PRICE-FIXING

Dominion, Volume 29, Issue 200, 21 May 1936, Page 8

PRICE-FIXING

Its Aims and Likely Achievements STATUTE LAW CANNOT OVER-RIDE ECONOMIC LAW I.

t By

Scrutator.)

Economic policy is not a matter of deciding on an objective, putting that objective into words aud putting those words on the Statute Book. You cannot say, as King Canute to the waves, “Let this be done,” and it will no done. Au economic objective will prove as elusive to the pursuer as soap that has broken loose in the bath. Grab it aud it will just slip from your lingers. If you would catch it you must take thought beforehand to prevent its escape; you must first strain legs and arms all round it, and even then when you grasp, it will probably slip gaily through an unsuspected gap. So with economic measures —they are not fixed and static steps in any welldefined direction, but each has ramifications which, in their ever-widening application often destroy the intention of the original measure.

Such a drama is being played before us to-day. The Government has decided to set about raising the worker’s standard of living, but it is finding the project harder to carry out than it was to talk about. The fact is that our economic system and not the Government dictates the worker’s standard of living. His standard is determined not by legislative decree, but by the operation of certain laws and processes of our economic system, chief among which are the productivity of the worker, the rate of investment, and the degree of enterprise and amount of capital existing among employers. Only indirectly by influencing any of these factors can a Government affect the worker’s standard. We would expect that direct attempts to raise this standard would defeat themselves, and this, we shall see, is exactly what they are doing to-day. Move and Counter-move.

So the drama opens, and the Government makes the first move by raising wages, either introducing a shorter working week at the same wage or directly increasing wages. The second move is equally simple—the system retorts by raising pieces in response to higher costs till the old equilibrium is restored. But the Government has its third move ready; it will secure its objective and check rising prices with price-fixing legislation. This is the stage we have reached to-day, and at a first sight it looks like a final victory for the Government in securing a raised standard. But is this the last move? Is it an effective checkmate? No. for further reactions will follow. The fourth and final move depends on the price that is fixed in individual industries. In general, it may be stated that, as wage increases do not increase the net product of industry, any improvement in the worker's standard must be at the expense of profits. As well as desiring to raise the worker’s standard, Mr.' Savage has promised that the trader’s “fair profit” will be preserved. He bus promised to the worker a higher standard and to the trader his “fair profit.” Lie may bo able to achieve this object in a very small minority of industries, in which even the least profitable firms show a surplus profit; but in general he will find these aims incompatible. In fixing prices for an industry, you are not fixing a different price and “fair profit” for each individual firm, but yon are fixing one price for a number of different firms with differing costs. There may be individual firms within that industry which are making excessive profits. But the firm on whose cost schedule you must estimate “fair profit” and “fair price” is not the firm that is making the biggest profit, but the firm that is making the smallest profit. Unless the figures of this “marginal firm” are taken as a basis, it will be driven out of production, and increased unemployment will result. Wages, Profits and Unemployment. While everyone can point to a few striking individual firms that are making what everyone but their directors would deem excessive profit, very few can point to an industry in which the least profitable firm is making such a profit. And it is only in this latter case that the Government can increase wages without reducing profits to a level that will create extra unemployment. It is only through such reduced profits that the actual standard of living of the worker can be raised. If prices are fixed, in general, high enough to preserve a “fair profit” for marginal firms, then prices will rise with costs, and the worker’s standard will remain unaffected. If the price is not fixed high enough for this purpose, unemployment in marginal firms will result. Those workers still employed will benefit at the expense of tlwse thrown out of work, but

the general standard will not rise. Price-fixing does not represent the last word in an attempt to raise the worker’s standard. But price-fixers will often go further and claim they have inaugurated a new system of planning. faire,” they will grandly proclaim, "has passed away. We are planners.” Let us. like a chemist, examine our petrol, flour and probably timber price fixation for traces of planning. The economics of planning are not as far divorced from laissez faire philosophy as many would have us believe. The planner admits that there is an ever-fluctuating niargin to which every country’s productive enterprise must adjust itself, but lie admits other criteria besides market price in determining the extent, and the direction of the change. Progress, he realises, demands the rise of some industries, and the fall of others. A large measure of price fixation would be involved incidentally in planning, but only incidentally, for the essence of plann’rig is a conscious reorganisation of industry on a basis of considerations other than market costs. Price fixing without this conscious reorganisation bears no relation to plann’ng. It is a mere stabilising of the conditions existing at that time under lai*xez faire control. Far from planning, it is rather a suddenly truncated belief in the system of laisscs faire which brought about that price and those conditions of production.