Prosperity and Depression.pdf

Chap. 4Changes in Cost as Cause of Crisesmone~ry theory a fa HAWTREY which explains the breakdownby an act ofhoarding or credit-restriction, the rise in interest ratesadds something to the explanation of the business cycle; but it isnot very helpful if regarded only as contributing to the increaseof the money cost of production.A new point, not so far mentioned in our analysis,MOfJements is the argument that efficiency tends to fall duringin efliciency. the upswing, because waste crops up everywhere(and efficiency tends to increase .during the down-..swing because of the elimination of waste). Since money wagesgenerally rise during the upswing (and fall during the downswing),this is equivalent to saying that efficiency wages· rise faster thanmoney wages during the upswing (and fall faster during thedownswing). This is probably a factor which affects all branchesand all stages o~ production alike; or, ifit does not, the differencesare due to accidental circumstances, and there is no tendency forhigher and lower stages-i.e., the production of durable c~pitalgoods and of perishable consumers' goods-to be affected in adifferent degree.This tendency of efficiency wages to rise during the upswingthereader will easily make the necessary adjustments for the applicationofthe argument to the downswing-is surely a factor whichmust .unfavourably affect the whole situation. Other thingsbeing equal, the breakdown would at least be postponed if thislowering of efficiency could be avoided. But the avoidance ofwaste and the maintenance ofthe level ofefficiency attained duringthe depression would not in themselves mean the avoidance ofvertical and horizontal maladjustments in the structure of production.If, on. the other hand, there is no horizontal or verticalmisdirection ofinvestments, the influence ofan all-round loweringof efficiency may be compensated by an increase in prices or areduction of money wages.It cannot, however, be denied that, theoretically, a heavy fallin efficiency, unaccompanied by a corresponding fall in moneywages and not compensated by a rise in prices, may produce ageneral depression.The same effect may per~ps be brought about by a rise in moneywages, induced from the supply side, unaccompanied by a rise in