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3 November 2020

From the NS archive: A programme for unemployment

4 February 1933: Why building houses would build jobs.

By John Maynard Keynes

In 1933, John Maynard Keynes, the economist, Bloomsburyite and supporter of the “New Statesman and Nation” (as the magazine was then called), wrote this essay about the link between unemployment and housing. Housing in the 1930s was at too low a level and unemployment was too high. The solution to both, he said, was to make them work in conjunction and build more houses – something the government was reluctant to put into practice. The time was right, Keynes said: building costs and interest rates had fallen by as much as 30 per cent over the past five years, a Treasury guarantee could allow building societies and municipalities to apply for loans for large-scale building projects, unemployment would dip, a large number of houses for rent would be built, amenities would be laid on, money would return to the Treasury through the resulting increase in tax revenues and consumer spending. All it needed, said Keynes, was the will to put such a scheme into action.

***

In last week’s New Statesman and Nation Sir Ernest Simon made out an overwhelming case against the government’s housing policy. It is a posthumous child, I suppose, of the panic of 18 months ago. With the national mood as it was then, this policy might have found supporters. Today few could be found to defend it. It will show a sad inertia on the part of the House of Commons if the changes to the Bill for which Sir Ernest Simon asks are not made. There are today 400,000 operatives out of work in the building and construction industries, costing the dole some £20m a year. There are tens of thousands of slum dwellers living, for reasons beyond their own control, in conditions which disgrace the community. The fall in the rate of interest and the fall in building costs have combined in recent months to render it possible for the first time to make a real inroad on the slum problem on the basis of existing legislation. To choose this moment to introduce what Sir Ernest truthfully calls an Anti-Housing Bill is to close one’s mind to generosity, to good sense, and even to the breath of the popular mood.

The Ministry of Health is indeed in danger of earning a most unenviable reputation. Along with the Foreign Office, it is the outstanding failure of the National Government – the subject of half-hearted and unconvinced apology by other members and supporters of the government. For whilst the Anti-Housing bill is, as yet, only a project, the famous Anti-Employment memorandum to local authorities is nearly 18 months old. The amount of potential employment which it has nipped in the bud cannot, of course, be accurately computed. The Ministry of Health themselves may not appreciate the amount of devastation they have caused, since they know only the amount of border-line cases reaching them, in spite of the Circular, which they have turned down. But the most thorough investigation which has been made, namely, by the Building Industries National Council, suggests that the curtailment by local authorities has been of the order of £30m. If so, then, reckoning that every man put directly into employment leads to the secondary employment of at least another man (and there is strong evidence that this calculation is not far out), the Ministry of Health have put some 250,000 men out of work, and have thus offset a good proportion of the benefits to employment resulting from the tariffs and the departure from gold. Incidentally, they have made a substantial contribution towards unbalancing the Budget through the increased cost of the dole and the loss of taxable income and profits throughout industry.

[see also: What would Keynes do?]

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And they have done this, so to speak, on purpose. For the bulk of the works with which they have interfered have been the normal developments of English local government, usually and properly financed by loans, and capable, moreover, of being financed in considerable part by current sinking funds on past improvements without increasing net indebtedness. Indeed, what is happening is scarcely credible. For local authorities have been ordered to postpone capital works, which are admitted to be necessary sooner or later, if they are not urgent in the sense that they are reasonably capable of postponement; and there are even cases of roads urgently required which have been abandoned half-finished – though here it is the decision to suspend loans by the Road Fund which is to blame. What is Sir Hilton Young waiting for? When employment is back to normal and the building trades are busy, is that the moment he will choose for letting local authorities off the leash?

Now it may be that there are those in Whitehall who genuinely believe that “in these hard times” the country is too poor to afford employment – forgetting that our income is really another name for what we produce when we are employed. It may be that they believe that we can save up our economies against a later day, and that the surplus plant and unemployed men, which are simply the other facet of “economy”, are storing up reserves of energy and enthusiasm which will enable them to work treble time “when finance permits”. Yet savings are, of course, the one thing which will not “keep”. If they are not used in capital developments pari passu, they disappear forever in doles, deficits and business losses.

But let us take the other hypothesis, which I am sure holds true of most of the members of the government, of most of Whitehall, of most of the members of parliament, as it does of most thinking and feeling men. Let us suppose that the authorities are passionately anxious to reduce unemployment and ready to run risks in supporting any plausible measures. Let us suppose, further, that they are large-minded, imaginative, bold, enthusiastic, constructive, energetic. Is it absurd to suppose such things? Why should it be? At any rate, let us suppose them. What then could we do?

In The New Statesman and Nation of 24 December, I discussed the international field of action, with particular reference to the possibilities of the World Economic Conference. But limiting ourselves to the domestic field, to what is immediately possible independently of improvements outside, and to proposals which probably raise the minimum of controversy, there seem to me to be four matters lying directly to our hands.

The first is to adopt with energy Sir Ernest Simon’s proposals for dealing with the slums.

The second is for the Ministry of Health to withdraw their notorious memorandum, and, in place of it, to inform local authorities that now is the time, having regard to low rates of interest and to low building costs, for them to press on with their normal programmes of development, particularly those which it would be usual and proper to finance out of loans, such as municipal buildings, housing and town-planning, schools, sewerage, gas, water, electricity, and transport; and that the Ministry is prepared to work overtime giving prompt approval to loans for all useful and desirable things.

The third is to organise public opinion in favour of individual spending of a capital or semi-capital character, such as repairs and improvements to our houses and to their furnishing and equipment, supplying ourselves, to the extent of our means, with the conveniences and amenities which the modern world offers and which once enjoyed are never willingly relinquished. Why does not the Post Office offer to install telephones, free of rent for one quarter, “on approval” in all houses of more than a given rateable value? Why do not the gas and electricity authorities pipe and wire every house in return for a small annual rental and lend heating apparatus for a three months’ trial? Why should not the Inland Revenue allow temporarily an extra depreciation allowance in respect of repairs and renewals, whether private or industrial, undertaken in excess of the normal allowance, within the next twelve months? These are samples of many suggestions which could be made. If we seriously desire to break the vicious circle and to start the ball of progress rolling again, why do we not do something?

[see also: From the NS archive: Reconstructing Britain]

I understand that the Rotarian Societies throughout the country are initiating widespread propaganda for private effort along these lines. As an inhabitant of Bloomsbury, for example, I have received a circular from the Mayor of St Pancras urging a united effort to expand private expenditure. These are right ideas, and those who are advocating them are showing a rightly directed public spirit.

Nevertheless, private efforts of this kind will not prove adequate by themselves. Individual incomes are so contracted today that many individuals, however great their goodwill, cannot do much. We must first increase individual incomes by setting on foot large-scale capital developments which are capable of causing the stagnant savings of the community to circulate again. I come, therefore, to the fourth expedient, which might, if it were added to the other three, restore to us a large measure of prosperity.

If we look round to discover the outstanding capital requirement of today, it is obvious, beyond controversy, what it is – the provision of houses available to be let at modest rentals. Sir Enoch Hill, who is in an excellent position to judge, declared a short time ago that there is today a deficiency of at least one million houses. The great work done by the building societies in recent years is meeting the demand for houses to be owned by the occupiers. There is no means as yet of dealing with the problem of the slums except along the lines urged by Sir Ernest Simon. Between these two extremes there lies an urgent and unsatisfied demand which is not being adequately met by the existing instrumentalities.

Yet time and opportunity have at last joined hands to make this possible. Building costs have fallen from 20 to 30 per cent in the last five years. At the same time the rate of interest has also fallen by a third. The total result is that, if full advantage is taken of the gilt-edged rate of interest, houses can now be built to let at about two-thirds of the rental which it would have been necessary to charge previously. Thus, according to expert calculations, houses can be built today, provided the finance is available at present gilt-edged rates for the period during which the cost is being amortised, to let at 8/- to 9/- a week (including repairs and amortisation, but excluding rates), at which figure there is an insatiable demand.

A practical scheme might take some such form as the following. There might be set up a National Housing Board on lines already proposed by Sir Raymond Unwin, authorised to borrow, under Treasury guarantee, up to, say, £100m in the first instance, though a considerable proportion of this could probably be handled (eg, through the municipalities and the building societies) without a public issue. This Board would enter into arrangements with the operatives and with the building industry for the stabilisation of prices over a period covering the initial programme. It would then proceed to make its funds available for the building of dwelling houses, both directly and through all suitable existing organisations. In particular, it should work in close cooperation with the building societies, they providing in the main the bridge between the Board and private individuals, the guarantee of the Board making possible the provision through building societies of houses to be let. It should also function through the housing committees of municipal corporations and other local authorities, providing the means of carrying through the planned developments of these bodies. It would aid the finance of existing town-planning organisations, such as Welwyn. It should also finance and supervise new local housing corporations for the large-scale development of new town-planned areas. In particular, it might make a beginning with the organised rebuilding of London on the south side of the river. The project of a Board of this character is already receiving authoritative support, and was unanimously approved by a largely attended meeting of housing authorities last Tuesday summoned by the Royal Institute of British Architects under the Chairmanship of Sir Austen Chamberlain.

Would such a body need a subsidy, beyond the Treasury guarantee for its loans? I do not see why it should. But it would be advisable that a reserve fund should be established against contingencies and as a protection against the Treasury guarantee becoming actually operative. For this purpose, a small contribution from the Unemployment Insurance Fund, on the lines proposed by Mr Brebner in his letter to The New Statesman and Nation last week, deserves consideration. That is to say, the Unemployment Insurance Fund would make a small overall percentage contribution to the expenditure of the National Housing Board, calculated to represent a proportion of the dole which would have been payable otherwise to the men brought directly into employment by the Housing Board’s activities.  

Read more from the NS archive here. A selection of pieces spanning the New Statesman’s history has recently been published as Statesmanship (Weidenfeld & Nicolson)

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