UNEMPLOYMENT.

Hokitika Guardian, 1 April 1922, Page 4

UNEMPLOYMENT.

ITS CAUSE AND ITS REMEDY

The Australian -Economic Conference, which broke.down r had its origin in the prevailing unemployment and the probability that unless conditions of industry vvfere in some way altered, l that unemployment would grow. The employers’ representatives have given their view of the caimes of unemployment, and its growth, and the remedy which should be applied; and on their part, the representatives of the em-. ployees have given itheir views. Each set is very far apart from the other, both as to the primary causes, and as to the ultimate remedy. There is no need to reiterate the arguments and the suppositions put forward, but it may aid the discussion, and, perhaps, bring a, clearer light on the situation if the t opinions of two eminent men from the other side of the woNd are given on the cause of unemployment, and its remedy, each in his own country. The one, an Englishman, is a professor of the University of Cambridge. The other, an American, mixes much with practical men of affairs, and is, himself, a statistician of no mean, repute, and editor of the economic bulletin of the National City Bank of New York. THE PROFESSOR’S VIEW.

Professor Pigou is recognised as an authority on the causes of unemployment. In the “Contemporary Review” for December he points out that the industrial population of every country is divided into a number of groups of people, each group containing in various proportions, employers, providers of ' capital equipment (including land), | technical staff, and manual workers, and each engaged in some branch of productive activity. If everything were working smoothly every group would have exactly as much work to do as it wanted to-have,-and would obtain regularly for the proceeds of'that work exactly'that amount of other peopled; prod"cts that it had reckoned to obtain when it began its own. work. As the world of industry is not stationary, these ideal conditions do not prevail. On occasions, because of had harvests, war, labour troubles, or some other cause, the output of one of the groups in the country or outside, falls off, and does not offer so much of its product as liefoHe in exchange for the products of other groups. So the real demand of products of some or all of the other groups falls off, and, in general, they do not care to work so hard or produce so much of their own product as before. These fluctuations are made larger than they otherwise would be, because in modern industry many processes of production take a long time, and so eaoh group has to adjust i: s action not so much to actual real d inn lids from other groups as to forecasts of their .real demands. The way is thus opened for error. Should there !•>•■• an actual increase in demand that industrial group becomes optimistic, and often imagines that the outlook is l etter .than it really it. The optimism is infectious. Each of the groups expects to <got for example twice ns much again of other people’s stuff as before, if it provides half as much again of its own. So each group receives not twice as much as it did before, but just half as much again. The exchange then is on much less favourable terms than find i cr-n expected. Every group is disappointed, optimism is converted to pessimism, and the demand is now apt to be underestimated. Production is reduced. These outbreaks and the swings of business activity that are responsible for them would take place even in a world in which money and banking were unknown. In the actual world, Pro-

feasor Pigou believes they are intensified by reflex price influences. In good times people turn over their balances

more often than usual and also enlarge them by borrowings from the banks. The result is that prices go up. Fixed interest payments, however, do not go up, and wages, though they tend ulti-

matelv to follow price movements are opt to lag behind. So business men in good times secure a sort of bonus if tbe expense of people in receipt of fixed incomes, and in a lesser degree of wa.,,9earners. In bad times bank balances

are turned over less rapidly and reduced in amount, with the result that prices fall. I?tit fixed inteiost payments do not fall and wages, though they tend to fall, again lag behind prices. Business men are then compelled to pay a sort of tax to people in receipt of fixed income and to wage-earners. Their losses are intensified, their discouragement is magnified, and their operations are contracted more violently than would otherwise be needed.

That is the course of recent industrial history. There was the boom following the war. It was apparent that goods would be wanted in the war-ravaged countries. It was forgotten that purchases would be limited not by the desire to purchase, hut by the ability to purchase. Dealers made purchases and placed orders with reckless improvidence. The banks, as the gold standard no longer operated, were no longer forced to protect their specie reserve by their own prudence, and delayed to apply to too exuberant industry the well-tried brake of heightened money rates. At last the weight of accumulating stocks frightened people, the outcry against rising prices swelled continuously, the demand of the labouring classic's for a larger share of the business man’s abnormal profits becamte more .insistent, the banks at length raised their rates; people began to be afraid that the upward movement would not continue. Then the boom broke, o: tiers ceased abruptly, holders of lnrgjp sleek were forced to realise at a loss. Price-; tumbled headlong. Confidence was. shattered, and confidence is the main spring of industrial activity. Tlit main remedy in the opinion <;!" Professor Pigou is a restoration of e u > Science. THE VIEW OF THE MAN OF ; AFFAIRS. | Mr 0. P. Austin, of Now York, on his part believes that the principal fac- j tor in the depression in America is , within the control of the American people. It exists in the unbalanced re- 1 lationship bttween the prices of farm ’ and other primary pre-due s on the one hand, and the prices of manufachirr;! goods, transportation service, and vari- ,

ous other products and services on the other. The farmers of the (United States, he points out, produced in 1921, nearly as much in quantity as in 1919, but that produce had been valued in the exchanges at less .than oner-halt

the figures of 1919. As other products

and services have not declined in like j degree, tliie farmers must buy much less j and all industries are suffering in con- j sequence. .Is ■ not that true also of the j conditions prevailing in Australia? It is useless, -Mr Austin continues, to expect'a return to normal conditions while this disparity of compensation betwfeen j great bodies of producers exists. The j business community should set itself to the task of correcting it. The argument that stock on hand was purchased: at higher prices has lost whatever force it had. Merchants who are interested; in the return of prosperity should do their part for it, and- one of their duties is to reduce operating costs. Mr Austin sees that in large part the situation is chargeable to the action of organisedi.labour in clinging to the wartime wage rates. Raw materials and foodstuffs have had a great decline at wholesale, but between the wholesale markets and the consumers the cost of handling and manufacturing 'has not declined in like proportions. The effect is to obstruct the distribution of goods and throw millions of wage-earners out of employment, at the same time keeping up the cost of living on the entire wage-earning population.-In the aggregate there is no gain, hut a great loss, to the wage-earners as a class. The committee on wages of the American Federation of Labour recently reported to its executive council that the law of supply and demand had long since ceased to function in wage fixing, apart from exceptional conditions. Mr Austin denies the truth of the contention. There was never a clearer demonstration, h 0 says, of the impossibility of defeating the law of supply and demand than is afforded by the high wage rates and the high state of uncmplovment existing in the United States to-day. Labour organisations may think that they arc defeating the law by maintaining a high wage rate, but ftiie law 'is having its wav m the volume of wage payments. Labour would lie far better off with a lower wage rate and more employment, an even those who now diave employment, would lie .compensated by lower living costs. Employers arc no better able to defeat the law than wage earners. ■Early in the depression it was said that the price of iron and steel was so completely controlled that toe industry was immune from extreme fluctuations, and yet prices of iron and . steel products, on an average, have fallen next to the products of agriculture, and when out of pocket costs are considered, scarcely less than these. The greatest gains to the wage-earn-ing class have always come in obedience to the law of supply and demand when business was prosperous, capital was earning good returns, and the accumulations were being invested in the enlargement of industrial works, thus creating new demands for labour. It is impossible Tor an industry to grow and attract labour to it without increasing wages. Individual employers might like to reduce wages, hut anythink like a general conspiracy to reduce wages for the purpose of increasing profits would be defeated by the very fact that profits were increasing. The competition of employers to enlarge their operations ami employ their new capital would induce tliiem to hid for labour. Wage advances invariably accompany capital accumulations, and, cm the other hand, the greatest hardships to labour are experienced when capital is suffering losses, or where, as in Russia, the owners of capital are looted and industry is disorganised and prostrate. All schemes for arbitiaiilj increasing wage rates come to nothing when there is no demand lor labour. Sydney paper.