der to hold them. Such
times as these usually lead, furthermore, to the introduction of new or
forgotten economies, and to improvements in the method of production.
Thus it can be concluded in this case that whatever reduction of the
price level is required to restore industry to a sound financial basis
can be accomplished without reducing wage rates.

The third case is that in which the decline in prices is abrupt--at the
beginning at all events--and is precipitated by much forced liquidation
of a character disastrous to the enterprises forced to undertake it. In
short, when it is brought about by an industrial crisis or when an
industrial crisis is actively threatened. In this case the decline is
usually preceded by a period of rapidly rising prices which brings about
an over-extension of credit and puts heavy pressure upon the banking
system. Maladjustments in industry manifest themselves and fear comes to
govern all production. The price decline in different industries is apt
to vary greatly in extent.

In this case, as in the second, the process of price decline--the state
of severe depression--tends to set in motion certain forces which work
for recovery. The owners and directors of industry seek for economies.
They strive to get greater output from the workers, and generally
succeed since a job is more precious. Prime as well as supplementary
costs are cut down. And yet if there has been great expansion of credit;
if the banking system as a whole shows a very low reserve, and some
banks suspend specie payment, a reduction in the wage level is
necessarily essential to industrial recovery. This may be so especially,
if buying is at a halt. The wage reduction should follow the price
reduction. There would appear to be no compelling reason for the wage
reduction to be in the same ratio as the price decline, since it is
probable that the wage increases will have lagged behind prices in the
preceding period. The conditions making the case should be clearly
present; competition or control must be active, in order to insure that
the reduction of wages really does assist price reduction. These
important details will be considered at another point.[66]

Against such a policy of wage reduction some arguments of weight can be
brought forward. It may be said that all other branches of outlay will
be subjected to a more severe overhauling when there can be no resort to
wage reduction. It may also be argued out that the maint