Prosperity and Depression.pdf

Nature and Causes of the CyclePart IIare concerned is a more modest one, although it would seem thatits solution is an indispensable preliminary to any answer on thequestions of policy.The problem is this. Is the fall in money wages which weobserve during any major depression to be regarded as a factorwhich tends to put an end to the contraction? Would depressionbe alleviated and revival hastened if money wages were moreflexible and fell more rapidly so long as unemployment persists ?1This is a very-much-disputed question. Many economists seein a redpction of wages the unavoidable.and infallible remedyagainst unemployment. Others·denounce it as useless or evendetrimental.A large part of what has been written on theMonetary subject has been vitiated by the fact that the moneimplications.tary implications of the various theories have notbeen made clear. l\fany argue on the tacitassumprionthat MVcan be taken as constant, or at any rate as independentof changes in money wages. If this were true, if total monetarydemand were not influenced by a· reduction in money wages, thenof course, with lower money wages, ·employment and productionwould be greater than with higher wages, because, with lowerwages and prices, the same amount of money would buy moregoods and provide more employment. Others have assumed tacitlyor without adequate proofthat MVwill fall by the same amount aspay-rolls have been reduced (or even by more), so that the generalI An equivalent to a decrease in money wages is an increase in theefficiency of labour which does not augment other cost items (e.g 0' capitalcost) at the same time. If the worker works harder, or if the work isbetter organised so that a smaller labour force can do the same ~orkwithout an increase in capital equipment, the position, so far as theemployer is concerned, is equivalent to a reduction in money wages.From other (e.g., the social) points of view, there may be importantdifferences between the two methods of reducing labour cost. For thepurpose of our problem they are equivalent.The statistical measurement .of efficiency presents extraordinarydifficulties, which cannot be discussed here. It may. however, be notedthat the ordinary statistical measure of Hefficiency-wages "-viz.,labourcost per unit of output (pay-roll: volume of output)--cannot be taken asa precise measurement of the magnitude we have in mind.