Planning and Paying for Full Employment

By Frank D. Graham; Abba P. Lerner | Go to book overview

REALISM AND SPECULATION IN EMPLOYMENT PROGRAMS

By HANS NEISSER

THOSE of the recent employment programs which do not simply trust the forces of the free enterprise system to reach the goal of full employment rely on what may be called "compensatory deficit spending" by the government. The logic underlying this approach is simple. In a modern industrial system which runs at a fairly satisfactory level of operation, a considerable part of current income (wages, salaries, rent, interest on profit) is not spent, i.e., currently devoted to purchasing consumables and services, but saved. However, such saving must remain "abortive," unless accompanied by an equal amount of investment, a term which denotes the net increase in the stock of equipment, building, and commodities.1 Savings which are not accompanied by an equal amount of investment somewhere in the economic system are called "abortive" not only because they are not put to any productive use, but primarily because their non-investment reduces the current amount of income, production, and employment: their effect is deflationary.

New employment and aggregate income move parallel, since the latter is defined as the market value of all productive activities, in other words, as the sum of consumption and investment during the income period. The failure to obtain the possible maximum income and employment in any given period is therefore considered attributable either to the inclination of people to save "too much" or to the failure of investment activities (private investment plus public

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1
This definition of investment is, as one easily sees, much narrower than the popular concept, which includes in investment also the acquisition of securities and real estate. It may be noted further that the concept of income (or current earnings) must also be understood here in the strict sense of economic theory and therefore excludes so-called capital gains and other intake which is not the remuneration for current economic activity, e.g., unemployment compensation. An unemployed person who has no income from investments (in the popular sense) therefore necessarily practices negative saving (saving being defined as the difference between current earnings and current consumption), because he spends and consumes without earning.

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