THE EVIL OF FALLING PRICES.

Press, Volume XLVIII, Issue 14400, 6 July 1912, Page 2

THE EVIL OF FALLING PRICES.

(By j*as. W. Mcllraith, Litt. D.) (specially written for "the peess.") The extraordinary degree of prosperity that has attended the rise in prices during the past seventeen years has to a certain extent passed unnoticed, owing to a simultaneous rise Hi the standard of comfort; and many have been inclined to view rising prices as an unmitigated evil. This article is written from tho opposite viewpoint, with .the hope that those who read will reconcile themselves to facts as they exist.

Put first, a slight glance at this rise , in prices. Since 1895, tho products of the soil —and these form practically the whole of our exports—have risen in prico between 40 and 50 per cent. Jm- i ported goods, however, have risen barely 5 per cent. Behold then, our exports, increasing rapidly and continuously in volume, and commanding an ever higher price; see the mighty stream of relatively cheap goods flowing in with ever increasing volume in payment therefor; think of our population, but slowly increasing with the years.—imagine all this, and yc-u will realise why it is that our consumption per head is now almost 100 per cent, greater in volume than it was a quarter of a century ago. Could we achievo so desirable an end under a regime <if falling prices? For a period of failing prices introduces an clement of terrible uncertainty into the producing community. It unnerves the hand of the manufacturer, for who is going to manufacture stocks of goods for months or even weeKS ahead if ho feels that owing to falling prices he may he compelled to sell them at a loss? Who will enter into contracts to bay for months ahead at a fixed price, if he believes that prices are going to fall? How different it is when the industrial community is infected with the conviction that prices aro rising, and will continue to riso! "Would tho farmers of New Zealand tackle-the wilderness, and bring order out of chaos, if they believed there was about to be a steady decline in tho price of farm products? Tho recent riso in butter and cheese has brought ttndor cultivation; especially in the North Island, an immense area of land that would otherwise have been avoided as though its atmosphere was pestilential. I have seen land that fifteen years ago was despised at less than one pound an acre, now selling at £-15 per acre! Had the fall in prices during tho 'nineties continued, the land would still havo remained a quivering morass. With a fall in the price of land, consequent upon a fall in the price of tho products of the soil, the value of freehold securities progressively diminishes, and money-lenders become more nnd moro loth to lend except in smaller amounts, for longer terms, and at higher rates of interest. This clement of uncertainty may inducp lenders to i charge a rate of interest out .of all liroportion to the risk involved. To many, the risk moy appear so great that they will absolutely refuse to lend on mortgage, preferring the lower, but safer rates of interest obtained by investing in Government stocks. A "rapid and, sustained rise in such stocks would indicate that capital was forsaking industry, and betaking itself to the 'isweet security of tho 3 per cents.'' Conversely: a progressive decline in stocks, such as has recently been witnessed in English consols, indicates, jo a great extent, the wonderful confidence of tho British investor in British; industry. More attractive to him tho 5 or 10 per cent, of Yorkshire woollen mills than the humble but absolutely safe 2$ per cent, which consols offer: Nor is our own Government exempt; from the influence of prosperous in- 1 dustry: for of Jate years it is finding it progressively moro rnis£ loans on favourable terms. Bet priced I show a tendency to fair heavily, and there would set in a rush to buy Government stock; and the heart of the Finance Minister would be glad.. Not so that of the producer. With falling prices 4 come falling wages; and worso still, irregularity of employment consequent upon the uncertainty already mentioned. The standard of comfort would fall. There would bo less incentive to save, for a chilling is more often put by when there is a sovereign to bank in company with it. Trade depression means mental gloom; glooms and irregularity of employment lead to the acquisition of vicious habits; there will be a tendency to work children at an early age and for long hours, a tendency to withhold from them the advantages of superior education; the child's physical and mental future will be endangered; the . clock of progress would be put back a generation. Nor would population increase. Even at the slow rate of the past 'decade, the social and economic history of the gloomy period between 1880 and 1900 shows the extraordinary effect which' a long period of falling prices has upon the marriage and the birth-rate. Both suffered a remarkable decline, touching the lowest point ever recorded in tho history of tho Dominion. Bents would have to be readjusted. Non-adjustment would spell ruin to many a farmer. But how would faro tho Government if it had thousands of, tenants holding under it? These rents would havo to bo reduced; and thus it is possible that this Crown land-would not yield revenue sufficient to pay interest on its cost price. That is one of the evils inherent in the present; system of granting leases. It may be possible? to adopt measure* to avert such evils, but such measures have yet to, be devised. Our leasehold system was inaugurated at the very beginning of an era of rising prices, and has been, in a sense, eminently successful and popular, merely because the prices of farm produce have never ceased to rise.

Wages, too, would require readjustment ; and here the A rbitration Court would b© fac«d with an unenviable task; for from the popular point of iriew to increase wages is to take from a wealthy capitalist class, while the reduced wages is to despoil the comparatively helpless wage-earner. A continuous decline in Government revenue would also probably>involvo a readjustment of pension and superannuation allowances; it might also imply a withdrawal of certain Government concessions to the public, such as cheap methods of transport and communication.

That a period of falling prices has certain advantages, cannot be.disputed. In the first place, the benefit is immediately felt by the recipients of wages, pensions, rents, or annuities, for tho money derived from these would "go further." "There is grave danger, however, if, the fall in prices is long continued, that some of these incomes (particularly wages and rents) would fall. -

In the second place ; falling prices tend to promote the invention of labour-saving machinery, and the adoption of more economical methods of production. It is probable, however, that the progress of invention is equally rapid during a period of trade activity. And again, a period of falling prices acts upon a nation as a period, of illhealth upon an individual; it leads often to a saner and sounder method of living. Much needless and harmful public and private expenditure.has to l)o curtailed, and the nation is enabled to see more clearly the objects of prime importance to its welfare. As man on the whole, seems unable or unwilling to guide his life correctly without the warning of ill-health or disease, so, too with a nation: fits of commercial pression aro evidently indispensable if a sane, social, and industrial life is to bo secured.

Granted that- such benefits accrue do they compensate for the evils already enumerated?