Emil Lederer, La théorie du cycle économique et la politique des salaires : Étude de quelques points controversés (1939)

Published in French in the Revue internationale du Travail, Lederer’s journal article examines two disputed questions: whether prosperity collapses because wages are too high or too low, and whether wage reductions accelerate recovery. Its two principal parts move from the general wage level to relative wages across occupations and industries. The governing argument is that wage policy cannot be deduced from an abstract equilibrium model: its effects depend on the phase and structure of the cycle, investment prospects, and the distribution of purchasing power. The practical conclusion favours selective investment subsidies over general wage reductions.

Lederer initially contrasts “capital shortage” theories, which treat wages chiefly as production costs, with “underconsumption” theories, which emphasize wages as the principal component of industrial purchasing power. Each identifies a genuine relationship but isolates it from its counterpart. Lower wages may improve a firm’s competitive position without increasing employment throughout the economy; higher wages may stimulate demand while also raising costs.

Ainsi donc, aucun des deux groupes de théories ne fait entrer en ligne de compte l'interdépendance de l'offre et de la demande.

English translation: Thus neither of the two groups of theories takes into account the interdependence of supply and demand.

This criticism establishes the article’s method: propositions derived from an individual enterprise must be reconsidered at the level of the whole economy. Lederer likewise treats “harmonious” dynamic growth as an analytical framework rather than a reliable description of actual development. Regular expansion cannot establish what happens when expectations, credit, and monetary circulation change during a crisis.

His decisive distinction is between two types of cycle. In the first, population growth, new industries, and technical innovation sustain investment opportunities; falling interest rates and capital-goods prices can therefore initiate recovery. In the second, these dynamic forces are weak, equipment replacement is deferred, and demand for new capital loses its elasticity. Cheaper credit then fails to call forth investment. Lederer’s “structural trend” denotes the potential long-term expansion generated by these forces, not simply the observed historical production curve.

Si leur action est faible, la crise sera longue et aiguë, la demande de capitaux perdra son élasticité et des stimulants spéciaux seront nécessaires pour freiner le mouvement descendant et amorcer une nouvelle expansion.

English translation: If their action is weak, the crisis will be prolonged and severe, demand for capital will lose its elasticity, and special stimuli will be necessary to check the downward movement and initiate a new expansion.

The rival wage theories consequently describe different possible configurations. Excessive consumption could divert resources from necessary investment; insufficient wage growth could inflate profits and encourage investment beyond sustainable demand. Neither explanation can be dismissed merely through logical argument. Their relevance requires quantitative investigation of expansion possibilities. Lederer proposes distinguishing new investment from replacement, examining competing uses of capital, and relating capital-goods prices to their constituent costs. He acknowledges that estimating an economically compatible workers’ share of national income depends on uncertain forecasts and contestable assumptions about prices and distribution.

The discussion of depression policy is similarly conditional. Lederer challenges the orthodox inference that unemployment itself proves wages exceed their equilibrium level. Wage reductions may contract demand, encourage buyers to postpone purchases, or release funds used to repay debt rather than finance production. Yet the underconsumption argument also overreaches when it overlooks other income recipients, whose purchasing power may rise as prices fall. The question is whether purchasing power transferred away from workers is actually spent, and whether additional investment follows. If abundant credit already fails to stimulate investment, further liquidity obtained through wage cuts offers little promise. Keynes’s preference for monetary measures receives qualified support here. Lederer also identifies a practical compromise in proposals combining lower wage rates with public works to preserve the aggregate wage bill.

The second part shifts from aggregate diagnosis to the internal structure of wages and markets.

Le niveau des salaires est une abstraction, de même que le niveau général des prix.

English translation: The wage level is an abstraction, just as the general price level is.

Occupational differences reflect training opportunities, union organization, protected industries, mechanization, and historically accepted hierarchies, rather than a transparent correspondence between earnings and training costs. Mechanization can reduce skilled employment cumulatively: displaced skilled workers also cease purchasing products made by other skilled workers. Low-paid households, meanwhile, rely heavily on mechanically produced goods and second-hand markets. These observations connect relative wages to the social composition of demand, showing why an aggregate wage index conceals important barriers to expansion.

Lederer gives particular importance to skilled workers producing capital goods, especially in construction. Their wage costs may obstruct investment even when general wages are not excessive. Selective reductions might help, but subsidies can lower employers’ effective costs without cutting workers’ earnings. They can mobilize private capital alongside public expenditure and direct investment toward socially useful needs, notably affordable housing.

Le système des subventions suggéré ici a pour objet d'obtenir des résultats analogues à ceux que pourrait donner l'abaissement du loyer de l'argent, mais son action serait plus directe et il pourrait être appliqué dans des conditions où l'abaissement du taux d'intérêt serait à lui seul insuffisant.

English translation: The subsidy system suggested here aims to obtain results analogous to those that lowering the cost of borrowing might produce, but its action would be more direct, and it could be applied under conditions in which lowering the interest rate alone would be insufficient.

The final proposals extend to new industries and economically disadvantaged regions, where lasting improvement requires productivity, education, and enterprises adapted to local demand. Subsidies should establish activity capable of surviving their withdrawal. The article’s distinctive contribution is thus to connect aggregate investment theory with occupational and regional inequalities: policy should create viable outlets for capital and alter the structural trend, rather than presume that general wage compression will restore prosperity.