Disguised Unemployment as Potential Source of Capital Formation

The question is where font should the finance be obtained for such projects? How are the workers transferred from agriculture to these projects of capital formation to be Ted? In Nurse’s view, the best solution to this problem is that the surplus labor transferred from agriculture to capital formation projects should be given their own food that they left behind in the farm families. It is assumed that when surplus labor is withdrawn from agriculture there is no diminution in agricultural output. This means that with the families left behind in agriculture there is surplus food which was being consumer by the people who have not been with drawn fro n agriculture. In a nutshell, the work of capital Prior .ion should he carried on by the people transferred from agriculture supported by the very food that they were consuming before when they were Dachau to agriculture.

How thigh source of capital formation can be exploited by the under-developed countries can be explained in this manner. The people who are engaged in agriculture have the capacity to save. The productive workers  those who are fully employed) support those unproductive workers who are only partly employed or those who arc only apparently employed but are actually’ making no contribution (I.e., their marginal productivity is zero). These unproductive workers can be transferred elsewhere from agriculture to productive employments, i.e., to capital formalin projects. The productive workers in agriculture arc really making a saving. They arc producing  extra production they are support supporting the unproductive workers their 0 n kith and kin. But this saving or the productive is going to waste because it is consumed by who can be taken away from agriculture With  reducer agricultural output. In Nurser’s words. If talc productive peasants were to send their muscle descendants their cousins, brothers and nephews them, to work on capital projects and if Collin ed to feed them there, then their virtual saving would become effective saving. The unproductive Cali gumption of surplus farm population would become productive consumption  arum we add it would bee me a source of capital formation.

Thus, we see that the disguised unemployment in agriculture (i.e., surplus labor) can be used for capital formation in under-developed conics and the resources for this purpose can be obtained from the disguised unemployment itself. The Guarnieri population need not lower its Vesicle of consumption. But it is necessary that they should not raise the level of their consumption. Nor is it necessary for these agricultural workers to lower their consumption who have been transferred from agriculture to sonic other productive employment Slut they have also to see that their level of consumption docs not rise. licence. capital flotation out of disguised unemployment is possible without lowering the level of consumption. In this W;I)” the rate of capital formation in the under-developed Keynes advocates raising 01 consumption to increase investment. But the relationship bet ween consumption and investment ti.e.. capital formation) set out above (i.e., Nurser’s view) is different from Keynesian view in this that here consumption and capital formation do  rise at the same time; only capital formation rises and consumption level remains the same. This is a new theory that the Rate of capital formation can be raised without ringing consumption.