Ill

THE RETURN TO GOLD

2 75

Unemployment, I must repeat, exists becauseemployers have been deprived of profit. Theloss of profit may be due to all sorts of causes.But, short of going over to Communism , thereis no possible means of curing unemploymentexcept by restoring to employers a propermargin of profit. There are two ways of doingthis—by increasing the demand for output,which is the expansionist cure, or by decreasingthe cost of output, which is the contractionistcure. Both of these try to touch the spot.Which of them is to be preferred?

To decrease the cost of output by reducingwages and curtailing Budget services mayindeed increase foreign demand for our goods(unless, which is quite likely, it encourages asimilar policy of contraction abroad), but it willprobably diminish the domestic demand. Theadvantages to employers of a general reductionof wages are, therefore, not so great as they look.Each employer sees the advantage to himself ofa reduction of the wages which he himself pays,and overlooks both the consequences of thereduction of the incomes of his customers andof the reduction of wages which his competitorswill enjoy. Anyway, it would certainly lead tosocial injustice and violent resistance, since itwould greatly benefit some classes of incomeat the expense of others. For these reasons apolicy of contraction sufficiently drastic to doany real good may be quite impracticable.

Yet the objections to the expansionist remedy—the instability of our international position,