Prosperity and Depression.pdf

Nature and Causes of the CyclePart nthere is a definite level of liquidity which must be reached beforethe·economic system can again start on· the up-grade. It is clearin this case that the more rapidly wages and prices are allowed tofall the more quickly the desir~d level of liquidity will be reached.Flexibility of money wages, and competition in the labour marketas a means to the attainment of flexibility may be regarded as afactor conducive to the restoration of full employment. But theproblem is not quite so simple as that, because the level ofliquiditywhich must be attained need not necessarily be independent ofthe movement in money wages. Ifwages are very flexible, and if 'this flexibility has an initial deflationary effect (as explainedabove), disturbances may result, confidence may be shakenand thus a higher degree of liquidity may be required than whenwages were somewhat more rigid. But, the argument runs,even in this unfavourable case-which is by no means theonly possible case, or even the most probable,-there is somewherea higher level of liquidity which is sufficient in allcircumstances.The question with which the above discussionConclusions. began, as to whether a continued fall in money wagesunder conditions of general unemployment is to beregarded as a factor which will bring a contraction to an end, musttherefore, if we carry the argument to its logical conclusion, beanswered in the affirmative. It must, however, be emphasisedonce more that this does not imply the necessity for a process ofcontraction's always, or even in the majority of cases, runningits course through to its " natural "end. One or the other of theexpansionary impulses which have been analysed in the presentand the preceding section will usually intervene. Nor again, inanswering the question in the affirmative, is there any intention ofprejudging the issue ofthe advisability or otherwise, in the absenceof a spontaneous expansionary impulse, of attempts to check thecourse of the contraction by State intervention in one form oranother. In answering that question, many extraneous considerationsarise, some of them of a non-economic nature, which cannotbe discussed here. But so far as the problem in hand is concerned-namely, the problem of the influence of the behaviour of moneywages-the following conclusions may be drawn.