BOOM AND SLUMP.

Auckland Star, Volume LIV, Issue 130, 2 June 1923, Page 14

BOOM AND SLUMP.

TRADE FORECASTING AND PRICES. TO REGULATE THE CREDIT SCREW. (From Our Special Correspondent.! LONDON, April 19. Following our recent article on the domestic and foreign habits of the boom and slump, it has been our fortune to hear a paper at the Royal Statistical Society, in which Dr. E. C. Snow dealt with * trade forecasting and prices. The lecturer's contribution to the literature of this immensely valuable adjunct of commercial prosperity was severely technical, md Dr. Snow modestly claimed it to be no'hing more than a breaking of the ground on which he hoped others would carry on. •He did, however, in a succinct paragraph, describe the position of trade and industry in the United Kingdom just now. In his concluding remarks he expressed doubt whether the return of industrial prosperity is really imminent. He said:—"There has 'been almost unanimity in public statements by politicians and others lately that the tide of industrial prosperity is flowing, and that, although it is a long way from tlie full tide, it is nevertheless moving at such a rate as to promise that state within a reasonable time. I think that view underestimates the cllect of certain retarding factors which are in operation in the upward movement of the present industrial cycle to an extent far greater than in previous cycles. At the height of the boom in the early part of 1920. most British Industrie? were equipped for a production far greater than had ever been attained before the war. and certainly far greater than home consumption plus prospective export trade at the present time. One of the features of tbe depression of the past two years has been the comparatively few cases of liquidations or of permanent closing down of manufacturers. As a result, potential productive power at the present time is far greater than before the war. Over-production, actual ov potentia.l, is the inevitable result, and this in itself retards recovery from the depression. Cotton spinner-. periodically organise short-time to mitigate its evils. Motor-car^manufacturers admit it is chronic with them, but all seem to be prepared to hope and wait for a demand which will again be equal to the aggregate productive powe r of all ot them. The boot-manufacturing pquipment in this country, if working at normal speed continuously, is said to be capable of turning out the boots required of it at present, for home and exporttrade, for a whole year in four months. A POTENT FACTOR. The reserve power built up in a few years of more than average prosperity ma}', indeed, anomalous though it may seem, bo a potent factor in retarding recovery from depression. Without the reserve, productive capacity would have been reduced to more nearly normal dimensions equivalent to the consumptive demand. While potential production is too large, an indication oi increased activity on the part of buyers is immediately followed by a sudden spurt in production out of proportion to the demand, and the incipient recovery subsides again. This has been the experience of a number of industries in the last year. The psychological theory of trade cycles assumes that, following a slight rise in price, due to a small increase in demand, buyers become active in order to get in orders before the expected larger increase in prices occurs; and thus themselves cause that larger increase. But when the buyer finds that though his regular producer has considered that the prospects warrant him putting up price, he can turn elsewhere and And other producers, still prepared to supply at the old price even at a loss in order to keep their equipment functioning, the larger increase in price may be indefinitely delayed.

Experience of this fact by buyers necessarily causes them to view a rise in price with caution, and not to jump in and buy just because there has been a small rise, and thus the larger rise is still longer delayed. lt would be of the utmost possible value to certain industries at the present time, if it were possible to disseminate statistical information among those engaged in them, showing productive capacity in comparison witli that of pre-war and of prospective demand. The compilation of sucli inforcation is much more difficult that is generally imagined, but in some industries it seems inevitable that a certain proportion of producers must leave the industry before general recovery can be expected. CURRENCY AND CREDIT. Dr. Snow's paper had dealt with an inquiry he had made to obtain information on the relative movements of prices of various commodities. In addition to factors of supply and demand specifically associated with them, the prices of commodities are, he said, affected by certain general factors, notably by currency and credit considerations. Some idea of the extent to which the latter are operating might be obtained by an investigation into the correlations between the movements in prices of various commodities. If satisfactory technical methods are adopted, the presence of such general factors affecting the prices of all commodities should be to create a positive correlation between these movements. It would be well to choose for such an investigation commodities which are diverse in nature, and those of cotton i hides and iron were chosen. Cotton is an article produced by an annual crop. Variations in the price in one year are reflected in the acreage sown in the next year, and an extreme movement in price one way or the other is reflected to some extent in the following year by reason of the aereao-e Which is sown. Within limits, the supply of the material is determined by the price anticipated. Iron or iron ore is in abundant supply Its production ceases if the demand dfs- I appears, and can be increased substantially if need requires. Hides, on the other hand, are mainly a by-product. It is almost true to say that no conceivable increase in the demand for leather can I increase the supply of hides (as a mat- | ter of fact, however, high prices do bring forth a slight increase in supply; in normal times transport charges are too heavy to tap hides in outlying portions 'of the earth, but in 191!) the supply was ] slightly increased by tapping areas not [previously drawn upon.) The meat of ; an animal is worth about fifteen times the hide, and the supply of hides accordingly is regulated by factors relating to meat rather than to leather. INDEX PKICE MOVEMENTS. He said that a thorough investigation•of the relationship between individual j price movements price index ■movements is a very necessary inquiry in j view of the resolution of the Genoa Con- j ference regarding bankers' action in con- - jieetion with ~ this resolution, a j thorough investigation of the subject, a • pjj.ee changes from the point of view- of j industrialists is desirable. An. average j may hide a great deal of information,!

and to. regulate credit on the basis'of movements of, say, Sauerbeck's Index Number would certainly be unsatisfactory to traders.

His concluding remark was —and this New Zealand trade and commerce in its preoccupation with credit facilities will loudly echo — that an average may move'quite differently from some of its constituents, and a central body whose business it is to indicate the moments at which the credit screw is to be turned up or down should be in possession of every possible item of information concerning the movements of the constituents. A thorough comprehensive statistical investigation into the relationship between the price movements of many different commodities accordingly is no longer invested with merely theoretical interest, but has now become a matter of considerable practical importance.