TRADE CONTROLS

Auckland Star, Volume LXXVI, Issue 118, 21 May 1945, Page 3

TRADE CONTROLS

IS REMOVAL WISE?

BOOM-SLUMP PROSPECTS

In view of present conditions it is plainly impossible to give any definite indication of the level of prices likely to rule after the war, beyond stating that, as after the last war, they are likely to settle at levels substantially higher than before the war, states a bulletin issued by the Canterbury Chamber of Commerce.

The outstanding present factors in the situation are the big increases in money, the large amounts of dammed up money awaiting spending and investment, and the shortages of goods of all kinds. If freedom of prices, markets and trade were to be restored quickly after the war, much of this money would be let loose on the markets, and in view of the shortages of goods, spectacular rises in prices would appear almost certain. The result would probably be a hectic boom, followed by a sharp decline as money was spent and the accumulated needs of the war period were satisfied. But no return to the pre-war prices would appear probable in view of the great increases in money that the war has brought.

It is usually accepted as undesirable that the boom and slump which Allowed the last war should be repeated after the present war. But it is difficult to see how they can be avoided, though they might be modified. After the war there will be very heavy demands for goods, and effective reconstruction and rehabilitation will depend largely on these demands being met. A great increase in business activity is needed to satisfy this demand, to effect the change over from war to peace conditions, and to reabsorb in productive industry the labour and other resources now diverted to war purposes. But once the accumulated demand has been met business activity must return to the normal post-war level and the long-term demand for goods is likely to be substantially less than the immediate post-war demand. Stability Not Everything It would seem impracticable, therefore, to restore peacetime conditions effectively and quickly, to rehabilitate industry and trade and those dependent on them, and at the same time wholly to avoid the expansion and subsequent contraction of business activity that constitutes the familiar boom and slump.

It appears likely that attempts will be made after the war to continue many present controls in the interests of stability. Such stability is, of course, a desirable end, but it is not the only end and it should at least be considered whether alternative ends are not more desirable. The sort of controls at present imposed are necessarily restrictive and negative. What will be wanted most after the war to restore industry and trade stimulate productive employment, and raise standards of welfare, will be positive and creative action. This is best achieved by private enterprise, working in free competition and in free markets. The strongest stimulus is given to economic activity by freedom for all to produce, buy and sell, how, when and where they wish, with the minimum of obstruction from the government. Sometimes, of course, obstruction is desirable, but in the great majority of cases it is harmful to economic activity and to the general welfare that depends on itControl or Freedom The post-war period is therefore likely to present much the same dilemma for solution in all countries. On the one hand freedom would stimulate the most rapid and effective change over from war to peace conditions, diffuse and divide the difficulties to be overcome, and ■Hermit the necessary adjustments with the minimum of friction. It would also permit prices to discharge their normal functions. Rising prices would stimulate production and supply where needs were urgent, falling prices would discourage production and supply where output exceeds demand. Free prices, production, trade and marketing would facilitate most effectively the restoration and revival of production and trade required to provide what the people want most.

But such a policy would inevitably result in a marked boom and slump. At the other extreme rigid control, such as under an effective stabilisation policy, might spread the change and the satisfaction of accumulated demands over a longer period of time and substantially modify the boom and slump. But it would prolong unduly the restrictions of war, seriously retard reconstruction, rehabilitation and progress towards greater welfare, and it might prove to be politically and economically impracticable.

Though after the war, as before it, the general level of prices in free markets is likely to depend on the ratio of active circulation of money to goods, this does not necessarily mean that the doubling of the money would cause a doubling of the price level. It might well mean this if no attempt were made to remedy the present excess of money over goods.