Tom Goldstein, "Economic Manipulation:
J.A. Hobson's Theory on the
Role of Economic and Other Forces in Imperialism"

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down towards a point where the weaker competitors are forced to close down, because they cannot sell their goods at a price which covers the true cost of production."9 This has the effect of concentrating an industry in the hands of a few financiers, throwing "an enormous quantity of wealth into the hands of a small number of captains of industry."10

A state of under-consumption ensues, which according to Hobson is caused in part by firms trying to compensate for the glut of goods from overproduction, but mainly results from the excessively low wages paid to industrial workers. Hobson argues that the investors lower their workers' wages in order to increase their own profits, but doing so means that the workers have less money to spend on goods. Hobson tells us, "Wages are based upon the cost of living, and not upon efficiency of labour."11 Therefore even though more goods are being produced, the workers' wages are not increasing at the same rate so as to consume all of the goods produced. Investors squeeze wages in order to increase their own profits but in doing so they end up reinforcing the state of over-production and under-consumption.

The financiers, with reduced competition, reap handsome profits, leaving them with plenty of money to invest. Yet, despite the wealth of these investors, they will never spend (i.e., consume) enough to compensate for the over-production of goods and thus correct the under-consumption of the market. Indeed, Hobson tells us, "The rich will never be so ingenious as to spend enough to prevent over-production."12 These investors cannot spend all of their wealth at home, so they begin saving. Because there is so much money, though, banks do not have to offer high, competitive interest rates. Driven by


9. Ibid., 75.
10. Ibid., 74.
11. Ibid., 83.
12. Ibid., 84.
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