Wairarapa Daily Times [Established 47 Years.] MONDAY, MARCH 27, 1922. UNEMPLOYMENT.

Wairarapa Daily Times, Volume 48, Issue 14625, 27 March 1922, Page 4

Wairarapa Daily Times [Established 47 Years.] MONDAY, MARCH 27, 1922. UNEMPLOYMENT.

Professor .Pigou is recognised as an authority on the causes of unemployment. In the “Contemporary Review” he points out that the industrial population of every countryOs divided into a number of groups of people, each group containing in various proportions, employers, providers of capital equipment (including land), technical staff, and manual workers, and each engaged in some branch of productive activity. If everything were working smoothly every group) would have exactly ,as much work to do as it wanted to have,, and would obtain regularly for the proceeds of that work exactly that amount of other people’s products that it had reckoned to obtain when it began its own work. As the world of industry is not stationary, these ideal conditions do not prevail. On occasions, because of bad harvests, war, labour troubles, or some other cause, the output of one of the groups in the country or outside, falls off, and does not offer so much of its product as before in exchange for the products of the other groups. So the real demand of products of some or all of the other groups falls off, .and, in general, they do not care to work so hard or produce so much of their own product as before. These fluctuations aro made larger than they otherwise would be, because in modern industry many processes of production take a long time, and so each group has to adjust'its action not so much to actual real demands from other groups as' to forecasts of their real demands. The way is thus opened for error. Should there be an actual increase in demand that industrial group becomes optimistic, and-often imagines that the outlook is better than it really is. The optimism is infectious. Each of the groups expects to get for example twice as much again*of other people’s stuff as before, if it provides half as much again of its own. So each group receives not twice as much as it did before, but just half as much again. The exchange then is on much less favourable terms than had been expected. Every group is disappointed, optimism is converted to pessimism, and the demand is now apt to be under-estimated. Production is reduced. These outbreaks and the swings of business activity that are responsible for them would take place even in a world in which money and banking were unknown. In the actual world, Professor Pigou believes they are intensified by reflex prico influences. In good times people turn over their balances more often than usual and also enlarge them by borrowings from the banks. The result is that prices go up. Fixed interest payments, however, do not go up, and wages, though they tend ultimately to follow price movements are apt to lag behind. So business men in good times secure a sort of bonus at the expense of people in receipt of fixed incomes, and in a lesser degree of wage-earners. In bad times bank balances are turned over less rapidly and reduced in amount, with the result that prices fall. But fixed interest payments do not fall and wages, though they tend to fall, again lag behind prices. Business menare then compelled to pay a sort of tax to people in receipt of fixed income and to wage-earners. Tlieir losses are intensified, their discciuragement is magnified, and their operations are contracted more violently than would otherwise be needed. That is the course of recent industrial history. There was the boom following the War. When the boom broke, orders ceased abruptly, holders of large stocks were forced to realise at a loss. Prices tumbled headlong. Confidence was shattered, and confidence is the mainspring of industrial activity. The main remedy in the opinion of Professor Pigou is a restoration of confidence.