HIS HONOR’S MEMORANDUM

Otago Witness, Issue 4029, 2 June 1931, Page 22

HIS HONOR’S MEMORANDUM

ANALYSIS OF EVIDENCE. ■ To. the above general, order Mr Justice Frazer has appended the following memorandum:— ■ The Court of Arbitration is empowered, by Part II of the Finance Act, 1931, to amend by general order the provisions of awards, industrial agreements and apprenticeship orders, in so far as such provisions determine the rates of remuneration of workers. The term “ rates of remuneration ” is defined as including, time and piece wages and overtime and any other special payments. The court .is required, before making any general order under the Act, to afford such opportunity as it thinks proper to representatives of the parties concerned to be heard by the court with respect to the amount by which the rates of remuneration should be varied. In accordance with the provisions of the Act, the court appointed May 12, 1931, as the date on which it would hear the representatives of the parties. The employers applied for a reduction of 20 per cent, in all rates of remuneration, and the workers opposed any reduction. WAGE LEGISLATION Before .commencing an analysis of the (evidence and argument submitted, it is desirable that I. should make a brief survey of the legislation relating to the adjustment of rates of remuneration during the currency of awards and industrial agreements. Before the World War of 1914, the court had no power to increase or reduce wages during the currency of an award, except with the consent of all parties. Between 1914 and 1918 the court, when making new awards, added a “war bonus” to the rates of remunera- . tioh prescribed by awards, and that bonus remained unaltered until fresh awards

were made. Tn 1918, the War Legislation and Statute Law Amendment Act was passed, section 18 of which empowered the court to amend the provisions of current awards and industrial agreements in so far as they related to hours of employment and rates of remuneration. In exercising the powers conferred upon by tiie Act, tlie court was required to take into consideration any alteration since the date of the award or industrial agreement in the conditions affecting the industry concerned, and any increase since the date of the award or industrial agreement in the cost of living affectin'” the workers concerned; and if, having regard to these and to all other relevant con siderations the court was of the opinion that it was just and equitable to make an adjustment, it was empowered to do so. Luder this legislation the court from time to time increased the rates of remuneration payable under awards and industrial agreements, until, at the peak of November, 1920. the general minimum rate tor unskilled workers, which had , ve J’sJe e , (l ls . Per hour in 1914, rose to Is 10:,d per hour, and the general minimum rate for skilled workers, which had been Is 4-ld and Is 6d per hour in 1914, rose to 2s 32d per hour. It is to be noted that the legislation empowered the court to take into consideration onlj’ such increases in the cost of living as had taken place since the dates of.the respects e awards and industrial agreements, ine court, however, increased . the stanIn. ‘Tn frolu time, to; time, independent Ij ot the epst-of-1 lying bonuses, and by this means ' relieved the workers.-of a Luger part of the burden of the increased cost of Lving. In 1920. the War LegislaVoi'o Sta tute Law Amendment Act of 1918 was amended, and the followin'” provision was substituted for sub-sections 3 and 4 of section 18:—

Jhe powers conferred on the court by tins section are discretionary, and mav be exercised only .if the court, a !. ter taking into consideration anv alteration since the date of the award or agreement in the conditions affectin'” the industry or industries to which such award or agreement relates, and anv increase -or decrease since the date of the award in the cost of living affecting the workers or any class of workers em gaged in any such industry or industries, and all other relevant considerations, is satisfied: (a) That it is just and equitable to the employers and the workers in such industry or industries that the award should be amended; and (b) that the economic continuance ot such industry or industries will not be unduly imperilled by the effect oi any such amendment on the cost of production: Provided, however, that any award or agreement made under this clause shall ptovide for a fair living wage for the workers engaged in the industry or industries concerned.

Under this provision the court stabilised wages for 18 -months (November, 1920, to April. 1922), by setting off an increase in March, 1921, against a reduction in September, 1921. In 1922, the Industrial Con eiliatiou and Arbitration Amendment Act, 1921-22, was passed, which repealed the earlier legislation, but still empowered the court to amend current awards and industrial agreements. Section 9 (2) of this Act provided that the court should, in exercising its powers of amendment, have regard to any increase or decrease in the cost of living since the half year ended on September. 30, 1920 (the period on the statistical returns of which the stabilisation referred to was based), and to th? economic and financial conditions affecting trade and industry in New Zeaand all other relevant considerations; and the court was empowered to make, by general order, such increase or reduction in the rates of remuneration payable under the provisions of awards and industrial agreements as it thought just and equitable, having regard to a fair standard of living. In May, 1922, a considerable fall in the cost of living having taken place since the base period, the court made a general order reducing wages by lid per hour, the exact amount indicated by-, the movement in the cost of living statistics. In November, 1922, a further fall in the cost of living had taken place, and' the court made a further order reducing wages by 2d per hour. The general minimum rate for unskilled workers thus became Is B|d per hour, and that for skilled workers 2s l?d per hour. In April, 1923, a further reduction of id per hour was found to be justified by the cost of living statistics, but the court- decided not to make an order enforcing it. .. In October, 1923, a flight increase in the cost of living figures reduced the decrease represented by id per hour, to 2d per hour, and again the court decided not to make an order. On December, 1923, -th special legislation expired, and was not re-enacted. From that time until the passing of the Finance Act, 1931, the court had no power to aiiiend rates of remuneration during the currency, of awards and industrial agreements without the consent of all parties

thereto. The court, however, in the exercise of its genera) wage-fixing jurisdiction. added 2d per hour to its rates when making new awards after 1923; and in September, 1925, it issued a pronouncement in which it indicated its intention of adding a further Id per hour to its rates. During the whole period from 1923 to 1929 the cost of living remained almost stationary at a point slightly over 60 per cent, above the 1914 level. The general minimum rates since the court’s pronouncement of 1925 became effective have been, and still are, Is lOd per hour for unskilled workers and 2s 3d per hour for skilled workers, the former rate being approximately 60 per cent, above the corresponding average rate for 1914. The Finance Act, 1931, while re-enact-ing many of the provisions of the expired Act of 1921-22. omits all direct reference to the cost of living and a living wage. It directs the court to take into account the economic and financial conditions affecting trade and industry in New Zealand, and all other considerations which it deems relevant and empowers the court to make such an order as it thinks just and equitable. I interpret the Act as making the economic and financial conditions affecting trade and industry the paramount consideration, though, of course, any wage-fixing tribunal must nec-essarily have regard to such considerations as the cost of living and a living wage. They are relevant considerations, but are not over-riding considerations, as was the case under the expired legislation. The present Act imposes on the court the duty of adjusting wages to economic possibilities; but nevertheless it requires the court in so doing to have regard, as far as possible, to the maintenance of a reasonable standard of living of the workers. It is from this point of view that I approach the case presented to the court for an adjustment of current rates of remuneration.

REPUDIATION OF CONTRACTS A preliminary issue—that the Finance Act, in so far as it empowered the court .to adjust the rates of remuneration prescribed by awards and industrial agreements. involved a. repudiation of contracts —was argued as some length. The issue was really irrelevant to the present proceedings, for a court is not entitled to go behind the Act that it is required to interpret and administer. However, it is perfectly clear that an award or an industrial agreement is not a contract, but merely a document setting out the minimum terms and conditions upon which a contract of service may be entered into. The Court of Appeal has described the making of an award as the exercise by the court of a delegated legislative power, and it has defined an award as an extension of a statute. It is only when an offer of employment has been made and accepted that a contract exists. It is further to be noted that the amendment of rates of remuneration during the currency of awards and industrial agreements was the subject of legislation in New Zealand as long ago ns 1918, and has been so in Australia for several years, without any suggestion that an adjustment of rates involved a repudiation of contracts. FALL IN NATIONAL INCOME The employers’ advocate, Mr Bishop, stressed the falling off in the national income during the last two years, and the position of the primary producer. The witnesses called by him gave detailed evidence in support of his arguments. The substantial nature of the reduction of the national income is indicated by the recorded values of imports and exports for the past three years, as shown in the table appended:—

In two years the exports of the Dominion have dropped in value by over £17,500,000. The total of exports and imports was under £78,000,000 for the year just ended, while it averaged over £95,000,000 for the 10 years from 1920 to 1929. New Zealand is dependent to a greater extent than most countries on het; external trade, for she must seek markets abroad for the bulk of her produce, and must import a large portion of the manufactures she requires. In the existing state of development of the Domonion the volume of her external trade is, apart from special circumstances, an index of her prosperity. An important factor to be considered in conjunction with the movement of exports and imports is the interest charges on the national and local body debt payable outside New Zealand. A sum of about £8,000,000 a year is required for this purpose. During the past 10 years the_ national debt increased by about £6,500,000 a year/ which was, in effect, an addition to the national income of that amount, for it was an addition to the national spending power. Now, of course, overseas borrowing must of necessity be severely curtailed, and it is manifestly undesirable, if it can be avoided, to withdraw from the country’s financial resources, by Government borrowing, money required for industrial purposes. The result is that we must face the payment of interest charges on our externally domiciled debt out of a greatly diminished national income. The figures quoted are eloquent, and no comment is required to increase their impressiveness.

New Zealand, in common with Australia, the Argentine Republic, and other primary producing countries, is suffering severely from the drop" in the prices obtainable for her primary products in the unsheltered markets of the world. The whole world is suffering from he depression, and the conditions prevailing everywhere are naturally reflected in the markets upon which we depend to absorb our surplus production. There is little room for doubting that the world has entered upon a period of general deflation. We have been accustomed to alternating periods of rising and falling prices, but all the indications point to a general reversion to a permanently lower level of prices. I have, on a former pccasion, quoted a remark of Dr Kemmerer, professor of economics at Princeton University, U.S.A., to the effect that inflation, like alcohol taken in excess, produces a temporary exhilaration and a sense of well-being, but is sooner or later followed by deflation — a painful process, but in-

evitable—which may be likened to the alcoholic’s “morning after the night before.” A PERIOD OF DEFLATION If, as I think, we are now passing through a period of general deflation, it is necessary to consider all possible means for easing the painful process and for getting over its effects as quickly as possible. It is impossible to evade it, and palliatives are futile. Our primary products—wool, butter, cheese, meat, flax —have been the first to meet the blow, which has fallen with unexpected suddenness and severity. Sooner or later the prices of farm products and those of manufactures must equate to a common relative level, and it is necessary that this fact should be clearly recognised in a community such as ours, the greater part, by far, of whose income is derived from the sale abroad of its primary products. The sooner the adjustment is over, the sooner we shall return to normal conditions of prosperity, and the sooner will our industries be able to absorb a large percentage of those now out of employment. With a general reduction of our national income must come a general readjustment of the distribution of that income. Wages are, in the ultimate analysis paid out of the proceeds of production, and the proceeds of production are barely two-thirds of what they were a year or two ago. The capital losses on representative industrial and commercial stocks during the past 18 months have been from 20 to 50 per cent. In consequence, it is difficult to attract capital to commercial enterprises and the difficulty will continue until a readjustment is effected, or, at all events, is in sight. While I believe that in the public interest it is desirable that industry should pay the highest possible wages, I realise that there is a general tendenscy to overlook the significance of the important word “ possible.” I do not believe, however, that what Henry Ford could do, in the way of raising wages in a period of temporary depression in the motor building trade, can be done in a general way in a primary producing country, in a time of world-wide deflation. Henry Ford was dealing with a highly organised industry under mass production conditions and with a vast undeveloped market. His policy, though doubtless sound at the time, and in regard to his special circumstances, cannot be generally applied, and the position of wages and unemployment in the United States of America to-day is the best proot of this. If wages are artificially maintained at an economically impossible level, unemployment and the competition of imported commodities with otfr own manufactures will increase, fresh capital for further development of our industries will not be forthcoming from profits, and recovery will be delayed. Primary production, which depends very largely nowadays on the adoption of modern methods, will fall back, because of the lack of funds with which to farm the land scientifically; and the principal source of our national income will become still further depleted. If mal-adjustment exists, as a result of changed world conditions, it must be corrected before we can expect to get back to a sound basis; and no sophistry can disguise the truth of this proposition. EFFECT ON PRIMARY PRODUCTION The workers’ advocates contended that a reduction in money wages would not materially assist the primary producer, while it would detrimentally affect internal trade by diminishing the purchasing power of the community. It is true that the average farmer will not be assisted to a great extent by a reduction of money wages payable under awards and industrial agreements, if the reduction be regarded as applying only to wages directly paid by him, The wages and conditions of ordinary farm labour are not regulated by awards of this court, and it is only in respect of certain casual and seasonal branches of farm work such as mustering, shearing, and threshing, that the farmer comes under the direct jurisdiction of the court. He is, however, indirectly affected by the wages and conditions prescribed by the court for workers in meat freezing works and in cheese and butter factories in which the produce of his land is prepared for market. He is indirectly affected, also, by the wages cost of transport and distribution. As a consumer, of course, he is indirectly affected by labour costs in all his purchases, whether for his own domestic consumption or for the working of his farm. Even in respect of goods that are not manufactured in New Zealand, a percentage of their cost to the farmer must be allotted to labour costs of transport, handling, and distribution in this country. / While it is true that a reduction in the rates of remuneration payable under awards and industrial agreements will not materially benefit the farmer as a direct employer of labour, it is equal!}’ true that he will derive a considerable indirect benefit from such a reduction.

The position of the farmer to-day is clearly indicated by the index figures of export prices, as compared with general farm costa and retail prices. Taking as a base the average of export prices for the five years from 1909 to 1913, and giving them an index figure of 1000, we find that the figure rose to 1613 for the year 1929, while for January, February, and March of 1931 the corresponding figures were 967, 972, and 951 respectively. With general farm costs and retail prices standing at a figure of approximately 1500, the farmer’s purchasing power is reduced by more than a third below his pre-war purchasing power. Hia income is actually less than it was in 1914, but he has to pay 50 per cent, more for everything he buys. It was argued by the workers’ advocates that the farmers’ principal burden was excessive land values and high interest rates. The excessive land values have, however, been very largely written down in recent years. Mr W. D. Hunt, who was a witness for the employers, testified that they had disappeared altogether, or almost altogther. Interest rates, however, remain high, though the evidence showed that in many cases mortgagees were,meeting their mortgagors in a spirit of fairness, and adjusting mortgage debts as to both principal and interest. Neither Parliament nor this court can control interest rates. They depend on the relative supply of and demand for loanable capital. Apart altogether, however, from the relief given to mortgagors by the legislation recently enacted for

their benefit, mortgagees seem generally to have realised that it is to their own interest to make arrangements with their mortgagors, instead of having the mortgaged properties thrown back on their hands or endeavouring to sell them on a repressed market. STANDARD OF WAGES

The contention that a reduction in 1 ates of remuneration would detrimentally affect internal trade by lowering the purchasing power of the community is so often put forward that it is necessary to examine it closely. It may be conceded that if wages generally were reduced from a standard that industry could reasonably afford to pay to a lower standard the contention would La sound. If, howevbr, the existing standard of money wages is too high to be maintained, in view of the general economic and financial conditions affecting trade and industry, the cost of production checks consumption, and consequently checks further production; and the check is followed by unemployment, rationing of work, and reduced aggregate earnings of capital and labour.. The maintenance of an uneconomieally high standard of money wages in such a- case means a reduced output and a reduced aggregate purchasing power, while a reduction of money wages to an economically justifiable standard stimulates consumption, and, in its turn, production, and provides a greater purchasing power for the community in general. The reductions in award ratea of wages in New' Zealand necessitated by the depression of 1921-22 were followed within two years by an increaso of 7345, in the number of workers employed in manufacturing industries and an increase of £896,065 in the amount of wages paid. The workers’ advocates laid some stress on the position of the bondholder, and argued for equality of sacrifice. They did not suggest the adoption of a policy of repudiation, but it is difficult to se<j how the position of the bondholder can bo assailed without repudiating, wholly or in part, the bond. As a community, we have borrowed money in the world’s money market, and every class of the community has reaped a -benefit from tho expenditure of that money. Much of it has gone in providing employment and wages for our workers. Apart from the moral duty to honour our obligations, there is the certain knowledge that repudiation would deal a more serious blow to our national credit than any temporary gain would compensate for. ’ Further, as Mr Bishop pointed out, who are the bondholders, in many cases, but the workers themselves,, whose savings are represented by funds in the hands of the life insurance societies, the savings banks, and the public trustee? There are alternating periods of dear money and cheap money, as regards both its purchasing power and the rate of interest at which it can be borrowed. Sometimes the advantage is with the lender, sometimes with the borrower. There are now some indications that justify the expectation of lower interest rates in the not far distant future. COST OF LIVING PROBLEM The point most stressed by the workers’ advocates was the relation of the cost of living to wages. As I have already pointed out, the cost of living is not, under “The Finance Act, 1931,” to be regarded as the dominant consideration in adjusting rates of remuneration. It is, however, a relevant consideration. Under the expired legislation, when the movement in the cost of living was affected by somewhat different world conditions from those now prevailing, the court adjusted wages upwards and downwards in accordance with the movements in cost of living statistics. The basis adopted was the six-monthly average. In view of the general and continued drop in world prices, and the lower rates of wages paid in other countries, it does not appear to me that either the six-monthly or the monthly figures should be rigidly adhered to. However, the statistics show that the cost of index number fell from 1607 in 1929 to 1550 in the November quarter of 1930, to 1504 in the February quarter of 1931, and to 1491 in the month of March, 1931. Weekly money wages, for all adult male workers, stood at 1660 in the December quarter of 1930. The base in the case of both the cost of living statistics and the wages statistics is 1000 as at July, 1914. The accuracy of the wages statistics was questioned by one of the witnesses for the workers, but the Statistical Office has since informed the court that an apparent discrepancy between the present figures and some figures published earlier is due to the introduction of a system of weighting. within the occupational groups into which the workers are divided, and that the present figures are accurate and comparable year by year. If we examine the two sets of statistics, it appears that a deduction of 8 per cent. from the average rate of wages computed on a weekly basis will leave approximately the same purchasing power as in July. 1914, if the calculation is based on the combined cost of living index numbers for the November quarter of 1930 and the February quarter of 1931. If the March, 1931, cost of living index number is taken, a deduction of 10.2 per cent, from the average rate of wages will leave the same purchasing power as in July, 1914. It is, however, not reasonable to adopt the average wage for all groups of workers as d? basis of calculation, for the court has since 1914 increased the rates of several classes of workers who formerly were relatively underpaid, with the result that the general average rate is 66 per cent, above that of 1914. while the rate of the unskilled

worker —the so-called basic rate labourer only 60 per cent, above that of 1914. A deduction of 4.6 or 6.8 per- cent, from the unskilled worker’s present rate will leav e him the same purchasing power as in July, 1914, the calculations being based on the respective cost of living index numbers for the November, 1930, and February, 1931, quarters combined and for the month of March, 1931. The deduction justified by the cost of living statistics, taken by themselves, is therefore 4.6 or 6.8 per cent, according to the basis. The court, however, as I nave already said, is required to regard the movement in the cost of living as a relevant consideration, but not as the para mount or over-riding consideration. It is a circumstance to be taken into account, but it is not to be the dominant factor. EQUALITY OF SACRIFICE I have already referred to the claim of the workers’ advocates for equality of sacrifice. Their contention may be summarised thus: that when prices were rising, the workers did not receive wage increases sufficient to compensate them fully for the increased cost of living, while their employers made large profits; and that now, when prices are falling, and profits are smaller, the workers should not be required to accept lower wages. It is true that award rates of wages lagged behind the rising cost of living during the period 1914 to 1920; but the award rates were generally regarded as true minima, and most workers received considerably higher rates. In 1922, dealing with this contention. I wrote: Admitting that the award rates did not in every case keep pace with the rising cost of living, there were many factors beneficially affecting the real earnings of the workers. Employment was plentiful, and there was a great diminution of casualness of employment. The award rates were true minima and very many workers received substantially higher wages. Overtime was regularly worked, and was paid for at higher relative rates than in pre-war times. In many occupations young lads became self-supporting almost as soon as they left school, and so relieved their parents of the burden of their maintenance. Hours of work were shortened, and conditions of employment were improved. Unskilled and semi-skilled workers were often able to command skilled workers’ rates of pay. All these factors must be considered before _we can affirm that • wages did not, during the period of rising prices, keep pace with the increasing cost of living. When we make proper allowance for these matters, we cannot say that the real earnings of the average worker did not keep pace fairly well with the increased cost, of living during the period of rising prices except, possibly, for a few months at the peak of prices. The volume of retail trade, the increased attendance at entertainments and race meetings, and the general appearance of prosperity all indicated that purchasing power was not diminished, but rather enhanced. PURCHASING POWER OF WAGES ; Since 1927, the average purchasing f>ower of wftges has exceeded the relative evel of 1914, and is to-day substantially in advance of it. Yet during the past two years there has been a drastic contraction in capital values and profits. Those workers who. were in steady employment were relatively in a better position than they occupied in 1914, while capital lost heavily and the position of the primary producers became critical. Companies are in many cases to-day paying reduced dividends or no dividends at all. It cannot be seriously urged that a reduction of approximately 40 per cent, in the value of our exports does not mean a very serious sacrifice to the primary producers and to the country as a whole. The burden of taxation, which has been increased and probably, will be still further increased, falls principally on other classes of the community, than the workers. Even Customs taxation has been saved to the. workers, through their wages rates being adjusted more or less in accordance with retail prices. It is impossible to keep wages any longer at an uneconomic level. In this connetcion I quote the following passage from the Monthly Summary of the National Bank of Australasia, Ltd.. for December, 1930: —

Wages are at an uneconomic level when they increase the cost of a product beyond the cost of a similar product in other parts of the world. It is sometimes sound policy to foster or maintain an industry even at some economic loss, for other than economic • reasons. Considerations such as defence or the continuity of supply of neces- ■ saries .during time of war, or even the desire to furnish greater diversity of ■ occupation to a country’s inhabitants, may justify such a policy. Wages in an industry so fostered, if they conform to the general standard of wages in the country concerned, may be uneconomic, but, nevertheless, they may be justified by non-economic considerations. There . are many excellent arguments, in favour •of the protection of local industries, ■ but when the system is utilised not only to secure the home market but also to support an uneconomic standard of ;wages throughout, the .entire range of :. manufacturing industry, it becomes exceedingly dangerous. In such circumstances, the whole of the excess cost must ultimately fall upon the unshel- ; . tered and unprotected producer.

FINANCIAL INSTITUTIONS’ PART In the same issue of the Summary the following passage appears, which sufficiently answers a suggestion made by one of ’the workers’ witnesses that the banking institutions were in some way responsible for the present depression:— In the midst of these difficulties we have people who are willing to proffer any nostrum or advocate any wild scheme which might have the effect of postponing those courses of action which alone can restore economic health. To gain a hearing they make the wildest and most foolish allegations against those who are in any wav controllers of industry and finance. They suggest that capital has not suffered through the collapse of prices and the general depression. They make absurd and absolutely unsubstantiated statements that a. conspiracy exists between the financial houses of Australia and the Old

World, aimed at the workers’ standard of living. -Of course, these allegations are nothing but absolute humbug and have not a shred of fact to support them. Everybody who has eyes to see must know that capital has lost, and is continuing to lose, severely through the present depression. The outward signs are too plain to be missed by anybody who has eyes to see. They include: — Falling values of products. Fall in prices of stocks and shares. Idle factories, machinery, and plants. Smaller outputs and sales pf goods. Reduced margins between costs and selling prices. Failures to earn dividends, accompanied by long series of actual losses. Many. bankruptcies, assignments, . liquidations, etc. We know for a fact that all the large commercial interests in the principal trading countries of the world —England. U.S.A., France, Germany, Italy, and Australia—are working persistently and strenuously in an endeavour to check the depression and open the way to a new. prosperity. Another thing which is sometimes lost sight of is that commodity prices and wages could both show a more or less downward movement without the standard of living being seriously impaired, But what se_ems more important than the maintenance of any arbitrary standard of living (if there really can be such a standard) is that wages and their purchasing power are largely dependent on local and overseas conditions generally, and it would be an advantage to have the whole of our people fully employed, even at a somewhat reduced wage rate, instead of the present condition with its extensive unemployment and part-time working. Another factor persistently avoided by Labour leaders is the lose of workers incomes owing to unemployment and short-time working. It would undoubtedly be far better for all concerned it total wages were spread over the whole working group rather than a portion ot it. The resultant gains in output and reductions in prodr tion costs would lead to increased demand and lower selling prices. Seeing that the working classes provide the bulk of the market for goods produced, it is clear that they could not fail to gain as this process extended.

Both the employers’ and the workers' advocates quoted extensively from an article on “ Gold and the Price Level ” by Sir Henry Strakosch, which appeared as a supplement to the Economist of July 5, 1930. The writer discussed the effect of even a small fall in the general level of commodity prices on the profits of enterprise, assuming that production and money wages remain constant. Referring to the fall in commodity prices in Great Britain, which amounted to 16 per cent, in 17 months, he says: — Little imagination is required to visualise the many implications which spring from this state of things. Thus it is clear that industries which are most vulnerable to competition are the first to suffer, and that, failing very large resources to meet losses, they are quickly reduced to impotence and compelled to suspend operations. Unemployment is the result, but that unemployment is not merely confined to the particular industry that has to suspend operations, but spreads over most other industries, for the suspension of operations by one industry immediately reacts on others through the curtailment of the requirements by the former of goods produced and services rendered by the latter. A reduction of money wages, possibly to a level constituting a debasement o'f the standard of living, becomes inevitable. READJUSTMENT ESSENTIAL I do not wish it to be thought that 1 consider it necessary to bring about a . Permanent reduction of the standard of living of the people of New Zealand, even though I am unable to accept the cost of living statistics as the sole basis of wages adjustment. When the disturbing concomitants of deflation have passed away, and the levels of wages and prices have adjusted themselves, the standard of living should not necessarily be any lower than it has been in the past. A wise man does not capitalise on inflated values; that is, he does not embark on extensive operations until conditions become stable. As I have alreadj’ indicated, it _ is probable that an adjustment of prices and wages to meet world conditions will give an impetus to industry, where at present there is a distinct hesitation to. make any forward move." Thus purchasing power and real wages, as distinguished from nominal or money wages, will tend to increase. Once the necessity for an adjustment becomes apparent, temporising and failure to realise the needs of the situation are far more likely to have a lasting prejudicial effect on the standard of living of the community than is the adoption of prompt and efficient measures designed to bring about a speedy economic readjustment. It may be desirable to point out that inflation is to some extent inevitable. By inflation, I do not mean a deliberate dilution of the currency by means of manipulation of the note issue, but the creation of an artificial purchasing power, and the enlargement of credits that form the basis of the currency. Keynes defines inflation as a relative increase in the supply of purchasing power in relation to goods and services. Mr Arthur Salter, in testifying before the United States Foreign Currency and Exchange Commission of 1925, said, “The inevitability of inflation cannot be stressed too much. There is still too. great a disposition to regard it merely as a financial vice, .n--flation is in my view the inevitable complement of war or post-war loans.” The recent announcement that the Bank of England rate had been reduced to 2J per cent, is regarded by economists as a hopeful sign. A reduction in the bank rate is an indocation that money is becoming easier, and in the course of a few months the reduction may be reflected in greater financial facilities being available to trade and industry, with a corresponding enhancement of the prices of our primary products. It is idle to hope for a recovery to the price levels of a few years ago, but an improvement to a standard approximately 25 per cent, above

that of 1909-1913 is not beyond the bounds of reasonable expectation. Whatever the new level may be, however, costs generally must adjust themselves to it, and normal conditions of prosperity will return. TEN PER CENT. REDUCTION . am convinced that it is economically impossible to maintain money wages at their present level. The substantial reduction in the national income and the generally lower level of world prices, call imperatively for a reduction of all costs, including wages. The only question is the amount by which the rates of remuneration should be reduced. The employers’ advocate asked that a reduction of 20 per cent, should be made. It must be borne in mind, however, that award wages are in the majority of cases regarded as minimum rates, and that in normal times very many’ workers receive wages in excess of award rates. This margin has been cut down during the past year or 18 months, so that a considerable number of workers in employment have already had to face some percentage of reduction in earnings. The economic and .financial conditions affecting trade and industry, taken alone, doubtless justify a reduction of 15 or 20 per cent, in award rates, if we assume that those rates are representative of the actual levels of wages now and 18 months ago; but 1 think that an allowance should be made for the admitted, though unascertained, drop that has already’ taken place. A reduction of award rates i y per cent, would inflict a serious hardship on those workers whose rates have already been reduced to award levels and more especially because such a reduction would involve a considerable reduction in the standard of living below that indicated by the cost of living statistics. I have also to consider the”position of those workers who are paying off tlie purchase money of their homes, though not all the houses were bought at the peak of prices, housing costs are fixed charges, and represent the largest single item of domestic expenditure. In my opinion, it is undesirable that thrift should be discouraged, and I think that a reduction of 20, or even 15, per cent, .would tend to produce that effect. I have come to the conclusion, after weighing all the considerations involved, that a reduction of 10 per cent, in all rates of remuneration fixed by awards and industrial agreements will give relief to producers and consumers, by lowering the costs of

production and distribution, and will not inflict undue hardship on the workers. A smaller reduction would not give the neces-

sary relief, and it might not be possible to pass it on.

I do not think that I am exceeding my duty in urging all manufacturers” and traders to pass on to their customers the benefits of reduced costs. By so doing, turnover and net profits will be increased’ and the standard of living and the purchasing power of the community’ maintained. If manufacturers and traders seek to retain the benefit of reduced wages costs as a setoff against past losses, the adoption of such a policy will in the long run certainly react to their detriment. It is by’ giving consumers the commodities and services they require at the lowest possible prices that their own -interests will be best conserved. EXEMPTIONS EXPLAINED In conclusion, I desire to make some explanatory references to the formal order to which this memorandum is appended. The reduction of 10 per cent, applies to all rates of remuneration, which term includes time and piece wages, and overtime and other special payments. The Shops aud Offices Act. and the Factories Act, however, fix minimum rates of wages and overtime for certain employees, and clause 2 of the order provides that no reduction may be made that would bring the rates payable below the rates fixed by any Act. Clause 3 excludes the Wellington flaxmills award from the operation of the order. Wages under this award were reduced by 33 1-3 per cent, in December last. Clause 4 safeguards existing contracts of apprenticeship. The Act itself safeguards, contracts of apprenticeship entered into under the Apprentice Act,. 1923, but . the order extends a. similar protection to all apprenticeships. Female apprentices are not, in the majority of cases, employed under the provisions of the Apprentices Act, 1923, and the court has thought it equitable to place these apprentices in the same position as other apprentices. Clause 5 applies i n the case of a few awards, in which provision is made that wage increases shall not apply in the case of workers engaged on existing contracts. The court has applied the converse principle to the workers engaged on contracts now existing, thus, setting off an increase against a reduction. . The order now made represents the decision of a majority of the court. Mr Prime is in general agreement with the views I have expressed, and his opinion is subjoined. Mr Monteith dissents from the views of the majority of the court,

and his dissenting opinion is also subjoined.

Year ended Imports. Exports. March 31. £ £ 1929 .. 45,105,865 57.154.343 1930 .. 49.167,914 49.045,817 1931 .. 38,300,807 39,527,784