n L position of the workers of my country,
JTT j n ., Britain, to assure themselves that this is so.
Workers Did. . .
r or a very long time now British workers have
not had much chance of escaping from making their livings
by working for an employer in return for wages. But they
have managed to establish the idea of a British standard of
life, which, while lower than the American standard, is yet
also appreciably above bare subsistence. But they have only
established this idea that there is a point below which the
wages of British workers simply must not go, by over a cen-
tury of almost incredibly dogged, persistent and courageous
trade-union and political activity. It is in order to lift wages
above that bare minimum, at which the workings of the
present system would otherwise keep them, that trade-union
and political activity on the part of workers in any capitalist
society is so constant, so intense, and so necessary.
r-r, TJ Accordingly, the above explanation of the
What Happens 44 . f * ' ...
TT j economic laws, as they are called, which
Unless ... _ J
determine the rate of wages, must on no
account be understood as suggesting that wages must go down
to the subsistence level whatever the workers do, and that,
therefore, trade-union and political activity is useless. Just
the opposite. The point is that this explanation shows what
will happen to wages unless the workers take up trade-union
HOW THE PRESENT SYSTEM WORKS
and political action. It shows that there is a perpetual and
very strong tendency, inherent in the very nature of the pres-
ent economic system, driving wages down toward the sub-
sistence level. It is precisely the existence of this tendency
which creates the necessity for vigorous action on the part of
workers to combat it.
Nothing t Do Wages, then, unless we interfere vigorously
ith What Y W ^ t ^ ie wa ^ ^ e s y stem wor ks, will always be
p i kept down to the minimum possible level. Ris-
ing production of wealth will have no ten-
dency, even, to raise them. Let us above all get this fact clear,
for unless we do, we can understand nothing more.
The amount of money in that pay envelope does not depend
on how much the worker produces.* It depends, as we have
seen, on what is the subsistence level as denned above, or on
the capacity or incapacity of the workers, by trade-union and
political activity, to force wages a bit above this level. Neither
of these factors has anything to do with how much the worker
Let us say, for example, that the worker during his forty-
eight hours of work, which he has sold to his employer in
return for his wages, is able, as he easily may be when work-
ing with modern methods of production, to add fifty dollars
to the value of the goods. This will not increase in the slight-
est the cost of producing his forty-eight hours of labor. It will
still be just as cheap as before to keep a working-class family.
And there will still be just as many workers wanting jobs.
* The question of piece rates is discussed below, see p. 40.
HOPE IN AMERICA
Therefore the worker will still be paid his subsistence wage
of fifteen or twenty dollars a week, or as much above as his
bargaining power can get. The essential point is that the fact
that he produces fifty dollars worth of stuff in his week's
labor has nothing to do with how much he is paid. If fifteen
dollars a week will keep him in a condition to do his job and
to rear his family, why should the employer pay more?
D . r> . Stop a moment. We have just seen that the
Piece Rates. * J
level of wages depends on several factors, but
not in the least on how much the worker produces. If he
doubles his production, that is no reason why his wages
should increase by a single penny.
Now that must sound peculiar to many workers. For an
individual worker's wages often appear to depend on how
much he produces. This is so, of course, for every worker who
is paid by piece rates. But we are not talking of the individual
worker's wage, but of the general level of wages. And it is
just as true for those who are paid on piece rates as for those
who are paid by time, that their wages do not, in the last
resort, depend on how much they produce. For though the
amount of money any given worker on piece rates takes home
/ /will depend on the amount he produces, the very piece rates
themselves will have been set by bargaining between the
employers and the workers. And it is on these piece rates that
the level of wages of all the pieceworkers will depend. Thus
the general level of wages paid on a piecework basis is found,
on examination, to depend on the same factors as wages paid
HOW THE PRESENT SYSTEM WORKS
by time, namely, on the subsistence rate for that time and
place, and on the workers' bargaining power.
mi o 7 Well, then, look where we have got to. The
worker is paid, say, twenty dollars a week (I
am taking these figures just for the sake of argument) and
adds fifty dollars to the value of the stuff on which he is
working. What happens to the thirty-dollar difference be-|
tween what the worker is paid in wages and the amount of!
value he has added to the raw material? That thirty dollars!
goes to his employers.
It is quite true that these employers cannot keep all of it
All sorts of other people get a whack. Very often, for ex-
ample, the employers have to pay rent to some landlord who
owns, say, the land on which the factory is built, or the land
under which the mine is worked. Then again, all sorts of
merchants and their dependents, who buy and sell the goods,
and thus, after a fashion, distribute them throughout the
country, are able to get a slice of the thirty dollars. But in
whatever way the thirty-dollar difference, or margin, or
surplus, between what the worker produces and what he
gets, is split up between employers and landlords and mer-
chants, and all the rest of them, this is what the non- workers
This is what we often call profit., but it is really rent,
interest <"^ Mfffi- -ft is everything the worker does not get.
It is the surplus^ over and above what the ninety million
Americans who are dependent on wages and salaries must
have in order to live.
Who Is to Buy the Goods?
j,. We saw that there is a vast difference be-
tween what the workers produce and what will
keep them. And the whole of this difference
goes to the employers and their associates. Moreover it is, if
you think of it, a rapidly growing difference. The amount
necessary to keep the workers in a state fit to do their jobs,
and to rear up families after them, does not alter very much.*
But the amount of wealth which the workers can produce is
continually increasing. New and still newer methods of pro-
duction are perpetually being introduced, all of which in-
crease our powers to produce wealth.
To put it in technical language, the productivity of labor is
constantly rising. One hundred workers do not cost any more
to keep than they did ten years ago; but a hundred workers
can today produce considerably more than they could ten
years ago. And this process has been going on steadily, and
ever more rapidly, not for ten years, but for over a hundred
* As shown above, workers may, if they are well-organized or fortunately
situated, get appreciably more than what will keep them. Some workers today
have succeeded in doing so. But the tendency of the system is to give them no
more than is necessary to keep them in the above sense.
HOPE IN AMERICA
years. (The exact rate of increase has varied very much from
time to time and from place to place. But here are some
examples. The productivity of industrial labor in the U. S. A.
increased between 1922 and 1927 by 3.5 per cent a year;
between 1925 and 1929 in Germany it increased by a total
of 27.5 per cent or 5 per cent a year; between 1924 and 1930
in Britain it increased by 21 per cent, or 3.2 per cent
* Q Now, and this is a key point, a very great
InvestmLt. P** f Ms Vast and ra P idlv g rowin g dif-
ference, or surplus, is reinvested. The em-
ployers and their friends may share it out among themselves
by dividing it up into rent for the landlords, interest for
the investors, fees for the professional men (lawyers, sur-
geons, accountants, etc., etc.) and profits for the direct em-
ployers and then reinvest it in new businesses. Or, and this
is what happens for the most part nowadays, the actual firms
which have made the profits may plough them back into
extensions of their own businesses. In either case this part of
the ever-growing surplus is reinvested. But what does invest-
ment mean? It means making new means of production, build-
ing new factories, constructing new machines, sinking new
mines, building new docks, new blocks of offices, new gigantic
department stores, and all the rest of it. That is where the
main part of the surplus ultimately goes.
What is the effect of creating all these new means of pro-
* League of .Nations, "Course and Phases of the World Economic Depression,**
and Statist, June 21st, 1930. These increases refer to industrial labor. The
productivity of farm labor was increasing also, but less rapidly.
WHO IS TO BUY THE GOODS?
duction? Now the only use to which means of production, be
they factories, mines, or what you will, can be put is to pro-
duce. To produce what? In the last resort to produce "con-
sumers' goods," as the economists call them. To produce, in
plain words, clothes, food, motorcars, houses, furniture all
the kinds of goods we actually use and consume.
So we have come to the conclusion that the system works in
such a way that an ever-mounting mass of new means of
production, each and all capable of turning out a vastly
increased flood of consumers' goods, will be created. And no
sooner have these vast new means of production come into
existence than they must, if their owners are not to go bank-
rupt, begin pouring out their flood of new consumers' goods.
rpr, , n We now come to a question that cannot be
, P * p answered. Who is to buy the goods? Who is to
buy this ever-increasing flood of consumers'
goods? Not the ninety million Americans who live off wages
and salaries. For as we have seen, by and large, and unless
they put some very effective pressure on their employers by
means of trade-union or political action, they will get no
more, on the average, than it is necessary for them to have in
order to enable them to do their jobs properly, and bring up
their families. (For if some of them manage to get more than
this, some get definitely less and are not able to do their jobs
or rear their families properly.) Who then is to buy the ever-
growing flood of consumers' goods coming on to the market?
Who is to buy them? The five million odd Americans who
form the class which owns the means of production will do
their best. They will spend lavishly; but after all, there are
HOPE IN AMERICA
limits to the powers of human consumption. When all is said
and done, no man, no matter how rich he is, has more than
one little stomach, or can sleep in more than one bed. There
are far too few of the rich to carry off the wide stream of
consumers' goods which modern methods of production can,
and do, turn out. Who is to buy them?
,77, / In the last analysis, there is no answer to
There Is no _ . _ J _ .
. this question. It is precisely because our pres-
ent economic system cannot answer this ques-
tion that it is going bankrupt before our eyes. This is the
ultimate cause of our troubles. This is the cause of those
slumps which fling millions of workers out of their jobs,
which ruin millions of lives. This is the ultimate factor which
prevents our economic system from functioning properly.
This is the barrier against which it continually breaks its
After each slump, it is true, there comes a boom. For a time
everything seems to go well. Most of us get our jobs again.
Production and profits leap up. But no sooner have good
times been fairly established than once more the slump comes
back. And it comes back fundamentally because there is no
one to buy the flood of commodities which the increased pro-
duction of good times has thrown on the market.
~i j Within our present economic system there
A is no final answer to this question. It is only
Answer. . . . , . ...
as and when we begin to break out of the con-
fines of our present system that an answer can be found. All
sorts of pseudo-answers to this question have been put for-
WHO IS TO BUY THE GOODS?
ward. Some of them are sound enough as far as they go, but
can be applied with permanent benefit only if we are pre-
pared to begin modifying our system.
There is one answer within the present economic system
which does actually provide a temporary remedy for the dif-
ficulty. But the trouble is that it does so only at the cost of
producing even worse disasters of another kind; to be pre-
cise, it postpones slump, but only by generating war. We
shall consider this disastrous answer in Chapter VIII. Let us
first examine those answers which can be applied only at the
expense of the system.
H' h W ^ e most pl aus ikl e > an d tne l east workable,
solution is often called the "philosophy of
high wages." As you can see, nothing is more natural than to
suggest that all that needs to be done in order to make our
system work properly is that the employers should pay us
all higher wages. For then the wage earners will have enough
to buy everything which they can produce. Especially in
America this idea has had a great appeal. It appeared first
in the great boom period of the nineteen twenties. At that
time it took the form of the suggestion that the employers
themselves should voluntarily pay high wages. It was sug-
gested that it was really in their own interests to do so since
the money they paid out in wages would come back to them
in increased demand for their products. Mr. Henry Ford was
so closely associated with this idea that it came to be known
The first great slump put an end to this dream. It was
HOPE IN AMERICA
found that except very temporarily and in exceptional cases,
it was not in the interests of the employers to pay high wages
and that they certainly did not intend to do so. But now the
idea came up in a new form. Why, it was suggested, should
we not elect a government which will force the employers to
pay us high wages? (And to a certain extent this is just what
Mr. Roosevelt's first administration attempted to do with the
N.R.A.) Many people thought that this would put everything
right without our having to go through the admittedly big and
difficult business of changing the very nature of the economic
system. It was very natural that they should think so. To
anyone who has seen that, at bottom, the system will not work
because the people have not enough money to buy the goods
they produce, the obvious solution seems to be that they
should be given some more money by way of increased wages.
Unfortunately, however, if anything has been proved by
the experience of the post-war history of America in par-
ticular, it is that this simple theory does not work. If you
force employers to raise wages, or even if wages rise because
of temporary, accidental forces sufficiently above subsistence
level to enable the people to buy all the goods they are pro-
ducing, the system jams; the wheels stop going round; and
a slump comes in this way instead of because of insufficient
money in the hands of the people.
m j The explanation is not far to seek. The
W ages and , i .1 , n i
p r trouble about the philosophy of high wages
is that high wages cut into profits. But, you
will object, you have just said that profits, or rather rent,
interest and profit taken together, are gigantic. Surely the
WHO IS TO BUY THE GOODS?
employers and their associates can afford to give us a little
of their huge surplus; surely it will actually be in their own
interest to do so, if this is the only way that they can keep
the system running?
Yes, profits are gigantic, but then they have to be. For
capital is gigantic, too. The total amount of capital in the
hands of the employing class now runs into tens of thousands
of millions. Don't you see that a gigantic amount of profit is
absolutely necessary in order to pay even quite a low rate of
profit on this gigantic accumulation of capital?
Moreover, as we have seen, the system will work only if
the capitalists are continually reinvesting their profits in new
enterprises of every kind. But they will not do that unless the
general rate of profit being earned is high enough to promise
them an attractive return. Thus it is not open to the system to
get rid of its gigantic surplus by giving it away to the workers
by means of high wages. The very nature of capitalism is
such that it will work only if it disposes of its surplus, not by
giving it away, but in some profitable way. For only if there
is a profitable end to it will the whole process of accumula-
tion and reinvestment be carried on.
This is the objection to "the philosophy of high wages."
Wages sufficiently high to solve the problem of who is to
buy the goods, inevitably cut into the rate of profit and stall
the system that way. Therefore the system cannot get out of
its trouble in this simple attractive way.
Mr. Roosevelt's Answer
H S th we ma y convenent ta e U P t
p , , whole question of the present attempt of the
American people, through their government,
to solve this question of who is to buy the goods. For the eco-
nomic policy of the two Roosevelt administrations has
amounted to nothing else than an attempt to find a practical
answer to this question.
Almost all of Mr. Roosevelt's speeches on economic sub-
jects show that he is acutely aware that this is the great con-
temporary question which has to be answered somehow or
other. He is always dwelling on the necessity of an adequate
distribution of purchasing power, if the wheels of American
industry are to be kept turning and the American people are
to get jobs.
But if Mr. Roosevelt has always been acutely aware of the
problem, I do not think that it can be claimed, or indeed that
he would himself claim, that he has always been so fully
aware of what the solution was. And small blame to him for
that. For it is a problem which none of the Western European
governments has even attempted to solve. It is an immense
HOPE IN AMERICA
advance that the government of a great community has even
set out upon the attempt to solve this basic problem.
H H d M ^ must a d m it> however, that at the begin-
ning of the first Roosevelt administration,
Guessing. . .
back in 1933, the economic policy which the
President and his associates produced appeared to me con-
fused. I must admit that, as an outside observer, I was aston-
ished by the welter of economic devices which Mr. Roosevelt
applied. And I do not think that the first stage of his policy
confused me alone ; it seems to have confused most Americans
also; indeed I am not at all sure that it did not confuse its
I could not even make out whether Mr. Roosevelt's policy
pointed in a progressive direction or not. Some of Mr. Roose-
velt's measures seemed to point in one direction, some in the
other; and some in both directions at once!
For example, the N.R.A. Codes no doubt tended to raise
wages in terms of money ; but in order to avert the obviously
catastrophic effect on profits which, as we saw above, a statu-
tory raising of wages must have, another side of the Codes
was designed to raise prices and so undo the effect of raising
wages. Indeed, I think that the main lesson of the whole
N.R.A. scheme, which, as I understand it, really ceased to
function even before it was outlawed by the Supreme Court,
was to demonstrate conclusively that there is no way out by a
direct attempt to raise wages; and this for the reasons which
we have noted above. Others of Mr. Roosevelt's measures,
such as a wider distribution of relief, were unquestionably
MR. ROOSEVELT'S ANSWER
progressive. Others again, such as his various farm schemes,
did good in respect to the money they distributed, but seemed
to me reactionary in that they were designed to destroy food-
stuffs and to limit their further production when millions of
American citizens were underfed. Yet other of his schemes
were of the public works type, and some of them, such as the
T.V.A., clearly had a progressive character.
O t i Ch ^ think, however, that, as the years have
D 7. gone by, a definite and coherent economic
a rolicy. i . , , P i i
policy has emerged out of these somewhat
chaotic beginnings. It is now possible to see that the effective
part of the economic policy of the two Roosevelt administra-
tions has simply been to distribute many billions of dollars of
purchasing power to the mass of the population, as an addi-
tion, or supplement, to what they receive by way of wages.
(I am now speaking, let it be understood, of the strictly eco-
nomic measures of the administration; I am leaving aside
such important and valuable measures as the Wagner Act, by
which American trade-unionism has undoubtedly been helped
more than by any other single Act of Congress, and for which
the American wage earners must always be grateful to the
Roosevelt administration.) If you examine the real economic
effect of the works schemes, the relief schemes, the public
works schemes, the various farm schemes, the various
schemes for making loans to industries and to local author-
ities, and even such measures as the veterans' bonus, you will
see that what they all really amount to is the giving of a
great deal of money to various sections of the population.
HOPE IN AMERICA
/v _. D 7 Now I submit to the readers of this book
l\ot a bad . /
P I' E'th * to & lve mone y to t ' ie mass f the Ameri-
can people is not at all a bad economic policy
either. It is not at all a bad policy, because, as we have seen,
the essential thing that is wrong with the American economic
system is that it fails to distribute enough money to the
American people to enable them to buy the goods and ser-
vices which they would produce if they were all in employ-
ment. Hence, if what is wrong is that people have not enough
money, the simple, practical thing to do seems to be to give
them some! And, in so far as Mr. Roosevelt has done this,
and he has done it considerably more than any other gov-
ernment of any capitalist state has done, he has deserved
the support which he has had from the mass of the American
For what is wrong with their condition, I repeat, is not
merely that they have not enough money in the ordinary
sense that we all have not enough money in the sense that
we would all like some more money. No, the American people
do not have enough money in the precise and definite sense
that they have not enough money to provide a sufficient de-
mand for the final products of the American productive
system to keep that system going, and so to provide themselves
with jobs. What, therefore, could be simpler or sounder, as
far as it goes, than to give them the money, which is all they
lack in order to set themselves to work?
If we follow up in some little detail the inevitable conse-
quences which flow from Mr. Roosevelt's having attempted
MR. ROOSEVELT'S ANSWER
to do this simple, sensible and obvious thing, we shall see
the advantages and the limitations of his policy, and what
ought to be the attitude of the American people toward it.
rpi . 7 The first thing that we shall see is that the
I* method of distributing money to the mass of
^, r, ? the population directly by the Government
gets over the difficulty that if you try to do
the same thing by raising wages you will so eat into profits
as to bring the system to a standstill. Or at any rate it may
get over this difficulty. That will depend both on where the
money comes from and how it is distributed.
This brings us straight to the question which everybody
naturally asks when first confronted with such a policy as
this. They naturally ask at once: "But where is the money
to come from?" Well, let us see where in fact the billions
of dollars which Mr. Roosevelt has already distributed have
come from. They have come, as I understand, from three
rr . 7 1. They have come from increased taxation
1 axing the . r .
R . , of the rich. Now the increased taxation of the
rich which Mr. Roosevelt's government has