INDUSTRIAL DEPRESSION

Auckland Star, Volume LIX, Issue 25, 31 January 1928, Page 5

INDUSTRIAL DEPRESSION

THE DIRECT CAUSE ADMITTED

A X.ESSON FROM THE FARMER NEW ZEALAND AS ONE BIG FARM. (By CROESUS.) No. 2. When it is once admitted that the direct cause of every depression which has afflicted New Zealand is the disturbance of the normal ratio between imports and exports, however much this .may be indirectly influenced by causes external to the Dominion, the way seems clear to the only means by which that depression can be removed. It can only be removed, as it has been in the past, by the restoration of the ratio in question. An Analogy From the Farm. The position of a young country like New Zealand is so closely analogous to that of a farmer, with limited means but plenty of energy, who takes up a block of unimproved land in the backblocks, that the course he follows is practically identical with that taken by the community, whether in times of boom, moderate prosperity, or depression. His policy therefore seems to dictate what the community does, or should do, and his individual act follow with remarkable similarity what New Zealand has done during the past 88 years.

He takes no money to his farm—it would be of no use—but he gradually transfers to it his limited capital in the form of a few pack horses with which he conveys a supply of food and clothing, tools and implements, materials for a small house, fencing and grass seed, followed as soon as possible by as many sheep and cattle as his clearing will carry. Position: All imports aud no exports, but perfectly sound.

His farm Boon comes into profit, and although the credit balance at his bank is all gone, he begins to send out wool, butter, fat bullocks, or fat lambs, from the proceeds of which he procures household necessities, as well aa a little towords further extending and improving his farm. Position: Imports and exports exactly balance, and he is perfectly sound, although there is no additional cash on the farm. Commencing to Borrow. Before long lie discovers that the farm is far too good to warrant his policy of clearing and bringing into cultivation only a few acres each year, limited by his own personal strength and any little surplus from his sales of produce, over and above his purchases of household requisites and his expenses for maintenance. So he consults his banker and his solicitor, and arranges for an annual advance, carefully calculating what will meet the wages of the two or three men he proposes to employ at bush-felling, fencing grass-seed sowing, building additional yards, etc., and before long to milk the extra cows he can graze, and tend the additional sheep. With the exception of any few shillings which these workmen save out of their wages, and leave in ono of the city savings banks, the whole of the loan reaches the farm in the form of the extra requisites to keep these men, together with the materials necessary for the farm extension which they are carrying out.

Position: Imports exceed exports by tho exact amount of the loan, and still the position is sound.

Each year, as long as he continues to ] borrow, the exact amount of the loan continues to reach the farm in the form of goods, over and above the goods which ho would be able to buy if he had no of his produce, but that excess is gradually diminishing cacli year by the iucredits in the city except from the sale creasing amount which he has to leave in the city as interest on his growing mortgage. In time that amount of annual interest may be equal to the amount he is borrowing each year, but his banker and his solicitor still support his policy of borrowing, if the farm remains undeveloped to its full extent. His purchases by that time have become larger than ever, for they are measured by the proceeds of his steadily increasing produce sold, plus the annual loan, minus the annual interest. In actual practice no money passes, for the loan pays the interest, but the produce sold under the new conditions must necessarily exceed the amount that he sold previous to borrowing by more than the amount of that annual interest, or else his banker and solicitor would not have been justified in advising him to borrow. Position: Exports and imports greater than ever, but they exactly balance each other, and the position is sound, always provided that the borrowings have increased the productiveness of the farm by more than, or as much as, the annual interest charge.

The next change develops gradually, the interest payable increasing each year to a larger excess over the borrowings, if the latter remain constant, but this again is met by the increasing productiveness of the farm. Position: Exports in excess of imports, to the extent to which the annual interest exceeds the annual borrowings. To put it another way: Purchases have to be kept below sales, to the extent to which the interest exceeds the borrowings. The alternative is to go into debt on current account with some merchant or banker, but this would only be permitted as a temporary expedient, the debt to be discharged during the following season. The Position of New Zealand. The Dominion has reached the last position described, and therefore exports must exceed imports to the extent to which interest exceeds loans, ignoring

for the present several minor factors. As long as there is this excess, the Dominion is prosperous, the farmer's banking account is sound—although he has not a shilling more in cash than he had when he first started—and he keeps all his men fully employed in working the farm and regularly improving it with the materials which he buys in the city or imports from abroad.

If the excess of exports or sales over imports or purchases is still greater than the excess of interest over new loans, the country or the farmer has a larger credit to expend, and can import more labour and more luxuries. But if production fails to give the usual returns, whether through unfavourable weather or unfavourable prices, it is just as disastrous for the country to continue the same scale of immigration and imports as it would be for the farmer to engage additional labour or to purchase useless luxuries. lie must at once cut out everything but necessities, in order to employ his former workmen and his reduced funds in quickly increasing the productiveness of his farm, so that an additional income will be earned at the lower prices, suf- ( ficient to restore his banking account to its proper position, and enable him to resume his usual course. Pulling the Wrong Way. This is exactly what New Zealand has not done. Instead of cutting our coat according to our cloth, aud living within our income, while endeavouring to increase the income, every influence of any importance has been exerted in the opposite direction, for the limited funds which could have been used to increase production and exports have been diverted to the temporarily profitable financing of those who* were only t6o willing to live beyond their income, thereby further inflating the imports. Even to-day, after all the experience of the past two years, it would be easier to get £10,000 to finance extravagant buying which would increase the imports, than it would be to get £1000 to improve a farm which would increase the exports and bring back prosperity. How political influences have tended to aggravate this tendency will be dealt with in another article.