Narayan asserts that the cause of unemployment, which is an aspect of the larger problem of simultaneous overproduction and underconsumption, is the lack of purchasing power of the workers. The lack of purchasing power, in turn, is caused by exploitation. The workers are the producers, but the owners own the products of the workers’ alienated labor. The owners sell the products, and pay the workers who make them whatever the law of supply and demand compels them to pay, keeping the rest of the revenue for themselves. (Marx, following Ricardo and Smith, thought workers would get only enough to subsist on, but the argument does not depend on whether wages are at a subsistence level or higher.) If, Narayan reasons, the producers were also the owners, so that their would be no deduction from their incomes to pay for what Paul Baran called the “permissive acts” performed by owners who charge for allowing the use of the assets they own, then worker purchasing power would be higher. There would be no underconsumption because workers would have more money to buy things. There would be no overproduction because everything that could be produced could be sold.

Narayan’s 1936 account of the cause and cure of simultaneous overproduction and underconsumption can be criticized from Marxian, Keynesian, and Gandhian viewpoints. Of the three, the Gandhian is the most fundamental. It is the one which brings into focus the basic structures of the modern world which are at the root of the causes, and which must be transformed to effect a cure.

From a Marxist viewpoint it must be said, contrary to Narayan, that even when the means of production are owned by the producers, the proceeds from the sale of all the goods produced will not go to wages. Narayan allows for this by specifying that wages would equal only the sum total of consumption goods produced, recognizing that some goods are production goods which cannot directly be consumed, but only indirectly consumed through their role in augmenting future production. The percentage of productive effort devoted to making consumption goods may be rather small if a Stalin or a Nehru is intent on major investments in heavy industry in order to industrialize a backward country rapidly. But whether or not consumption goods production is deliberately restricted to promote saving and investment, wages will not be equivalent to the sum total of consumption goods produced. There are several reasons why the workers will not receive as wages the equivalent of all they produce, even when the capitalists have been dispossessed and the workers are the owners. In 1875, when the German social democrats proposed that workers should be paid the undiminished proceeds of what they produced, Karl Marx explained that before the workers could be paid, there had to, “be deducted:

“First, cover for the replacement of the means of production used up.

“Secondly, additional portion for expansion of production.

“Thirdly, reserve or insurance fund to provide against mis-adventures, disturbances through natural events etc.

“These deductions from the ‘undiminished proceeds of labour’ are an economic necessity, and their magnitude is to be determined by available means and forces, and partly by calculation of probabilities, but they are in no way calculable by equity.”

After the above deductions, there are other, social, deductions:

“First, the general costs of administration not belonging to production……”

“Secondly, that which is destined for the communal satisfaction of needs, such as schools, health services, etc…..”

“Thirdly, funds for those unable to work etc. ….” (2)