THE BONUS APPEAL.

Star (Christchurch), Issue 16455, 17 June 1921, Page 7

THE BONUS APPEAL.

JUDGMENT OF THE COURT. APPLICATION DISMISSED. AN EXHAUSTIVE REVIEW. (Special to “Star.”) \ WELLINGTON. Juno 17. The Arbitration Court yesterday delivered its reserved judgment in connection with the recent application for reconsideration of its “cost of living” , pronouncement of May 14 last. The . text of the judgment of the Court, delivered by his Honor Mr Justice Stringer, is as follows: Tlie principal arguments in favour of granting a further bonus were that there was no certainty that the cost of j living would fall appreciably during the current half year (April 1 to September 36) - that it was inequitable and would deprive tho workers of the bonus which they had been led to expect would follow automatically on any increase in retail prices disclosed by tho half yearly statistics; that, capital has benefited during and since, the war. it is impossible to forecast with any degree of accuracy the movement ill J prices, but a study of history shows that after a great- war prices fluctuate, sometimes violently, but with a general downward tendency. A considerable reduction in prices has already taken place since December, 1920. The fall is more marked in clothing and the miscellaneous expenditure groups than in the groups for which accurate statistics aro available. The position may bo summed up by saying that retail prices are lower than they were in September, 1920, and considerably lower than they were in December, 1920: that th© fall in general prices may reasonably be expected to continue, though for a time certain com-

modities. for reasons that it is unnecessary to detail, may not- conform to the general rule. 'Later information has Ted us to tho conclusion that owing to the prices of a small number of commodities being fixed tor a term th© rapid rate of reduction in prices may not We maintained during the winter months, but we have every reason to think that at the end of tho current financial year the statistics will show a substantial fall in prices over the year. Statistics relating to wholesale prices, which aro regarded by economists as a more reliable guide than retail prices, confirm this view. RE r. EY A N T ( I RCUMSTANOES. The argument that the workers had been led to expect that th© bonus would follow automatically an increase in the cost of living is unsound. The Act provides that the Court shall take “other relevant circumstances” into consideration, and have regard to the possible impevilment of economic and financial depression. Tho war lias not. as has L>een thought by some, increased

capital, but the plain fact is that war has_ destroyed an immense amount of capital. It is estimated that onesixth of the total capital of Great Britain was lost during tlie war. The scarcity of capital and restriction of credits aro now hampering the development of industry. During and since the war, in order to meet their finan-

cial needs, the nations increased their total currencies seven fold by the creation of paper money in various forms. Credits wore extended to an abnormal degree. There was a semblance of wealth and prosperity, but it is only a semblance. Real wealth arises from production for use, not from production for destruction. Wealth is not money

but as Bastiat said, *'• The abundance of things. Sooner or later the inflation of credit currency had to be checked, and contradiction had to come if the world was to regain a degree of economic health. The high prices current during and since tjie war have been due partly to diminished production, consequent on scarcity, and partly to the creation of . a quantity of paper money far in excess of trade requirements. The former cause is less prominent now hut the latter cause is still operating, for the ratio between the amount of money, in circulation, and the quantity of commodities available for sale, is one of the principal factors in the determination of prices.

DEFLATION NECESSARY. Deflation was and is necessary before tlie world’s gold base is inadequate safely to support the present paper money and deposit currency in circulation. The process of deflation automatically brings about a fall in prices, and three consequences result during the process:— (I) Manufacturers, traders and others who arc working on borrowed capital have 'to repay money of high purchasing power in return lor money of low purchasing power. Their debts have to be liquidated when the prices they receive and the incomes they earn aro smaller.

(2) Business generally is depressed. Stocks bought at high prices are severely written down. Trade is slack, and credit to finance fresh purchases is hard to obtain. (3) The demand for labour is reduced and unemployment and lower wages follow. When business is slack, in anticipation of lower prices,and delayed demand, employment cannot l>e found for numbers of workers. Professor Kemmerer, of Princeton University, a recognised authority on economics and tinance, writing early in 1020, said: “ Inflation for a time lias a stimulating effect upon business. Things boom, and many classes of people feel prosperous when pricesi arc rising, hut this stimulant, like alcohol taken in excess, always has its morning after. A prospectively falling price level is depressing to business. It throws a wet blanket over industry when prospects are strong for a period of declining prices. Customers postpone purchases, and retailers ami wholesalers let their supplies run down. Manufacturers play safe, both in running their plants and in purchasing new materials. New buildings and other new capital expenditure are postponed for the day ol' lower prices. The business world refuses to capitalise at inflated prices, and the expectancy of a heavy price reduction breathes a spirit of uncertainty into the economic atmosphere. A falling prices level, therefore, would not be universally popular, however much most of us at the present time think that we would like to see it.” THE WORLD'S MARKET. It may be urged that New Zealand ri not subject to the embarrassments that have affected Great Britain. It is true that during the war and postwar periods our primary products brought high prices, but those prices have now fallen considerably, and they must be regulated bv the state of the world’s markets. The experience of the past few years has shown that no one country can he unaffected by the general financial situation. The financial conditions in New Zealand are very largely dependent oil financial conditions in Great Britain. The adverse exchange in New York against London is due partly to London being forced in her own interests to support the Continental exchanges, and it now appears to be more generally recognised that if Continental Europe were to become bankrupt Great Britain could not help being involved. If Europe were to collapse America could not stand. In other words, finance is international, and no country is self-contained. New Zealand must feel, in greater or less degree, influonco of world conditions.

MUST MOVE WARILY, Without being unduly pessimistic, we are inclined to the view that the- present depression has not yet reached its lowest point. It behoves us to move warily. We cannot ignore the fact that in Europe and America wages have, fallen. Our manufacturers have to face competition from those countries, and ire are forced to recognise that unemployment is already in evidence in New Zealand, and that any increase in labour costs is certain to be reflected in increased unemployment. The granting of even a portion of the withheld bonus would tax many industries j beyond breaking point. A number of manufacturers and traders aro still j keeping their workers employed, | though their businesses arc not show- f ing a profit. They hope for a revival | of trade, and do not want to shorten j hands or close down, but any addition | to their present cost 3 would in many j cases force a cessation. The old theory that wages arc*, paid out of capital is exploded. Wages are paid out of what is produced, and the more that is produced the greater is tlie return in Teal wages and tlie lower the _ cost of production and consequently prices. If manufacturers cannot produce at a cost below the price at which they must sell, their businesses must eventually close down. No argument or reasoning can controvert this. THE STABILISATION SCHEME. When wc were preparing our pronouncement wo had to consider whether any bonus at all should be declared. We had grave doubts on the matter, but eventually decided that as the adoption of the six-monthly moving average liud in effect created a debt, it would be inequitable to can- , cel the debt without first endeavour- j ing to discover a means of liquidating j it. Our stabilisation scheme is, we ! think, the only practical solution of j the difficulty, but owing to the uncertainty of the financial and economic situation we cannot be sure that the scheme will work out satisfactorily. On tiie other hand, we hope that it will l>e possible to extend the period of stabilisation, . for New Zealand is, t we believe, unlikely to experience the j full effects of the present depression, j though of course it will be atfectecT bv ; it. We are desirous of permanently t improving the position of the workers, and our attempt at stabilisation is in- ■ tended as a means to that end. If a j high degree of production is maintained, it may be possible to stabilise wages eventually at a rate that will represent substantial advance on prewar rates* During 1920 the Oxford University Press published a series of tracts on economic subjects by writer* of high standing. The following extract from a tract on “ Real W ealth and Real Wages'’ sets out the present position lucidly : ■’ What is necessary is that the great I productive powers of the country, liavj ing recovered their freedom, should 1 devote themselves to creating real | wealth, which consists of all things | necessary and useful to man. This is i the paramount interest of Labour at the present time, it- is true that the : worst sufferers are at the moment to be found, not among the working classes, but among classes who are not in a position to reap any benefit front the enhanced profits or wages, to whern the depreciated currency and higher prices double the cost of living while adding nothing to their income. These include old people living on the savings of a thrifty life of hard work, women of small means with dependent children, the hulk of the clergy and many others who have been called * the new poor ’ in our journals- For labour the important tiling is permanence of improved conditions. It is a great thing that sweating wages should be. abolished for ever, with all their evil physical and moral consequences: that excessive hours of toil which diminish vitality should'come to an end; and that the status of the workman as a man should be raised, but what is wanted is not a temporary but a permanent anti stable elevation of that status.” Another Oxford tract on Output and Income ’’ concludes with this paragraph “ That many, perhaps most, or the manual workers of this country were underpaid before the war is now generally agreed. As to whose fault it was opinions differ, but there can be no doubt that on the coldest business grounds it was a short-sighted policy, and has to be put right. But it cann<Oiti bo put right until commodities that make the economic millennium are there. They will not be there unless they are made. Higher money wages with less buying power are worse than useless. "We cannot have stuff to consume unless we turn it out. A greater output of goods means a greater income in necessaries, comforts, decencies and all that makes civilisation in the true sense of the word for the whole of the community.” These tracts were, of course, written with reference to English conditions, but it is the wish of this Court, in the interest of the community, to improve the status of the workers of New Zealand as far as possible.

WORKERS DISAPPOINTED. To sum up, we recognise that the withholding of the present cash bonAs has been disappointing to the workers. We realise, however, that we must take a Ijroad national view of the whole question of wages, and we are satisfied that to grant any cash bonus at tlie present time would be disadvantageous to the workers and the community generally. It would at once increase unemployment to an alarming extent, and would seriously hamper industry. As we stated in our pronouncement, the workers at their present rates are now receiving higher wages, measured in purchasing power, than for several months past. Further, when the Court has made new awards it has continued its practice of bringing rates that were below tlie standard up to the present standard wherever possible, apart from any question of bopus. This fact appears to have been lost sight of by those who contend that there has been no improvement in wages and conditions. The suggestion that the Court has not adhered to what was regarded as a promise is refuted by the obvious answer that the Court cannot control financial and economic conditions, but can only indicate the policy it wishes to carry out if circumstances permit. The present application, which is of the nature of a test case, is accordingly refused for the reasons above stated, and the Court adheres to its original pronouncement.