Prosperity and Depression.pdf

Chap. II The Up-turn .. Revival 401increased-though net profits will still be negative, since the grossprofits do not cover amortisation of the fixed capital-and there istherefore scope for increased hoarding or repayment ofbank loans.This is afortiori the case where there is not free competition in thestrict sense of economic theory, and prices under monopolisticor quasi-monopolistic conditions (or simply as a result of frictionor fear of spoiling the marke~) are prevented from falling to thepoint of equality with marginal cost-in other words, whereproducers fail to expand production up to the point at whichmarginal cost equals price.We conclude, therefore, that the freer the competition andthe more flexible the price the greater the favourable effect ofwage reductions and the smaller the danger of an intensificationof deflation. That conclusion is no more nor less· thanwas to be expected. It does not follow, however, that such anintensification of the hoarding process. as a consequence of awage reduction is impossible, even under competition in thestrictest sense.Suppose employment and output in a particularRBpermssions industry to have been somewhat increased in reonother sponse to a fall in money wages, but not by so muchindustries. as wages have been reduced, sb that there resultsa decrease in the disbursements of wages by theindustry in question. This increase in employment and outputis certainly desirable: but we have also to take into considerationthe effect on other industries. This depends on what happens tothe increased (gross) profits. Suppose a part of them is hoarded.Then demand for other products will be reduced, 1 and the increasein employment in the industry directly concerned will be partly orwholly offset by a decrease somewhere else. This may evenreact back on the first industry and partly nullify there the originalincrease in empl9yment.1 Of course, an increase in wage disbursements need not result in aninstantaneous increase in demand for wage goods~ since the wage-earnermay hoard part of it or use it for repaying debts. On the other hand, adecrease may be temporarily offset by drawing on hoards or incurringdebts. We disregard these factors here as being quantitativelyunimportant.