Erich Schiff, Preismanipulierungen in der Depression (1932)

Erich Schiff’s German economic essay examines how attempts to sustain prices aggravated the Depression by obstructing adjustment between supply and demand. He frames price manipulation as one distinctive feature of the crisis, not its comprehensive explanation:

Wollte man eine vollständige Differentialcharakteristik der gegenwärtigen Depression gegenüber früheren Depressionsperioden geben, so hätte man eine lange Liste von Unterschiedsmerkmalen zusammenzustellen.

English translation: If one wished to give a complete differential characterization of the present depression as against earlier periods of depression, one would have to compile a long list of distinguishing features.

Acknowledging political disturbances and exceptional losses of confidence, Schiff concentrates on the differing responses of prices and quantities. Delayed price reductions, he argues, depressed sales, prolonged misdirected production, and ultimately intensified contractions in prices and employment. He thus distinguishes the imbalance revealed by the crisis from the additional damage caused by efforts to suppress its price effects.

Section I revisits the early diagnosis that quantities had contracted exceptionally while prices had responded more normally. The sharp price falls of 1931–32 complicate that diagnosis without, for Schiff, disproving the importance of earlier rigidity. Later collapses could themselves result from postponed adjustment: price support preserved incentives to produce even as demand weakened.

Section II develops this mechanism through wheat, coffee, rubber, and cotton. Different institutions and commodities exhibit a recurrent sequence: purchases or restrictions sustain prices, production or competing supplies expand, stocks accumulate, and support eventually fails. Schiff emphasizes their common causal pattern:

Die schlagwortartige Darstellung zeigt besonders deutlich, daß das nationalökonomische Gesetz oder Ablaufschema, nach welchem diese Versuche und ihr schließlich Scheitern erfolgten, überall dasselbe ist.

English translation: The summary presentation shows with particular clarity that the economic law, or pattern of sequence, according to which these attempts and their eventual failure took place, is everywhere the same.

The eventual collapse is especially severe because intervention has enlarged the surplus. Capital and labor remain committed to uses that cannot earn a genuine return. Schiff distinguishes goods that cannot be sold at prevailing prices from goods that cannot be sold profitably. Lower selling prices would expose losses and encourage resources to move elsewhere; maintained prices conceal or prolong the allocation error.

This distinction also informs his discussion of stock destruction. Such destruction does not, in his view, establish the failure of market coordination, since the policies examined prevent prices from performing their coordinating function. An alternative economic system would need to establish a superior principle for allocating scarce resources. Yet Schiff does not condemn every restriction equally: direct reductions of petroleum output receive a more favorable assessment because they anticipate the production adjustment that falling prices would otherwise enforce.

His empirical claims remain temporally qualified. A note leaves open whether subsequent price increases mark a lasting reversal:

Es bleibt abzuwarten, ob diese Steigungen von Dauer sein werden und somit die im Text als „bisherige Tiefstpunkte“ angeführten Preise vom Sommer 1932 endgültige Tiefstpunkte waren.

English translation: It remains to be seen whether these rises will prove lasting, and hence whether the prices of the summer of 1932 cited in the text as "lowest points so far" were the definitive lowest points.

Section III turns to cartel prices, particularly industrial inputs whose rigidity burdens downstream firms selling in competitive markets. Austrian and German indices indicate widening differences between controlled and free prices. Historical comparisons of coal and iron likewise associate reduced price flexibility with greater output contraction. Schiff considers differences in comparison periods and longer-term trends, while interpreting the overall contrast as evidence that price stabilization can transfer adjustment pressure onto production and employment.

Section IV asks why monopolists defended high prices when increased sales and lower unit costs might have made reductions profitable. Monopoly alone does not determine the most profitable price; demand elasticity and costs remain decisive. Schiff attributes unsuccessful support policies partly to misjudged elasticity and expectations of recovering demand. He connects these errors to the postwar ambition to stabilize economic activity through stable prices, and interprets American credit expansion as sustaining prices while encouraging the production boom before 1929.

The governing distinction is between stable monetary values and stable real activity. Price stability is desirable only insofar as it supports the latter. Where consumers can redirect expenditure, flexible prices facilitate adjustment; selective controls leave demand substitution intact while obstructing the market response. Comprehensive planning would require a different coordinating arrangement, not merely protection of particular prices.

Schiff does not attribute the Depression’s entire severity to rigidity. His sharper conclusion is that suppressing price adjustment within a market-based economy sacrifices flexibility without providing an effective replacement. Policies intended to protect individual producers can consequently deepen the aggregate contraction they seek to prevent.