The Wilmington morning star., 1943-11-25
MEANING OF SUBSIDIES \
is EXPLAINED SIMPLY
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production, and can get along with
what One-dollar Smith and Two
dollar Brown can make. what will
be the price? 1t will be Browns
price-that is 49, and Jones at SO
will not get any business.
Now this being war time when
the communit.v wants all that can
be produced, Jones' production is
needed. That means that the
price will be So for Smith and
Brown as well as for Jones. Yet
if each of them got what he really
needed, Smith would get 81, Brown
So and Jones SIS. The total cost
of the whole supply of gadgets
would be l plus plus SO: or
Sc altogether. But, in fact, since
Jones' SO price would, unless the
government in+erfes ed, become the
price for everybody, the total cost
of the whole supply will be plus
8 plus $3-or SO altogether. In or
der to get Jones to produce, all
the prices have to rise to his high
level.
Now this is where the subsidy
comes in. Suppose you say: Two
dollars is the accepted price for
this gadget---at So we can get
Smiths and Browns produce and
they will be making fair profit;
now then now car We get Jones
So product, which we want, with
out paying Smith and Brown So,
which is more tkan they need?
We get it by paying Jones So, and
in addition subsidy payment of
81.
This works out as follows: The
community pays Smith 81 n d
Jones $2-a total OF $6-and the
community as taxpayer also pays
Jones a subsidy of 81. Thus the
whole supply costs ST, whereas
if the price were allowed to rise
to Jones' level, the whole supply
would cost SO.
This is the principle of the
particular type of subsidy no I'M
der discussion, and the example
demonstrates how by paying 81 in
subsidy the community makes
net saving of - which it would
otherwise have to spend.
If this is plain, then we can see
clearly what, among those who
understand it, is the real issue In
Congress. By the payment Of the
subsidy to Jones, the consuming
public gets the gadgets at the low
est feasible cost. BUT Smith and
Brown, who can sci, profitably at
50, do not get as big profit as II
the price rose 10 So. Smith is de-
MED an extra profit of 81 and
Brown is denied an extra profit
of ST.. AS a purely commercial
matter, and ignoring all other
public considerations, the use OF
the subsidy not only denies them
the extra profit but compels them
as taxpayers to pay their share
of the cost OF the subsidy. Instead
of making the extra So for them
selves, they have as taxpayers to
contribute something to Jones
81 subsidy.
So, as a commercial matter,
they fight the subsidy and want
the price ceiling lifted.
This is the crux Of the whole
controversy, and once it is under
stood, the necessity ct using SUBJ
sides to stabilize prices in war
time is sef-evident There is no
other way of getting Jones' high
cost production without raising all
other prices to mis- high cost level.
There are dlfferen ways of apply
ing subsidies to achieve this end,
and it is by no means certain that
the administrator. n a S selected
the best way. But to prohibit such
subsidies entirely is to make rise
of prices inevitable if Jones is to
De kept pIOuuSlIlS.
The debate has shown that re-
sentiment against the rise OF IN
dustrial wages is "a powerful emo
tional force in the opposition to
these particular subsidies to
stabilize the cost of living. But
resentment, however justified, is
never a sound basis for leglsla-
ton. The fact is that while the
blow against subsidies is aimed at
organized labor, it will really fall
upon the unorganizeo and m o t
helpless members of the commu-
nifty, For organized labor, just be-
cause it is organized, Will parry
the blow by threatening TO strike
for higher wages to meet the in
creased cost of living. And Con-
gress, which would not enact uni
versal service, has no other ef-
fective means by which 1t can leg
islate miners Or any other organ
lied group of workers back to
work.
But the rise of the cost of liv-
ing. which cannot be prevented
without subsidies, will strike all
government employees on flxed
Salaries including Congressman,
all state and municipal employees,
oil soldiers dependents on fixed
allowances, all veterans and re-