General Articles

WHERE'S THE MONEY GO?

Who’s cashing in on price jumps? Here are facts and figures

BLAIR FRASER November 15 1947
General Articles

WHERE'S THE MONEY GO?

Who’s cashing in on price jumps? Here are facts and figures

BLAIR FRASER November 15 1947

WHERE'S THE MONEY GO?

Who’s cashing in on price jumps? Here are facts and figures

BLAIR FRASER

Maclean's Ottawa Editor

FOR EACH dollar a Canadian spent on food in 1939, he needed at least $1.65 last September. For a 1939 dollar spent on clothing he needed at least $1.52.

Those are the figures according to Ottawa’s official cost-of-living index—and before the latest big group of controls came off. Since then Ottawa has withdrawn the subsidies that held down flour and cotton and leather prices. Flour has gone up about 95%, bread 30% to 40%, shoes as much as 25%.

What’s more, those index figures of 165 and 152 are valid only for a limited group of Canadians— urban workers living on a very modest standard. The food index includes no green vegetable except cabbage and very little fresh fruit. The clothing index omits children’s garments altogether. To each woman it allows only one dress, a kitchen item which in September had risen in price from $3.34 to $3.37. That three-cent increase is certainly not enough to cover The New Look in fall budgets.

For many of us, $1.65 wouldn’t buy a 1939 dollar’s worth of food, or $1.52 a dollar’s worth of clothes—$2 would probably be closer to it. That doesn’t mean “the cost of living” has doubled; the cost of living includes a great many things of which food and clothing make up less than one third, and prices of the other

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Who's Cashing In?

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two thirds haven’t advanced so much. But it does mean that the family’s housekeeping money, the ordinary week-to-week outlay, buys little more than half what it used to buy. Canadians in 1947 are spending scores of millions of dollars more than they used to spend for the basic necessities of life.

Who’s getting this extra money?

Everybody is sure it’s going to somebody else. The employer says it’s going into wages, the worker says it’s going into profits, though both agree a lot is going in taxes to the bureaucrats. The farmer says the merchant or “middleman” is getting it, while the merchant says the same about the farmer.

Dominion Government figures show that all these people are right. Every group that’s part of the Canadian production machine, including the taxpayer, has got a lot out of the rise in living costs. The hard thing is to find precisely how big a share each got and whether he ought to have got so much.

Easiest share to pick out is the taxpayer’s. He gained at least $120 millions from the past year’s rise. Wheat subsidies alone, paid to the millers to keep down flour cost, were running about $3 millions a month when they were cut off in September — the Government was paying more than half the cost of wheat for milling, 81 cents to the millers’ 77. Other subsidies, paid to producers or importers to keep prices down, came to $87 millions in 1946. All told, price-control subsidies came to about $500 millions in six years and the rate was increasing fast at the end, as world prices got farther above Canadian price ceilings.

To this extent, then, the burden of rising prices has been shifted from t he taxpayer to the consumer. We’re all consumers; only some of us are taxpayers. In his Budget speech last April, Hon. Douglas Abbott pointed out that “exemption levels established last year are high enough to exempt completely from (income) tax more than half the people earning incomes in Canada.” Evidently this portion of the increase has meant a partial shift of the load from t he betteroff to the poorer Canadians.

Profits Starting Down

Now, what about profits? Are labor leaders right in saying that “big profits are the main cause of high prices”?

There’s no doubt that profits are up. A Bank of Canada report on 380 Canadian companies showed their total net profits, after taxes, to be 26% higher in 1946 than the 1936-39 average for the same companies. It showed, too, that 1946 itself was their big year—net income to stockholders was $269 millions, 20% above 1945 and nearly seven per cent higher than the previous peak in 1942.

However, that was the high point. On the basis of current reports the Bank of Canada’s guess is that 1947 profits will be rather sharply down below 1946.

But it’s during the current year that the cost of living has risen most. In August, before controls came off, the cost-of-living index rose nearly three points, the sharpest monthly increase since May, 1920. Since January the index has gone up 12.4 points, more than double its rise in the same period of 1946. If profits are going down while the cost of living goes up, it’s pretty hard to argue that profits are the cause of rising prices.

Anyway, profits are too small an item in the Canadian economy to make all that difference, even in cases where they went up by a great percentage.

One of the largest Canadian meatpacking firms had a net profit for 1946-47 of a little over two million dollars. That was 66% higher than the profit for 1938-39 and 13% higher than 1945-46. But it still represented only one cent in each sales dollar, against 80 cents to livestock producers, nine cents to employees and 10 cents for taxes, depreciation, maintenance, etc.

In the past 10 years the average net profits of 709 companies surveyed by the Bank of Canada have varied between a low of 8.2%i and a high of 10.4% of total revenue. About one quarter of these profits have been “plowed back” into the business as undistributed income, so dividends to stockholders averaged about seven per cent through the 10-year period. Whether you consider that too high or too low, you can’t build it up into the sole or even the primary cause of a 50% to 75% increase in prices.

There have been cases,of course, where profiteering did play a very definite part in raising the cost of living. An official of the Wartime Prices and Trade Board told me this story:

When the cherry season came in last summer, fruit farmers in British Columbia got together and decided to take the long view about prices. They’d been able to get into the eastern market to a greater extent than ever before, because their prices were so much below United States’ levels. This year controls were off—they could charge what they liked. But the 1946 ceiling price had given them a fair return and they decided not to increase it. They sold their cherries for the same money as they’d got last year, 22 cents a pound to the wholesaler.

Soon after cherries came on the 1947 market, the Prices Board got a long-distance call from B. C. Word had trickled back there that in Toronto and Montreal and Ottawa their “ceiling-priced” cherries were retailing for about 30% more than they’d cost the year before.

The Prices Board checked up. They found that some of the eastern wholesalers had precisely doubled their old markup on the cherries—instead of reselling them at 25 cents a pound they were asking 28, a margin of six cents instead of three. And some of the retailers, in turn, had marked up the fruit not 12 cents a pound, as they did in 1946, hut 21 cents. So the retail price at these stores was 49 cents a pound, instead ot the 1946 ceiling of 37 cents.

One Rise Broken

Prices Board officers got on the telephone to wholesalers and retailers. They didn’t have to utter any threats —they just drew attention to the Board’s power of reimposing price ceilings if unreasonable increases took place. The price of cherries came down again overnight.

That’s one incident and there were some others. But so far as I could discover in many conversations with the Prices Board, and with wholesale and retail merchants, that kind of thing has not been typical. Offener, the merchant’s percentage of profit has been shrunk rather than swollen—for the excellent reason that he’s been afraid to maintain it.

Merchants are scared of the present market. They’re buying at the fanciest prices they’ve ever paid and so far they’ve been able to sell at prices equally fancy. But the thought of “consumer resistance” — a buyer’s strike—isa recurrent bad dream.

“Last year,” said one wholesaler, “the price to producers on a certain food item was raised six per cent. We bought our usual amount, hut I was afraid to put our usual markup on it —I didn’t think people would buy it at such a high price.

“This year the price to producers is up 23%, more. A season’s supply will cost $1,700,000. How’d you like to have to decide whether to pay that much for goods, when you know it’s at least half a million dollars more than they’re worth?”

A big retailer had a slightly different way of putting the same thing.

“We can’t increase our profit margins,” he said, “because of competition. During the war there was practically no such thing as competitionprices were fixed at both ends, costs were pretty well fixed, and the Government ordered us not to do a lot of expensive things like free delivery and installment credits and so on.

“Now, it’s just the opposite. Costs have gone sky-high, at the very time when competition is coming back in a very violent form. Shortages are just about over—a few things are still scarce, but in most lines supply and demand are in balance and in some supply already exceeds demand. We’re meeting consumer resistance to high prices. So with all these things, the profit margin is squeezed out thinner and thinner.”

Whether all profits are being squeezed or not, it’s plain that they’re not increasing enough to account for the rise in prices.

All investment income—not only corporate profits but interest on bonds, etc. comes to less than a fifth of the Canadian national income. It was 18%, of the national income in 1939 and 19%, last year. Salaries and wages, on the other hand, were 60%. of the national income in 1939 and 55% last year. As for the farmers, their share was only 11%%, in 1939 and rose to nearly 14%, in 1946. In both years, employees and farmers between them got about 70%, of the national income. The balance of the national income total is made up of military pay and allowances (75%, in 1939, up to 3.4% last year) and individual enterprises, other than farms (nine per cent in 1939, eight JHT cent in 1946.)

The Farmer’s Take

Of all the major groups in Canada, the farmer is the one who most improved his position in the past seven years. Net income of all Canadian farmers was only $484 millions in 1939 and even that was $100 millions more than they’d got in 1938. Last year, in spite of higher operating costs j and 150%, increase in farm wages, net farm income in Canada totalled $1,267.4 millionsan increase of 161%, over the prewar figure.

(Net farm income is what the farmer has left for living expenses, income taxes and savings after all operating expenses are met. It’s calculated by taking the cash income from sale of j farm products, adding “income in kind” including farm produce eaten at home, plus an estimated value for house rent, and then adding or subtracting any change in the value of the farmer’s inventory of grains or other farm products. That total is the “gross income.” From it subtract the farmer's operating expenses and you get “net farm income.’’)

True, the farmer before the war was getting depression prices — hardly enough to keep him alive. True, he deserved to get a great deal more for his produce. But this enquiry is an attempt to find out, not who should have got the extra money we now

spend on food, but who in fact is getting it. The answer is, in large part, the farmer.

His net income is two and a half times what it used to be. And in making that gain he seems to have taken a bigger bite out of the increase in food costs than the “middleman.”

The wholesale price index for farm products hit 177.8 last July and has been rising ever since; by now* the amounts paid for foods wholesale must be 80%, higher than the 1935-39 average. But the retail price of food to the consumer had reached, by September, an index of only 165.5 —i.e., 65%, above the 1935-39 figure. So apparently the “squeeze,” in so far as it existed, reduced the middleman’s cut and not the farmer’s.

It’s only fair to recall, though, that although the Canadian farmer has done pretty well out of the war and postwar boom, he hasn’t done half as well as the American farmer. By agreement between Ottawa and Washington, Canadian foods are not allowed to be sold across the United States border. If they were allowed into the U. S. market, Canadian food prices would redouble overnight.

Take cattle, for instance. The average price of good steers in Toronto last summer was $14.47 a hundredweight, live weight. That looks pretty bigeompared with the $6.78 paid in 1939. But in Chicago the same steer would have brought $30.68 a hundredweight —and even that is well below the American peak.

They Can Buy Diamonds

It was the same with wheat. The British contract price of $1.55, lately raised to two dollars, is about double the prewar figure. But in the free market wheat has sold for as high as three dollars a bushel.

If it hadn’t been for our system of price control at home and export

control abroad, the Canadian farmer could have made a real killing and gouged the rest of us. He was prevented from doing that and he’s taken this deprivation with remarkable good nature. On the whole, there’s been amazingly little protest from the rural voter against the price and export

control program, though it has cost him a great many easy dollars.

Still, the farmer is well off this year. Travelling salesmen report that “consumer resistance” to high prices is most

noticeable in the cities and towns,

negligible in the country.

One jewelry salesman, t ravelling out of Montreal, said, “For the first time in my life I’m finding quite a market for diamonds in the smaller centres. They seem to have more money to spend than they’ve ever had before.”

One clothing firm, also in Montreal, found last spring that it couldn’t get Canadian or British worsted for men’s suits. The proprietor went down to New York and bought enough cloth for several thousand suits, at about two and a half times the Canadian price per yard.

When they got the suits made up, they were horrified at the price they had to charge for them. At head office everybody was glumly sure the garments wouldn’t sell—but the travellers took them out anyway.

On the west coast, where a buyers’ strike had made some headway, they were left with quite a few suits unsold. On the prairies they did a little better, but they met a good deal of sales resistance; in Ontario, a little less. But in rural Quebec their travellers were able to sell not only every suit they’d taken out themselves, but all that were left over from the other regions.

“The farmers don’t even ask the

price,” a village merchant told them. “A man comes in and asks for ‘ Un double-breasted avec un bouton’—one button. He wants the best worsted, he wants a certain style and color. But if I have what he wants he says to wrap it up and then he asks me how much it is.”

Salaries and Wages Doubled

Food prices are fairly simple—the farmer gets a vastly higher price, with the middleman taking the same or a slightly lower percentage cut on a much higher dollar volume. But clothing prices, the other runaway factor in the cost-of-living index, are much more complicated.

Before the war a clothing manufacturer could turn out a man’s suit with two pairs of pants for $16, to retail at $27.50. Yarn-dyed English worsted in those days cost $1.50 a yard, lining 40 cents, and labor cost about $2.25 per suit.

Now the two-pants suit is a memory. For the same suit, with one pair of pants, the manufacturer is getting $32.50, for retail up to $55. The worsted costs him $3.50 to $4 a yard, lining 78 cents in Canada or $1.38 if he has to import from the U. S.; labor cost is now $4.50, exactly double.

Clothing workers are not the only ones to have raised their earnings. The Canadian employee generally, the wage or salary earner, has done pretty well out of this extra money that we’ve all had to spend.

Taken in a lump, the total of salaries and wages in 1946 was a little more than twice the 1939 figure. Workers’ average earnings in manufacturing were $21.56 a week in June, 1939; last June they were $36.64.

Much of that advance has come just lately. In November, 1944, at the war peak, average earnings in manufacturing were only $33.13, and they slid below $30 in January, 1946. But with the removal of wage controls they have been climbing steadily, and the trend is still upward.

In wage rates, as distinct from weekly earnings, you can see even more clearly the steep upturn of the past year. In 1946 wage rates for all industries were only 54% above the 1939 level. This year, according to preliminary estimates, they’re 70% higher than 1939, and the year-end figure may be even higher.

Most significant of all, perhaps, is the fact that weekly earnings are still climbing, while weekly hours worked are falling—they were 50.4 in 1943, when people were working overtime in war jobs; they were down to 42 last July. As a nation, Canadians are working fewer hours for more dollars.

In itself that may be a good thing. But the indisputably bad thing is that we seem to be doing a lot less work per hour. The productivity of Canadians in all fields of work has taken a terrible slide.

“You ask me what’s pushing up the cost of living,” said one employer, a retail merchant with a staff of several hundred. “I’ll tell you in one sentence: It’s inefficiency of operation.

“We’ve always had good relations with our staff and still have—no trouble, no bad feeling. But our labor turnover in some departments is close to 100% every few months. People seem to have no interest in work nowadays, they can always get another job and the grass on the other side of the fence looks green. So we are continually bedevilled by the trouble and expense of training new help.”

This opinion seems to be nearly unanimous among employers.

“Absenteeism plagues us,” said a manufacturer of farm equipment. “Our

women employees seem to be content with two or three days a week and you can imagine what this does to our production. Every morning the staff has to be rearranged and it’s never the same for more than a day.”

“I’m about fed up with the labor situation,” said a mine manager. “Last month we hired 300 men and had a net gain of 15. You can’t keep a mine and smelter going on that basis.”

In a furniture factory “during August 112 people were hired and 112 more left the company’s employ.”

These, then, are the components of the cost-of-living burden—higher import costs, higher farm prices, higher wages with shorter hours and lower production rates, higher profits. One question remains; Who is the unlucky citizen who is bearing all this extra load, without sharing the benefits that go with it?

Obviously the victim is the person with a fixed income. Any pensioner, any man who has retired on his savings, any widow trying to live on insurance that seemed adequate enough 10 years ago—these people are suffering as they always do in a time of rising prices.

White-Collar Victims

But of those who are still earning, still part of the production machine, the unluckiest group seems to be the white-collar workers of middle income.

Private business organizations are not eager to give out details of their wage and salary structure, but the Federal Government’s salaries are an open book. In the civil service, at any rate, the short end of the stick has gone to the man earning between $3,000 and $4,500 a year.

Below $3,000 all classifications of workers have got increases in salary— not large, but better than nothing. Above $4,500, civil servants mostly hold individual jobs—one-man classifications—and they have got themselves individual increases. But the Man in

the Middle, too big to be rated a hardship case and too small to get personal consideration, has got nothing at all.

How long he will have to go on suffering, no one can say. There is a lot of money loose in Canada—about seven billion dollars, compared with less than three billion dollars in 1939—so the hard ceiling of necessity is still some way above us. While that extra purchasing power exists, and as long as it is still fairly widely distributed, it will be possible for prices to go on rising.

People talk about restoring price control, but there is little likelihood of this. Price control in Canada demanded the services of a large and able staff, fired with the enthusiasm of a war job and backed by solid public support. Today the staff is almost entirely disbanded, the enthusiasm and the public support are both gone. Theoretically the power to restore controls is still there; practically, it isn’t.

Only two things are in our power, as a people, to bring down the prices of everyday needs. One is buyer resistance—the determination to do without rather than pay exorbitant amounts for goods. This is what the merchants fear is coming and it could have great effect. Even in the so-called necessities like food, it’s possible to have tremendous variation in demand. If, or when, we all suddenly cut down on costly items and make do with cheaper ones, food and clothing prices will begin to slide.

But that won’t really solve anything. So long as production costs remain sky-high, a buyers’ strike merely puts the merchant out of business. The only real answer, the only way to a genuine increase in the standard of living, is greater production.

When the workers of Canada start producing more goods for each hour worked or dollar earned, we’ll have gone a long way toward beating inflation. ★