Page 5, 28th July 1939

28th July 1939
Page 5
Page 5, 28th July 1939 — DIVIDENDS AND

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am very grateful to " Devonian " for raising the point that he has raised, and though I still think that the case of the Railways is one where the Catholic principle is applicable without any sort of modification, I cordially agree that the problem is not a simple one.

Cases might certainly arise where it would be wrong and foolish to destroy a business on account of its wage rates. As a matter of fact I have myself been contending for years that wages are not the only test, that low wages may be offset by other values, such as the preservation of the family business and of a human relation between employer and employed. In such cases, of course, the wage earner tends to receive consideration which offsets the smallness of the actual money wage. But "Devonia.n " is not concerned with such matters as these. His proposition is simply that bad wages are better than no wages at all.

I do not agree.

The effect of sporadic bad wages in industry weakens the just claims of labour along the whole front, and causes the State to shirk its duty of creating conditions where adequate employmert opportunities will be assured.

With regard to the passage quoted by "Devonian " from a theological review, I can only say (with due respect to its author, whoever he may be) that I cannot understand it. For the sake of clarity May I be permitted to requote the most important part.

"In addition to paying wages " an Industry " must buy raw materials, and ft must also buy capital. It cannot get capital for nothing, but must pay for it, either a fixed sum (debenture shares) or an uncertain sum (in the case of ordinary stock). If it fails for a sufficiently long period to pay for its capital. the capital will run away and keep away, and the enterprise will collapse. Therefore, it seems to us, an industry la justified in paying that amount of interest on capital even though it cannot pay a living wage."

I do not quite know what is meant by capital " running away" out of a business. But I suspect a mistranslation somewhere and suppose that the general reference of the passage is to businesses requiring fresh capital for expansion purposes and being unable to get it. But if a concern is not sufficiently prosperous to pay a living wage it will in the normal way be unable to buy capital on a free capital market, and if it is prosperous enough to attract capital. it. should in the normal way be prosperous enough to pay a living wage.

I can, of course, conceive a sort of borderline case where a concern is struggling with difficulties through lack of working capital or up-to-date plant. Such a concern might conceivably see an opportunity of getting fresh capital by private bargain if M could hang on long enough. It would therefore continue to try and earn a profit, not with a view to paying out dividends but because the alternative to running at a profit is running at a loss and ultimately going bankrupt. In my submission such a concern, after meeting debenture interest concerning which it would have no option, should not distribute its profits but should either place them to reserve or pay them back as bonuses to its wage earners. The party that might be induced to put up capital would, after all, not look at the dividends paid but at the actual and especially the potential rate of profit. What had been done with past profits would not interest him; I cannot, therefore, see that. such a case would justify the paying out of dividends at the expense of a living wage. J. L. BENVENISTI London, N.W.

Dividend and Interest

SIR,—"Devonia.n's " letter usefully resuscitates an issue which usually dies far too quickly.

The muddled argument contained it, his interesting quotation from a. " theological review " is amazing. It puts forward a serious moral question, discusses it, swallowing all sorts of implications in the process, and ilnally answers, not its own question, but an entirely different and pointless one.

Its query was whether Catholic inveetors were justified in taking dividends from a Company which did not pay workers a living wage. Its conclusion was that. because capital could not be got for nothing in the present system, 'industry is justified in paying interest on capital, even though it cannot pay a living wage." The issue was thus completely obscured and the question unanswered.

To take the strayed conclusion first, no one will deny that industry is often forced into this position by owners of capital. The point is that capital does not " run away " according to some law of its being, but is taken away by its owners, who demand rent for their money, irrespective of whether there is a profit out of which to pay the rent. The quoted article makes no attempt to distinguish between dividend (which is a share in genuine profit, merited by the risk attached to investment), and interest (which is a fixed rent for money lent). The answer to the question put by the article seems obvious. Since wages are a first charge on industry, and since, therefore, until a living wage has been paid to the workers there actually is no profit. the receiver of dividend in such circumstances must be receiving what belongs to another, and clearly may not do so. In the case of true investment (as distinct from secured loans), there is no question of the capital " running away" because it is well and truly sunk and irrecoverable.

The ground of the argument is not shifted when it comes to a question of interest (not dividend, please) paid to debenture holders. It is not a case of " buying" capital, but of renting money which is withdrawn on failure of rent payment.

Looked at in this light, the debatable question becomes this: " May a Catholic lend capital to in .stry, subject to the stipulation that he shall receive a fixed and regular payment for the use thereof, regardless of whether the industry is sufficiently fruitful to pay a living wage

to its take payment for the use of money Is the definition of usury, and is forbidden by the Church. A reasonable payment is allowed to be taken as compensation for genuine loss of profit endured by the lender through making the loan, this constituting an " extrinsic title." By a nineteenth-century Canon, the Church permitted all lenders to take this payment (always regarding it as compensation for loss of profit), on the assumption that the opportunity for

Continued at foot of next column.

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