Economic Fallacies

Dominion, Volume 24, Issue 184, 2 May 1931, Page 20

Economic Fallacies

REFERRING to the common mistake that a reduction of wages must curtail the market for goods, Mr, Percy Wallis, F.S.S., writing in the “Wallis Index Cotton Circular,” says;— “This ought to be only a popular fallacy, but is widely accepted. Our ‘economic skill’ is. certainly at a very low ebb If we still believe it to be true- it is perfectly easy to ‘forecast’ tho exact change In the ‘demand 'for motors —which would be made by a ’large cut in Civil Service salaries." The clrnnge would be nil. Civil servants might have loss, but the taxpayer must have exactly that more. ‘The cost of production must be reduced,’ says Dr. von Siemens, although he really means wages and other costs must bo reduced so as to leave a profit if the’ ’disaster of unemployment Is to be remedied-’ if the cost is reduced and the price also reduced, the total sales are less, but so are the wages,” salaries, ’and profit. “The purchasing, powey in relation to’the’goods is exactly-the same. If the cost is .reduced and the price unchanged the, profit is larger, The purchasing power is not altered, because what is lost by wages is .transferred

to profits. The two sides must always.be exactly equal. There never can be, and never has been, any difference between the selling price and the wages, salaries, and profits which make up the other side. “We have only to glance at any trading account to see that the two sides must be equal; in fact, if they do not balance to.the Inst penny we know a mistake has been made. The fall In price has not reduced the total purchasing power. The alteration is in who has the purchasing power. Falling prices never made a trade depression; it only reduced profits and raised wages. “The fall in profits makes the depression, If the employer gets no profit he ceases to be an employer, and his workpeople are unemployed. The. two sides still remain exactly’equal: The purchasing pon'er Is reduced by the lack of employment, and also the the same amount. The dole makes no difference. The larger the dole the higher the taxes: the two aides are still equal. The unemployed has more, the taxpayer less,”