to buy one day because they thought to-morrow they would buy cheaper. They still think that, and they only buy what is absolutely necessary. Now, of course, many others cannot afford to buy, and the longer the depression lasts, the larger will be the proportion of these people. The only way in which we can reëstablish industry is to lower the cost of the articles we are selling. There is no other way, and that truth holds good not in Great Britain only but in the whole world. Now comes the question-how can we do it?

There are four possible ways: (1) to lower the overhead expenses in business; (2) to lower the price of raw materials; (3) to lower profits, and (4) to lower the cost of labor. Let us review them briefly.

We can do something when once we get busy, in lowering overhead expenses, though we cannot do it very substantially until we are actually busy. In every large factory there is an enormous overhead outlay, which goes on whether we are working at half speed or full speed or more than full speed. But although we cannot avoid certain parts of it, we can make economies here and there. By more careful planning, we can do with less stock, and turn our capital over more frequently. By careful costing, we can see that waste is eliminated-waste of power, for example, and waste of steam. But when all is said and done, the amount we can save is limited, and in any case such improvements as I have indicated can only come gradually. Then there are raw materials. Supposing we could obtain our raw materials more cheaply, it would be possible for us to sell our product at a lower price, but the raw material of one industry is the finished product of another. Sugar, for instance, is the raw material of the chocolate manufacturer, but it is the finished product of the sugar refiner. Similarly, iron and cotton are the raw materials of many industries, but the finished products of others. Therefore, since, throughout the whole world, producers of raw materials and producers of goods in their final stages of manufacture are equally suffering from the present trade depression, we can find no solution of our present problem by passing it on to some other party in the same danger as ourselves. Of course, we may really effect something positive by

the application of science. If we can make two blades of grass grow where one grew before; or manufacture something by synthetic means which is at present obtained at high cost in some other way, we can get a reduction in the cost of our raw material. But anyone who has undertaken chemical research knows that this is a slow and costly process. We must work at it constantly, for it is very important, but it is no immediate solution of our present problem.

Then there are profits. Can we get very much out of profits? We have to remember that to-day we have a buyers' market, not a sellers' market. The employer cannot determine the price at which he is going to sell. The buyer has the upper hand, and every employer is anxious to sell even at a very narrow margin of profit, or even at no profit at all so long as he can just turn over his capital. While, then, in a time of trade prosperity, like 1919, it was possible to effect a saving by lowering profits, it is impossible to do so to any extent in a time of trade depression such as this.

There is a good deal of careless thinking on the subject of profits and great play is made by a certain class of writers and speakers, of enterprises which are very successful, but little is said of those which fail. It is well that we should remember that profit is not something stolen from the workers, but it represents the rent paid for the hire of capital, and that an adequate supply of capital is essential to industrial prosperity. It must be remembered that no industrial enterprise can continue for long that is not making enough profit to keep it from becoming financially anæmic. Such a condition is opposed to the interests of Labor just as much as of Capital, for it checks all development, and thus restricts the demand for labor. Now capital in itself is a dead thing. Just like plums, or eggs, or anything else, we go into the market and buy it as cheaply as possible. Its price is mainly regulated by supply and demand, and we need have no compunction at all in getting it as cheaply as we can. But we must have capital under any scheme of industry, syndicalism, socialism, or capitalism. The question we have to ask is whether the price paid for it at the present time is excessive. Here we must strike an average. One company

perhaps is making 60 per cent. But in another company the whole of the capital is lost. We must weigh these two facts against one another. Supposing the means of production were nationalized, the nation would have to bear the losses as well as get the profits, and the question is whether after having borne all the losses, a nationalized industry would obtain capital any cheaper than it is obtained to-day. I do not know what the answer is. It would be a very interesting investigation. We must face facts with regard to this as with everything else, and recognize that we can only get capital either by hiring it, in which case we must be prepared to pay at least the lowest reward for which people will save, or else by making industry provide its own capital as it goes along. In either case, the provision of the necessary capital will figure as an item in the cost of production. So we come to our last item-namely, labor cost. Let me make it quite clear that when I refer to labor cost, I am not necessarily referring to wages. What an employer pays for is not so many men, or so many hours of a man's time. It is so much productivity. What the employer has to watch is the total cost of his labor in the manufacture of an article. If we leave the productivity of the workers as it is, without attempting to increase it, we can only get industry going again by bringing down actual wages. There is no way out of the impasse. We cannot sell our goods at present prices. Therefore, we must reduce our price, which involves reducing labor cost; and if the productivity per man remains unaltered, we can only reduce labor cost by lowering wages. But why should we not increase the productivity per unit of labor, and thus increase the output? Take a factory in which there are 5,000 workers, and suppose that the management is just able to sell the result of their labor. If to-morrow they began increasing their output by 20 per cent, and the whole 5,000 were retained, they would manufacture 20 per cent more goods. Then the question would arise: "Can this increased output be absorbed? Can it be sold?" The answer, of course, would depend upon the demand. But if increased productivity, and any other saving that could be effected, enabled the firm to reduce the price of the article sufficiently, the increased demand for it at a lower price might

absorb the whole of the surplus goods. On that hypothesis, of course, the workers would produce more per hour of work, for no higher pay. They would be working, not perhaps harder, but more effectively. But they would all be employed, and though the direct result of the increased output would be to benefit the consumer, we must remember that wage-earners are themselves consumers. If a similar increase in productivity per unit, leading to a lowering of the price were obtained in all industries, the whole of the increased output might be absorbed, and consequently, although the workers might receive the same money wage, they would be buying their goods more cheaply. Thus, their real wages, or their actual purchasing power, would be higher.

Now, in most countries there is a very large margin of unemployed workers, and one of the great problems confronting us is to absorb it. Taking England as a unit, if a concerted effort were made to lower production costs more quickly than in other countries, I think there is very little doubt that we could greatly increase our export trade. We should be able to sell a larger amount of goods, and it is possible that we should absorb our unemployed. In this connection we must remember that about 30 per cent of the value of the goods that leave the factory gates of England are sent abroad, and 70 per cent are consumed at home. That shows how largely we are dependent upon an export trade.

Now, we may rightly ask ourselves if it is just materialistic selfishness to advocate an immediate and enthusiastic effort to reduce production costs in this country, and to calculate that if we do so we shall be able to increase our trade abroad. Do we not win our foreign markets at the expense of other countries?

I would like, therefore, to suggest that in all our industrial policy, no matter what it is, we should apply the following tests to our industrial methods.

(I) Industry should create goods or provide services of such kind and in such ratio as may be beneficial to the community taking that word in the widest sense and not losing sight of the interests of humanity as a whole.

(II) In the process of wealth production, industry should pay

the greatest possible regard to the general welfare of the community and pursue no policy detrimental to it.

(III) Industry should distribute the wealth produced in such a manner as will best serve the highest ends of the community. If our industrial methods fail to pass these three tests, they are wrong.

But I submit that if we maintain free trade, "winning markets" really means rendering the most effective service. In selling manufactured goods more cheaply, we are rendering the world, in that respect, a better service than other nations, and only in so far as we succeed in doing this shall we win foreign markets. There is another point to bear in mind. At the present time, the cost of our manufactured goods is so high that in Australia, in Japan, in South Africa, and in other countries, people say: "We really cannot continue to grow raw materials and exchange them with Great Britain for manufactured goods, because her goods are so dear: we get so little from her in exchange that the transaction is not worth while." So they adopt one of two courses. They either do without the goods, or they begin to manufacture goods themselves. Thus, we are failing to render to the nations the service which we have rendered in the past, namely, to manufacture goods for them so efficiently, so economically, that it pays them to go on producing raw materials where it can be done to the greatest advantage, and then exchanging these raw materials with our manufactured goods. They are obliged to adopt an economically undesirable course and make goods themselves, while we lose our job as manufacturers for the world.

There is, however, one contingency which I must face quite frankly. In spite of the fact that ultimately, the workers can only gain by the increased productivity per unit which enables prices to be lowered, the immediate effect of that increase may be, and probably will be, an increase of unemployment. We cannot refuse to face this possible result of dislocation and of a transitional stage. But I think, in fact I am sure, that it will only be temporary, and it may be brief. The fact is that, speaking industrially, Great Britain and some other countries have had a drunken bout. A drunken man, I believe, passes