Page:The Economics of Unemployment.djvu/73

the rise of prices has already stopped for some time do wages catch up, and high wages are then held responsible for the failure to market goods at profitable prices.

Now, suppose that by some economic arrangement it were possible to do away with the lag of wages, so that wage rates rose automatically and proportionately with rises of prices and of profits. Is it not evident, that we should have an important correction of fluctuations? It would operate in two ways, first in reducing the rate of profits and so the rate of saving and of increased production, secondly, in stimulating the rate of consumption. In other words, it would make for an adjustment between the rate of reviving production and of reviving consumption which might maintain an equilibrium between the two processes at a high level for an indefinite time, avoiding the slump otherwise held to be inevitable. The expansion of production and employment would, as before, continue until all the factors of production were in full use, but this process would go more slowly because a smaller proportion of the income would be available for saving, i.e. for making capital goods. But, assuming that the adjustment between wages and profits were such as to keep an economically sound proportion between growth of production and of consumption, there seems no reason why the high level of trade, prices, and employment, once restored, should not be maintained.

The removal of the wage-lag would also act in another way on credit and prices. By curbing the high profits, which the wage-lag renders possible, it would reduce