Prosperity and Depression.pdf

Chap. IIThe Up-turn : RevivalAn isolated policy of keeping money wages up isSome very dangerous; although it is impossible to denyproblems that a policy of wage·tutting may on occasion,.of po/icy. up to a certain point, intensify the contraction beforeits favourable influence on employment and outputmakes itself felt~ It may be very difficult to decide beforehandwhether such a temporary intensification is, oris not, to be expectedfrom a given reduction in money wages in a number ofindustries.If there are reasons to believe that even without a \vage reductioncontraction ofMVwill go on-and, as we have seen in the chapteron the contraction process, a certain shrinkage in MV is theinvariable concomitant of a cyclical depression-it will certainlyincrease unemployment and prolong contraction if wages arenot allowed to fall, If a contraction in a country is dictated byits international situation, the situation is still clearer. Wagesand prices must be allowed to fall if a rise in unemploymentand a fall in output are· to .be prevented. (It is anotherquestion whether, and in what circumstances, it is possible andadvisable to cut short this process of adjustJ:nent by currencydevaluation.). On the other hand, where a country need not consider its internationaleconomic situation and has a free hand as to its monetarypolicy, it is comparatively easy to make sure that the possibledeflationary influences of wage reductions are eliminated whileat the same time the expansionary influences are not hampered.All that is required is to combine a policy of wage reduction withexpansio~ary measures such as public works financed by inflationarymethods. The effect will be to forestall any decrease in totalwage disbursements, and consequently in the demand forconsumers' goods, which might otherwise result from the wagereduction.What has been said ofwages is equally true ofother prices which ,,"are kept up by monopolistic manipulation or State intervention.