Public Expenditure and the Demand for Labour

Abstract

THE policy of the regularisation of the demand for labour by advancement or retardation of public works was, I believe, originally proposed in the Minority Report of the Royal Commission on the Poor Law in 1909.2 It was there suggested that in this country the Government should treat a portion of the annual public expenditure upon buildings, stores, etc., to a total amount of about ?4,000,000 a year, as reserved exclusively or mainly for years of trade depression; that this programme of expenditure, amounting in the course of a decade to ?40,000,000, should be concentrated in those years when the ascertained number of unemployed exceeded a certain specified limit; and that the necessary funds should be provided by loan. The underlying principle is that the Government should add to the effective demand for labour at the time when the effective demand of private traders falls off. The signatories of the Report took the economic soundness of the principle for granted, and did not argue it. But they found a supporter in Professor Pigou, and if their principles have gained very general acceptance, that is largely due to his high authority. Professor Pigou first dealt with the question in his Wealth and Welfare in i9i2. There he defended the proposal against the objection that the quantity of resources devoted to the purchase of labour at any time is rigidly determined, and that any resources which the State or private persons turn to the purchase of extra labour at one point are necessarily taken away from the purchase of labour at some other point. The issue could, he said, be put most clearly if we pass behind the distorting veil of money ; and he proceeded to show that the resources which come into the hands of the people in control of industry are devoted to three purposes; first, their own consumption; secondly, storage; and thirdly, the purchase of labour. He then contended that, if resources were borrowed