Inflation Now Serious, Says Witness At Wages Claim Hearing

Greymouth Evening Star, 14 July 1947, Page 2

Inflation Now Serious, Says Witness At Wages Claim Hearing

(P.A.) WELLINGTON, This Day. “Our federation is alarmed at the steadily increasing- cost structure in New Zealand,” said Mr R. E. Dawson, representing the New Zealand Manufacturers’ Association, prior to calling Professor A. H. Tocker to give evidence in the Arbitration Court, which resumed this morning the hearing of the application for a general pronouncement oh wages rates. Mi* Dawson said the federation was not opposed to high wages, but it was a. fact that the economic conditions in New Zealand resulting from inflation were forcing money wages, production costs and selling prices steadily upward without any benefit to the wage and salary earning section of the community.

“We contend that the policy of 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 climbed another step in the vicious spiral. Increasing the purchasing power of money wages by reducing costs and prices is the only remedy offering lasting benefit of the people.” “Under the stabilisation policy, wage rates were to be adjusted to any increase in wartime price index, but efforts were to be made by pricefixing, rationing and, in some instances, by the use of subsidies to’ maintain the 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, said Professor Tocker. He quoted figures to show that the excess of money and the consequent threat to prices, costs and general economic stability had made the need for stabilisation more urgent since 1942. Began in 1938

Serious monetary inflation had begun about the middle of 1938 in New Zealand. Since then the money available had increased 140 per cent. “Had the same amount of goods 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.” Professor Tocker said the increase in bank assets since 1938 was £223,000,000, 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, although no goods were available, or likely to be available in the near future, to balance that increase of money. Combining the Post Office and Trustee savings banks holdings with advances made by the Reserve and trading banks, 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. Not Backed by Goods

“If it be assumed.that the amount of goods available in New Zealand is the same as in 1938, then we have £123,000,000 additional advances to the Government and £27,300,000 additional advances on private account, making £150,900,000 altogether, a credit ex-

pansion entirely- unbacked by goods,” said Professor Tocker. “To this we add an increase of £72,900,000 on account of overseas business and the total increase in bank assets unbacked by goods in Dominion amounts to £223,800,000.” The increase had averaged £25,000,000 a year over nine years. Normally this would not cause prices to become unstable, but when monetary inflation occurred the normal course of money in trading and services became disturbed. If for each of the last 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 as long as monetary inflation continued. In such circumstances wageearners and other people on relatively fixed incomes found the. z 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.

Professor Tocker said that if general wages were increased, it appeared inescapable that highei’ wages meant higher prices, which would defeat the purpose of the wage increase. In the present conditions and with the 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 the taxpayers’ income,” said Professor Tocker. “Taxation is now nearly 9s in the pound of national income and imposes a heavy burden on the people. After the payment of taxation the average income has little more than 11s left in every pound. “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 the heavy Government expenditure, which must be borne by the community. Production First “The remedy for the present conditions lies not in sectional striving for larger shares of a limited total income, but in expanding the total. This total might be readily and continuously increased, if the need for and the results of such increase were clearly realised and if genuine cooperation could be secured among all the parties concerned to remove the obstructions to production and *concentrate on its expansion.”