WAGES AND PURCHASING POWER.

Press, Volume LXVIII, Issue 20495, 14 March 1932, Page 13

WAGES AND PURCHASING POWER.

POWER. TO THB EDITOR 09 TH3 PBBS3. Sir,—Apparently any suggestion that wage cuts reduce the purchasing power of the ■ people makes you angry and disgusted. I take it that your suggestion is that the money deducted from the workers is still in existence somewhere and the power to purchase is therefore unimpaired. I agree that this is so; but I submit that in actual practice this power to purchase is not exercised to the same extent after the wage cut as it was before. May i

express my surprise, however, that one who insists on making this rather nice distinction should fall back on the Economists' Report estimate of income for support. The national income has fallen from . £150,000,000 \to £110,000,000, and the fundamental, cause is to be found in the fall in export prices. Nobody will disagree with the cause, although I must point out that if Mr McCombs's reasoning is unsound the same unsoundness applies to national income figures with added force. If a Judge of the Supreme Court received a salary Of £3OOO per year, I take it that it would be part of the national income of £150,000,000. If he paid £2OOO per year to his secretary, and the secretary paid out £IOOO to other employees, the national 1 income in respect of this group would be £6OOO per year. If the 10 per cent, wage cut operates the national income falls £6OO. If the Judge's services are 'dispensed with it falls by £6OOO per year. I fail to see in what respect Mr McCombs's reasoning becomes "the old specious exploded argument" while the economists' is something of lasting value. In my opinion your umstinted praise of the Economists' Report is difficult to understand. I refer particularly to tne banking figures and the suggestion for balancing the Budget with Treasury Bills. We are told that industry relies on the banks for credit, and, as the banks have advanced industry the whole of their deposits of £51,000,000, everything possible has been done. It is anticipated, however, that the immediate and future deficits will amount to £13,000,000, which the banks are recommended to finance by overdrafts and recover in Treasury Bills. It seems fairly obvious, therefore, thatf as all the deposits are already advanced, the banks must create new money to meet this account. As a matter of justice is it possible to commend the Committee's recommendation that the banks should be allowed to create £13,000,000 at the public expense and make a profit on the transaction? —Yours, etc., D. C. DAVIE. March 10th, 1932