LETTERS TO JOHN SMITH

Taranaki Daily News, 23 August 1930, Page 13

LETTERS TO JOHN SMITH

ECONOMICS FOR ALL ■ WAGES CAN BE TOO HIGH. BUSINESS DEPRESSION. This is the third of a series of letters written for the Melbourne Herald W? 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 ehe may recover. Readers' will have no difficulty in making the necessary mental adjustments to apply the lessons to New Zealand. 111. Dear .Tohn.-l \Lis saying that if the indiißtrics, Hke railways and. o-as and milky raise real .wages, -then the whole loss falls on the unsheltered industries which have to sell at a puce fixed outside Australia. ; These unsheltered industries (such as wheat and woollen mills) will, of course, make an extra effort to improve their methods and cut down costs; but theie aie likely to be a lot of them working with a bare margin that will have to close down with much loss of employment. Then the question came, whether we could not do without these unsheltered industries, and have only sheltered industries, in which we could make wages what we please. The first answer to that is this: Workers can get more than a certain wage in sheltered industry only because other workers in unsheltered industry are getting less than that wage. Higher costs—from higher wages or any other cause—are passed on and backwards and forwards between industries until they fall on :an industry that can’t pass them on —an unsheltered industry. Then the sheltcied industry has finally got clear of the higher cost. But if there was no unsheltered industry, or very little of it, the cost. of the higher wages would never be effectively passed on; it would always be passed back again. Higher wages would be always balanced by higher prices, and higher prices would tend to keep ahead. The wage-earner would oe like a dog chasing his own tail. After a while* °we might get wages up to £lOO per day. But bread would tie £5 a loaf, and everything else in proportion. and none any better off.. In the second place, wo must in any case have a great deal of unsheltered industry, because we must have laigo

exports. We nave oorrowea, nivuejr abroad, publicly and privately, to make railways and roads and harbours and factories, and we have to pay the interest on it.. The only way we can pay interest (or anything else) abroad is by shipping exports. Then there are a number of things we hare to import, and the only way we can pay for them is by sending exports. No doubt we are learning to make more things and grow more things at a reasonable price, and we shall be able to reduce imports a, good deal. But it takes time, and it will be a gopd many years before we get them down’ to £70,000,000 a year. Then there iii the £30,000.000 ”a year of interest to pay abroad, so we must have at least £100,000,000 of exports to pay for these for a good many years to come. That means that at least one man 'in every six must be working in export industries. Then there are all the industries which have to compete with imports, and these also are unshelteiea. So. that it is clear that a big part of ’ our industry must be unsheltered industry for many years to come. vVe must keep this unsheltered industry going. But if we raise wages in sheltered industry, we make it impossible to grow as much wheat and wool, or mine as much zine and lead, and we shall not have exports enough .to pay our interest and pay for necessary imports. That is the mess we are in now, with unemployment widespread and growing on CY T ery side. And we 1 have not seen the worst of it yet. I So I come to this, that there is • a certain point at any time beyond which I you cannot raise wages in any industry—sheltered or unsheltered —without bringing about business depression and unemployment. If it is only a: little rise of wages in a small industryj you won’t be able to see the eflects they will be so scattered. But they will be there all the same. If the rise is considerable over all sheltered industry, the effects will be such that you would wi'h you could not see them. XXT'V.« 4- <1 1-nAn r- n 1 "f fl V

What has been said so rar aoout wages is roughly true of salaries also. Salaries are not so quick to change as wages, but they do in the long run go up and down with the cost of jiving. So that just as with wages salaries cannot be raised above a certain point in the sheltered industries, without penalising the unsheltered industries ! and the workers in them. It is useful to remember here that the sheltered wo-kers include doctors and lawyers and architects and dentists, and the professions generally. ,The question" of falling wages must’ wait till my next'letter. —Your, etc., ...... j L. F. GIBLIN, Ritchie Professor of Economics, j University of Melbourne. July 10, 1930.