WELLINGTON NEWS

Hokitika Guardian, 20 May 1931, Page 7

WELLINGTON NEWS

ECONOMIC FALLACIES

(Special Correspondent.)

WELLINGTON, May 10

Some absurd .economic beliefs are entertained by the so-called leaders of the Labour Party, and that is mainly due- to the fact that besides their colossal ignorance of economics they suffer from economic myopia. It is abundantly clear that all costs must be i-educcd so that our export primary industries may be able to compete profitably in the open market. The (reduction of costs would also” have the effect of lowering t! jo prices of good s manufactured in the Dominion. In reducing costs it is inevitable that salaries fm { j wages must be reduced because they form s° large a percentage of costs. If as the result of the lowering of costs prices of commodities fall relatively then it must be obvious that the purchasing power of the reduced salaries and wages will not have been affected, that is to say that they will go as they did prior to the reduction.

Some workers tvaiit commodity prices to come down first before thct'e is aiiy reduction in wages, To a ceitain extent that has tllteudy happened with I‘e.Spect to farm produce, hence the expanding volume of unemployment, If a local manufacturer is to earn a profit the price of his goods must include the cost of production p»us other incidentals. If he were to reduce his prices in the hope that costs would fall he would lose heavily besides proclaiming himself a firstclass fool. For locally produced goods to bo sold cheaper their production must be lowered, and costs of production wages form a very big per cent. It is axiomatic that prices / of commodities must advance before wages rise, and wages must fall before prices of commodities fall. There is a lag in each case but the lag.in the latter ease is very lengthy. In resisting a reduction in wages workers are resisting the cheapening of commodities and the cost of living. There is an idea prevalent amongst tile economists in the Labour Party that Parliament can bv Act regulate the rate of interest. This is a closelynursed fallacy. The price of money, like the price of labour, or the price of butter, is subject to the law of supply and demand. Money is dear in New Zealand and Australia a s compared with London, Paris and New jYork, and the law of supply and demand governs the situation in al] centres and there is no doubt that psy s ology plays nn important part.

Money is dear in the Dominion ' because the national income hits tletTettfied by liiiiny itlilHcnfc, hiid while there is a contraction, in the supply the demand has increased because so hiah.V’ farmers (iu c ] others require funds to carry them over this period of stringency. Besides this the Government is in urgent need of funds and is offering of per cent, debentures at par over the Treasury counter. If on e can get such gilt-edged security who would risk lending on mortgage at 7 per cent, or ceen 7\ per cent, with the risk of Parliament stepping in and varying the contract entered into 1» mortgagor and mortgagee. The State is offering 5j per cent, in the hope of attracting all the surplus idle funds that may exist. This is forcing hanks and mortgage and other companies that must deposit, to carry on their special class of business to offer equally attractive rates as the State, and if their deposit rates are glow their lending rates must necessarily be slow. If Parliament attempted to regulate interest, and if the rate fixed by the Legislature was below the rate ruling in their countries, capital would soon disappear. The mere fact that Parliament intruded to interfere in this matter would cause such a shattering of confidence that lending would practically cea s e.

All absurd suggestion was made to the Prime Minister the other day by a deputation representing the Trades and Labour Councils Federation, that the Government should regulate the profits of industry in the interests of wage-earners. It is a fallacy to sup’ pose that excessive profits can be made in ally industry except by vii** tue of ft monopoly or trust, If the profits in ally industry ate known to be large, competition, is quickly forth--coming, and the alleged large profits are shared by an increasing number the workers benefit for the increased competition involves increased cost in which the workers share. It is a good thing for a community to see the retailers and wholesalers in their midst making steadily increasing profits for that will induce them to spend some part of their profits in expanding their busine s s, which means more work and the distribution ot more wages.