Evening star., 1935-10-20
PRICE ADJUSTMENT HELD
KEY TO i. S. PROSPERITY
Brookings Expert Sees Market in
Unmapped Cap Between Potential
Supply and CONSUMPTION.

The sales probably would have come
anyway. The market was there for
far vaster supplies of almost every type
Of basic goods than could possibly
have been produced. Only one OBJ
stacle stood in the way Of utilization
the income Of the potential buyers.
Sales would automatically have in
creased as the gulf was narrowed be-
tween this income and costs Of living.
This brings DR.. Moulton to what he
emphasizes as the fundamental ques-
ton at issue.
In the prosperity period Of the
20's," he says, there was a great in
crease in production efficiency, but
there was no corresponding reduction
in selling prices-indeed, retail prices
did not decline at all. Instead Of Wig
orously reducing prices as costs were
reduced, the practice prevailed over
broad and basically important sections
Of American industry to hold prices at
or near existing levels, or even to ad-
vance them when the current demand
ran strong Thus the volume Of sales
was prevented from attaining the di-
menSions it might have reached.
Prices Froze Market.
Instead Of tapping the vast re-
sources Of potential demand residing
in the untitled want Of the American
people, price policy tended to freeze
the markets at existing levels. In
stead of endeavoring to expand sales
through price reductions we. sought
by high-pressure Salesmanship and
inStallment credits to induce people
to buy more than they could afford.
Despite such temporary stimulation
OF demands and the expansion of
sales abroad by means of credits and
dumping policies, American industry
in general continued to have a SUBJ
stanttal margin of unutilized produce
tive capacity. Had the volume of
sales been expanded by means of
price reductions unit costs would have
been reduced and profits might well
have been larger. The business man.
ager who progressively reduces SELL
ing prices as chronological improve
mentS are made need have no real
concern over the long-run trend of
profits. The history of business shows
that under such conditions profits
usually take care of themselves.
DR.. Moulton deals lightly with such
issues as chronological unemployment,
American industry hasn't enough ma.
cnlnes. 1t will not have enough un-
til machine power and man power
together can produce enough to bridge
that gaping gulf between possible
production OF goods and the amount
OF consumption required by a "rea-
| sonable standard of living" It Is not
likely to come in our generation.
Neither does he consider very seri-
ously such proposed remedies as 30
nour weeks or the regimented life Of
subsistence homesteads, etc. At the
best. all they can produce is leisure.
Ihere is no great demand for leisure
on the part Of the American people.
The average man wants to better his
lot. He doesn't want to sit around,
even with an assured income at its
present level And while he is sitting
around he is doing nothing to bridge
the gap. Quite the opposite would
be the result, it is likely. Production
would fall more and more from DOS.
slbilities Of consumption.
Would Lower Prices.
The ideal, as he sees it, would be
increased production with lowered
prices, with the resultant savings ex.
pended to still further increase pro.
auction with still lower prices.
Gould we find the means" he
says. "of closing the 20 per cent gap
between capacity and utilization we
would be in the process of doing
something Of even greater Importance.
we should be progressively reaching
over the old limit of productive ca.
paclty. tapping new sources of eff
cheney, unleashing forces of progress
which come to action only as the
prospect of profitable use becomes
clearly diScernible. As this dynamic
situation is attained suppressed pat
ents are brought into use, new inyen-
ton stimulated, obsolescent machines
replaced by others of more efficient
character. Then integrated processes
and mass production may move for.
ward as the engineer lights the way
ana labor-saving machinery may be
introduced without fear that the
workers will starve. No actual addi-
ton to production can be a harm to
the economic body except as our sys-
tenn fails to provide for distributing
the net product fully and promptly
into the hands of actual consumers"
Distribution BY Price.
The ultimate distribution Of the
national income, DR.. Moulton points
out. Is to be brought about through
an elaborate process of pricing goods;
determining wage ard salary pay
ments; disburSing premiums and
bonuses; operating proflt-sharing, in
surance and pension schemes; and
carrying out an elaborate system of
taxation and Government expendi.
ture. All must 60 hand In hand.
But the one type of distributive re.
form which outranks all others, he
insists. is gradual but persistent re-
vamping of price policy so as to pass
on the benefits of the increased pro-
duction due to chronological process
to all the population as consumers.
Such procedure, he says, seems to
promise the maximum gain to the
masses both in the short run and in
the long run. At the same time it
does not destroy the profit motive
nor jeopardize the winning Of such
profits as are necessary to maintain
capital funds and make possible the
financing Of improvements.
1.-THE underlying purpose Of busi-
ness" he says, 'is to serve the people.
Indeed, only as it serves the people
can it serve its own best interests.
To serve a small part Of the people
cautiously, guarding oneself at every
turn lest ones own advantage might
be made less by passing on the bene-
fits Of new knowledge or better meth
DDS, will give but a cramped life and
a stunted development even to ones
own enterprise.