ECONOMIC DANGERS STRESSED IN ARBITRATION COURT

Evening Star, Issue 26152, 14 July 1947, Page 6

ECONOMIC DANGERS STRESSED IN ARBITRATION COURT

Wage Increase :

'•;(P.A.y ;v ' . WELLINGTON, July 14. “ Ours federation is alarmed at 1 the steadily-increasing cost structure in New Zealand,” said Mr R. E. Dawson, representingr the New Zealand Manufacturers’ Association, prior to calling Professor A. H. .Tocker to give evidence in. the Arbitration Court, which resumed its hearing on the application for a general pronouncement on wages rates. Mr Dawson said the federation was not opposed to high wages, but ’it 'yras-' a fact that economic conditions in New Zealand, resulting from! inflation, were forcing money wages, production: costs, arid sellirig prices steadily upward without any benefit to-the wage and salary-earning section of the cohiinunity. .. / "We contend that the policy of the Administration and the • country should be directed towards reducing costs and prices without reducing wages, salaries, and profits," said Mr Dawson. Further . increases in money wages will inevitably mean higher prices, and we shall .have merely clinibed another step in the ’ vicious spiral. Increasing the purchasing power of money wages by reducing costs arid prices is v the only Remedy offering lasting benefit to the people." :

-“.■ Under the .stabilisation policy wage rates. were Y to be adjusted to any, increase in the war-time pri6e index, but efforts were to be made by' price-fixing, rationing,' and; in some instances, by the-Use of subsidies, to maintain prices covered by the index - at an approximately constant level,” said Professor Tocker. Since '■ 1942 the policy of stabilisation had achieved a measure of success at least .comparable with that* attained in most- other countries. • Professor Tocker quoted figures to show that the excess of money,. 'arid the- consequent .threat < to!. prices, costs, and the,general, eco- ', nomic stability, had made the need for stabilisation more urgent since 1942., ;/v ;V “Serious- monetary. inflation had begun about; the-middle of .1938 in New Zealand. 1 Since,Then, money available had increased 140 per cent, ; “ Had the same! amount of;gopds been, available as in. ,1938, and,;:had prices, been freer to move, then it might be expected that ' the • average price level would have .risen proportionately,- and that the. present price, index would ;. have been 140 per cent..above 1938.” NO GOODS BEHIND CREDIT EXPANSION Professor Tocker said- the; increase in bank assets since 1938 was" £223;-' 800,000, which would normally represent real money and real 'purchasing power. ’ Imported goods were in short, supply, and the increased; money would remain-' in New. Zealand.Valthough no goods were available, or were likely to' be available in the‘near future to balance-that increase of -money.. Combining- the-Post Office and trustee savings banks’--holdings, with the advances made by the Reserve and -trading hanks, the total ; advances-made -to the Government since 1938 were' £123,600.000.: allowing for a certain proportion of: investments in Government securities from savings and trustee accounts.' -. ' - ■ ■■■■:>•■

“ If“it bevassumed that the amount of goods available-in. : New :Zealand-is-; the same as in 1938, then ,we have £123,600.000 additional advances -to Government and- £27,300,000.-additional' advances on private account,, making £150,900,000 altogether, a 'credit expansion; entirely unbacked by goods,” said Professor. Tocker. “To this ,we add an increase of £72 ; 900,000 on ac-count-.of-'overseas business, and the total Uncrease -in'-bank assets unbacked bv goods in the Dominion amounts to £223,800.000.” ' , The' increase' had- averaged. £25,000.000. a- year over nine years. Normally this lvould not cause .prices to become unstable, but when . monetary inflation occurred the normal: course of money in trading and services became disturbed:'. .

POWER f’AID GROUPS SUFFER If .for each of the past nine years, £25,000,000 more was received in income than was distributed in costs of production of goods, there arose; an unbalance. The pressure of excess money forcing prices.up, and price inflation would, continue so long ' as monetary '.inflation continued.. In such* circumstances, he said, wage earners and other people on relatively fixed. incomes found the purchasing power of-their incomes reduced; '■ Conversely,- some' other sections of the community (mainly dealers and speculators and others smart enough to take advantage of the situation) made gains which they had not fairly earned. . Controls over spending Professor Tocker said the increase !n total. money in New; Zealand oyer the'.peripd had obviously not all been absorbed in rising prices. Rationing and- price limitation by the Government liad been, in effect, the means of- preventing the people from spending their money as., they would wish, resulting in the directing of excess money into alternative channels, or in keeping money off the market. Roth those results could be. seen in New Zealand. There was no completely valid measure of the present general level of prices. The extent to which prices had risen had varied widely among the different classes; of goods and services.- Price controls could- never be completely effective, or comprehensive, and large groups of important prices l ; were: beyond control. He produced calculations to show that the amount of excess rhoney available in New Zealand was not less than about £90,000,000, and it might be considerably greater. It was the threat of that excest of money that made stabilisation measures essential if a rapid inflation of .prices and consequent dislocation of economic organisation were to be avoided. -At; present, the Government’s stabiliaatibn; measures assisted in keeping that, money off . the market, part qfi itfbeing held ; off by rationing, price-fix-ing, .and other controls., part; of the money was held off. voluntarily by po-’ tential buyers who. hoped-’to buy in the-future goods vthey could not get, at present. Part was .held off. by consumer resistance To high- prices, and some consisted of genuine savings. A substantial part of the excess' money remained in circulation, however, and as much of the market for the more essential goods was .closely controlled, the circulation of money was mainly in' uncontrolled markets. ' The Government’s original intention when it first adopted the stabilisation policy -had been. to hold that excess of money in markets for essential; goods

in" order to maintain the purchasing power of wages, said Professor Tocker. That ‘policy had , been, continued and extended, and on the whole it had suc-ceeded-remarkably well. That policy w&s. however, more necessary' now than ever : before since the degree of mone-tary-inflation and the amount of -excess money .;threatening. -the’-markets .was greater, than ; ever before. It was possible, that some controls, had been unnecessary or overdone, arid that the methods of stabilisation might be improved;'but stabilisation remained essential if prices were to be prevented from getting. out .of..control. . _ ..It would .probably prove impossible to. maintain stabilisation and ..Government controls, in New Zealand for an indefinite period.- It was possible the excess of money. ;might be gradually absorbed in slowly-rising prices until a .new, price level,, appropriate' to the: larger" quantity of money was reached. It Avas possible that goods available iftight be increased by higher production arid expanding trade >'unt.il the present excess -of, money, was absorbed. That would involve an increase .in production and in . trade which at present was riot in sight. DEFLATION PROSPECT The third method of dealing with the- excess, to remove it and its menace . froin •'the market, had been applied .in .Belgiurn, and might,; have to be applied •' more widely before a general economic equilibrium was established. -This method involved deflation, -but, df:effective- then the controls which. at present hampered production and retarded recovery might be removed. Even then New Zealand would not be completely out of her difficulties, since she was extremely dependent on overseas, trade and productiori,' and- trade - in overseas countries rinist also be restored before New Zealand- could expect completely to - recover her prewar, position. ■ The immediate, problem which ; faced the’, country, "was, -therefore, ,■ maintenance of stabilisation. At i. the'same time production-must be : maintained;- and increased; if possible. -

Prices must be prevented -from! ris- ■ iirg, * but production• must; i -beiv, maintained and increased; ProfessoivTocker continued. Moreover, - all • costs - must ,be .paid out of the prices received or production would not be carried bn. THE SPIRAL AGAIN The most important single item in, costs was wages, which in 1944-45 constituted more than 60 per cent, of the total income. It was therefore essential that general wages, the most important item 1 in the costs, should not be allowed to push up costs and prices while stabilisation remained necessary. If general wages were increased it appeared inescapable that higher wages would mean higher prices, which would defeat the purpose of the wage increase. The. National Service Department had estimated the total male wage earners in New Zealand as 520,000. If the wages of all these increased by £1 a Week a total of about. £26,000,000 a year would be required. In the present conditions, and with present production, there appeared to be no source from which a general increase in wages, could be derived other than higher prices. . “ Most Government expenditure is financed by taxation, which reduces the purchasing power of a taxpayer’s income,” said Professor Tocker. “ Taxation is now. nearly 9s in the.£ of national income, and imposes a heavy burden-on the. people. After the payment of. taxation the average income has little more than lls left in every £. If taxation were, reduced by half it would still be well over double its 1935 level, but the average purchasing power of incomes would be.increased by about one-third. ' This comparison indicates the -real cost' of heavy Government expenditure which must be borne by the community. “The reriiedy for present conditions lies not in sectional striving .for larger shares of a limited total income, but by expanding the total. This total might be readily and continuously increased if the need for and the results of such increases were clearly realised, and if genuine co-operation could be secured among all parties concerned to remove obstructions to production and concentrate on its * expansion.’”