LETTERS TO JOHN SMITH

Taranaki Daily News, 22 August 1930, Page 13

LETTERS TO JOHN SMITH

. ECONOMICS FOR ALL THE . CAUSE OF UNEMPLOYMENT. INDUSTRIES AND WAGES. This is- th 6 second of a series of letters written for the Melbourne Herald by Professor L. F. Giblin, Ritchie Professor of Economics in the University of Melbourne. They are an attempt to tell plain men in plain words why Australia has drifted into economic trouble and how she may recover. Readers will have no difficulty. in making the necessary mental adjustments to apply the ' lessons to New Zealand.

Dear John,-~We were talking about the-, distinction between sheltered industries (like milk and gan) which can apparently raise their prices as wages rise, and so keep on in busines/sy ami unsheltered industries (like and woollen mills),’ which- .cannot .raise prices when their, costs of production are higher, because, if they did, they would lose their trade. The trouble about higher wages in the sheltered industries is that it means lower wages in the unsheltered industries. That is exactly what has been happening to some extent in England for the last few years. And it has probably been happening in Australia also. The unsheltered industries which are protected have managed to avoid this by getting more protection,, which o-ives them a little shelter behind which they can raise pric.eel But other unsheltered industries, like wheat, cannot very easily be protected, and the wheat farmer for the last year or. two has not been getting the basic; wage for his' labour. -It’s* not called ; wh.gcs because. he employs. himself. But I expect you will admit that the :wheatfarmer, working any hours and any ■ weather, is as much entitled to fair wages for hie-labour'as any other man. He°has not been getting it. He has been getting less because others in sheltered industries have been getting mote. . ■ . It is not hard to see why ibis is so and .must be so. But.it takes a’ little clear thinking and most of us don t get much practice. That.s why I’m -so keen that- you will be able to; keep youn<r John at school long enough to learn°a little geometry. It’s a great help. Suppose there Is a rice in baker’s real wages and bread goes up a penny a loaf to pay for them. Bread is a sheltered„ product—there is no competition from outside, and the price must be paid by everyone. The master baker “passes on” the higher cost of labour to the public. The “cost of living” goes up, wages are fixed on the cost of living, so’ that, all other wages go up. (Not real wages, only nominal wages. Wages will only buy the same as before). The wage-earner does not feel the extra penny on bread —he passes it on to.his employer. lie, too, passes it on by charging higher ■ prices -for his good<5 —-if he -can. If he produces or sells meat or milk or any other sheltered goods he can do this and raise -prices enough to pay the extra wages he has to pay on account of higher baker’s wages. Then we have another rise in the cost of living on account of meat and milk, and another -rise.. in nominal wages, and again vhc passing on of the extra cost, first by wage-earners in all industries, and then by °the’ employers i in the sheltered industries. But when the cost falls on an unsheltered industry, it cannot be passed on. Consider a company engaged in zinc production, mining and smelting. Zinc is exported and the price is fixed in Europe or America, and pur company will produce as much as it can at this price. If the cost of producing the zinc is increased through the rise in baker’s wages (or any other cau=e), in the first place, and then through the consequent increases in wages, in the milk and meat and all other sheltered trades, what is the zinc producer to do? He cannot get a higher price for his zine. He must cut down, nis operations, and work only on the ore which is richest or is most easily got or treated. That may put half his employees out of a job, and may mean closing down the mine. If it is a factory competing with imports, gay, a woollen factory, instead of a mine, the result may be closing down the factory altogether, unless it can get higher protection by the tariff, and so be able to raise its prices higher. But if it does, those higher prices for flannel, iay, will be passed on in exactly the same way as the higher baker’s wages from all the sheltered industries, until they are all carried by the unsheltered industries. In the end all tbe-incrcase in wages in sheltered industry is passed on and on until it all falls on unsheltered industry. The amount that so falls will be roughly the amount by which real •wages on sheltered industries were raised. This amount will fall equally on all those engaged, in unsheltered :n--dustry. For some of these it will not matter m z uch. For the wool and. wheat grown on the best land, it will only Tower the value of the. land. For "he very flourishing factory it will cut down the profits, but may still . leave it able to produce at a profit. But in every industry, land or mining or manufacturing, there .are always a number of firms or individuals working with a bare margin of profit. Often there is a large proportion who can only just make the business pay. When you load these with the higher baker’s wages, they can do nothing but go out of business, and you get unemployment or poverty in the unsheltered industries; and unemployment in the sheltered industries must follow in its train. This unemployment you can see round you to-day. “Well,” you may say, “why can’t we get rid of these unsheltered industries’, and have nothing but sheltered industries, which can raise wages to meet the needs of the worker?” I expect you can sec the answer io that, too; hut I must leave that till my next letter to-morrow. —Yours, etc., L. F. GIBLIN, Ritchie professor of Economics, University of Melbourne. July fl, 1930.