The Southland Times. PUBLISHED EVERY MORNING. “Luceo Non Uro.” SATURDAY, JUNE 8, 1935. THE WAY OUT

Southland Times, Issue 25306, 8 June 1935, Page 4

The Southland Times. PUBLISHED EVERY MORNING. “Luceo Non Uro.” SATURDAY, JUNE 8, 1935. THE WAY OUT

It will probably come as a surprise to many to be told that Karl Marx in his great economic work “Capital,” and in subsequent writings, held to the view that financial crises, which he regarded as inevitable in the capitalist system, could be attacked only by means of lowering wages, and that he saw, as modern economists see, that the inflationary process, in effect a lowering of wages, actually intensified the difficulties and paved the way for further financial troubles. Marx, of course, was an opponent of the capitalistic system, and his labour theory of value, an extension of Ricardo’s dicta, has never really been disputed, although those who do not agree with Karl Marx’s findings declare that his labour theory of value is out of touch with the realities of modern conditions. There is, however, among the modern economists, a substantial school which in addition to accepting Karl Marx’s theory of value as sound, adopts it as the one definition of value which will serve as an instrument to explain the flow of action in the capitalistic system. They do not necessarily accept Karl Marx’s proposals for a solution; but from a basic point of view, the labour theory of value stands. During this economic depression, covering and affecting the entire civilized world, most of the schemes to provide a short cut to recovery have had as their main ingredient some form of inflation. With a great deal of verbiage these schemes have been propounded, and they have presented plausible arguments, but when subjected to searching examination it has been found that in the majority of them inflation appears. It is generally considered that an economic depression results when the profitability of/ industry falls, and, of course, any efforts to provide a way out of this depression, must be to restore profitability in industry. It is agreed that one way to do this is to reduce the cost of production by means of lowering wages, and though it is* argued that reductions in wages will reduce purchasing power, it is found that in actual effect reduction in wages leads to an increase in the production of what are called pro-ducer-goods. These producergoods are those goods which are used for the purpose of production as distinct from those goods which are sold direct to consumers. A machine for the manufacture of tacks is a producer article, and the tacks that it makes belong to - the consumer-goods category. When, through the accumulation of profits owing to the reduction in the costs, these producer-goods are increased, there is an expansion of employment and gradually there is a greater flow of con-sumer-goods which are cheapened, while trade is stimulated and increased with a greater measure of aggregate wages. On the other hand, it is argued that through inflation, the new money injected into the system proceeds directly to the consumer, and so stimulates the purchase of con-sumer-goods without providing for the increase in the money available for producer-goods, and this expansion on the consumergoods side, which most of the economists agree is the symptom and even a contributing cause to economic depression, leads the way to a further crisis. It will be argued, of course, that this view is a capitalistic view, and that it puts the whole of the sacrifice on those who receive wages, but it must be remembered that when wages are spoken of in this connection, all payments to individuals for work done and services rendered in any capacity are taken into account. In other words the general view of the professional economists of the varying schools, and they are supported by the arguments and doctrines of Karl Marx, is that under the capitalistic system the only method by which the economic depression can be cured without the introduction of the seeds of a future financial depression, is a reduction in the cost of production. These modern economists who have attacked the Douglas Credit theory have assailed the

famous “A plus ,B” theorem,, by declaring that Major Douglas has failed to distinguish between pro-ducer-goods and consumer-goods, so that his declaration that there is never enough money available to purchase the goods that have been produced, falls to the ground. An interesting point in this connection is the revelation of the manner in which Major Douglas was inspired to begin the investigations which resulted in the promulgation of the “A plus B” theorem. The story given by himself is that during the war he had to undertake an investigation of the accounts of a certain factory, and he discovered that the price of the goods produced exceeded the amount of the wages and all the other charges for raw materials, machinery, administration necessary to the production of these goods. He then investigated the affairs of many other factories, with the same result. It then appeared to him that if all these factories were turning out articles which required for their purchase more money than was distributed through their production, it was obvious that sooner or later there must be a deficiency of purchasing power. But those who oppose him say he did not take into account the fact that many of the goods used in the factory were producer-goods, and the money paid for them, including the profit thereon, was already in circulation, and was itself going to make up the purchasing power, while the .consumer never required to purchase them. The importance of this view, if it is accepted as correct, and it may be said that virtually the whole of the professional economic thought takes this view, is that the application of the Douglas method of rescue will be to put additional money (additional purchasing power) directly into the hands of the consumer, raising the demand for consumer-goods instead of putting more money into the production of producer-goods; or in other words it will be inflationary in effect. As has been said on other occasions, the basis of the Irving Fisher theory is also inflationary, and the Roosevelt programme has been designed to use the inflationary processes to raise prices while at the same time wages oi' production costs are kept up. Many of the professional economists see in the application of the Irving Fisher theories in the United States, the factors which caused the financial crisis of 1929, and they argue that the Roosevelt programme, while it may give the assurance of recovery so long as new money is being poured out, will in effect promote a further financial crisis which will arrive immediately the process of injecting new money is brought to a halt. They - point out that Britain’s recovery, though less spectacular has been more solid, because the policy there has relied principally on lowering the costs of production so as to restore profitability to industry, and thus bring about the enlargement of employment and an increase in the aggregate amount paid in wages. These points are of importance to New Zealanders because, while the experience of the Dominion during the last four years has been unenjoyable, the Government has, in the main, followed a line of action somewhat similar to that which has proved successful in the Old Country, and though its exchange operations have in some sense an inflationary character, they have been used rather to secure redistribution of the national income, than to increase currency. For many people, the modern economists’ arguments may appear to be those of topsy-turvydom, -but at least they are backed by a great volume of authoritative opinion, and it is interesting to know that they agree with the view of the noncapitalistic authority, Karl Marx.