2 NN, 
», Ty 
THEORY OF PRODUCTIVE EFFICIHNGY 161 eR 
TPleths, 2 
labor and management, it was claimed that cits’; © opera- & | 
rion had been reduced, and that both employes " con- Soy 
sumers should share in the lower costs by receiv. Hee 
rates of pay and reductions in prices. The way to restore 
prosperity, it was claimed in 1921, was to increase wages 
and purchasing power and at the same time reduce prices 
in order to stimulate demand and to make quantity pro- 
duction at low costs possible. 
No practical consideration was given to these theories 
either before the war or during the depression of the years 
1920-1921. Industrial leaders, financiers, and statesmen 
held fast to the old beliefs that industry and trade could 
be revived only by a double deflation of both prices and 
wages. Two years later, however, in 1923, the “pro- 
ductive efficiency” theory, along with its corollary that high 
wages made for greater consumption of goods and corre- 
sponding expansion of industrial and commercial activity, 
became the foundation for the new industrial order which 
completely reversed all past theories and traditions as to 
methods of wage determination. Under the new con- 
structive program it was held by leaders in industry that 
wages might be increased indefinitely, prices of commodi- 
ties simultaneously lowered and profits enhanced, provided 
that, through the proper cooperation of capital, labor, and 
management, costs of production were reduced. High 
wages were also further accepted as a fundamental of 
prosperity, on the ground that a high level of compensa- 
tion increased purchasing power, which in turn found 
expression in greater consumption or demand for com- 
modities 
nn 
\ J v- 
Jo 
iy 
THE PropucTivity THEORY OF WAGES 
From the very beginnings of the science of economics, 
ts leading exponents had made a clear-cut distinction be-