A NEW ANALYSIS

Evening Post, Volume CXVI, Issue 65, 14 September 1933, Page 11

A NEW ANALYSIS

AUSTRALIA'S CRISIS

PLACE IN THE DEPRESSION

WAGES AND HOARDING

The adverse industrial and financial events which have lately formed tho main ingredients in our internal history have been by ali classes keenly felt. Tho causes, however, havo not been clearly understood, says a writer in the Melbourne "Age.^' Dr. Eonald "Walker, of the Sydney University of Economics has published a work in. which he ronders tho invaluable service of envisaging tho successive developments in coherent porspoctive, and of assessing the contributory importance) of national policies and international influences.

In entering upoa his careful and balanced analysis, the writer indicates a danger latent in the facile use of phrases that become current in times of crisis. The technical term "the national income" is given as a modem instance. The decline in that income, it is admitted, lias undoubtedly been substantial. It was its strong conviction of the reality of that decline which Jed the Commonwealth Arbitration Court to reduce the basic wage by 10 per cent. The same conviction has also been used as the ground appeal for private and public economy. And yet tho author points out that estimates of Ihe'national income hayo no pretence to statistical accuracy. Methods of calculation vary: statistics of recorded X>roducti6n arc incomplete; the task of estimating unrecorded production is difficult. Some- economists include overseas borrowings as portion of tho national income, some would not. The decline in the Commonwealth's spending power is, however, in Dr. Walker's judgment, so great that snialland even moderate errors in its estimation could not bring into question its exceptional severity. The violence of the slump, ie significantly adds, is evident without, lecourse to statistical refinements. THE GREAT INFLUENCES. Comparisons with the earlier period of crisis in 1890 have in these days been frequently made by Australians having experience of both. The author traces ;i. number of interesting analogies. But he use? those Bimply to add emphasis 1o his view that all discussion of relevant issues must be dominated by •the realisation that Australia's economic depression has neither its beginning nor its end within her boundaries. The susponsion of overseas borrowing, and a fall in the world prices of wool and wheat exert far-reaching influences upon our internal situation. Out of that situation emerges the problem ■whether measures should be directed towards warding off the impact of world forces, or towards adapting the structure and functioning of the local economic system. While observing that there might be a certain narrowness in the line of approach, Dr. Walker frankly acknowledges that, when the relative gains to be obtained from specialising on producing those things in which one's comparative advantages are greatest weighted against the anticipated greater stability of a more diversified and more self-contained industrial system, the exceptional hardships of tho, present crisis might well tip the beam in favour of the latter alternative It is recalled that, although the tariff policy of the post-war years kept in sight the ideal of national self-suf-ficiency, the borrowing policy in that period would seem to have been conducted with a view to increasing Australia's dependence upon tho Mother Country. To the extent that the latter "course was carried on, Australian economy was laid open to adverse influences from overseas. One effect of the Australian tariff was abundant revenue from import duties for tho Commonwealth Government, which came to rely more and more upon it. Thus the Commonwealth Budget, like the incomes of primary producers and the balance of payments, was resting in part on a precarious foundation. Dr.'Walker stresses the' fact that, since Government finance exerts a predominant influence in tho general economic life of Australia, this reliance on customs revenuo represents a vulnerable contrast with overseas conditions. LABOUR BLAMED. In illuminating detail the author traces the minutiae relevant to a, complete understanding of tho plans and policies by means of which Australia has been seeking her way out of the financial morass. At the commencement of the depression there was a tendency ■to attribue the dullness of business to the prevalence of industrial strife. Just at that time the timber workers and the men on the coal fields of New South Wales were resisting what they conceived to be economic injustice. These troubles undoubtedly served to distract attention from the more fundamental causes of the decline in industrial activity. But Dr. Walker insists that the importance of industrial disputes as a check upon Australian prosperity has in general been greatly exaggerated. The direct loss from these disputes, even in 1929, was insignificant <:ompared with the loss from unemployment, and their psychological importance is altogether.out of proportion to their real effects. In the course of rehearsing the various policies discussed and applied within Australia during tho crisis, the author accords prominence to "the purchasing . power argument." This was one of tho chief arguments advanced before, the Commonwealth Arbitration Court by the- trade unions in opposition to tho proposed reduction of the basic wage, and ■it was based on the supposition-that-it would reduce the spending power of tho community. The Conrt rejected tho argument. The views of those who advocate wage 16----4uctions and those who oppose them are fairly and fully marshalled. One side contends that a wage cut redistributes the proceeds of industry, but tho redistribution would not reduce tho existing volume' of purchasing < power. When wages fall, if is argued, the worker loses some ' purchasing power, but then somebody must gain it. Whether the transfer leads to a decline jri consumers' demand depends upon whether the transfer leads to increased hoarding—an important point. INVOLVES HOARDING. In Dr. Walker's opinion there, is little doubt that a transfer to the entrepreneur does involvo increased hoarding, at least for a time; For a wagecut which merely increases profits to lead to a decline in unemployment it has to be assumed that entrepreneurs are eager" to invest and expand- But that spirit is not likely to be strong when evidences of a depression are apparent. The author Taises an interesting issue by asking—Could more be achieved by discriminatory wago reductions ai diltinct from a general one? He inclines to the view that such discriminatory wage reductions might in theory produce a considerable increase in employment. His conclusion on tho general question is that those opponents of wage reductions who told the Commonwealth Arbitration Court that if the basic wago were cut the diminution in purchasing power would make the slump worse and worse, were adopting » position that is not theoretically .«ound.' B\it, on the other hand, the (Jourt, in dismissing (lie purchasing .jp«n?eiSargujnent .oltp.gctlicr^ was-tfquallv-

mistaken. The decline in consumers' purchasing power to a degree somewhat similar to the reduction in costs of production was a real factor which would prevent any considerable reduction in unemployment resulting directly from the wage reduction.

Taking a forward look, Dr. Walker confesses that economic science has not yet reached a stago* which would warrant confident prediction of tho future course of the depression or recovery for Australia. Recovery to tho heights of 1926-27 he dismisses as impossible, evon undesirable -Sinco it is now generally agreed that the prosperity of these years was precarious and must have led to some sort of slump, a more moderate recovery might bo regarded as healthier.

The author disavows any intention of being persuasive or prophetic. .The pur pose of his essay is entirely explanatorvand that purpose is admirably fulfilled. Tho entire volumo is an invaluable compendium of the facts associated with. Australia's economic vicissitudes and remedial efforts whilo depression has had tho whole- world in. its grip.