Prosperity and Depression.pdf

110 AnalYsis of Theories Part Iefficiency· or a general increase of prices. There are reasons tobelieve that something of this sort happens dqring the later phaseof the upswing of an ordinary business cycle. The decrease inefficiency alone, on the other hand, is probably not of the sameorder ofmagnitude as the rise in general prices.But this involves a quantitative estimate and calls for statisticalinvestigation; and it is not easy to find a statistical measure for thechanges in the efficiency oflabour. The well-established fact that,in a number ofindustries, outputper head ofthe employed labourersrises sharply during the depression and falls during the upswingof the cycle is not a sufficient proof, because it may be entirelydue to the fact that antiquated plants, etc., are put into operationduring the upswing and are closed down during the downswing,and that less efficient workers are engaged during the upswingand discharged during the downswing. In technical parlance,the change ofefficiency which we have in mind must be representedby a shift ofthe productivity curve, while the statistically observedchanges in the output per head ofthe labour employed may be due-and to a certain but unknown degree undoubtedly are duetoa movement along the curve.Capable ojexplaining ageneraldepression.§ 3. HORIZONTAL MALADJUSTMENTSThe distinction between" horizontal" and " vertical" maladjustments in the structure of productionwas explained above. We have seen that,according to the over-investment theory, a verticalmaladjustment is normally the cause of the collapseof the boom; and the exponents of the monetaryform of the over-investment theory especially seek to show thatsuch a vertical maladjustment (of which the outstanding symptomis capital shortage and a sharp rise in the interest rate) does notarise by pure chance, but develops as the natural and necessaryconsequence of the inflationary forces which are at work duringthe upswing, falsifying certain essential price relationships bydistorting the rate ofinterest.Even if one accepts this theory as fundamentally correct, itdoes not follow that horizontal maladjustments are not equally