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The Effects
of Unemploy-
ment: A

Vicious Circle.

The effects of unemployment are too evident to need extensive description. The very fear of unemployment is prejudicial to a worker's happiness and efficiency, while actual unemployment is probably responsible for as much misery as that caused by poor health and disease. The immediate effect of unemployment is obviously a reduced income, and, as savings are usually insufficient to support the family for any length of time, the result, in the absence of other measures, must necessarily be a fall in the standard of life. Further, irregularity of income is in itself an undesirable thing; as shown elsewhere,* a given annual income distributed equally over the year is of greater benefit than the same sum irregularly received.

A reduced standard of life soon reacts on the efficiency of the worker, who may find, when employment is again secured, that his technical skill, and therefore his earning capacity, is considerably diminished. Or he may be compelled to take any unskilled job that comes along, with the result that he never returns to his skilled work, while the already crowded number of unskilled is further swelled. Unsteady employment tends to destroy one's consistency and sense of responsibility.

Insufficient nourishment soon has marked effects on the mother and children. The mother is frequently driven to find employment, and home life suffers in consequence. If she secures work at home, the rates of pay are notoriously low, and she tends thereby to bring down the wages of workers in the factory. The children are taken from school immediately the law permits, and, more often than not, put into some prospectless occupation.

The effects just outlined are cumulative in their incid

* See p. 16.

ence, and when "good times" come along the losses are never really made up. The worker's efficiency may be permanently impaired, and his very character seriously depreciated. The mother's physique may have been weakened, thus discounting the chances of the unborn children. The youth who, through unemployment of his father, was compelled to earn some money at the earliest opportunity, may find himself on the "industrial scrap heap" on reaching the age of manhood. The economic, social and moral effects of unemployment are thus as serious in their ultimate as in their immediate incidence.

It is evident, therefore, that unemployment is not only a result of trade depression, but is itself a factor contributing to further unemployment. The causes and effects of unemployment form a vicious circle. Workers who are discharged or put on short time find their income reduced. Less spending power means that many goods which had been produced in anticipation of the workers' demands are left unsold. Production is in excess, not of what could with advantage be consumed, but of what the workers are now able to demand with their restricted incomes. The output of these articles, therefore, is cut down, and further unemployment is caused. People are unemployed because there is no effective demand for their products; people have no demand for these products because they themselves are unemployed.

CHAPTER XI.

THE PREVENTION AND RELIEF OF

Preventive
Measures.

UNEMPLOYMENT.

In the previous chapter were examined the principal causes of unemployment. Though mere statement of causes does not indicate the cures, it helps to clear one's thoughts on the subject, and prepares the way for reform. Many of the causes enumerated tempt one to give mere counsels of perfection. For example, if war were to be abolished, an abundant cause of unemployment would be removed. In these pages, however, one can consider only the means of coping with unemployment that are actually being applied, and those that might be put into practice at the present time. It is necessary to distinguish between (1) the measures that are designed to prevent unemployment, and (2) those intended to alleviate the distress consequent on unemployment. In the past, comparatively little has been done to prevent unemployment, thought and effort being concentrated upon relief rather than cure. Even now, nearly all social activity relating to unemployment is concerned with remedies that do not go to the source of the evil. It is, of course, easier to allay a pain than to remove the root, and when the distress is actually upon us, it is only natural that alleviative methods should be most in evidence. The time to think of preventing unemployment is not so much in periods of depression as during years of prosperity.

It was shown above that trade appears to move in cycles. The periodical "booms" and "slumps" are Schemes for not confined to particular industries, or, for Steadying Cyclical that matter, to particular countries. The Fluctuations. question has given rise to much inquiry in recent years, and numerous proposals for steadying the fluctuations have been submitted.

There is as much difference of opinion on the cause of cyclical fluctuation as on any subject in economic science. It is generally agreed, however, that no single cause is responsible for the periodical movements, and that, therefore, no single course of action can be entirely successful. To the extent that trade is influenced by meteorological conditions, there is, in the present stage of science, no solution of the problem. But ignorance of the true causes of the trade cycle should not preclude action designed to minimise its effects.

"We cannot prevent the cyclical depression itself, for its causes are beyond our grasp, even beyond our certain knowledge, any more than we can stop the east wind. But because we cannot stop the east wind, there is no reason why it should be allowed to give us a cold! There is such a thing as an overcoat."*

The different types of overcoats " will be considered later. For the moment, one may ask whether there are not some ways of diminishing the intensity of the trade cycle, if only by reducing one or two of the contributory causes. Thus, since the imperfect co-operation of producers leads to over-production and thereby to depression, might not some method be devised to prevent the overlapping of output by competing firms? If firms in competition cannot find a way out of this difficulty, the decision as to the proper output must ultimately rest with a trust or a public authority.

* S. and B. Webb, The Prevention of Destitution, pp. 112-113.

Control of
Credit
Expansion.

In so far as over-production is facilitated by the credit system, steps might be taken to control the issue of credit, not when the depression is imminent, but throughout the whole period. In times of rising prices and trade prosperity, banks might be a little less free with their loans.* This in itself would check the increase of effective money in circulation, and thus restrain the tendency to a rise in prices. Speculative dealings would also be restricted. Thus, when the turn of trade was reached, the "peak" would not be so high, and the number and extent of subsequent failures not so great.

Though one can understand the temptation of bankers to grant credit facilities very freely during the period of booming trade, it is ultimately in their own interests to control the expansion of credit. The recent amalgamations, and the resulting concentration of directive power in the hands of a few large banks, make control of credit issues more practicable than it was formerly. If the bankers, however, do not take these precautions, it may be necessary to impose some form of control from without, either from the central bank or from the State.

The Bank of England is still a power in the money market. By raising the Bank Rate it would help to increase the price of credit, to discourage borrowing, and thus to prevent undue credit inflation. By lowering the Bank Rate, it would tend to check undue deflation. The State itself could intervene in more than one way. It

* Use of a “ Trade Barometer" would here be of great service. For the compilation of a satisfactory indicator of this kind, considerable statistical information, covering all industries over a large number of years, would be essential. Experiments in this direction are already being made; e.g. the "Barometer" compiled jointly by Cambridge University and the London School of Economics.

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