It must be obvious that, if a high level of wages meant a high level of living standards, and if a high-level living standard meant a high level of profitable agricultural and industrial production, and if these two together meant a high level of financial volume with profitable interest returns, then to depart from a high level by reduction of wages must mean to depart from a high level of profitable production or credit volume. And that is what has happened. Conversely, it must be true that if the way back to prosperity over a given period is to reduce wages-otherwise purchasing power10 per cent, then we could recover prosperity five times faster by reducing wages 50 per cent. Nobody could believe that.

And it must be true that if the way back to prosperity is by reducing wages and salaries, then the way to keep that prosperity, after having recovered it, would be to continue to keep wages and salaries down to low levels. Nobody believes that.

Now, let us see what has been happening over the past several years and thus get a clue to the causes for the depression and some indication of what will cure it and start us spiraling back upward toward a relative normal, stabilized level of prosperity, comfort, and happiness.

Mr. John P. Frey, secretary-treasurer of the metal trades department of the American Federation of Labor, has put the whole situation very clearly. He shows in a chart accompanying his study that from 1899 to 1929 the workers' producing power increased about 65 or 66 per cent, while his pay in real wages-purchasing power of dollar wages-increased in the same period only about 23 or 24 per cent. Therefore, while his production per man increased 65 or 66 per cent, his ability to buy what he made actually increased only. 23 or 24 per cent.

In another chart it is shown that, in the period from 1899 to 1929, the annual value of manufactured products rose from about eleven billions in 1899 to $69,417,000,000 in 1929, while annual wages in manufacturing industries rose from about three and one-third billions in 1899 to only $11,421,000,000. In other words, while the annual production in 1929 had risen to approximately six and onehalf times that of 1899, the 1929 real wages were less than four times as much as they were in 1899.

Another chart shows that from 1913 to 1929 hourly dollar wages rose about 132 per cent but that real wages, based on the purchasing power of the dollar, rose in the same period only about 40 per cent. In a study of wage earnings it is necessary to bear in mind that a change in the amount of money received by the workers per unit of time is of significance to them only in relation to what those wages will buy. It is the real value of wages or earnings that determines whether a change in the money earnings has improved or lowered the financial position of the worker. For this purpose indexes of real earnings are computed generally by dividing the indexes of money or dollar earnings by the index of the cost of living.

For example, if the weekly earnings increase 20 per cent between two given dates, and the price of commodities and the cost of services that enter into a wage earner's living expenses also increase 20

per cent, no benefit accrues to the workers. If the cost of living rises less than 20 per cent, the wage earners are in a more favorable financial position. If the cost of living rises more than 20 per cent, the wage earner is in a less favorable financial position. That is what constitutes the difference between dollar wages, so called, and real wages, which is purchasing power.

So we see that the real purchasing power of 80 per cent of our customers was not keeping pace with the increase in the production. Another chart included in the article quoted shows this very clearly in another way. From 1900 to 1929 our population had increased only slightly more than 60 per cent, or a fraction more than 2 per cent a year, while the volume of products per annum had increased at the peak of 1929 about 250 per cent, and the value of those products had increased per annum about 650 per cent. So population increase was not keeping pace with manufacturing increase.

Of another chart showing the increase of total incomes of all individuals, the value of manufactured products, the volume of wages of all wage earners, and the salaries of all salaried employees, Mr. Frey says:

The most startling feature of chart No. 7 is the curve showing the volume of wages for all employees, which includes all wage earners in addition to those employed in the manufacturing industries. Here we find that, after increasing slightly from 1925, they remained at the same volume for a year and then after 1927 began to go downward, so that while the total national income and the total value of manufactured products were rapidly increasing, the total volume of wages paid in the United States actually decreased. It is not surprising that, with this reduced capacity to buy, the mass of the people were unable to purchase the goods from which the investors, the banks, and the captains of industry had been reaping such enormous profits.

Chart No. 7, in conjunction with chart No. 6, helps to visualize the statement recently made by Dr. Julius Klein, Assistant Secretary of Commerce, that real wages increased 13 per cent from 1921 to 1929, but that during this period the return to industrialists grew 72 per cent, while the gain in dividends on industrials and rails increased 256 per cent.

The outstanding economic facts of the so-called period of prosperity from 1922 to the end of 1929 present a depressing picture of economically unsound and destructive business policies. There is little if anything in the basic statistics to encourage or create confidence in the future. It is apparent that during this period the American wage earner was considered almost wholly as a producer of wealth, and that he was disregarded as the major consumer of the Nation's products.

In 1922 it was known that we could hope to export little more than 5 per cent of our manufactured products and that the bulk of our manufacturing industries must depend for their market upon the 80 per cent of the population represented by the wage earners and their dependents. Yet a business policy was carried out which could have no other effect than to steadily weaken the consuming market.

There are basically important moral and social questions involved in the just distribution of the annual wealth created, which must be considered in connection with the national welfare, but at present we are attempting to deal only with the economic factors.

The business practices carried out during the period under consideration, instead of solidly building up the Nation's prosperity, were in reality tearing it down, destroying it, for they were basically unsound.

Many of those who are responsible for the catastrophe because they failed to pay an economically sound wage are now informing the American public that the only hope of recovery is to still further reduce the total volume of wages. They are like the farmer, who, believing that his horse was eating too much gradually reduced the daily ration to the vanishing point, and then remarked to a neighbor, "I had just brought the rations down to the limit when the danged brute laid down and died."

After 1922 the nourishing blood of the national wealth filled the arteries of industry and commerce, but the financial heart, instead of pumping it throughout our economic system, created congestion. Instead of nourishing the Nation it caused a stoppage, the partial paralysis which we call the depression.

Our captains of industry and finance now find themselves much in the position of Midas-smothered by the hoards of gold they had heaped up. If they alone were the present sufferers because of their economic shortsightedness, there would be a large measure of justice in their situation; but their fatal economic policies have wrought havoc and spread suffering to millions of American wage earners and their dependents.

The period from 1922 was marked by the extension of combinations in finance, industry, and commerce. Mergers, trusts, and holding corporations not only increased rapidly in number but in their wide control. Certainly the period was not one in which sound economic policies guided those in control of the Nation's activities. What occurred bears much more resemblance to the law of the jungle than to the sane management of business by those responsible for its development.

The Nation fervently desires a return to prosperity, but if the improvement, which must come one of these days, is to be featured by the same unsound distribution of wealth which prevailed after 1922, then instead of prosperity we will be entering into another period during which the seeds of future business catastrophe will be sown.

Having thus looked into the causes of the condition in which we find ourselves, we come to the question of what to do.

That we are in the midst of what is known as the "long type " of depression similar to that of 1873 to 1879 is now evident. As has been said, the question is, are we still plunging downward to further bank failures and bankruptcies, further wage reduction, further unemployment, further privations and suffering, further drain upon the charitable institutions, and, finally, to rioting or the dole, or can we arrest the downward plunge and start to spiral upward again?

Another set of charts published by Young & Ottley (Vol. II) are significant. One chart shows-Chart No. 7-that from 1929 up to March 1 of this year employment had decreased roughly about 30 per cent while pay rolls have decreased about 55 per cent, showing the effect of wage cutting in addition to lay-offs. This means that if the workers had had no reserve savings, the purchasing power of 80 per cent of our market would have been 55 per cent destroyed. But savings held the purchasing power up for a while so that now business activity is down roughly 40 to 45 per cent.

Commodity prices have decreased since 1929 by 35 per cent, farm products by 55 per cent, and yet the purchasing power of the dollar has risen over the United States only 20.5 per cent.

It would seem at first glance that if commodities have gone down 35 per cent the purchasing power of the dollar should have increased in ratio. But the difference is in services and other items, besides foodstuffs and clothing, which have not decreased so rapidly. The total cost of living, including all items and services, at January 1 of this year was only 17 per cent lower than December, 1929, according to National Industrial Conference Board (Inc.), New York, the Cost of Living in the United States, page 4.

So, then, we find that instead of the purchasing power of the dollar having increased 45 per cent or 50 per cent since 1929, as we are told frequently, the fact is that to-day's dollar will buy only 20.5 per cent more than did the 1929 dollar. The cost of living to-day, despite the 17 per cent drop, is still 34 per cent above the level of July, 1914, so

per cent, no benefit accrues to the workers. If the cost of living rises less than 20 per cent, the wage earners are in a more favorable financial position. If the cost of living rises more than 20 per cent, the wage earner is in a less favorable financial position. That is what constitutes the difference between dollar wages, so called, and real wages, which is purchasing power.

So we see that the real purchasing power of 80 per cent of our customers was not keeping pace with the increase in the production. Another chart included in the article quoted shows this very clearly in another way. From 1900 to 1929 our population had increased only slightly more than 60 per cent, or a fraction more than 2 per cent a year, while the volume of products per annum had increased at the peak of 1929 about 250 per cent, and the value of those products had increased per annum about 650 per cent. So population increase was not keeping pace with manufacturing increase.

Of another chart showing the increase of total incomes of all individuals, the value of manufactured products, the volume of wages of all wage earners, and the salaries of all salaried employees, Mr. Frey says:

The most startling feature of chart No. 7 is the curve showing the volume of wages for all employees, which includes all wage earners in addition to those employed in the manufacturing industries. Here we find that, after increasing slightly from 1925, they remained at the same volume for a year and then after 1927 began to go downward, so that while the total national income and the total value of manufactured products were rapidly increasing, the total volume of wages paid in the United States actually decreased. It is not surprising that, with this reduced capacity to buy, the mass of the people were unable to purchase the goods from which the investors, the banks, and the captains of industry had been reaping such enormous profits.

Chart No. 7, in conjunction with chart No. 6, helps to visualize the statement recently made by Dr. Julius Klein, Assistant Secretary of Commerce, that real wages increased 13 per cent from 1921 to 1929, but that during this period the return to industrialists grew 72 per cent, while the gain in dividends on industrials and rails increased 256 per cent.

The outstanding economic facts of the so-called period of prosperity from 1922 to the end of 1929 present a depressing picture of economically unsound and destructive business policies. There is little if anything in the basic statistics to encourage or create confidence in the future. It is apparent that during this period the American wage earner was considered almost wholly as a producer of wealth, and that he was disregarded as the major consumer of the Nation's products.

In 1922 it was known that we could hope to export little more than 5 per cent of our manufactured products and that the bulk of our manufacturing industries must depend for their market upon the 80 per cent of the population represented by the wage earners and their dependents. Yet a business policy was carried out which could have no other effect than to steadily weaken the consuming market.

There are basically important moral and social questions involved in the just distribution of the annual wealth created, which must be considered in connection with the national welfare, but at present we are attempting to deal only with the economic factors.

The business practices carried out during the period under consideration, instead of solidly building up the Nation's prosperity, were in reality tearing it down, destroying it, for they were basically unsound.

Many of those who are responsible for the catastrophe because they failed to pay an economically sound wage are now informing the American public that the only hope of recovery is to still further reduce the total volume of wages. They are like the farmer, who, believing that his horse was eating too much gradually reduced the daily ration to the vanishing point, and then remarked to a neighbor, "I had just brought the rations down to the limit when the danged brute laid down and died."