STRIKING A BALANCE

Evening Post, Volume CXVI, Issue 48, 25 August 1933, Page 6

STRIKING A BALANCE

The attempt to increase wages and shorten hours might be successful if it was confined to one industry at a time, said Professor Gregory in his comment on the American National Recovery Act, but if every industry did the'same thing the net result to the community as a whole would mean that no change had been effected. This summary of the Professor's statement makes no reference to the effect on fixed charges, but there is a further paragraph which indicates that he did not leave them out of his reckoning. The success of the scheme, he said, would narrow the margin of profit in industries; if it did not it .would beno advantage to tlie consumer, therefore purchasing power would not be increased. It is this very question of the effect ■on "profit" margins thaimakes the ultimate issue of the plan problematical. If nominal Avages are ■ increased a hundred per cent. and prices rise a hundred per cent, at the same time, the wage-earner is not benefited. Equally if wages are halved and prices are halved the wage-earner has suffered no loss. The trouble is "in completing the operation. So many of the fixed charges are true to their name [that costs do not immediately follow wage movements. The workers in a factory may have their pay reduced in a week, and the factory proprietor may pass the full saving on to his customers. But if his factory has been built and his plant installed in a high-price period he has still a considerable part of his costs which remain as heavy as ever. If he has been prudent and has created reserves in prosperous times he may apply those reserves in writing down capital charges. But how many producers and manufacturers are in this fortunate position? Therefore it has been proposed to raise prices and purchasing power to a level ! which will support the fixed charges. j If this is done thoroughly the consumer gains nothing from his higher wages, but there is a possibility, at which Professor Gregory hints, of doing it less than thor-oughly--in other words "narrowing the margin of profit in industries." If this is done, industry may be able to continue, but riot to carry all the fixed charges which it has accumulated. It will have to squeeze the water out of its capital, rid itself of second mortgages, write down its buildings and plant, and bring all its reserves in to strengthen its capital. We have seen something of this process in New Zealand in the revision of fixed charges of farming, the reduction of interest, and the conversion of loans. It is not always a satisfactory process and it is often far from just. The persons now called on to make sacrifices are often not those who originally made profits. Moreover, the operation is not without its damaging after-effects. "The Times" Trade Supplement pointed this out when the great British loan conversion was successfully carried through. The State had so much less interest to pay, but bondholders had less interest to spend. The conversion would be beneficial only if State finances were bandied so wisely that the reduction of bondholders' spending power brought compensating benefits to industry and the community at large. Similarly the sacrifices required of investors in New Zealand will be beneficial only if they are applied to strengthen industry—not to clear the way for a new period of land gambling; . ' .