WAYS TO RECOVERY

Auckland Star, Volume LXVI, Issue 43, 20 February 1935, Page 16

WAYS TO RECOVERY

DOMINION'S TASK.

SOME MONETARY THEORIES.

ACCOUNTANT'S COMMENT

"During the past year there lias been a continuance of the recovery from the lowest depths of the depression," said Mr. H. Valentine in his presidential address to the New Zealand Society of Accountants last evening. "The uncertainty and fear of worse to come which for a time more or less paralysed enterprise has to some extent been removed. There lias been a reaction to more normal conditions consistent with present price levels and restrictions, together with a substantial amount of adjustment "to new and greatly modified standards.

"Until major difficulties such as exchange disequilibrium, unbalanced world production, economic nationalism and over-capitalisation are removed or surmounted, recovery must, however, proceed with slow and halting steps. To a great extent these difficulties can he overcome only by international action, of which, unfortunately, there is not yet much sign. Prospects of re-establishing either the pre-depressiou volume of trade or pre-depression price levels appear to be so remote that a drastic writing down of capital must be regarded as unavoidable.

"After providing for the irreducible external debt, the national wealth. of the Dominion has been greatly diminished, and it is to the problem of internal adjustments that our best efforts must be directed, notwithstanding the difficulty under present conditions of determining exactly what equity remains with us. Essentially the problem is one of liquidation and reconstruction with which accountants are familiar, albeit on a much smaller scaly.

" Disregard of Basic Principles." "While the war and international complications arising out of the war are no doubt largely responsible for our present troubles, a widespread disregard of the basic principles of sound finance has greatly intensified them. Excessive borrowing and borrowing on insufficient margin, capital outlay on ambitious projects without a complete survey and investigation of the relative data, inordinate speculation, inadequate provision for amortisation of debt, for depreciation and other wastages or losses of capital and for the risks inseparable from all business, whether public or private, have all in greater or lesser degree contributed to our difficulties.

"By way of contrast it is a noteworthy fact that established undertakings which have.been conducted oh sound lines have in most cases weathered the storm. Even in the farming industry, which is faced with extreme difficulties owing, partly at least, to the relatively greater fall in the price levels of primary products, a substantial proportion of farmers have, by prudent management in the prosperous years, placed themselves in a position to face the crisis. Unfortunately, however, in the course of reconstruction it is inevitable that the prudent should suffer with the imprudent.

No Monetary System Perfect. "It is held by some that our internal problems can be solved by the reform of our monetary system," said Mr. Valentine. "It is not .my intention, nor can I claim to be competent to discuss theories of currency reform.' It would be unwise to assume that with increasing experience, research and established knowledge the systcnf cannot be improved and better adapted to present day requirements. The question arises, however, as to whether the alleged imperfections of the system are inherent defects or whether they aro not primarily due to external causes and abuses.

"It appears to me that most of the proposals that have been submitted are in the nature of attempts to avoid the inevitable consequences of our own economic unwisdom in the past. No monetary system, however perfect, will maintain economic stability and prosperity in tho face of a widespread disregard of the principles of. prudent finance, although it may do much to control and cheek dangerous tendencies. A strong case can be made for a better and more scientific control of credit in the public interest by an institution such as the Reserve Bank, which commenced operations during the year.

"Mobilisation of Credit." "Unlimited borrowing and the mobilisation of credit by the State, in order to utilise the funds now lying idle for the purpose of providing work and creating prosperity, are also strongly advocated. Unless the expenditure is reproductive, prosperity created by such means must be merely temporary, and will cease when the credits are exhausted, leaving a burden of debt as a charge on posterity.

"At the opposite extreme an eminent economist of international standing strongly advocates the drawing up of a well-considered programme for deliberate resistance'to the economic leadership of Governments and Parliaments and for the reconstruction of a social order essentially based upon economic freedom and responsibility of the individual, subject in the first place to the laying of a reliable foundation of a new international system of money, with parities fixed according to the internal purchasing power of each of the countries concerned. Such a programme will make a strong* appeal to many. The fixation of world parities is in itself, however, a task that calls for a high order of economic leadership by the Governments of all countries, and difficult internal adjustments. Only sheer necessity will bring about such a result. Coupled with economic freedom and responsibility of the individual must be high standards, of enlightenment and a willingness to subordinate purely selfish interests to the general public interest.

"lii the welter of economic theory, accountants have the satisfaction of knowing that the soundness of .the principles on which accounting practice is based has never been in question, -but has been even more firmly established by the experience of the past few years. A wider application of such principles to all business, whether public or private, is essential to the re-establishment and maintenance of prosperity in the Dominion. If in the course of the reconstruction principle is sacrificed to expediency, we shall be laying up for ourselves still greater difficulties in the future. The road to recovery is likely to be long and difficult, but clear vision ind wise leadership can do much to issist and hasten progress, and our profession must play a leading part in the renaissance of the Dominion."