RISE IN WOOL.

Auckland Star, 2 September 1933, Page 4

RISE IN WOOL.

WHAT IT MAY MEAN. RETURNING PROSPERITY. GAINS WITHOUT INFLATION. (By CROESUS.) Wool is lip. This cheerful call has hardly the significance which it bore in the old days, thirty years ago or more, before butter and cheese attained their predominance in the Dominion's export products, but the move, is none the less welcome, if only because a straw ifi sufficient to show which way the wind blowe. That is the great question that everybody ie now asking. Are we definitely sailing towards a return of prosperity, or are the recent signs merely a flash in the pan? Apparently nobody can answer the question with much assurance, for in a few clays it will be four years since the crash came, the spectacular collapse of the New York Stock Exchange, which seems to form a convenient .starting place from which to date me depression, and during all that long period numerous lorecasts of a recovery in sight have proved to bo nothing but errors of judgment. However, this time (he accumulative evidence suggests that in spite of minor setbacks tho tide lias definitely turned at last, and a steady improvement in the economic position may be expected, all the surer if there are no great waves ot speculation that would inevitably have to recede if they outstrip the real level of the rising tide. The last monthly review of tho Westminster Bank discusses these welcome .signs in a guarded and sober fashion, leading to the ultimate conviction that •■there is reason to believe that although difficult times lie ahead he recovery in commodity values marks tne definite turning of the corner." It is generally admitted that the recovery commenced in America, stimulated by the Roosevelt policy, but it has quickly spread elsewhere, and this week's wool prices even lend colour to a recent American suggestion that Australia was the first to feel the full blast of the slump, and would bo tho first to recover. "No New Money Needed." Fortunately Mr. Roosevelt wae able to carry out his programme without any actual inflation, Federal Reserve Bank notes in circulation having fallen from 3. r )79 million dollars at the beginning of March, to 3061 million at the end of June, although ho was given authority to inflate and to carry out a recovery programme of large expenditure on public works, apart from the ordinary budget. The argumente for inflation have been discussed by the National City Bank of New York, which countered tho suggestion that more money is needed in circulation in order to raise prices by stating that "to name ecarcity of money in circulation as a cause tii the depression ifl to put the cart before the horse. Money circulates through the activities of business—buying, selling, and the employment of labour. Business since 1929 has been seriously disorganised by a disruption of price relations between the products and services of different eections of the economic system. ... As a result of these conditions product* have accumulated, prices have fallen, unemployment has resulted, and, of course, the amount of money in circulation has declined. . . . There is as much money in the country now as there was in 1929, and the gold reserves which are the basis of currency issues and bank credit are larger than then. . . . Nothing will aid employment or prices but a revival of private enterprise and of eelfeupporting industry and trade."

Fortunately commodity prices had already in some cases shown signs of having touched bottom before President Roosevelt's policy began to operate. The risee be&an in the natural way, through the curtailment of supply to contracted demand, and the consequent depletion of wholesale and retail stocks, but although startling advances have taken place since America left gold on April 10, they are still in moet cases below the levels of pre-depression days. The basic commodities usually taken as an indication of world markets have advanced very substantially during the past six months, although part of the rise to the end of June has einco been lost. Copper i« up 25 per cent, tin close on 50 per cent, rubber has nearly doubled, cotton is up 10 per cent, and it has even been possible to stabilise wheat at a level that represents an advance of about 80 per cent on the slump price iu America at the beginning of the year. Causes of Price Rises. These advances were clearly initiated by causes other than monetary. The advance in wheat originated in the drought damage in Canada and the United States, cotton being also affected by the weather, as well as tho intention to reduce the acreage by 25 per cent. Metals have experienced a larger consumptive demand, while speculation in rubber has resulted from proposals regarding restriction. However, while those special factors may explain individual advances in price, they are not a sufficient explanation of the general rise in commodity prices since the beginning of March, embracing almost the whole schedule. The rapidity of this rise may be largely due to speculation, but speculation is merely anticipating the rise that was coming, while very materially helping on that very movement. The movement in turn begets confidence, the lank of which is tho chief single cause of trade depression. This is what probably constitutes the chief gain from the rise in wool iu Australia. It is only a 30 per cent rise, and even that rise is mainly in the fine wools in which New Zealand is not very directly interested, whereas a rise of 100 per cent would not come amies in the medium and coarse wools which form the chief production here. But the psychological effect of this rise is impossible to foresee, and provided the prices are not forced so high as to check the demand which has undoubtedly set in, as a result of depleted stocks and a smaller clip in view, New Zealand may have cause to look back upon August of this year as the beginning of the end of a dark period in our national life.