The Causes of the Economic Crisis and Other Essays Before and After the Great Depression

It is generally recognized that the social consequences of changes in the value of money—apart from the effect such changes have on the value of monetary obligations—may be attributed solely to the fact that these changes are not effected equally and simultaneously with respect to all goods and services. That is, not all prices rise to the same extent and at the same time. Hardly anyone disputes this today. Moreover, it is no longer denied, as it generally was a few years ago, that the duration of the present crisis is caused primarily by the fact that wage rates and certain prices have become inflexible, as a result of union wage policy and various price support activities. Thus, the rigid wage rates and prices do not fully participate in the downward movement of most prices, or do so only after a protracted delay. In spite of all contradictory political interventions, it is also admitted that the continuing mass unemployment is a necessary consequence of the attempts to maintain wage rates above those that would prevail on the unhampered market. However, in forming economic policy, the correct inference from this is not drawn.

Almost all who propose priming the pump through credit expansion consider it self-evident that money wage rates will not follow the upward movement of prices until their relative excess [over the earlier market prices] has disappeared. Inflationary projects of all kinds are agreed to because no one openly dares to attack the union wage policy, which is approved by public opinion and promoted by government. Therefore, so long as today’s prevailing view, concerning the maintenance of higher than unhampered market wage rates and the interventionist measures supporting them, exists, there is no reason to assume that money wage rates can be held steady in a period of rising prices.