TRADE AND LABOUR.

Ashburton Guardian, Volume XXXIX, Issue 9633, 13 June 1919, Page 2

TRADE AND LABOUR.

lI.—FALLING PRICES.

(By "Gracchus.") Last week, in this column, the influence of rising prices on the various units that make up society was' considered. During 23 years people have grown so accustomed to rising prices that they take this condition of affairs as immutable, unchangeable. Those few croakers who spoke of catastrophic deflation as the inevitable concomitant of the cessation of hostilities have been disappointed—rather increased inflation has been the economic watchword. In short, the prophets of deflation expected the immediate fulfilment of their jeremiads, but instead; it has only been delayed a little while. The essential characters of the immediately- . post-war period have been: (1) Continuation of extraordinary' State expenditure, (2) demobilisa^ tion of men and capital iroui war work and their general absorption into peace work; (3) recoil from the restriction and abstinences of war. (Restriction and abstinence against the subscription of new capital for private enterprise) combining together the'demana that will be maue tor money by Government and private persons in. ■ this -'immediate--,.''post-war period,, it'seems likely'to even exceed the demands that have been made during the continuance of the war. And as thereare no new sources of money to be tapped, banks are being called upon to lend money to Governments and to private persons to an extent equal, or perhaps even greater, than they were doing during : the war, thereby creating further inflation. Against this tendency, various big banking amalgamations in our financial headquarters (London) are aimed. It is felt that, deflation will be a disagreeable process, bringing in its train failure and unemployment; but it is a less evil than the continuance of an inconvertible currency. All fluctuations in general price level are injurious to business and, although they will never be completely eliminated until the currency is based on ail conimqdftiesi^this being at present outside practical .'politics, the banks are determined to get back to their old position of stability which was based on the gold standard. They are gathering strength for this move by combination. The immediate, the inevitable result must- be deflation—falling prices. It is intended therefore to indicate briefly the effects felt by the different members of the economic body during a period of falling prices.

It may be stated broadly that wageearners will benefit by falling prices. Wages will follow the price movement, but more slowly, hence there will be an addition of real wages, although a diminution of money wages. The readjustment will not be an easy process because the bulk of" wage-earners look rather at the number of shillings they receive than the amount of spending power these shillings represent. In the period of falling prices, it will be the employers, not the workers, who will procession to the Arbitration Court for the decrease of awards; it will be the lock-out, not the strike, that will be the execrated weapon of industrialism. A strange metamorphosis surely, but not so strange to those who can go back to the last period of deflation—lß74-96. There are those who say that this period of deflation was caused by, as well as' followed on tho war period of 1864-70, and they v point with prophetic finger also to the deflation extending between 1820-49, also following on a terrible war period, and finally, in. melancholy triumph, they stress the moral for our own time. A long period of rising prices followed by a crashing war, three, four, or five years, and then the canker gnawing at prices. Decidedly not very cheerful if it is a correct interpretation of history, especially to those who have read the economic history of 1820-49 orknow by experience of the bad times stretching between 1874 and 1896. Of course labour must suffer with the rest of society, and perhaps the gain represented by a slower wage than price fall may be more than outweighed by unemployment an dslack trade. But time will prove or disprove all contentions and put beyond appeal the proportionate distribution of burdens.

Coming next to the employer or "entrepreneur," the captain of industry working but his destiny with someone else's capital, falling prices are dead against him. First he has to pay_ interest on a fixed amount of capital, and naturally, with falling prices, it takes' l more goods or the profits on them to pay that interest. Secondly, he has bought raw materials and based his calculations on prices current at the time of buying, but with prices falling, his profits may be nil or minus by the time he sells his finished article. Fiually, there is his wages bill, rather falls behind that'of his other whose decrease is not coincident but costs. Markets are dead, trade is stagnant, and everything is dead against the enterpriser. Falling prices deaden imagination, energy or enterprise, they accustom people to small things and the employer who holds the supreme economic position, who is the pivot of the modern industrial order, who is the motive power of industry carries many with him in his failure in time of falling prices.

The creditor gains with falling prices. Tako the case of a person holding Government bonds' heavily. The amount of capital nominally and the rate of interest is fixed and therefore the money income is fixed. But wuli falling prices, tho income will buy more goods, . lias greater purchasing power and therefore real' income is increased. The creditor gains. The same argument applies to those who let their money out on long mortgage, to preference shareholders at a fixed rate of interest, to professional men, whose fees are largely determined by custom, who with, the same receipts as in the past are in possession of greater purchasing power. Their position is, of course, somewhat projudiceci t)y lessened security of investment, a chance of non-full payment of preference dividends, or a greater number', of bad debts respectively.. To .salaried men, such as civil servants, the benefits of falling prices would seem 'to be unquestioned.

Taking the ca.se of tlic farmer with a mortgage, we. find him in a less happy position than with rising prices. It will take more of his farm products to pay tho interest, and less will remain to him as a reward of his industry. True, ho will be able to buy lots of things cheaper, liut the chief item of expenditure, that to buy the use of capital, decreases not one whit. Also

the capital value of his farm suffers with falling prices. In short, it is the whole story when it is said that debtors lose and creditors are benefited byfalling prices.

New Zealand is a debtor country. Everyone knows that the amount, as well as the proportion, of unproductive debt has been increased enormously during -the war period, and during the preceding 20 years, the national debt increased at an enormous rate. In short, there is a mortgage on New Zealand as a whole amounting to about £150,000,000. In the pfts.t we have found no difficulty as a community, oven as the farmer as an individual, to. me.pt our obligations. This was due to rising prices benefiting us as a debtor country. If, instead, a period of continued deflation has to be faced by this country, the weight of the national debt will be as a-millstone round our necks. We do not pay interest in golden sovereigns, but in goods, and particularly farm produce, in this country. To pay our interest bill during a falling-price period, it is obvious that we will, have to produce 'more or declare ourselves bankrupts We borrowed during a period of rising prices when we got little for our money ; if th eeconomists are right, it looks as if we should have to repay in a time of falling prices, whßn we must give more goods to meet our obligations. As a business man remarked to "Gracchus" it would obviously be of advantage to New Zealand if prices continued to rise wnen the national debt is considered. It is possible our creditors have another' view iv the mutter.