excess capacity vs. excess demand, as explained by Winston Churchill

The other day I was reading Winston Churchill’s World War I memoirs, The World Crisis, and in the chapter about his 1917 appointment as Minister of Munitions came across the perfect example of the difference between excess capacity and excess demand.

In the first period of the war – indeed almost to the end of 1915 — the resources of Britain far exceeded any organisation which could employ them. Whatever was needed for the fleets and armies had only to be ordered in good time and on a large enough scale. The chief difficulty was to stretch the mind to a hitherto unimagined size of events. Megalomania was a positive virtue. Indeed, to add a nought, or a couple of noughts, to almost any requisition or plan for producing war supplies would have constituted an act of merit.

Now all was changed. Three years of the struggle had engaged very nearly the whole might of the nation. Munition production of every kind was already upon a gigantic scale. The whole island was an arsenal. The enormous national factories which Mr. Lloyd George had planned were just beginning to function…

Nevertheless the demands of the fighting fronts eagerly and easily engulfed all that could be produced. We were in the presence of requirements at once imperative and apparently insatiable; and now at last our ultimate capacity began to come into view.

The principal limiting factors to munitions production with which I was confronted in the autumn of 1917 were four in number, viz., shipping (tonnage), steel, skilled labour and dollars…

As Walter Kurtz explains over at Pragcap in his piece, The U.S. Economy and Peak Capacity Utilization, our economy is the furthest thing from “at last our ultimate capacity began to come into view.”

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4 Comments on "excess capacity vs. excess demand, as explained by Winston Churchill"

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Guest
3 years 11 months ago

Touche. Outstanding arguments. Keep up the good work.

Admin
3 years 11 months ago

I think about this all the time. Wartime footing brings out people just busting as hard as they can work, all throughout the economy. We are so far away from this right now.

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beowulf
3 years 11 months ago

Yeah, I still think its hilarious that the overclocked WWII economy was so short of labor that a German POW (and surely he wasn’t the only one) could get a Utah drivers license so he could take a delivery job.
http://monetaryrealism.com/this-is-what-full-employment-looks-like/

As for landing a post-Keynesian in Congress, it wouldn’t take long for conspiracy theorists to label it a hoax. :o)

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JKH
3 years 11 months ago

Here’s a project:

Landing a post Keynesian in Congress and returning him safely to earth.

🙂

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