Page:The Economics of Unemployment.djvu/57

ately and proportionately stimulate effective demand, it seems evident that over-production with subsequent depression would be impossible. Why does not this cure work? Well, in the first place, the discovery that an excessive power of production at the former price level exists may not lead to a cutting of prices, in order to market the larger supply at a lower figure. It may lead, as we have already noted, to a combination of producers to restrict output and hold up the prices. This, of course, involves the refusal to utilise the full available productive power of capital and labour. But it completely invalidates for these industries the operation of our economic check. Since in each advanced industrial country an ever increasing proportion of the industrial capital and labour comes under this combine dispensation, the check of price reduction is largely nullified. It may be noted that the conventional economic doctrine which regarded a fall of prices as an absolute bar upon over-production, congestion, and stoppages, arose in an age of small businesses when the incentives to combined restraint of output and the possibility of achieving it were weaker than is now the case.

Again, a fall of commodity prices at the critical time when full production begins to exhibit itself as over-production, in the sense of inability to market all the product at hitherto prevailing prices, does not tend to stimulate consumption sufficiently to check the fall of prices. If it did, the classical theory would be justified, and a merely nominal fall of prices would serve to stop the tendency towards glut. But the facile operation of this check implies a willingness of