"CAN AMERICAN PROSPERITY LAST ? "
[To the Editor of The SPECTATOR.] Sin,—There is one very important reason for American pro- sperity which is often forgotten, namely, the huge concentration of gold in America as a result of the payment of War Debts I It is a well-known fact in economic history that an increase in the production of gold has always brought about an increase in prices. It increased the available currency and tended to promote prosperity—just in the same way as inflation of currency brings about, for a time, a period of commercial activity. The gold accumulated in America has had the same effect ; it has increased currency and credit to an enormous extent and the result is a period of unparalleled prosperity. Like all kinds of inflation it may have reached its limit, and the introduction of the instalment system of purchasing is but a last effort to maintain the business in its present prosperous condition. It is tantamount to further inflation ; an increase of credit berind the national basis : and, obviously, this also will reach a limit which may end in a financial crisis.
There is, I am told, another reason for American prosperity, and that is the Prohibition Law. I am in touch with a man of influence in America, and he informs me that, notwith- standing the boot-legging, and the evasions of the law, the great mass of the American people have ceased to buy liquor and consequently have money to spend on domestic needs and personal luxuries. This, he contends, is the chief factor in American prosperity.
I am disposed to think that both of these considerations to which I have referred are important factors in the present industrial activity. Mr. Fyfe, however, speaks of a New Doctrine which connects high wages with prosperity (evidently assuming them to be Cause and Effect)—and holds that if employers will only have the good sense and foresight when bad trouble comes to con- tinue to pay high wages, they will pull through without a catastrophe ! Could anything be more absurd ? When business falls off unemployment is the first result, and then a cutting down of costs, with an inevitable fall in wages. It is the economic law and nothing can avert its operation. Prosperity must precede high wages. Wages can only be paid out of production ; and when demand falls away, and the value or the price of the product is lowered, wages must follow suit. Wages may, in exceptional cases, be paid out of capital. This has happened in the history of industry, but it was the result of benevolence, or of some special considers- tion, and must in the nature of things be exceptional.
This New Doctrine, therefore, is nothing more than a well. known Socialistic fallacy. If the trade unions were strong enough to decree that wages must not fall it would merely accentuate the disaster and increase unemployment. It may be noted, however, that wages are the very last items to be touched nowadays when a reduction of costs is necessary Examples of this are to be found in the recent balance sheets of many industries. Profits have disappeared, and capital has been reduced, but the rate of wages has remained the
Previous page
