UNEMPLOYMENT: ITS LOGICAL SOLUTION [To the Editor of the SPECTATOR.]
Slit—The two articles under the above heading appearing in the issues of the Spectator dated August 16th and 23rd are most interesting, but whereas the first is entirely logical and acceptable, the second, wherein Mr. Reilly endeavours to arrive at his solution, is neither logical nor acceptable. It is, for example, fantastic, in face of the phenothenal fall in the price of rubber, to argue that the drop in the price of tyres is due to Protection.
In the following paragraphs I will try to explain a far simpler and more -cettain Method: First, let us accept two fundamental points made by Mr. Reilly : (a) that capacity to produce has outrun effective demand, and (b) that wages, real wages, including salaries, must be raised so as to increase the purchasing power of the community and so raise the effective demand for goods to meet the capacity to produce.
It follows immediately from (a) that it is of small use further increasing our capacity to produce, therefore a large increase in industrial capital is not required to finance such capacity, therefore the rate of building up capital reserves out of profits may, and should, be largely diminished.
Turning now to (b). It must be understood that it is the real wage which must be increased. It is of no use merely raising wages all round, as such rise is at once tacked on to the price of products and no one is any better off. The increase must, therefore, take the form of a share of profits, and this can best be done as follows : I. The wage level should be legally controlled and levelled, and should remain as it is at present—a subsistence wage only.
2. All charges against profits, including wages and including tazmion, should be made in the usual way, except depreciation, which should be charged at agreed rates in some way analogous to the procedure under the Income Tax Acts for wear and tear.
3. The remaining balance of profit should be split into two portions bearing the same ratio to one another as the amount paid away in wages (always including salaries) bears to a lair percentage, say, 71 per cent., on the real capital. (By real capital I mean the cost price of the assets less amounts written off and less liabilities.) The first portion would be payable to the employees and the second portion to the proprietors, and the employees should be entitled to representation on the Board of Directors.
The shrinkage in the amount of profits accruing to the proprietors would very speedily be made up owing to the enornious economies which Mr. Reilly has explained would be effected, and the fact that tax is deducted before arriving at the profit available for distribution would give the whole community a direct and obvious interest in a reduction of that charge, which is very far from existing at present.
There are many points which require elaboration and explanation, but these cannot be dealt with in a short letter.
(Chartered Accountant.) 464 Caerleon Road, Newport, Monmouth.
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