Page:The Economics of Unemployment.djvu/90

Before presenting the counter-arguments of labour, it is, however, well to take account of an important qualification of this case for wage reduction. Its validity depends upon what is termed 'the elasticity of demand' for labour. Now that demand is elastic if the increased output of goods, which could be produced by employing more workers at lower wages, can readily force an expansion of the market by lowering prices. On this point the instance of housing, in such a depression as the present, is unconvincing. For housing happens to be the one prevailing exception to the rule that, when a depression sets in, the markets are all glutted with goods that cannot get sold. Now, though it be true for every class of goods that there is a price so low as gradually to take off this glut, and that a depression continues until prices have reached and remained at this low level for some time, it does not follow that a fresh output during this process, produced at low wage-rates, will stimulate the pace of this depletion. On the contrary, to produce more goods at lower labour costs will appear to add as much to the glut of supply as it does to the effective demand, so that any immediate gain in volume of employment and rate of consumption may be accompanied by a prolongation of the period of depression.

But the main defence of labour against the capitalist claim for lower wage-rates as a cure for trade depression requires statement under several heads.

First stands the widely accepted belief in 'the economy of high wages.' So far as it holds good, it rejects the primary assumption of wage-reduction