370 THE GENERAL THEORY OF EMPLOYMENT bk. vi

in the rate of interest (or profit) as will act as a checkupon Saving , and restore the proper relation betweenproduction and consumption ”. 1 They point out inreply that “if a fall of Profit is to induce people to saveless, it must operate in one of two ways, either byinducing them to spend more or by inducing them toproduce less ”. 2 As regards the former they argue thatwhen profits fall the aggregate income of the com-munity is reduced, and “we cannot suppose that whenthe average rate of incomes is falling, individuals willbe induced to increase their rate of consumption bythe fact that the premium upon thrift is correspondinglydiminished”; whilst as for the second alternative, “it isso far from being our intention to deny that a fall ofprofit, due to over-supply, will check production, thatthe admission of the operation of this check forms thevery centre of our argument ”. 3 Nevertheless, theirtheory failed of completeness, essentially on accountof their having no independent theory of the rate ofinterest; with the result that Mr. Hobson laid too muchemphasis (especially in his later books) on under-con-sumption leading to over-investment, in the sense ofunprofitable investment, instead of explaining that arelatively weak propensity to consume helps to causeunemployment by requiring and not receiving theaccompaniment of a compensating volume of new in-vestment, which, even if it may sometimes occur tem-porarily through errors of optimism, is in generalprevented from happening at all by the prospectiveprofit falling below the standard set by the rate ofinterest.

Since the war there has been a spate of hereticaltheories of under-consumption, of which those ofMajor Douglas are the most famous. The strength ofMajor Douglas ’s advocacy has, of course, largely de-pended on orthodoxy having no valid reply to much

1 Of. cit. p. 117. 2 Op. cit. p. 130.

8 Hobson and Mummery, Physiology of Industry, p. 131.