Economics in One Lesson

Economics in One Lesson
otherwise have been, and consequent transfers of men from the lower
ranks of the self-employed to the higher ranks of wage earners, until
the previous relationships had been approximately restored. But this
is only another way of saying that a 30 percent increase in wages under
the conditions assumed would eventually mean also a 30 percent
increase in prices.
It does not necessarily follow that wage earners would make no rel-
ative gains. They would make a relative gain and other elements in the
population would suffer a relative loss,
during the period of transition
. But
it is improbable that this relative gain would mean an absolute gain.
For the kind of change in the relationship of costs to prices contem-
plated here could hardly take place without bringing about unemploy-
ment and unbalanced, interrupted, or reduced production. So that
while labor might get a broader slice of a smaller pie, during this
period of transition and adjustment to a new equilibrium, it may be
doubted whether this would be greater in absolute size (and it might
easily be less) than the previous narrower slice of a larger pie.
4
This brings us to the general meaning and effect of economic 
equi-
librium
. Equilibrium wages and prices are the wages and prices that
equalize supply and demand. If, either through government or private
coercion, an attempt is made to lift prices above their equilibrium
level, demand is reduced and therefore production is reduced. If an
attempt is made to push prices below their equilibrium level, the con-
sequent reduction or wiping out of profits will mean a falling off of
supply or new production. Therefore an attempt to force prices either
above or below their equilibrium levels (which are the levels toward
which a free market constantly tends to bring them) will act to reduce
the volume of employment and production below what it would oth-
erwise have been.
To return, then, to the doctrine that labor must get “enough to buy
back the product.” The national product, it should be obvious, is nei-
ther created nor bought by manufacturing labor alone. It is bought by
everyone—by white collar workers, professional men, farmers,
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“Enough to Buy Back the Product”
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employers, big and little, by investors, grocers, butchers, owners of
small drug stores, and gasoline stations—by everybody, in short, who
contributes toward making the product.
As to the prices, wages, and profits that should determine the dis-
tribution of that product, the best prices are not the highest prices,
but the prices that encourage the largest volume of production and
the largest volume of sales. The best wage rates for labor are not the
highest wage rates, but the wage rates that permit full production, full
employment, and the largest sustained payrolls. The best profits, from
the standpoint not only of industry but of labor, are not the lowest
profits, but the profits that encourage most people to become
employers or to provide more employment than before.
If we try to run the economy for the benefit of a single group or
class, we shall injure or destroy all groups, including the members of
the very class for whose benefit we have been trying to run it. We
must run the economy for everybody.
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T
he indignation shown by many people today at the mention of the
very word “profits” indicates how little understanding there is of
the vital function that profits play in our economy. To increase our
understanding, we shall go over again some of the ground already cov-
ered in chapter 14 on the price system, but we shall view the subject from
a different angle.
Profits actually do not bulk large in our total economy. The net
income of incorporated business in the fifteen years from 1929 to
1943, to take an illustrative figure, averaged less than 5 percent of the
total national income. Yet “profits” are the form of income toward
which there is most hostility. It is significant that while there is a word
“profiteer” to stigmatize those who make allegedly excessive profits,
there is no such word as “wageer”—or “losseer.” Yet the profits of
the owner of a barber shop may average much less not merely than
the salary of a motion picture star or the hired head of a steel corpo-
ration, but less even than the average wage for skilled labor.
The subject is clouded by all sorts of factual misconceptions. The
total profits of General Motors, the greatest industrial corporation in
the world, are taken as if they were typical rather than exceptional. Few
people are acquainted with the mortality rates for business concerns.
They do not know (to quote from the TNEC studies) that “should
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