Conservatives Say Low Wages Will Solve the Economic Crisis, But the Opposite Is True

You might be hearing from the right wing about how breaking the unions and letting wages fall is the solution to our problems. We've heard this before. Let me tell you where.

In the late 1920's and early 1930's the global economy as it then was constituted, suffered a series of moments of crisis. In truth it had never gotten back to balance since the "Great War." The responses to these crisis points made the situation. Orthodoxy of the age brought disaster, and that orthodoxy was returning to an international gold standard that was really only a recent innovation. As Bordo and Eichengreen put it: "a system which relied on inelastically supplied precious metal and elastically supplied foreign exchange to meet the the world economy's demand for reserves was intrinsically fragile, prone to confidence problems, and a transmission belt for policy mistakes."

It's a nice way of saying that the Gold Standard was unsafe at any speed.

When the crisis arrived, there were three responses. One was to try and stick it out with the old system. This lead to falling wages and high unemployment under persistent deflation. The other two responses involved "casting off the fetters of gold." However, once this was done there was still a choice: keep wages high and the industrial system functioning, or let wages fall all the way to the floor, and employ people by the state.