The relation of surpluses to income and employment during depression

Prevalent opinion is that business enterprise created employment during the depression by spending accumulated surpluses. Income estimates, which show that income paid out exceeded income produced, have been used to prove this view. But this is a misuse of these income data, which in reality indicate disinvestment, and hence less employment. Negative business savings, or the excess of income paid out over income produced, result from business losses and are not dependent upon accumulated surpluses. The reduction in surplus does not mean that business disbursed to the community a larger income than it received from it. In fact, business hoarding usually accompanies reduced surpluses and negative business savings. The latter reflects capital consumption-the making available for today's consumption of income that was produced yesterday. The accumulation of surpluses may be inimical to the stability of the system as a whole by (1) increasing rigidities and (2) encouraging the payment of unearned dividends. The latter involves disinvestment at the very time when expansion is called for. The multiplier is a concept of dubious worth because additional consumption may be accompanied by either investment or disinvestment. A decline in the rate of investment is accompanied by unemployment because we do not increase consumption (except relatively) when our savings are falling.