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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 production
 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 “productive
 efficiency” theory, along with its corollary that high
wages made for greater consumption of goods and corresponding
 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 constructive
 program it was held by leaders in industry that
wages might be increased indefinitely, prices of commodities
 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 compensation
 increased purchasing power, which in turn found
expression in greater consumption or demand for commodities


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THE PropucTivity THEORY OF WAGES

From the very beginnings of the science of economics,
ts leading exponents had made a clear-cut distinction be-