Emil Lederer, Die Wirkung von Lohnerhöhungen auf die Kaufkraft und den inneren Markt (1927)

Emil Lederer’s article presents a lecture on the conditions under which higher wages can enlarge purchasing power and the domestic market. Its argument moves from the theoretical interdependence of production and demand to the obstacles created by technical change, cartel pricing, and inadequate accumulation, before considering wages as a stimulus to economic development. The thesis is conditional: wage increases can activate unused capacity and induce rationalization, but their effects depend on the productive resources available and on whether they increase real wages rather than prices.

Lederer begins by explaining why economic policy requires theory rather than a juxtaposition of observations:

Wenn man sagt, man solle die Tatsachen sprechen lassen, dann vergißt man meist, daß Tatsachen leider nicht sprechen können.

English translation: When one says that the facts should be allowed to speak, one usually forgets that facts unfortunately cannot speak.

Whether a price increase follows from wages or tariffs cannot be established merely by recording their sequence. Theory identifies the relationships that evidence must test. Responding to criticism of his socialist standpoint, Lederer also distinguishes intellectual commitment from the dismissal of opposing arguments: having a standpoint does not absolve anyone from examining another’s reasoning.

His theoretical starting point is that capitalist exchange forms an interdependent system, neither sheer anarchy nor a consciously administered plan. Producers purchase labor, materials, and equipment before selling their products; production therefore distributes the purchasing power needed for exchange. In the ideal model, a general shortage of purchasing power appears impossible. But this result presupposes instantaneous price adjustment, frictionless transfers of labor and capital, and full utilization of productive resources. Only under those conditions must additional purchasing power require additional productive capacity, with extra money otherwise producing inflation.

Lederer’s decisive move is to separate this theoretical identity from the actual process of adjustment. Technical progress changes proportions between industries and between labor and machinery. Displaced workers cannot immediately enter other occupations. Even wages reduced to zero might not restore employment in an industry whose output the market cannot absorb: non-wage costs remain, and rationalization may deliberately produce the same quantity with fewer workers. Purchasing power appearing elsewhere need not operate immediately, while unsold goods constrain further purchases. Adjustment takes time and imposes losses; its completion may be interrupted by fresh disturbances.

Cartels and syndicates make these difficulties more persistent. Entrepreneurs seek to preserve selling prices while lowering costs, directing surpluses toward depreciation and accumulation rather than necessarily toward consumption:

Wir haben also eine innere Bremse, welche die Auswirkung der Rationalisierung, des technischen Fortschritts in Preissenkung auf der einen Seite oder Lohnsteigerung auf der anderen Seite hemmt.

English translation: We thus have an internal brake that impedes rationalization and technical progress from taking effect through lower prices on the one hand or higher wages on the other.

Organized producers can maintain profits by restricting output. Restraint in coal or steel propagates through industries dependent on those inputs. Where prices remain high and capacity stands idle, higher wages can restore demand and activate corresponding branches of production. Purchasing power increases through expanded output, not through money detached from production.

Lederer nevertheless identifies an opposite possibility. If capacity is already fully employed and wages absorb the resources needed for investment, consumption can impede accumulation and the expansion required by population growth. Policy must therefore distinguish idle capacity from insufficient productive equipment. He explicitly leaves Germany’s situation unresolved: claims that output could rise without new investment conflict with claims that unused plants are technically inferior. Inadequate statistics prevent a secure diagnosis. This uncertainty undermines both the recurring prescription of wage cuts for underproduction and overproduction and the contrary claim that wages should always rise.

Capital scarcity offers a possible diagnostic, but not a conclusive one. It is relative to interest rates and investment opportunities. Rapid technical innovation can generate intense demand for capital even while output per person grows, compressing present consumption for the sake of future profits. Lederer consequently questions whether the pace of technical progress is always desirable:

Dann aber wäre es berechtigt, diese technische Entwicklung, wenn möglich, zu bremsen, um derart die Lebensansprüche der Gegenwart gegen die Forderungen einer fernen Zukunft zu verteidigen.

English translation: But then it would be justified to slow this technical development, if possible, in order thereby to defend the present’s claims to a livelihood against the demands of a distant future.

Conversely, higher wages can disturb a stagnant economy beneficially, forcing entrepreneurs to reorganize production. American consumer financing supplies another example of interaction between demand and output: borrowing against future income risks depressing later purchases, yet expanded production can also create employment and fresh income. Lederer treats this possibility cautiously, emphasizing its organizational requirements and the uniformity of consumption it presupposes.

The conclusion presents modern capitalism as a production system shaped daily by organized intervention. Trade unions, like entrepreneurs, can supply an impulse to greater productivity; American immigration restrictions illustrate how expensive labor can encourage technical development. This dynamic effect requires monetary stability:

Sondern die produktionssteigernde Wirkung kann nur eintreten, wenn der Reallohn wirklich steigt, wenn also nicht die Steigerung des Geldlohns durch eine Preissteigerung wieder aufgehoben wird.

English translation: Rather, the production-increasing effect can occur only if the real wage actually rises, that is, if the increase in the money wage is not cancelled out again by a price increase.

Inflation redistributes rather than producing the same pressure to rationalize. Lederer’s reversal of the maxim that production policy is the best wage policy thus rests on a specific diagnosis: where pricing obstructs productive possibilities, wage policy can become production policy. The lecture’s relevance lies in making demand, distribution, and productive development mutually dependent without turning that relationship into a universal prescription.