WAGES AND MARKETS

Greymouth Evening Star, 8 May 1931, Page 10

WAGES AND MARKETS

A POPULAR FALLACY. 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. if is perfectly easy to ‘forecast’ the exact change in the ‘demand for motors —-which would be made by a ‘large cut in Civil Service salaries.’ The change would be nil. Civil servants might have less, 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 othei’ costs must be reduced so as to leave a profit if fh.e ‘disaster of unemployment is to be reinedied. ’ 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 power 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 last 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. Tfle purchasing power is reduced by the lack of employment, and also the goods by the same amount. The dole makes no difference. The larger the dole the higher the taxes; the two sides are still equal. The unemployed has more, the taxpayer less.”