Imperfection of the Market

A large portion of this essay is concerned with the question of short-time working, a phenomenon of which the recent history of this country’s staple industries supplies depressing but good illustrations. Much expert writing has been devoted to those depressed industries and Royal Commissions and Government Committees have enquired into them. But having accounted for the falling-off in demand the expert finds little more to interest him. If output must decrease, short-time is surely the obvious result; except indeed in so far as productive units are closed down. The principles of symmetry are then taken to indicate that such short-time as is necessary will, in the absence of reasons to the contrary, be divided equally among the various firms. There is generally a complete failure to recognise that the existence of short-time must often be incompatible with a state of perfect competition. Indeed the slump in prices is often itself ascribed to the prevalence of a peculiar and violent kind of competition, brought on by severe depression and despair (apparently quite different from, and much keener than, that kind of competition on which economists rely to secure the tendencies towards normal long-period equilibrium). The crucial question should usually be why prices are not even lower: the expert attempts to explain why they are not higher.