Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-02-25
BUSINESS AWAITS
NEW PRICE LEVELS
Sterilization Held Vital to
Normal Conditions-Wage
Reductions Opposed.
Special Dispatch to The Star.

special Dispatch to The Star.
CHICAGO, February 25.-A warning
against widespread wage cuts as an aid
to business recovery is sounded in the
current issue of the Business Observer,
monthly review of the Foreman-State
National Bank.
While price declines have in a meas
ure served to restore purchasing power,
curtailing of wages would react un-
favorably on the now fairly stabilized
commodity price market and cause fur
Their delay in the long-awaited return
to normal business. the Business OBJ
server states. The publication sets forth
this point concisely as follows:
When all of the factors in the situ-
alton are examined. the movement to
reduce wages in the interest of business
recovery appears to be largely unsound.
BY permitting wages to hold, while
prices decline, purchasing power will be
enhanced, and such commodity prices
as have already fallen beyond the gen.
eral trend Of prices will tend to be
brought back in line If. but only If, the
wage costs entering into them are not
reduced. On the contrary, if wage re-
duction were to become a widespread
policy at the present time, it would I'M
doubtedly intensity the commodity
price recession. curtail buying power
still further, and prolong the depres-
SION"
With the bottom Of the current de-
preston already sounded" by such fac
tors as steel production and merchan-
disc freight, the Business Observer be-
lieves that industry awaits only some
further price Establishments before
definite upward swing. The bank pub
LEGATION notes:
Purchasing Power Improves.
Conditions are unquestionably ripper
for improvement now than they have
been at any time for year and half.
But improvement will not be automatic.
Sound improvement can come only with
readjustments that improve purchasing
power. The remedies or stimuli, which
will be most fruitful in speeding up re-
covery are those which will improve
and stimulate purchasing power. The
purchasing power of current wages and
salaries will tend to improve steadily
from the moment unemployment and
payrolls cease to decline. This improve
ment will be due, of course, to the IA
vorable contrast between price reduc-
tons and wage reductions. But pur-
chasing power is already improving with
every readjustment of specific COM
modify prices to the general commodity
trend, and with every gain made by
retail prices in overtaking the decline of
wholesale pr&es.
The restoration of purchasing power,
thus far the least reaSsuring of the
many indiceS of business, is the most
important factor in the general recovery
of business, the Business Observer says.
So far as foreign consumption is con-
cerned, the publication sees little hope
of the restoration of outside markets
during 1881 by either of the two reme-
dies generally proposed, namely, the
scaling down or cancellation of war
debts or extensive foreign lending.
New Price Levels Vital.
The most urgently needed reinsurance
at the beginning of 1881 is some def
mite knowledge as to when prices have
declined far enough to be safe, in the
opinion of the review-the big question
being where the new price levels are to
be. Raw materials inaugurated the
worldwide price decline, so raw ma
terials ought to give the first indications
as to where the new price levels may
become established. The Business OBJ
server carries significant index this
month showing the recent average price
trend Of 10 basic world raw materials,
and points out that this new index has
been making floor" for at least three
months at about 10 per cent below 1925
price levels. It is noted also that four
of the five specific raw material prices
that are below this average are rising at
the present time, while four of the five
which are above the average are now
declining. 1T is not to be concluded
from this limited observation that the
new price levels will be precisely at so
per cent on basis of 100 for 1926" the
review observes, 1--WE can say, however,
that preliminary soundings indicate q
price bottom somewhere in that vicin-
ity"