Emil Lederer, Das Allheilmittel der Lohnsenkung (1930)

Emil Lederer’s signed economic journal article examines the claim that general wage reductions can overcome depression and absorb unemployment. Its central distinction is between improving an individual firm’s accounts and expanding production across the economy. Lower wages reduce costs, but employment increases only through identifiable changes in demand, investment, or exports. Lederer organizes his inquiry around three proposed mechanisms: higher profits supposedly revive production directly; additional profits finance investment; and lower costs permit price reductions that enlarge sales. His argument tests these mechanisms under contemporary conditions of unused capacity and political uncertainty rather than treating wage reduction as an automatic remedy.

The opening calculation establishes what wage cuts actually accomplish. Where wages represent 40 percent of costs, a 10 percent wage reduction initially lowers total costs by 4 percent. Cheaper intermediate goods may extend the saving, but inherited costs and interest obligations prevent an equivalent reduction throughout the cost structure. With selling prices unchanged, the immediate effect is a transfer of purchasing power from workers to employers. The first numbered section challenges the inference that this transfer necessarily brings idle factories back into operation:

Die Schaffung — oder Vergrößerung — einer Gewinnspanne allein verbürgt also noch nicht die Ausdehnung der Produktion gegenüber dem bisherigen Stande, solange die Nachfrage nicht steigt.

English translation: The creation — or enlargement — of a profit margin alone therefore does not yet guarantee an expansion of production beyond its previous level as long as demand does not increase.

Existing capacity already permits considerably greater output at prevailing prices. Indeed, some industries could profitably produce more even at lower prices; Lederer identifies the pricing policies of industrial organizations as an important obstacle. The binding constraint is therefore not simply the absence of a profit margin. Wage reductions neither create additional purchasing power nor explain where buyers for increased production would come from.

The second section considers the stronger argument that additional profits generate investment and thereby employment. Lederer allows this possibility but emphasizes that profits may instead replenish firms’ liquid reserves. Unused productive capacity and political uncertainty discourage new investment, so healthier balance sheets need not mean more economic activity:

Hier würde also in der Tat Kaufkraft vernichtet werden, ohne daß sie wieder sofort und im vollen Umfange auf dem Markt erschiene.

English translation: Here, therefore, purchasing power would indeed be destroyed without immediately reappearing on the market in its full amount.

The conceptual move is from the availability of funds to their actual circulation. If savings remain liquid, wage reductions slow monetary circulation in a manner characteristic of depression. If investment does occur, some purchasing power formerly exercised by employed workers finances capital-goods production and supports newly hired workers. This entails shifts in consumption, delays, and possible competitive damage to less efficient firms. Even setting these disturbances largely aside, Lederer estimates that an 8 percent wage reduction might increase employment by only 5 or, at best, 6 percent. Absorbing unemployment, including short-time working, would require a reduction of roughly 30 percent under similarly favorable assumptions. These calculations expose the limited scale of the proposed remedy rather than promise a precise outcome.

The third and longest section asks what changes when wages and prices fall together. Equal reductions leave employed workers’ real wages and demand unchanged, while people whose monetary incomes remain intact can consume more. Greater demand from these groups may improve capacity utilization and permit further price reductions under genuinely free competition. Recovery would thus rest on redistribution, not on universal restraint:

Im Gegenteil: hier würde eine Umschichtung auf Kosten der Arbeiterschaft erfolgen.

English translation: On the contrary: here a redistribution would take place at the expense of the working class.

Workers lose a relative share of the total product even if their real consumption remains stable; if prices fall less than wages, they suffer an absolute loss. Lederer insists that advocates acknowledge this distributive bargain. Cutting all fixed incomes might make sacrifice more politically defensible, but corresponding price reductions would, at best, preserve consumption rather than expand demand for consumer goods. Moreover, interest and rent incomes would remain protected unless taxation offset their advantage.

Exports offer another possible outlet, but their response depends on world-market demand and cannot be assumed. Additional exports require imported raw materials, so export receipts do not translate wholly into wages. Falling raw-material prices also weaken important overseas markets for industrial goods. Lederer notes that Germany’s larger export surplus accompanied declining export values and an even greater contraction of imports. Market development takes time, while foreign countermeasures against “social dumping,” or wage reductions abroad, could cancel the competitive advantage.

The closing argument shifts from possible recovery mechanisms to the causes of Germany’s vulnerability. Extensive earlier investment had expanded capacity in the wrong places. Inflation-era investment, cartel profits, subsidies, and agricultural credit contributed to a crisis of disproportionality, leaving firms trapped between declining output and rising fixed costs. Wage reduction consequently asks workers to repair accumulated errors of economic organization. Lederer allows that production may need breathing space, but calls for acknowledgment of these failures and coordinated action on prices, wages, and especially trade policy.

Political consequences finally enter the economic mechanism itself. Wage cuts without adequate price reductions intensify conflict; capital flight then drains foreign exchange, forces credit restriction, and further undermines employment. The article’s relevance lies in this insistence that firm-level savings must be assessed through demand, distribution, productive structure, and political feedback:

So ist es nicht nur moralisch bedenklich, sondern auch politisch absurd, die Lohnsenkung als wichtigste Maßnahme zu propagieren, ohne gleichzeitig die notwendigen Konsequenzen für die Preisbildung und die Handelspolitik zu ziehen.

English translation: Thus it is not only morally questionable but also politically absurd to promote wage reduction as the most important measure without simultaneously drawing the necessary consequences for price formation and trade policy.