r wage
rates may remain comparatively steady, but weekly and yearly earnings
will fall. The extent to which this fall in earnings will go depends
upon the seriousness of the industrial maladjustments.[55] Still it is
safe to conclude that a period of serious depression following upon a
crisis is the least favorable phase of the industrial cycle for the wage
earners--notwithstanding the fact that wages frequently fall more slowly
than wholesale prices, and somewhat more slowly than retail prices.

5.--Our object in discussing the effect of price movements on
distribution is to discover how they complicate the problems of wage
settlement. Before proceeding to this main purpose, however, it is
desirable to pay particular attention to one doctrine of the relation of
wage change to price change which figures prominently in current
discussion.

That is the doctrine known as the "vicious circle of wages and prices."
It has been well stated by Mr. Layton: "It is often asserted that a rise
in wages is only a move around a vicious circle, the argument being put
thus; starting with a rise in wages achieved, let us say, as the result
of a strike, the increased wage bill will add to the cost of production,
and so raise prices; if the rise becomes general, the cost of living
will increase and diminish the purchasing power of wages; this will
produce a renewal of discontent among the working classes and result,
perhaps, in a further demand, culminating in a strike for still higher
wages."[56] This doctrine is affirmed somewhat indifferently, when the
demands for increased wages are made during a period of a relatively
steady price level, or during a period in which the price level is
rising steadily. What elements of truth does it possess and what is its
importance?

The first thing to note is that the series of events visualized in the
above quotation can be set into motion by any other cause which disturbs
the price level just as well as by a demand for increased wages. For
example, a great influx of gold into the United States may take place as
a result of a steadily favorable balance in international trade. Bank
reserves may mount, discount rates may fall, and if all other
circumstances happen to be already favorable, a period of increased
industrial activity may follow. Demand for basic products will increase
and prices will begin to rise. With the tendency of prices to rise, the
general demand for labor will increase. Wage