ECONOMIC STRESS

Ashburton Guardian, Volume 52, Issue 269, 26 August 1932, Page 3

ECONOMIC STRESS

MOVEMENT TOWARD RECOVERY PROFESSOR TOCKER'S OPINION. ADDRESS TO CHAMBER OF COMMERCE.

Interesting details of the course, cause, and prospects of recovery from the present economic depression were given by Professor A. H. Tocker, of Canterbury College, in a lecture under the auspices of the Ashburton Chamber of Commerce in Madden's Tearooms last evening, the speaker expressing the opinion that there were definite signs of a movement toward recovery. The president (Mr A. A. McDonald) presided over a good attendance and welcomed Professor Tocker, stating that the Chamber was very much va>debted to him for giving his time to come to Ashburton. " Professor Tocker said that before one could talk of prospects of recovery one had to know something of the cause and course of the trouble. Between 1925 and 1929 the world as a whole was pretty prosperous. The slump had to be spoken of .as a world slump, as the whole world was affected. In Germany, for instance, 44 per cent, of the population was wholly unemployed, while in England and Australia the figures were 22 per cent, "and 28 per cent respectively. World trade liad fallen by 50 per cent, since 1929, and New Zealand's exports from £55,000,000 to £35„000,000. All past history showed that when export prices fell there was something in the nature of a depression as a large proportion of the country's income came from exports. Prices for exports at present were 47£ per cent lower than in 1929. With the fall in prices came unemployment, and where there was less selling there was less buying. One had to remember that one person's expenditure was another's income. The same *was true of world trade, and if one country cut down imports, the exports of another were cut down. From 1925 to 1929 the trend of world prices had been slowly downward. That period had been one of a great deal of expansion and there had been much foreign landing. In Germany, for instance, the stabilisation of money had necessitated the bringing in of a lot of money from outside countries, while at the same time reparations, reaching a maximum in 1930, were being paid, these, with the interest, really coming out of the borrowed money. While this borrowing was going on,, those countries which borrowed could export more, and all appeared prosperous.

Speculation in America. The years 1928 and 1929 in America had seen the greatest stock exchango boom in history, continued the speaker. As speculation by the masses increased the banks tried to put a stop to it by increasing the rates for money,, but so great was the demand that people were willing to pay nine, ten and even twelve per cent, for money for stock exchange investments and as a result there was a flow of money from Europe to America. This speculation went on until the boom broke of its own weight. Where industrial stocks were yielding only about 2 per cent, prices were forced up and when the people realised that they were too high the prices tumbled Previously there had been a tremendous amount of borrowing by all kinds of people, and when values fell they had to find the money to repay the banks. The consequence was that there was a forced selling oi goods on a market that was unstable, and prices fell. A move of that kind was cumulative and prices fell everywhere where there were stock exchanges. . This threw a tremendous strain on a country like Germany, which was the weak spot of the world on account of the pressure exerted on the people by means of taxes to pay reparations and overseas debts. Loans were raised to try to cany Germany through a critical period in 1927, and the result was a depression on top of a financial crisis. Britain's Budget had become unbalanced and there was a tremendous strain on London's gold resources when people lushed to draw money from the banks. With London owing about £500,000,000 in short-term loans, England went off the gold standard, the result heing to throw the world, which did not realise the relief it would give, into a panic. Adjusting Production Costs. Professor Tocker went on to say that people expected their products to return the cost of production. If the supply of any one particular product were too large, prices tended to fall supply .being adjusted by demand. A return equal to production costs could only be maintained when producers adjusted costs to lower prices. That was the key to the whole situation. Much of the trouble was due to the fact that the industrial structure was too rigid. Costs of production had been too high of recent years,, continued the Professor, and the whole force of the depression had fallen on the flexible margin of production. Local and State taxes on national production in Zealand had more than doubled since 1901, the figures for that year being 12.1 per cent, in 1910-11 12.5 per cent., and in 193031 35.6 per cent. . More Government control of industries and higher tariffs had restricted production and had made the country all the worse off. During the war there had been duplication of productive capacity, and as an instance England now had much more competition in the textile market than previously. Regarding war debts the speaker said that when England found she could' not send goods.to America on account of the prohibitive tariff she had had to send gold until her supply was exhausted. Then she had gone off the gold standard. Gold which went to America in 1922 had gone into Stock Exchange speculation and to try to stop this was to cause, a trade depression. When England went off the gold standard, continued Professor Tocker, she cut herself adrift from the rest ot the gold standard world. By doing so,

she had forced the exchange rate down from 4.86 dollars to the £ to 3.50. The result was that; while still paying the same costs of production, English prices could be about 25 per cent, higher m America and yet her goods still sell competitively. She had also balanced her budget in a difficult time, creating a lot of respect among the nations of the world. .... With regard to the Budget dencifc m New Zealand, the speaker said that a few years ago the normal income of the country was about £25,000,000. Of that "amount, £12,000,000 went m the payment of interest on debts, leaving £13,000,000 for all other purposes. JSow that income had fallen to about £17,000,000, of which £12,000,000 was still required for interest, leaving only £5 000,000 for all other purposes. Ine country's expenditure had to be reduced to £5,000,000 or the extra '£B 000,000 had to be squeezed out somehow, and the speaker was sure there were not many sources of revenue lert. He was convinced that any Government making that squeeze could not stop in power. New Zealand was in a good 'position compared with many other countries in the world. The Stage Set for Recovery. With no Government borrowing by Britain, funds had started to accumulate, the professor continued, the object being to create a gentle credit expansion with lower money rates A\ rth that, the country would gradually move out of the slump. The agreement regarding German war reparations whereby Germany would pay nothing for three years, and then pay 4,150,000,000 spread over 37 years, was an important point in the lifting of the depression and' the speaker expressed the opinion that although there were not yet many signs ot it, the stage had been set for an improvement. Unce the recovery started it would be cumulative and probably pretty rapid, lo his mind the rise ot the price ot securities in England was the most promising sign of the lot. Stock prices had been rising steadily for some time, showing that the people were regaining connOn "the supposition that prices for produce remained where they were, Professor Tocker continued, and Isew Zealand could not raise the £1d,000,000 for general purposes she had had previously, she was faced with the alternative of defaulting or having the interest on her debts reduced. Several 1 countries had defaulted in their interest -payments, and the speaker thought widespread default would have a very serious effect, causing a bad smash in the credit world, a long depression and! very slow recovery. ■ The only immediate method of raising prices was by monetary action, meaning inflation. If it got away it would be hard to control, but if done gradually would create a demand lor produce and a revival with the stimulation of trade. The policy followed by the Government, that of waiting tor prices, to rise, was probably the only one possible. Concluding, Professor Tocker said he anticipated! an improvement of approximately 20 per cent, in export .prices next season and that ho was convinced that England had again resumed! the monetary leadership of the world. At the conclusion of his _ address, Professor Tocker answered several questions. Mr W. A. Fleming asked how Great Britain would stabilise the £ sterling in relation to gold and if politicians were wise in advising fanners to produce more of an article bclo\y cost to help the country out of her difficulty. Reo-arding the first question the professor said that the level of exchange depended on the gold content of the £. To stabilise the £ sterling the weight of gold in the sovereign would probably be reduced, and the price of gold in England increased. To the second! question, Professor Tocker replied that on account of its small size an increased production in New Zealand: would not have a very appreciable effect on world markets. However, he would not advise any farmer to spend £lOl for a return of £IOO. A farmer asked if the obvious remedy to the depression was not the revaluation of land. Professor Tocker: It would be very difficult to say what the value of land is The value depends on the margin of profit it will show on ruling rales of interest. Capital value is too high, but it must not be lost sight of that much interest is not being paid these days.

Signs of an Improvement. Mr Fleming: When Sir Otto Niemeyer was in New Zealand he said the depression would be lifting when the flow of gold from America to England commenced and the unemployment figures in Britain fell. . Professor Tocker: He did not anticipate England! going off the gold standard, but there has been a slight flow ff gold from America to England anu I believe the unemployment figures are dowii. Mr H. 11. C. McElrea: The last returns showed them to have risen. Mr R. G. Ross asked if there were any possibility of the institution of a system of Empire currency, and if it would be a benefit to the world. Professor Tocker: If you mean the adoption of the £ sterling, I don't think there is much chance, and 1 don't think it really matters. There is a possibility however, of rationalisation in banking and the pooling ot the Empire's gold resources in London. Mr Fleming referred to a recent letter in the "Guardian" advocating the issue of Treasury notes for the payment of the unemployed instead of taxing the individual, and asked the speaker's opinion of the suggestion Professor Tocker, in his reply, said that he did not think such notes would be accepted by the banks unless made legal tender, and there would be a tendency for tho banks to withdraw thenown notes and put the Government notes into circulation. The banks paid 4-J- per cent, on their notes, and the Government would lose that. There would also bo a tendency for the price level of goods to rise about 10 per cent., if, say, £5,000,000 worth of notes were" put into circulation. Those higher prices would be-on goods produced in New Zealand and an unfavourable trade balance would probably result, as well as an increase in the" exchange rate. Creating money would not increase the purchasing power of the individual. Inflation of that kind was very easily started, but most difficult to stop. Professor Tocker was accorded a very hearty vote of thanks for his address.