different from its productivity, as Marx
long ago realised. A workman is more productive if he produces
more, under given conditions, with less expenditure of effort, but
not if he produces more in an hour by working harder than before.
Or, at all events, the term " productivity " means two quite
different things in these two cases. It is better, therefore, to use
two different terms, and to speak of the productivity of labour
in the first case, and of its intensity in the second.
It follows from what has been said that the amount of employment and unemployment cannot be measured simply by deducting
from the available population the numbers totally unemployed.
Account must be taken of short-time as well—as both Germany
and Great Britain do, in varying degree, in their systems of unemployment insurance. But much discontinuity of employment
escapes measurement, even in these countries, and far more elsewhere. Over the world as a whole, unemployment statistics are
still in their infancy; and in some great countries, such as the
United States, it is not even possible to make an approximately
reliable estimate of the numbers in and out of employment, much
less of the extent of short-time and casual working. Moreover,
such a country as France, which imports labour in prosperous
times, cannot have unemployment statistics which measure the
real variations in its demand for labour. The unemployed of
French industry are in part dispersed over the countries from
which they would have migrated to France if there had been a
better demand for their services.
In these circumstances, the size of the wages-bill, corrected for
any variations in the rates of wages 1, may furnish a better measure
than the numbers out of work or the volume of employment.
Better statistics of total wages paid, collected at more frequent
1

And for longer periods for the migration from one trade to another.

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261

intervals, are therefore greatly to be desired as a means to the
more satisfactory correlation of industrial phenomena.
In the following pages, when I speak of unemployment generally,
I shall mean the total amount of time lost by available workers
owing to the lack of opportunity to work, whether this takes the
form of total or partial unemployment for the individual; and
when I speak of employment, I shall mean the total number of
man-hours worked, whether by a larger or smaller number of
workers. It will not be possible to find a phrase that will denote
the effects of an increased or decreased intensity of labour within
the hour of sixty minutes; but it will be made clear when this
factor is being brought into the account.

Having thus done something to clear the ground, I can now
return to the main problem before us. Our object is to determine,
in general terms, what relation, if any, exists between " wages "
and the volume of employment. Let us begin by looking at the
question from the standpoint of a single manufacturer.
For our hypothetical manufacturer, the question of the worthwhileness of production.—or of more or less production—presents
itself in the shape of a relationship between estimated costs and
expected sale prices. Any reduction in costs makes it worth while
to produce at a lower sale price, or more worth while to produce
at the same sale price. This applies equally to wage-costs and to
any other element in cost, such as a reduction in the prices of
materials, or in the rate of interest payable on bank overdrafts.
Now, a reduction in wage-rates is fairly certain to result, immediately, in a reduction in total cost; for even if the lowered wagerates lead to a fall in the efficiency of labour, this is unlikely, at
least in the short-run, to be equal to the fall in the rate of wages,
unless this rate was exceptionally low before the reduction took
place, or unless it provokes a resentment resulting in deliberate
" ca' canny " by the workers. To the individual employer, then,
a reduction in wage-rates is apt to appear as a ready means to
more, or to more profitable, production.
This, however, does not apply universally. Certain employers
deliberately pay relatively high wage-rates in order either to
secure their pick of the most skilled labour, or to persuade their
workers to stand a pace of work more intense than the ordinary.
Such employers may, or may not, welcome a general fall in wage-

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

rates which will enable them to reduce their wage-costs while
preserving the same relative superiority as before; but they will
not desire to reduce this superiority, for fear of losing their comparative advantage in skill or pace of work. A reduction in wagerates, applicable only to their own workers, will accordingly not
attract them. But such employers, it must be admitted, are still
the exception.
Let us now widen our example to embrace not a single firm,
but the whole of a trade or industry within a given area of collective
bargaining. The body of employers within this area will be likely
to see much the same advantage in a reduction of wage-rates as
we supposed would appeal to a single employer, especially if their
products are in competition with those of other employers outside
the range of the collective bargain in question. Thus, if the
employers in a particular trade in Lancashire, or in Germany,
can reduce their wage-rates in comparison with competing employers in London, or in Great Britain, they are apt to see in this
an advantage which will lead either to more, or to more profitable,
production. For they can hope that the lower wage-rates will not,
in the short-run at least, be offset by decreased productive efficiency; and they can look both to capturing some of their competitors' trade, if they choose to reduce prices, and perhaps to
securing the benefit of an increased total demand, or, even if they
leave prices unchanged, to driving their previous amount of trade
under more profitable conditions.
Some of these expected benefits clearly turn on employers in
other areas of bargaining not being able to make, or not making,
corresponding reductions in wage-rates. If the reductions become
universal, there is no reason to suppose that the trade will be
shared out in different proportions than before, except to the
extent to which wages form, in the different areas, a different
proportion of the total costs of production. But, even if the proportions of trade are unchanged, the total amount may be increased ;
and this will clearly happen if prices are reduced when costs fall,
and the commodity in question is in elastic total demand. The
extent of the gain will then depend on the degree of elasticity in
the total demand, except in so far as wages form differing proportions of total cost in the case of the various producers.
But we must now widen our example still further. We have
been speaking so far solely of the conditions affecting a single
product, and assuming a change in the wage-rates of the industry
producing the product without any corresponding change in other

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263

industries. We have now to see what will happen if the change
in wage-rates becomes general over the whole field of employment,
or at least over a large number of different occupations.
Where wage-rates are reduced in a single industry, the effect
may, or may not, be a reduction in the total wages-bill. This will
depend on the policy pursued by the employers in the industry,
and on the elasticity of demand for the product. Where the employers concerned choose, and are able, to leave prices unchanged,
the result will always be a fall in the total wages-bill; for they
will certainly sell no more than before, and they may sell less in
consequence of the fall in the purchasing power of their own
employees. This latter factor is likely to be relatively unimportant
if the change is confined to a single industry, unless the industry
is largely localised and sells most of its product in the local market.
But clearly more will not be sold; and accordingly the total wagebill is bound to fall.
If, however, prices are reduced, this does not follow. But, normally, the total wage-bill will fall in this case, unless the elasticity
of demand is greater than unity, i.e. unless purchasers are willing
to spend an increased total amount of money in buying the goods
in question at the reduced price. This is not likely to be often
the case, except where trade is gained at the expense of competitors. When this condition applies, a powerful stimulus will be
applied to these competitors to bring down their prices either by
reducing the wage-rates of their workers or by other means, with
the result that the gain secured by the original wage-reduction
will be inherently unstable. Only when the elasticity of total
demand is greater than unity is the total wage-bill likely to be
durably increased. And this, in the case of a single industry, is
likely to be a very rare occurrence.
As soon as we think in terms, not of a single industry, but of
a wide group of industries, or of industry as a whole, a fresh set
of considerations presents itself. For it is no longer possible to
ignore the direct loss of purchasing-power due to the fall in wagerates. This will be offset only if, over the whole range of employment affected, the elasticity of demand proves to be greater than
unity, in face of the fall in individual incomes. In other words,
prices must be reduced enough to persuade those in employment,
though their wage-rates have been reduced, to buy enough more,
not of one commodity, but of all those affected taken together,
to cause enough additional employment to bring the total wagebill up to the old level, after allowance has been made for the

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demand of those brought back into employment by this means.
But this is a most unlikely supposition ; for a general fall of wagerates, even accompanied by a corresponding fall in prices, is likely
only to leave demand at the old level as far as wage-incomes are
concerned.
There remains, of course, the possibility that demand will be
increased by larger purchases out of incomes other than wages.
But, unless prices are reduced, there is no reason to anticipate
any increased demand except from one source*—the profits which
have been increased at the expense of wage-rates. And it is most
unlikely that the increased demand from this source, being merely
the result of a transference of income from wages to profits, will
exceed the loss of demand from the reduction in wage-rates;
while, if prices are reduced, it is again unlikely that, over the
whole range of industry, the increased demand from incomes
other than wages will exceed the reduction in demand from
wage-income, unless the fall in prices is considerable.
May it not, however, be considerable enough to achieve this
result ? Here we meet again the vital distinction between different
sorts of prices. The only change in prices that will affect ultimate
total demand is a fall in retail prices. But the change in wagecosts will react largely on the prices of materials and manufactures
at the wholesale stage. It will doubtless, if it is generally spread,
react on retail prices as well; but all the evidence goes to show
that it will not react upon them as strongly or as swiftly as upon
wholesale prices of materials and manufactures. Accordingly, it
is likely that only a part of the fall in wage-costs will be reflected
in retail prices, and that there will be a time-lag before even this
part is fully so reflected. It is therefore probable that the elasticity of retail demand (upon which other demand ultimately
depends) will be less than unity, and that the total wage-bill will
fall. This is not to say that there will be no increase in employment, but only that the increase will not be enough to make the
total wage-bill as large as before.
It appears to follow that, save in very exceptional circumstances,
a fall in wage-rates over all occupations (or over a wide group of
occupations) in an area will be likely to lead to a reduction in
the total wage-bill, unless the reduction is made in one area and
not in others, so that the area in which wage-rates are reduced
is enabled to capture a large share of its competitors' markets,
and by this means to achieve an elasticity greater than unity in
the demand for its products.

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EMPLOYMENT

265

It is thus not denied that one country, or economic area, can
increase the amount of employment within its borders, under
certain conditions, by bringing about a fall in wage-rates which
does not extend to its competitors. It may even, under exceptionally favourable conditions, increase by this means the total
amount of its wage-bill, provided that the whole reduction in
costs is passed on to the consumer in reduced prices, and not
retained in order to raise profits or eliminate losses. But the
realisation of this condition depends on a number of circumstances
which are by no means safe to reckon upon. The capture of trade
from competitors must be large enough to offset and counteract
a fall in demand which will otherwise, owing to the difference
between wholesale and retail prices, tend to occur in the home
market, and still to leave enough surplus to make the net expansion greater than unity. And success, even so, depends on a passive
acceptance of defeat by the competitor countries or areas, without
any success on their part in either cutting down their own wagerates, or by other methods reducing their prices.
In fact, of course, the cutting down of wage-costs in one area
tends to set up a powerful movement towards their reduction in
others. This is true, whether the reduction is achieved, in either
case, by cutting down wage-rates or by other means. If one area
cuts its wage-rates, other areas will try hard either to follow suit,
or to reduce their costs by improved mechanisation, better selling
methods, or even bounties or subsidies in the last resort, or perhaps
by higher tariffs designed to protect their own home markets and
give improved opportunities for export dumping at their homeconsumers' expense. Commercial gains secured by stealing the trade
of rivals are always precarious ; and they are most precarious of all
when they are secured by reducing wage-rates, both because the
policy is likely to react adversely on the home-market and because,
in the long run, it is likely to lead to inefficient production. While,
therefore, it may, in certain cases, lead immediately to an increased
volume of employment, or even, in very exceptional circumstances,
to an increased total wage-bill, it is far more likely in the long run to
lead to diminished employment as well as to lower earnings. It is,
moreover, from the international standpoint, a most disastrous
policy, in that it is calculated to give rise to a world movement for
lower wage-rates, without any compensation in an increased
world-total of employment.
Throughout the foregoing argument, the question of the effect
of reduced wage-rates upon efficiency has been touched upon only

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UNEMPLOYMENT PROBLEMS IN 1 9 3 1

in an incidental fashion. It is, however, vital. Wage-rates react
upon efficiency in two ways, through their effects upon the workers
and upon the employers.
In the case of the workers, reduced wage-rates need have no
adverse effect, provided that they are accompanied either by a rise
in earnings enough to offset them; or by an equivalent fall in the
prices of all the goods and services which enter into the expenditure
of the workers concerned. But reduced wage-rates will lead to
increased earnings only if they lead to further employment of those
who were previously under-employed. The realisation of this result
clearly depends upon the achievement of a larger demand. It is
exactly the same case as we have been examining already; for we
have defined increased employment to mean either the employment
of additional workers or the fuller employment of the same number
of workers. It may be—in my opinion it is—usually a better thing,
both from the standpoint of the workers and from that of the efficient conduct of industry, to concentrate a given volume of employment upon a limited number of workers rather than to share
it out among a larger number at the cost of systematic underemployment. But this question is not germane to our present
argument; for this concentration, or its opposite, can take place
at any level of wage-rates. The reduction of wage-rates cannot
increase earnings unless it leads to an increase in the volume of
demand; and the conditions under which this can, and cannot,
happen we have examined already.
We are left, then, with the second alternative, of a fall in the
prices of all the goods and services which the worker buys sufficient
to offset to the full the fall in his earnings. But this is most unlikely
to be secured, not only because of the tendency of retail prices
to fall less than wholesale prices, but also because there are important fixed items of working-class expenditure which are not likely
to fall at all (e.g. insurances, and rents under present conditions),
and others likely to fall much less than general commodity prices
(e.g. taxes and rates, and probably a good many services). Even,
then, if a fall in wage-rates produces no considerable immediate
reactions on working-class efficiency, it is likely to react on it in the
long run, by reacting upon the standard of living—unless, of course,
the fall is more than offset by an increase in the social services
provided by the State out of general taxation raised largely from
non-wage incomes.
Under modern conditions, however, the effect upon the employer
is likely to be more direct and disastrous than the effect upon the

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267

worker. For there can be no doubt that, all the world over, high
wage-rates, wherever they have been enforced, have been a most
powerful stimulus to industrial efficiency. The mechanisation
of industry has been pushed furthest, and the total cost of production most reduced, wherever, over a considerable period of time,
employers have been compelled, either by State or trade union
action, or by scarcity of labour, to pay high rates of wages. It
is at least plausible to suggest that, in the United States, high wages
have been the most powerful single factor favourable to intensive
mechanisation, and that, in Great Britain during the nineteenth
century, the pressure of the trade unions for higher wages was an
outstanding cause of the superior efficiency of British over Continental methods of production. It is sometimes suggested that these
relatively high wages were purchased only at the cost of a larger
volume of unemployment than would have existed if wages had
been lower. But there is absolutely no evidence in support of this
view; for there is nothing to show that countries with high wagerates have had more unemployment than countries whose
wage-rates have been lower. I am not asserting dogmatically that
this is not the case; but I do affirm that there is no body of evidence
to show it to be so.
Indeed, on the face of the matter, the opposite view has a good
deal more to support it. In general, countries with high wage-rates
have increased their production and trade most rapidly, and
have shown the greatest capacity to absorb an expanding population.
This is true of Great Britain, of the United States, and of Germany;
and, if Belgium appears to be a case on the other side, the
exceptionally low cost of living in that country must be taken into
account.
Now, a reduction of wage-rates presents itself to the employer
as a means of reducing his costs without using his brains. It
removes a powerful stimulus to improved plant efficiency and
business organisation. It may, in the short run, enable a business
to survive without adapting its methods to the most modern
technical improvements ; and it almost always presents itself in the
first instance to the harassed employer as the easiest way out of
his difficulties. The call to scrap obsolete plant is often unwelcome ;
and improved business organisation often presents itself to the
employer as the painful necessity for learning a new and difficult
technique, or at least for an unwonted use of the faculty of imagination. In modern times, it often demands as well some sacrifice
of the independent isolation of the individual firm; and business

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men, cradled in individualism, are often exceedingly reluctant to
co-operate, or to sink their rivalries, or to abandon a tradition of
secrecy and self-sufficiency that is out of tune with modern industrial
conditions. The alternative of reducing wage-rates is apt, in
practice, to be far less unpleasing to the business mind ; and it has
the additional attraction of offering the more immediate results.
For, as we have seen, reduced wage-rates within a restricted field
will often produce, in the short run, higher profits or more
production, or even both, at the cost of ultimate loss, whereas the
results of business reorganisation and improved plant efficiency take
longer to harvest, though they are far surer in their lasting effects.
There is, accordingly, on all counts a very strong balance of
argument against any attempt to combat unemployment by the
method of reducing wage-rates. The case against doing this is
strongest of all from the international point of view; for a successful
campaign to reduce wage-rates in one country is exceedingly likely,
under modern conditions, to usher in a general campaign for their
reduction in all countries. A far better way of combating unemployment would be an international agreement to raise wage-rates,
and so increase the volume of purchasing power in accordance
with the modern expansion of productive capacity. This, of course,
does not mean that money rates of wages can be, under all conditions, absolutely sacrosanct. Workmen would be even less ready
than employers to agree to a permanent stabilisation of existing
money rates ; and there are also bound to be changes in the relative
levels of wages from trade to trade as methods and fashions change.
There is, moreover, the changing .value of money to be taken
into account. Thus, during recent years, a fall in prices throughout
the world has caused the real value of any given wage-rate, fixed
in terms of money, to appreciate. In some cases, where wage-rates
have been regulated automatically under a sliding-scale based upon
the cost of living, the purchasing power of earnings (in default of
fuller or less full employment), has been only maintained; while
in other cases, especially in trades dependent on export, wage-rates
have sometimes been reduced by more than the cost of living has
fallen. But, over industry as a whole, the effect of falling prices
has usually been to increase the purchasing power of the earnings
payable for a full week's work. In face of increased unemployment
and under-employment, this has often happened without any
increase in the actual real earnings of the individual, or been
accompanied by a fall in these real earnings; and it has certainly
not involved an increase in the aggregate real earnings of the

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269

working class as a whole, or at least in real earnings per head.
It has, however, tended to increase the real costs of production
to the employer, by exacting from him a wage-rate which absorbs
a larger proportion of the total selling price of his goods. He has,
other things being equal, to give a larger quantity of his goods in
return for a given quantity of labour.
Other things, however, are not usually equal ; for, largely under
pressure of these wage-rates, the employer has in most cases been
making considerable efforts to improve his utilisation of the labour
which he employs. He has pushed mechanisation further than ever
before, has sought means of cutting down redundant business
expenses, and has succeeded in increasing the amount of production
quite out of proportion to any increase in the quantity of labour
employed, and often while actually using a greatly diminished
quantity, and so causing what has come to be called "technological
unemployment". When this has occurred, it is to a considerable
extent actually the result of high wage-rates; and it is nonsense to
suggest that the same rate of productivity could have been secured
if wage-rates had been lower. Nor can it be stated at all positively
that there would have been less unemployment; for that would
have depended upon the extent and intensity of competition,
and on the elasticity of demand for the commodities in question.
Failure to make industry more productive might have entailed
so great a loss of trade as to throw quite as many workers out of
employment as are thrown out by the technical developments of
productivity, or caused so great a loss of potential demand as to
have the same effect.
There can be no doubt that in every country since the war the
technical efficiency of production has greatly increased, though
it has not done this at anything like a uniform pace over the world
as a whole. Any difficulties in paying wages at the present rates
{or indeed at higher rates) arise, not from any defect in productive
capacity, but solely from a failure of the world economic system
to provide for the full utilisation of the capacity that exists. Neither
of foodstuffs nor of raw materials nor of manufactures is there any
shortage, or lack of ability to produce more. Rather do men speak
again of over-production, and go short in the midst of a plenty they
cannot control. It is surely manifest that the reduction of wage
rates is a most inappropriate remedy to apply in such a situation as
this ; for it is bound to accentuate the factors making for a limitation of markets and a shortage of total world demand. Any rigidity
introduced into the wage structure by collective bargaining or

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State action has been therefore on the whole a blessing, in as
far as it has helped to save the nations of the world from plunging
into a competitive struggle to capture one another's trade by the
method of reducing wage-rates.
Nevertheless, if and as far as this struggle is allowed to go on,
it may become impossible for a particular country to maintain its
wage-rates without loss of trade and consequent unemployment.
This may be so either because its competitors have reduced their
wage-rates, and so, in the short run at least, lowered their costs,
or because they have, without lowering wage-rates, improved their
relative efficiency. Equally, a particular country may lose trade
to others either because it has raised its wage-rates, and so, in the
short-run, raised its costs, or because it has become relatively
less efficient. Where the loss of trade by a country is due to a fall
in its efficiency, or to an increase in the relative efficiency of its
competitors, there are three courses open to it. It can take steps to
increase its efficiency, and so regain its lost trade. Or it can lower
its wage-rates, to correspond to its lower level of relative efficiency.
Or it can withdraw in part from the world market, and seek to
become more self-contained, and to compensate for what it loses by
securing through an assured home demand the fuller utilisation
of the productive resources and man-power at its disposal. This may
involve the using of these resources in directions in which a given
expenditure of effort yields a less return; but the loss involved in
this may, in certain circumstances, be more than balanced by more
employment. But to pursue this last point further would take me
much too far afield—into the entire question of Free Trade and
Protection, which has an important bearing on the matters under
discussion, but one that considerations of space forbid me to
follow up.
My present point is that it is disastrous for a country to be compelled to lower its wage-rates by pressure of world competition—
disastrous not so much for the country concerned, though its
fate is bad enough, but above all because of the reactions of the
disaster upon world economy as a whole. For if one country
lowers wage-rates in order to capture trade, the countries from
which the trade is taken will be under a strong temptation to lower
their wage-rates in order to get it back. The result, no doubt, will
be cheaper commodities, especially in the free markets of the world.
But it will be also decreased purchasing power of working-class
incomes, because the cost of living will not fall in proportion to the
fall in general commodity prices.

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Let us now pursue the point a little further. Low prices are a
benefit only if they are combined with high production at high
wages, or in other words if they are not balanced by a fall in purchasing power through low wages or unemployment. Low prices
can well be combined with these conditions; but falling prices
cannot, save under quite exceptional conditions. Now, falling prices
may be due to several causes. They may arise from a restriction
in the supply of money and credit, resulting in a disproportion betweenthetransactionsneedingto be financed and the means available
for financing them. Falling prices due to this cause always tend
to cause industrial depression and unemployment, because the
producer's costs always include rigid elements that do not fall
with the prices of the goods he sells.
Secondly, falling prices may be due to competitive selling,
intensified by changes in the relative efficiency of production
between one area and another. Area A reduces its costs through
increased efficiency, and other areas, B, C, D, in which efficiency has
risen less, have then to bring down their prices, or to lose their trade.
Such a situation is obviously, for the time, unfavourable to areas B,
C and D, and likely to cause depression in them in proportion to
their dependence on foreign trade, or exposure to foreign imports. It will continue to affect them until they either bring their
efficiency up to the new level, or cut down their wage-rates, or
adapt their industrial systems to the changed world conditions.
Thirdly, falling prices may be due to competitive selling,
intensified not by changes in efficiency, but by changes in relative
wage-rates without a change in relative efficiency. If area A reduces
its costs not by improving its efficiency, but by reducing its wagerates, areas B, C and D will suffer heavily in the same way as if the
change were due to a change in relative efficiency. And the same
choice of alternatives will be open to them.
Now, of these three causes the first, a change in the monetary
supply, is clearly preventible as soon as the nations of the world
acquire the sense to act together for its prevention. But, as this
matter is now under discussion by the League of Nations, which
has recently produced a useful preliminary report upon the gold
situation, I do not propose to discuss it here, except to say that, as
long as the monetary factor is allowed to remain uncontrolled, it is
clearly impossible to devise any entirely satisfactory means
of adjusting wages, or to deal with full effect with the problem
of wage-rates in relation to unemployment. The control of monetary
fluctuations is, for the immediate future, by far the most important

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of all world economic problems. Until we can prevent prices from
fluctuating as a result of changes in the supply of money and
credit, we shall not be able to advance far along the road of
international regulation of the remaining factors.
The second cause, improved economic efficiency in one area as
against others, is one we can neither hope nor wish to control,
though we may desire to cope with its adverse reactions. For we
obviously want the world's productive efficiency to increase, and we
cannot expect it to increase everywhere at the same time and pace.
What then ought we to do, in order to prevent the adverse reactions
which such an increase is apt to set up upon the areas in which
the advance is less rapid ? The only sound way of dealing with the
situation is to allow incomes, and especially wage-incomes, to
advance as fast as productivity increases, so as to meet increased
efficiency by raising incomes and not by lowering prices. This
involves an expansion of money and credit within the area concerned
sufficient to finance the growing volume of transactions at the
existing level of prices—a condition which can only be assured if the
world devises means of securing an adequate expansion of total
monetary supply.
Even this, however, will not wholly meet the situation; for the
increase of productive efficiency will not be evenly spread over all
commodities produced within the area in question, and even the
stabilisation of the general price level will not carry with it the
stabilisation of any particular price. Particular prices cannot
be stabilised in face of changing relative costs of production as
between commodity and commodity. Accordingly, the stabilisation
of general prices will not prevent those goods whose costs have
fallen more than the average from entering into the world market
at a lowered price, and so competing with the products of countries
whose efficiency has risen less, or not at all. General price stabilisation would, however, greatly mitigate the effects of this competition,
and reduce the problem of relative levels of efficiency to manageable
dimensions.
There remains a further and more serious difficulty. Even if,
in the country in which efficiency has improved, the internal
price level is stabilised, this does not imply stabilisation of the price
of exports. Under modern conditions of production, it often pays,
with an assured home market, to produce additional goods for
export at a comparatively low, run-on price; and this is likely to
apply most of all to those countries which have increased their
«fficiency to the greatest extent. There will therefore be a strong

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273

temptation for such countries, even if their domestic price level is
stabilised, to engage in a form of export "dumping", in the sense
of selling abroad at less than the domestic price. But even this
tendency will operate less if internal prices are stabilised, because
their stabilisation, based on the policy of raising incomes to balance
increased productive efficiency, will tend to raise costs, or rather
to prevent their falling in correspondence with the rise in
productivity.
Within the limits set by a policy of internal price stabilisation,
and by such measures for the prevention of export dumping as the
world may wish and be able to devise, the inconveniences resulting
from a different rate of advance in productive efficiency in different
areas must be accepted as part of the inevitable friction of the
economic system, at any rate until international trade has been
placed firmly on a collective, or Socialist, basis of exchange. But the
disadvantages arising from the third cause of falling prices demand
a more drastic and complete remedy; for in this case there are no
compensatory advantages from the world standpoint. It is bad for
the world as a whole when any country reduces its wage-rates, not
because its productive efficiency has fallen off, but as a means of
capturing trade from its rivals. For this course tends to create the
conditions which lead to diminished purchasing power, and therefore
to under-production and unemployment, in the world as a whole.
Now, it may be taken for granted that there is no important
country in the world in which productive efficiency is actually
falling. Every important country has in recent years been rapidly
increasing its efficiency, though not all have been advancing at the
same pace. There ought therefore to be no need for any reduction
in wage-rates in any country; indeed, they ought to be everywhere
advancing rapidly. Actually, in most countries, real wage-rates
have been rising, even where money wage-rates have fallen; but
the advance is certainly not in most areas as great as the advance
in productivity. Moreover, there is now a strong world movement
towards the reduction of wage-rates to an extent corresponding to
the fall in prices in recent years. What prices (wholesale, or retail,
or prices of manufactured goods, or "general prices" including them
all) are meant is none too clear; but the attempt to bring money
wage-rates down is unfortunately plain enough. It is, however,
evident that it would not pay any country to reduce its level of
money wage-rates if it knew that its competitors would do the same;
for each country thinks of wage reduction as a means of stealing
some of its competitors' trade. Surely, in this situation, the approis

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priate remedy is an international agreement not to reduce money
wage-rates at all, just as the Washington Hours Convention is the
appropriate remedy for attempts by one country to steal a march
on others by working longer hours. There is indeed this difference.
It would be impossible to enforce uniformity of wages, or even a
uniform minimum, in all countries, or even in Europe, whereas
it is quite possible to enforce a uniform maximum working day.
But it should be at least possible to secure a common agreement
among States to countenance no movement designed to bring
about a general reduction in wage-rates in any one country, and to
do their best to prevent any such movement from occurring. And
it should be possible, if this were done, for the International Labour
Organisation to promote among employers and trade unions
international agreements for particular industries stabilising the
existing level of money wage-rates as a minimum for the future,
subject to any general adjustments that might thereafter be made
by consent on an international basis. Goods made in any country
at less than the wage-rates thus approved as minima should be
regarded definitely as sweated goods. It would be necessary to
include in any such conventions or agreements a provision allowing
money wage-rates to be altered, to a uniform extent for all countries,
if the value of money could be shownto have risen faster than the efficiency of production. But, in fact, this would not be likely to occur,
and ardour to secure wage reductions would be greatly diminished
if they were to become operative simultaneously in all the main
competing countries.
Even as I write down this proposal, I am conscious that it may
be regarded as Utopian. If the world cannot even combine to deal
with the gold situation, is it likely to combine to deal with the far
more intricate question of wages ? I confess that at present it is
not; for the world has shown in these last dozen years abundant
evidence of its collective economic insanity. But there is really no
logical objection to the proposal; for the sole reason for wishing to
reduce wage-rates or for regarding their reduction as anything but a
calamity, is the hope of stealing, by means of lowered costs, some
part of a competitor's trade. It is simply not possible to argue that
there is any need to reduce wage-rates because they are too high
to be afforded on the basis of present productive capacity, if only
that capacity can be fully used. And, as we have seen earlier in
this paper, reduction of wage-rates is far more likely to decrease
than to increase the effective utilisation of the productive resources
that are at the world's command.

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275

In short, the idea that high wage-rates and a high level of employment stand in an antithetical relation is as far from the truth
as it is possible for any superficially plausible idea to be. Low
wage-rates may conceivably, in the short-run, add to the amount
of employment within a particular economic area; but they will
always tend to diminish the total amount of employment in the
world as a whole.
There remains, however, another aspect from which it is possible
to approach our problem of the relation between wages and
employment—that of the supply of capital for the development of
production. The familiar argument in this connection runs as
follows. Under the present economic system, new capital for the
development of industry is supplied chiefly out of the savings of the
richer classes, that is, out of profits and interest. Anything which
tends to restrict the amount* of profits therefore tends to restrict
savings and the supply of capital for industry. High wages tend to
leave less for profits out of the selling price of the product, and therefore tend to restrict savings and the supply of capital. Thus the
familiar wages fund theory makes its reappearance in a fresh guise.
It is undoubtedly true that under the present economic system
new capital for the new issue market and the development of
industry is supplied mainly out of profits and interest. This is
the case whether developments are financed out of profits placed
to reserve or by means of new capital issues. But, whereas in the
former case the new capital is drawn solely from profits, in the latter
it is drawn from profits and interest indifferently. The narrowing
of the profit margin therefore reacts most directly on that part of
the accumulation of capital which is derived from reserved profits,
and tends to limit the power of industry to finance itself in this way
more than it limits the power to raise money by means of new
capital issues. High wage-rates do not directly affect the amount of
interest payments—which, in a time of falling prices such as the
present, tend far more than wages to absorb an increasing share
in the national dividend. Interest, indeed, tends under present
conditions to provide an increasing volume of saved money available for reinvestment ; and the drift of this money into new fixed
interest-bearing securities is a marked feature of the present trend of
investment. Under normal conditions, this pressure would result
in a fall in interest-rates; but these tend to be kept high by the
continued existence of large-scale Government borrowing, both for
conversions and for new expenditure and for such exceptional
purposes as the settlement of international debts. These high

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interest-rates naturally make it harder to secure money for riskbearing industrial enterprise; and the difficulty of offering the prospect of a high-profit yield under the existing conditions of industry
tends to hold back the reorganisation of industry and its re-equipment with new capital goods capable of producing at the lowest
level of costs. But this shortage of capital for industrial developments is at least as much due to high interest-rates for fixed interestbearing securities as to any other cause; and it is by no means
evident that a fall in wage-rates would contribute materially
to ease the position. It would do so only if the lowered wage-rates
did actually lead to higher margins of profit; and we have seen
that the prospect of their doing this is by no means so well assured
as it appears on the surface to be.
In fact, there is not at present much evidence of an actual shortage
of capital in relation to the effective demand. Capital for industrial
reorganisation is not in great demand because industry is depressed ;
and it is not at all likely that a fall in wage-rates would either
increase greatly the supply of capital or open up more profitable
opportunities for its use. It would be more likely to perpetuate
obsolescent methods of production and, by decreasing the pressure
on employers to re-equip their works with more up-to-date plant,
to lower the demand for risk-bearing capital rather than increase it.
This is not to say that more capital is not needed. It is; but the
condition of its effective use is the maintenance of a high level of
purchasing power among the members of the community, and
especially among the workers who are the main repositories of the
demand for consumable goods. For capital can be profitably
employed only in providing, in the last resort, for the needs of the
final consumer; and any attempt to increase the supply of capital
at the expense of consumers' demand is therefore initially suspect.
It is true enough that, if all the productive resources of society
were being fully employed, capital could be increased only at the
expense of final consumption, and final consumption only at the
expense of capital. But this antithesis does not hold good of a
society in which the existing productive resources are being underemployed. In such a society there is an unused potential supply
of productive power, which can be directed to the increase of
capital resources so as not to diminish, but actually to augment, the
income devoted to the purchase of consumption goods. In fact,
consumption and saving, so often represented as antithetical, are
likely, in most of the conjunctures of the modern economic system,
to vary together and not inversely. It is, of course, possible for a

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community to spend so much of its income as to make inadequate
provision for the future, just as it is possible for it to try to save too
much, i.e. more than is required to keep pace with the demand for
consumable goods. But it is a fallacy to suppose that high wagerates are likely to lead to the former condition, unless they are
pressed up more rapidly than the advance of productive efficiency
admits.
Moreover, as Mr. J. A. Hobson has pointed out, it is a mistake
to regard saving as being solely a function of the surplus incomes
of the richer classes in society. High wage-incomes not only react
directly on the efficiency of labour, but also lead, through better
nurture and education, to the upbringing of a more efficient new
generation of workers. Nor are the money savings of the workers
negligible, apart from those which are put into education and training, They supply the accumulated resources of the trade unions,
co-operative societies and friendly societies, a large part of the
capital of industrial insurance companies and of that devoted to
housing, and considerable further sums made available for use as
capital through savings banks and thrift institutions of many
kinds. The importance of working-class saving is apt to be underestimated because it does not appear directly in the ordinary
capital market, and is controlled indirectly through the various
agencies which undertake its reinvestment. A society which
relied mainly on the small saver to provide industrial capital in
the narrower sense would doubtless need to adopt different methods
of capital issue from those hitherto in vogue ; but there is no reason
to believe that it would go short of necessary capital for economic
growth.
I conclude, then, in general that there is no substance behind
the opinion that unemployment is largely caused by the maintenance of wage-rates at an uneconomically high level. Such a view is,
indeed, highly paradoxical in view of the events of the past year.
For the crisis through which the world has been passing is, on the
face of the matter, a clear case of the failure of demand to keep pace
with the development of productive power, whereas, if high wages
were at fault, it would be more natural for the demand for
consumers' goods to outrun the supply, and for prices to rise than
to fall. In the world as a whole, there is manifestly need for a larger
amount of income available for spending on consumable commodities, and not for a contraction of consumers' demand. Such a
contraction would assuredly reduce, instead of increasing, the
supply of capital for investment.

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The desire to reduce wage-rates arises from a perverted and
mistaken form of economic nationalism. There are in each country
persons who hope to steal a march on the rest of the world by
reducing wage-rates and costs of production, and so capturing
prosperity at the expense of the adversity of others. They would
do well, however, to remember that more than one can play at such
a game, and that the game is rendered useless if everyone plays
it. Nor should they be allowed for a moment to forget the simple
fact that reduced wage-rates are bound to react adversely upon
the home market, whereas their reaction on the export market is
highly problematical and dependent upon the action of competitors.
Reduction of wage-rates ought therefore to be the last, instead
of the first, resort of any economic system ; and we should be wise,
instead of flying to this way of escape from our difficulties, to
seek out and correct the real causes of world depression, which
are to be found in a shortage of world demand rather than of the
world's power to supply, in a lack of co-operative action designed
to stabilise the price level or economise in the use of gold, in the
rigidity of our industrial structure from the standpoint of business
organisation and mobility of labour, and above all in our failure
to use our brains to good enough purpose in facing squarely the
realities of the post-war economic world. If the world would
only co-operate in order to increase the purchasing power of the
workers, instead of competing to reduce it, there would be far more
hope that depression would be overcome, and productive power
be fully employed on a reasonable basis of mutual international
exchange.

A Note on Relative Trade Wage-Rates

I have discussed in the preceding paper the case for a general
reduction in rates of wages, but not the special case that is put
forward for the reduction of wage-rates in the " sheltered " trades.
It' is, of course, true enough that in recent years the workers in
industries and services sheltered from international competition
have tended to improve their wage-position relatively to the
workers in the exporting industries. Especially, there has been a
marked improvement in the wages of distributive workers and of
those engaged in many of the public utility services. Workers

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279

in the exporting industries, on the other hand, have suffered large
wage reductions during the years of industrial depression. It is
accordingly suggested that if wage-rates in the sheltered occupations were brought down to the unsheltered level, the effect would
be to reduce the cost of living so as to bring it more closely into
conformity with the fall in wholesale prices, and also, by cheapening
finished goods to the consumer, to create more elastic markets
for the producing industries.
It cannot be denied that there is some force in this view. But it
has to be remembered, first, that the workers in such services as
transport and distribution were, in most cases, very poorly paid, in
relation to the main bodies of productive workers, before the war,
and that the absolute level of their wage-rates, though it has risen
more than the average, is still in most cases not high; so that it can
hardly be easy to force these workers back into the old position
of relative inferiority from which they have but lately emerged.
Secondly, we must not forget that wage-rates in the exporting
industries have in many cases been pressed down to a very low
level, defended only on grounds of sheer necessity; so that the
demand that sheltered wages should fall to the unsheltered level
amounts in fact to a demand for a general reduction in wage-rates,
and is open to the objections described in my main paper.
Moreover, no one has suggested how the reduction of sheltered
wage-rates is to be brought about, save as part of a general campaign to reduce wage-rates over the entire field. But such a campaign would almost certainly be more effective in bringing down
wage-rates in the unsheltered than in the sheltered trades, low as
the former rates are already. For the main pressure of competitive
forces is still playing upon the unsheltered trades; and wages in
the sheltered trades have been maintained chiefly because the
bargaining power of the workers is greater in these trades than it
is elsewhere.
Accordingly, an attempt to reduce wage-rates in the sheltered
trades alone would hardly succeed, while an attempt to reduce them
in all trades would probably but exaggerate the existing disparities
between the sheltered and unsheltered groups. The real need is
that wage-rates in the unsheltered occupations should be increased,
rather than that those in the sheltered occupations should be
cut down.
*

•ti

*

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A Note on the Efficiency of Labour

The efficiency of labour in production is the result, we have seen,
of two forces, productivity and intensity. Both these forces are
compound, and depend partly upon the labourer and partly upon
the utilisation of labour by those responsible for its direction.
There can be no doubt that, in recent years, both productivity and
intensity have tended to increase, and to do so in a dual fashion.
Labour has become more productive, both because its quality
has tended to rise with improving education and physique, and
because it has been given the aid of more powerful and efficient
machines, and of better business administration and control.
But at the same time the intensity of labour has tended to increase,
both because the fear of unemployment has induced harder work,
and because modern machinery and factory discipline have tended
to set a hotter pace. Both tendencies have been to some extent offset
by the reduction of working hours; but in spite of this reduction
the average product per man-day has certainly been increasing fast.
This factor must be borne in mind when we are comparing
present-day wage-rates with those of a decade or two decades ago.
Hourly, and even weekly, wages are not being paid for the same
amount of expended effort as before, but often for a larger amount.
If wage-rates rise in proportion to production per man-hour, this
rise takes account of the increase in both productivity and intensity
of effort ; but where a man whose weekly wage in 1914 was x is now
being paid 2x, it must not be inferred that his money remuneration
for effort expended has been doubled. This tendency to increase
the intensity of production is naturally accompanied by a tendency
to throw the older and weaker workers upon the industrial
scrapheap. There is an abnormally large proportion of older men
and women among the unemployed; and what is called "technological unemployment ", due to the increasing mechanisation of
industry, tends to add most of all to the numbers of older workers
discarded from employment in favour of those who will stand
a hotter pace.