The belief that a fall in wage rates is equivalent to a fall in total wage payments and would thus result in a reduction in consumer spending and a deepening of a depression is naive.
Free market laissez-faire economists know that a contraction phase in the business cycle is cured by allowing wage rates and price to fall to a point where they have fallen more than the demand for labor and the demand for consumers goods. At that point, costs will have dropped enough to make investments in the present more worthwhile than investments in the future.And costs will be low enough that profits and rate of profit will begin to increase, and businesses will then begin investing more in hiring more workers and expanding.When prices fall just as much as wages, there is no decrease in the standard of living for the average wage earner. This is the way a free market naturally recovers from a depression. But this is precisely what the Keynesians deny, and government and unions try to prevent.
Wow. Well said!