ABSTRACT
It is immediately clear that the "classical" theory is not supported by the results of our statistical inquiry. It will be seen that the decline in production and employment is accompanied by an increase in the prices of "finished industrial products" in relation to prime costs and conversely. But this phenomenon, which is in disagreement with the law of "increasing marginal costs", can be easily explained by our hypothesis: by the constancy of marginal costs over the relevant range of output and by "the degree of monopoly" increasing in slump due to the "rigidity" of prices and decreasing in the boom: Contrary to the accepted opinion the ratio of prices to prime costs "improves" in the depression! It does not follow, of course, that profitability is high: the effect of the drop in sales outweighs by far the advantage from the increased ratio of prices to prime costs.
