Emil Lederer’s critical review article examines Gustaf Cassel’s memorandum for the 1927 World Economic Conference and its explanation of European unemployment through excessive wages, trade-union monopoly, and unemployment support. Its opening contrast with Adam Smith establishes the central objection: Cassel diagnoses national impoverishment amid technical transformation, expanding productive capacity, and abundant goods. For Lederer, the question is not simply whether workers consume too much, but whether production and distribution allow society to realize its productive possibilities. The article moves from criticism of Cassel’s evidence, through a theoretical account of wages and accumulation, to an explanation of how restricted purchasing power can prevent technical progress from yielding greater output.
Cassel acknowledges producer monopolies but treats union power as the decisive obstruction. Lederer challenges this asymmetry. Free trade cannot necessarily neutralize cartels: transport costs protect some industries, exclusive trading arrangements restrict buyers’ alternatives, and international agreements can defeat competitive pressure. Nor do divergent raw-material and finished-product prices establish excessive labor costs. Cassel’s Swedish indices vary sharply across industries, including sectors with little labor input and strong producer organization. Tariffs, technical change, labor recruitment, and differences between protected and internationally competitive industries must enter the explanation.
The German evidence further weakens Cassel’s generalization. Lederer finds no corresponding system of unions excluding newcomers from better-paid occupations. Occupational wage differences may reflect skill, arduous work, or seasonal employment rather than monopoly. German wage statistics also fail to reproduce Cassel’s Swedish picture: hourly rates, weekly earnings, and real wages tell different stories, especially after working-time reductions. Most importantly, during 1927 rising nominal wages coincided with expanding production and a steep decline in supported unemployment. Foreign borrowing financed profitable expansion rather than proving that wages had exhausted domestic resources. Lederer also cites improving Swedish employment and trade figures, while acknowledging that the available evidence does not establish an exact comparison between wage growth and productivity.
His theoretical argument distinguishes a redistribution of income from an increase in the general price level. With monetary and credit policy holding prices stable, wage increases not offset by additional production initially reduce profits. Their consequences therefore depend on investment, technical adaptation, and the allocation of the social product—not on an automatic passage from higher wages to inflation or unemployment.
Sie wird aber nicht bloß mechanisch zur Arbeitslosigkeit und zur Krise führen, sondern die Volkswirtschaft wird sich irgendwie diesen erhöhten Löhnen anzupassen trachten, was am ehesten durch Steigerung der Produktion bei verbessertem Produktionsapparat geschehen kann.
English translation: But it will not merely lead mechanically to unemployment and crisis; rather, the economy will seek somehow to adapt to these higher wages, which can most readily occur through increased production with an improved productive apparatus.
The sentence concerns the effects of a wage increase. It identifies the dynamic adjustment missing from Cassel’s reasoning: higher costs can compel rationalization and innovation. Profit-seeking alone does not guarantee modernization; entrepreneurs may continue comfortably with established methods until pressure forces change. Cassel consequently treats capitalism as a static arrangement where Lederer sees interacting incentives and responses.
Lederer nevertheless explicitly allows that wages can be excessive. A wage share requiring too much consumption may obstruct reconstruction, capital accumulation, or necessary modernization. Under stable prices, persistently diminished profits would discourage investment and worsen employment; unemployment assistance could not indefinitely sustain such a wage structure. Growing investment, saving, and rationalization in Germany point in the opposite direction. Moreover, accumulation must not be identified exclusively with entrepreneurs’ retained profits:
Hingegen ist es offenbar gleichgültig, wer akkumuliert.
English translation: By contrast, it is evidently immaterial who accumulates.
For aggregate capital formation, workers’ saving can replace entrepreneurial saving. The ownership of capital would change without necessarily changing its amount, producing what Lederer calls a democratization of ownership. His qualification is important: distribution matters socially even where its effects on total accumulation may be equivalent.
The discussion of the colonial world extends the empirical challenge. Cassel interprets reduced European capital exports as evidence of arrested development abroad. Lederer instead emphasizes wartime expansion, local capital formation, increasing extra-European trade, and falling raw-material prices. These developments undermine the picture of a world economy becoming poorer because European unions have raised wages.
The concluding argument turns from excessive wages to the opposite possibility: accumulation and capacity can grow beyond what existing income distribution permits consumers to purchase. Enterprises seeking high surpluses may hold wages down while maintaining prices, particularly under collective producer pricing.
Die Politik, die auf relativ niedrige Löhne bei relativ hohen Preisen abzielt, führt dann letzten Endes zu einer Einschränkung der Produktion, die Kapazität wird nicht ausgenützt, der technische Fortschritt kann sich gar nicht auswirken.
English translation: A policy aimed at relatively low wages alongside relatively high prices ultimately leads, then, to a restriction of production; capacity is not utilized, and technical progress cannot take effect at all.
Production restrictions also diminish purchasing power and spread between technically interdependent industries. Lederer prefers price reductions when falling costs make them possible, because these benefit all social groups. Where producers withhold such reductions, however, higher wages can redistribute gains and enable fuller utilization:
Solche Lohnerhöhungen schaffen dann überhaupt erst die Basis, von der aus der technische Fortschritt sinnvoll wird: erst die Lohnerhöhung begründet es, daß man den Betrieb technisch ausgestaltet hat, und erst die Lohnerhöhung macht — unter diesen Umständen — die Ausnützung einer größeren Produktivkraft möglich.
English translation: Such wage increases then create the very basis on which technical progress becomes meaningful: only the wage increase justifies having technically developed the enterprise, and only the wage increase makes—under these circumstances—the utilization of greater productive power possible.
The article’s lasting conceptual contribution is this conditional reversal of Cassel’s causal story. Wages need not merely follow productivity; they can stimulate modernization and make its expanded output economically usable. Lederer closes by demanding that theory confront evidence, opposing arguments, and capitalism’s capacity for adjustment rather than discredit itself through rigid deductions.
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