DOWNWARD TREND OF PRICES.

Ashburton Guardian, Volume XL, Issue 9233, 4 June 1920, Page 2

DOWNWARD TREND OF PRICES.

(By "Gracchus.".)

Are we an the cv& of a general fall of prices? There are cectainly many indications that point that way. It is true this general tendency is not admitted by commercial circles; How could it be? To tell a man that the price of an article is likely to fall soon is tantamount to advising him not to buy that article for the present, and no person can expect a merchant or retailer to discourage a prospective oustomei v from buying his goods. The fact that the fall in prices has occurred practically simultaneously in -Great, Britain, the United States, and Japan, and that it is most noticeable in the case of manufactured goods, may f^ivo some indication as to the real c^use and probable continuance of 'the fall. -

In the first place, a fall which is*so universal in its extension cannot be due to merely local caused, and the fact that manufactured goods have been the first to be affected by the "slump," gives colour to the supposition that the general dislocation of trade.and industry which wa>s caused by the war-and post-war conditions is now approaching an end, and: with a steady return to normnl supplies there will be a gradual fall in prices. Commercial circlesl, while generally unwilling to admit any general fall in prices, 9xpress the opinion that if such a fall does occur it will be gradual. In this opinion they are probably correct in their assumption. If the full is gradual and general (that is to say. if ii affects values of all kinds, as- the. rise lias done) there will be no reason why intending customers should defer their purchases^ for -they; will in the end gain nothing' by doing so. '

The gradual rise in value* which has taken place during, the last six years is, of course, due directly and indirectly to the war, but it may be traced to two main causes—first, the general dislocation of trade and industry; second, the inflated prices, caused by nn inflated currency (says the Auckland "Star"). We have heard much of the profiteer, but as a factor in the rise of prices he seems to be generally much overrated; in any case, the influence of the profiteer comes under the first of the above causes—the general dislocation of industry. As to the'proportion of the increase in prices which is due to the inflated currency, we have a ready means of testing it by the increase in the bullion value of gold. The bullion value of gold has not increased over 4.0 per cent.,.hut the rise in cost of living during the last six voars has been greatly in excess of this figure. It is not easy to give a.hard nnd fast rule; most of the detailed calculations dealing with the increased cost of living are incomplete or mis-' leading, ' for much depends on a person's station in life and his method of living. It is obvious that all families nre not affected in the same'degree. It may be roughly estimated that 60 per cent, of the increase in prices is due to the dislocation of trade and its results, and 40 per cent, to the inflation of' the currency. There arc subordinate causes but these are comparatively slight. ]

The dislocation of trade caused by the war cannot last for ever: it has already lasted much longer than was generally anticipated at the start. There are many indications, however, that we have now "turned 1 the corner," and are on the eve of n steads and gradual fall in prices. Such a fall was noticeable in Great Britain a few years after the end of the Napoleonic wars, and it was equally noticeable in the United States shortly after th'i close of the great civil war which devastated that country from 1861 to 1865. Conditions will right themselves

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and so, will ~>rices, ;but the process must inevitably be a gradual one.

That the "turning point" has produced anxiety in commercial and manufacturing circles in Great Britain and still more in. Japan and the United States is not to be wondered at. When once a general fall of prices has set in and there is every prospect of thenfalling still lower, buyers hold aloof, awaiting a. further fall. Sellers for the .same reason strain .every effort to push their sales before prices fall still lower. A market in which there are many sellers and few buyers soon becomes glutted and a panic is apt to ensue. This is what has happened in the countries mentioned above. After the panic has subsided there may be a slight reaction, and prices may fluctuate to some extent, but according to all appearances the general tendency will be to a fall.

With regard to the second factor- in the inflation of prices—the inflation of the currency—so far as New Zealand is concerned we have but small indication of the Government's intentions. .The usual method in such cases (the issue of a mass of inconvertible jsaper currency) is to redeem the superfluous paper gradually by calling in and destroying every year as large a proportion of the notes as financial circumstances will allow. This was the process adopted in England after the close of the .Napoleonic wars and in the United States after the civil war. Both countries had a large amount of depreciated , paper currency in circulation. In the case of Great Britain the process of redemption took over twenty years; in the case of the .United States about fourteen years. In Brazil, where such a process of gradual redemption is now in progress, the value of the milreis has been increased in 25 years from less than sixpence to about eighteenpence,- and is still rising', with a corresponding decrease in the cost of living. It is to be hoped that the New Zealand Government will soon also be in a position to set about the task,of deflating the ciirrency, when we may expect a further decrease in prices and the cost of living.