Prosperity and Depression.pdf

Chap. II The D01II1I-tRrn : Crisis 359Butthis does not by any means invalidate the argument, since it issufficient to assume that, during the course of the upswing,. thesupply becomes less and less elastic, even if it does not start fromthe one extreme or ever fully attain the other.This leads to a very important conclusion. The sensitivenessof the economic system to deflationary shocks will become greatlong before completely full employment has been reached. Thereason is that the existence of a level of unemployment whichmight at first sight appear relatively high can by no means betaken as a safe indication of great elasticity of the supply offactorsof production or of output in general. In other words, the merefact that there is still·much unemployment does not justify theconclusion that an increase in the total demand for goods in termsof money will elicit an increase in output and employmentalmost proportional to the increase in demand coupled with acomparatively slight rise of·prices in general. 1The unemployed workers of a country asThe appearance registered by the statistics at any particular momentOJ cc bottu- are· not a homogeneous reserve army from whichnecks" each industry can draw the .men needed with therequired qualities at the prevailing wage rates.The total of unemployed is made up of unemployables, men ofinferior quality, unskilled and skilled workers. Many of them,especially of the last group, are specialis~d for a certain type ofwork; and all of them are attached to a certain locality and cannotbe easily moved to another part of the country. The existence ofa large total does not in the least preclude the possibility of ashortage of labour in many special fields. When employmentexpands, there is naturally a tendency to re-employ first the bettermen; and the farther the expansion progresses, the greater theobstacle to general advance represented by the scarcity inparticular lines. The same holds· true, mutatis flJutandi.r, for othermeans of production. "Bottle-necks" develop in the structureof industry at various ,points, with the result that, if monetary1 On these and the following considerations, compare L. :M:. Lachmann,U Investment and Cost of Production" in American Economic Review,Vol. 48, September 1938, pages 469-481 passim.