Monetary Policies and Full Employment

THE EARLIER PARTS of this volume include observations concerning social and economic factors that may produce stagnant trends. Conclusions relating to these factors will now be briefly reviewed. The analysis concerning full employment policies is summarized in the second section of this chapter.

The distribution of income has considerable bearing on trends in output and employment. If real wages are very high and (average and marginal) profit rates very low, the reward for the bearing of uncertainty is insufficient. Uncertainty declines but it does not tend to zero when real wages, and thereby the average propensity to consume, become very high. Consequently, if real wages are successively increased and profit margins diminished, there must exist a point beyond which profit margins become insufficient. On the other hand, if real wages are successively diminished and (average and marginal) profit rates increased, there also must exist a point beyond which the growing profit margins become insufficient to compensate for the even faster growing uncertainty. Instability and thereby uncertainty would grow beyond all reasonable limits if, in consequence of a decline of the average and of the marginal propensity to consume, investment for further investment became the only significant source of the demand for goods. The adverse effects of such a degree of uncertainty could not be ruled out by the circumstance that a very high fraction of the price would consist of profits if the goods produced should be salable. They would be salable on a large scale only in periods in which the mentality characteristic of stock-exchange booms extends throughout the entire industrial com

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