ABSTRACT
In fact wage reduction does not, as a rule, result even in the temporary increase in production described above. Indeed, not only investment but even utilization of existing equipment will not respond immediately to an improvement in profitability. For immediately after the reduction of wages and before the entrepreneurs manage to increase production within the existing capital equipment a fall in prices makes its appearance. As the entrepreneurs do not at once make use of the means taken away from the workers for buying consumption or: investment goods, the revenue of industry is reduced pro tanto. What the entrepreneurs gain on wage reductions is soon dissipated through price declines. All this could be noticed in all countries during the world depression in the period 1931-32, when the wave of wage reductions brought about a rapid fall in prices rather than an increase in production.
