N.Z. VULNERABLE.

Auckland Star, Volume LXIX, Issue 225, 23 September 1938, Page 11

N.Z. VULNERABLE.

WORLD CONDITIONS.

DEPENDENT ECONOMY.

RECURRING DEPRESSIONS

It was imperative that policy during prosperity should also be related to overseas depression, the recurrence of which was inevitable. It was possible to stabilise a dependent economy by internal credit expansion alone, and that must be assessed with the appropriate exchange policy. This statement was made last night by Professor H. Belshaw in the hall of the Auckland University College, sjteaking before the Economics Society.

All economies were dependent, the speaker added, since all had trade or other relations with other countries, and could, therefore, be affected by changes in world conditions. The degree of dependence, however, varied according to circumstances.

Dependence, he said, was linked with the proportion external trade bore to the total trade, and the greater the proportion the greater the disturbance resulting from the trade cycle. The second factor was the nature of imports and exports. The greater the fall in export prices during a trade depression, the greater the dislocation, since the fall in the national income was reduced by the amount of the value of exports. A third factor was the net annual amount of financial obligations overseas, since they were financed by the sale of exports. When prices for them fell, a smaller) quantity was left to buy imports. That also meant a loss in real income to the community. New Zealand, the speaker added, was especially vulnerable in all those respects, and could be regarded almost as an extreme type of dependent economy. _ Dealing with the question of stabilisation, Professor Belshaw said that the first problem was to avoid real loss resultant from the external conditions to which he had referred. The second was to adjust internal prices and incomes so as to additional unemployment and declining production. The only way to do that was to budget for a surplus in prosperity, and not to spend all departmental surpluses. The proceeds should be used to buy exchange, which could then be used to buy Government securities or other fixed interest securities in London. When prices fell those securities could be sold and the proceeds used to meet overseas interest charges.

The only way in which an internal I recession could be avoided, apart from reductions in internal prices and money incomes, was by the use of the exchange rite or by guaranteed price and similar schemes, coupled with the u*e of a variable exchange rate.

The speaker emphasised the importance of long-range planning of public works, the us# ef consumer credit*, the promotion of capital development through a national investment corporation, and the use of banking polky.