But after all is said and done, we are living in a fool’s paradise if we think that, even when financial equilibrium and stability have been attained, we shall be able to compete in foreign markets at our present _real_ costs of output. Wages constitute the greatest proportion of costs of production in every industry, and wages will have to be reduced—the standard of living of 1920-1 cannot be maintained. A lower standard of profits must likewise be accepted by employers. There must be equality of sacrifice all round. Labour argues that reduction of wages in industry means diminished national purchasing power, and consequently increased trade depression. That is only true when there is an effective demand at existing prices for the output of industry. The object now is to reduce costs so as to get down to a price at which demand may be effective. The foolish expectations nurtured by the working-classes of getting out of the war a higher standard of living than they enjoyed before the war was largely due to the utterly impossible—and sometimes grotesque—pictures painted by members of the Government of “the good times coming.” These reductions in cost by reductions of wages and profits can be immediate; any reductions in cost of production through improvement of management, organization and plant or increasing the efficiency of labour’s output, while necessary for the permanent well-being of industry, are too slow acting for the present emergency. CHAPTER XXIII THE RIGHT RELATIONSHIP OF GOVERNMENT TO INDUSTRY 2. The Normal Position of Government in Relation to Industry—Regulation of Factory Conditions—Conciliation and not Intervention—Protection of the Community—Wages in Unorganized Industries—Industrial Research—Need of a Real Ministry of Labour—Regulation of Combinations and Monopolies. 2. THE NORMAL POSITION OF GOVERNMENT IN RELATION TO INDUSTRY