Now this is precisely analogous to the problem of the allocation of our resources for the purpose of peace.  Notwithstanding all the wastes and maladjustments of the economic system, the use of resources to produce one commodity does in general curtail the production of others.  The mere launching of a new business enterprise does no more than the sending of an army to Salonika, to eliminate waste in the remainder of the economic organism.  Unemployment, broadly speaking, is a function not of the magnitude of the normal demand for labor (which affects rather the wage-level), but of fluctuations in the demand for labor; fluctuations from one day to another as at the docks, from one season to another as in the building trades, above all from one period of years to another as in the cycles of general trade boom and depression.  Nothing will diminish unemployment which does not serve to diminish these fluctuations.  A new business will not, as a rule, have any such effect.  If it is launched during a trade depression (a most unusual proceeding), it may temporarily absorb unemployed labor and idle materials.  But when the next boom comes, it will be using, though presumably to greater advantage, labor and materials which, but for it, would have been employed for other purposes.  Meanwhile the causes making for unemployment will be unaffected.  Miscalculations will still be made, the building trades will still become slack in the winter, the casual methods of engaging dock laborers will still continue, trade cycles will still recur, while beneath them, and concealed by them, some industries will expand and others will decay.  Thus, like the armies at Salonika, the new business would in effect divert resources from elsewhere.

This truth needs to be firmly grasped in mind.  It is this that makes it in general unsound policy to subsidize industries, either directly or indirectly, by means of a protective tariff.  It is this, indeed, that supplies the answer to half the economic fallacies that are always current.

The allocation of resources so as to yield the maximum effect was rightly recognized as one of the most vital and difficult of our war-time problems.  To cope with it, the Allied peoples devised one instrument after another, and finally evolved the Supreme Allied Council.  The analogous problem in the economic world of peace time is no less important and far more difficult; but there is nothing to correspond to the Supreme Allied Council.  There we rely upon a co-operation which, as was stressed in Chapter I, is unco-ordinated.  That co-operation has been evolved by the mutual competition of innumerable business concerns, controlled by men largely animated by the motive of pecuniary profit.  But it has not been evolved wholly by such means:  and how far that competition or that motive of profit is essential to its efficiency are questions with which this volume has not been in any way concerned.  The economic laws, the relations between utility, and price and