Now, one who is acquainted with the conditions of an underdeveloped economy, with the earnings of the majority of the working population practically below the minimum subsistence level, will find it hard to see how the prevailing real wage in these economies could be too high. He will surely look askance at Keynes’s, theory of involuntary unemployment, and perhaps on this ground alone’ would throw it overboard. However, let us look at the matter a little more closely.
It should be obvious from a scrutiny of the constituents of Keynesian economics, as enumerated above, that they pertain to an economy in which ‘money’ serves as the instrument of economic operations, in which these operations include borrowing and lending, and in which, further, the ownership of the means of production is divorced from the use of these means, which is to say that labour is divorced from capital. Wherever these conditions prevail, Keynesian technique of analysis applies. And these conditions are the conditions of capitalism in that special sense in which the socialists use the term.
3 It is under capitalism that savers are distinct from investors, that net profit is the motive force behind production and employment, and that wage rate is determined in money as a result of a bargain between two parties—the employers and the employed.
To what extent are these characteristics present in the so-called under-developed economies? Even in India which, in respect of the stage of economic development though not in respect of per capita income happens to be the most advanced among the underdeveloped countries of South-East Asia, it is only over a small field that these conditions hold good.
The organized sector of our economy, with its large scale industries and a fairly well-developed banking system, does no doubt come under the scope of Keynesian economics, for it presents features no less ‘capitalistic’ than those associated with the so-called advanced economies. But the place that this sector occupies in the national economy from the point of view of its contribution to employment (as distinct from its contribution to income) is surely insignificant. The waste due to ‘involuntary unemployment’, if there is any, in this sector is surely of the second order of smalls, when considered in relation to the total working population of the country.
Assuming, for example, that persons involuntarily unemployed constitute 10 per cent of the number actually employed in organized industry, and assuming further that organized industry absorbs 2 per cent of the total working population (these are hypothetical figures, but not far outside the mark), we find that involuntary unemployment turns out to be just 0-2 per cent of the total working population. Reliable unemployment figures for the South Asian countries are not available. However, the following table showing the waste due to unemployment in certain western countries is revealing.
The figures in the table are based on the most generous assumption, namely that the average productivity of the unemployed would have been about the same as those who were actually in work if the unemployed had been absorbed in industry. Yet, barring USA, Great Britain and Germany countries which are definitely the more capitalistic in our sense the waste due to unemployment during a period which includes years of one of the severest depressions known in history is surprisingly small. Keynesian is important for us.