MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LX, Issue 225, 21 August 1940, Page 12

MONEY AND BUSINESS AFFAIRS.

WAGES, COSTS AND PRICES. (By “H.J.K.”) In industrial and factory economies wages, costs and prices are very closely interlocked. Wages form the greater part of tne costs of production, so that when wages rise costs follow, and prices also to recover the costs. Costs and prices must follow any rise in wages. If the factory has to depend for its raw materials on local production and such production is affected by high award wages, then the raw materials cost more, anu costs and prices rise. 'J he factory generally sells to the wholesaler, and the wholesaler to the retailer, and both must get their profit from the sales, so that by the time the tactory products reach the consumer the prices are higher. It is ultimately out of the pockets of the consumer that all wages, costs of raw materials, wear and tear of machinery, and what not, plus prnlits of distribution of wholesaler and retailer, must come, and the prices paid by consumers is their cost of living. The lower the cost of living the greater the number of people who benefit. To a country like New Zealand a low cost of living is imperative, for the bulk of our primary products normally is marketed overseas, and j must face the competition of countries with a relative lower standard of living than ours. The standard of living can bo too high in relation to the volume of production. It is from production that we derive our spending power, and if this is menaced artificially, as it is in New Zealand, then we have what is known as inflation. Some people declare that inflation is coming. This is not quite correct. Inflation in the Dominion disclosed itself in 1938 when import restrictions had to be imposed. This cun be illustrated by the use of trade figures. We depend upon our export income to pay tor our imports and tor the debt service—that is the interest on tho debt the Dominion owes to British investors. This debt service requires about ±110,000,000 annually, expressed in New Zealand currency, or £8,000,000 in sterling. 't here is what is known as a time lag with imports. We do not spend our export income in the same year tliat wh secure it for, if the income is large, importers know that the demand for goods will increase and vice versu. The exports for the three years ended June 30, 1936, 1937, and 1938 wero as under: 1936 £53,660,000 1937 £64,621,000 1938 £61,920,000 £180,201,0^X1 Our income from exports in those three years was £180,201,000, but the whole of this amount was not available for expenditure, lor the amount required for the debt service must be deducted and this in the three yAirs totalled £30,000,000, which reduces the actual spending power to £150,201,000. Bearing in mind the time lag in imports the above stated income was available for expenditure in the years ended Juno 30, 1937, 1938 and 1939, and. the imports for those three years were as under: — 1937 £56.076,000 1933 i.. £57,342,000 1939 £56,500,000 £169,918,000 The income we bad available for expenditure in those three years after allowing for the debt service was £150,201,000, . and we uctually spent on imports £169,918,000, or £19,500,000 more than our export income. Obviously we have been living beyond our income. Account has not been taken of invisible exports and imports on the assumption that they balance one another. EXPORTS AND IMPORTS. What was the result of this? On December 5, 1938, after the general election of that year cxeliango control and import restrictions were imposed. The authorities had no option in the matter, and while the present disregard for tho laws of economics continues import restrictions cannot bn relaxed. Now the Arbitration Court has intervened, and by ordering a 5 per cent, increase in award wages has made a bad position worse. This five per cent adds to factory coots, and Inc prices of factory goods must be raised by at least 5 per cent., but the cost to consumers will probably bn about 10 per cent, for the wholesaler and retailer must get their profit, and also the ti/isport services that make the actual delivery. As already staled we had inflation as far back as 1938, and the fresh advance in wages emphasises the inflation. The five per cent, increase is literally something for nothing,, and this is a direct negation ut the laws of economics. The country must pay for this “something” that has been doled out by tho Arbitration Court, but we are not likely to bo called upon to pay until after the close of the war. If no checks are applied in the meanwhile. when the time comes for payment it will go very hard with us. Wo cannot live beyond our income and obtain money for nothing to spend, and get away with i itBut how can. this inflation be checked or held in bounds? In the writer’s view there are two ways. One is to increase the working hours from 40 to 44 so that there may be more produced and thus keep down the prices of tactory goods, and the other is to further tax the 5 per cent, increase in awaid wages. Tho object -of any chock would bo to reduce the demand for consumer goods, and prevent prices from rising. Neither of the methods suggested would have any appeal to tho political Labour Party. Many would consider it to bo out of order to look beyond the present; to concentrate all thoughts and j all efforts on winning the war. But econoj mics are a part of our life; they are natural laws, and one must constantly look for etfanoinic reactions and repercussions at all times. If there is any country that is giving very close attention to war economics it is Britain, and yet the British business people are not overlooking the I immediate future. Very strong efforts are I being made to maintain the export trade, i and the slogan now is “Britain delivers the [ goods.” Attention will have to be given to economics in the post-war period.