57TH FINANCIAL SURVEY
The Menace of Falling Prices The Joint Stock Banks for 'Growth' The Innocent Investor Industrial Banking Deposits Reviewed Covering the Risk Unit Trusts Are Still News Building Societies and Trustee Status ■ CHRISTOPHER HOLLIS • NICHOLAS DAVENPORT • HUGO O'HEAR • J. W. W. HUNTRODS ■ J. D. ROWLAND • MAXWELL HERON • MARGARET RIX
The Menace of Falling Prices
By CHRISTOPHER HOLLIS AFTER fourteen years we all understand well enough the inconvenience and injustice of steadily rising prices. Some people are able to increase their incomes to keep pace with the rise. Others cannot, and those who cannot suffer. That is familiar enough, and, though opinions may differ how far the stability of the last year is due to luck and how far to policy, and though some may complain that we have had to pay a price for it in arrested production, there is no one who does not join with the Cohen Committee in wel- coming stable prices.
But there are some who with facile logic argue that, if rising prices are bad, falling prices must be good. Even the Cohen Committee seem to want to see falling prices. There seems at first sight a plain common sense in saying that of course everyone would like to pay less in the shops. But those who argue thus must have short memories, and the experience of the last fourteen years must have crowded from their minds the years that preceded them before the war.
Of course, the reduction of some particular price, as a sort of advertisement that inflation has been brought under control, may be desirable. Of course, where an article has been taxed it reasonable to reduce its price if the tax is reducesl.. But any general and steady fall of prices—any pressure on producers to compel them to reduce prices all along the line—would be an evil. It would be an evil, because it would increase the burden of debt, since debts are reckoned in money. It is an evil when the real standards of those with fixed incomes are lessened by inflation, but that does not say that the increase of the burden of debt—of the fixed charges which the Producer has to pay out—would not be a greater evil. The case against a steadily falling price level is simple. All productive processes take a certain time. The producer has to meet his costs—to buy his machinery and raw materials, to pay out his wages, etc.—some time before he can recoup himself by selling his product. Therefore, if prices are steadily falling all the time, he has to incur his costs at a time when prices are higher than they are when he makes his sale. Therefore he cannot sell at such a price as to recover his costs. Therefore it is not worth while to produce.
In fact, the obstacles to any substantial general reduction of prices are so great that no economy has ever succeeded in overcoming them and it is quite certain that, if the attempt were made now, our present economy would not succeed in over- coming them. When once prices have been allowed, however foolishly, to rise, there is no 'alternative but to accept the rise and to try and stabilise on the new level. That is the reason why over the centuries there has been a steady rise in prices and why, . as the French say, L'or va loifjours en pis.
Neither the Cohen Committee nor any other responsible .person ever suggested a wholesale slashing of prices. There may be people who think Of the prices of 1914 or the prices of 1939 as in ' sortie way 'natural,' to which they hope one day to return, but this is not a serious opinion. What the Cohen Committee suggest is more subtle and plausible. If there IS an industry that has been producing below capacity, they argue, and it starts to produce again at capacity, then, with machinery that had previously been under-used now fully used, there will be a higher production per worker. Instead of passing on the benefit of that production in higher wages—whether direct or through shorter hours and consequently more overtime--or to the capitalist in higher dividends, .would it not be better to pass it on to the public in lower prices? So runs the argument.
Sir Stafford Cripps and Mr. Gaitskell, when they were Chancellors, competently and coura- geously demonstrated that it is mere demagogy to pretend that there is a vast treasure of profits that can be raided so that we can have both higher wages and lower prices and make the capitalist pay for both. All money payments are in the last' resort made to some person and overwhelmingly the greater part of them to somebody who has made some contribution of work towards the pro- duction of the final article. If there are to be lower prices, it can only be at the expense of there not being higher wages. That is the choice that we must face.
Is such a scheme either possible or desirable? The practical chances of getting such a policy through without the most serious labour troubles were, I should have thought, almost non-existent. We all know how difficult it is to persuade labour not to press for higher wages, when it can be shown that those higher wages cannot be met by increased output and can only be paid out of higher prices. We all know how moderate has been the success in persuading the workers to that degree of restraint. But at least, when such re- straint is asked for, it is possible to hold out some sort of hope of improvement to the worker. It is possible to say to him, 'If things get better, if you can find some way of improving your output, then you shall have higher wages.' But if, even when output is increased, wages are not to be raised, what incentive has the worker to increase output?
It is true, of course, that you can say, 'The product will be cheaper. It will be possible for you, along with the rest of the community, to buy it more cheaply in the shops.' But such an appeal is hardly likely to be more effective than the appeal of the more idealistic Socialists who thought that the workers would be encouraged to work harder by the thought that they were work- ing for a nationalised industry. Indeed the workers in an industry are often of all people those who are least interested in the price of its product, since often, like miners with concessionary coal, they get it on special terms anyway.
So I trust that no great hopes will be raised of falling prices. For we are not likely to get them and, if we did try to get them, the result might well be disastrous.
Previous page
