FALLING PRICES.

Press, Volume LXVI, Issue 20090, 20 November 1930, Page 15

FALLING PRICES.

fIOBLEMS FOR NEW ZEALAND gUAVV CAPITAL LOSSES. nIVIBW BY HON. T. SUAILBR WESTON , Tke six months have been tryiv!r New Zealand, and '"v •« been absent, I can well apUXte the difficulties you have _ex- " stated the Hon. 1. blunter EJTjLL.C.. president of the New - Employers' Federation, at the ST Wing of the Federation, at SVn yesterday. "The future. there are silver linings, is tSt louded. The prices of all Zlr, and the national income has to» severely reduced. Unless this . « jg not only checked but replaced Jft a decided rise, this must i»„Wbtv result in reduced prices tor told properties (city, suburban, and -nJ), lessened returns from all busi--J a nd a fall in money wages, h foet the whole world, burdened by ygrj taxation, will have to make the jjjnJcsg necessary to get back to premr prices, and standards. ' '(j&diriduals and also the organised of the community will naturj|Jy endeavour to protect themselves foathe burden of these results. Their t# may delay, but will certainly iiat»vert the inevitable. It is a military axiom that in retreat the best fieiplined army, even though that Spline in the interests of the mass Jaybe pushed to harshness, suffers tip {east. So it will be with the BBtians in. the present world-wide deptMlioa. Those countries which mainyiu order and discipline, and whoso waiters avoid strikes and trade dispute* and practice universal selfdeniil will come through the best. Futility of Strikes. ■ To those of us who find it difficult io practice self-denial it may be some e#n»lation to realise that if we do net do so voluntarily, circumstances in i short space will force it upon us. Looking back upon the past ten years ia Great Britain, the thinker must aak himself how much better off employers and employees would bo now if there had been no textile, engineering, railway, coal, and general strikes. Most of those strikes, and oertainly the general strike and the toil stride resulted in terms being accepted by the workers worse than those obtainable by negotiations prior to their commencement. The same conclusion holds good for New South VTilfis "Nowhere in the world has there keen such a succession of stoppages as in New South Wales since the conclusion of the war. At Broken Hill and in Newcastle mines were closed 'lowo for months, and on the waterfronts and in shipping one dispute was no sooner settled than another began. In the end what permanent jrood has resulted from this insane cc-n----/tJition of things? Yet even now in die midst of the greatest crisis in that %aM's history this in sane condition jipireiitly continues.. „ "Even to-dav in Xew Zealand two «&coa*>tn) vessels are being held np Ihb» the owners will not employ

on J&an whose service is not rejmd. Labour contends that where srored machinery dispenses with riters. the sarin?. must be shared, ii the present cases, the services of in# usen in each vessel are no longer sawtery. Labour says _'be content to are one.' The effect is, that fivtj mm who are necessary are- now idle. Jj»rt from this the owners of these rands hare not received any dividend rar lome years. The change was made it enumerable expense to prevent .ik# veiwls eoing out altogether. Hi Ottrgin between present earnings «| oat-goings even after paving the wft agn't waecs is small. The owners «a* Mt financially stroni enough to i tnan employed whose services »t absolutely unnecessary. "MiHcs there is now an UnemoloyaWt Fund. To this the employer 4(ottri» the Consolidated Fund will fal contribute verv heavily—njore *»Tihr than perhaps popular opinion HtJises or eipects. Tf no profits are ®»ie by employers, from whence is jWMBf tan to come to rnnintain the Wasolidated Fund. Tn the next few TMw oublic opinion in New Zenl"nd wm!d be wise to : d'scountenanoe strife's or wen threats of them. Seduction la Money Wages. _ "I have said xnoney wages must fall, prices of our primary products are in the neighbourhood of pre-war prices and the secondary industries j be, indeed are being affected, in ! iatir torn. When money wages were 'WW during the war those rises were T® logical result of the rise in prices « primary products. Now that prices ?*r« fallen again, how can the primary "MSitries be carried on if money •'SB* remain unaltered ? 11 ght through *orld every country is now engaged ** "ringing money wages into line with priceß. Even in France and w!?! w ' lere i until recently, there j® 1 Men no unemployment, decreases » I ?f n t y wages during the last six j«>ntpa nave been quickly agreed upon. ®p#rniany and the United States tho course is being pursued. • J™ esamyle of thf> United States important because there the fallacy by Labour leaders in New ®™iana and elsewhere was strongly after the Stov-k Exchange colin* * November. 'Maintain, even *an» a!ong y wages and the situation k«. A year's experience ■ml ' ro J e the inefficacy of this r&- ® e emphasise that thiß refeiS 0 - 1 ttwney wages that must bf> TW 'V 0 , 4 a reduction in real wages. alim»« ®, er ation has 'since the war »,_• ®Weavoured to maintain money Urn .j "rate. It has realised miil i ''® e °f being well tjjjt •j?' contented. lam satisfied X»_ sr® standard of money wages in to i 1? ® ast April, having regard *>* « °' the work paid for. StitM* V as ' n the United *li In " ' lere the cost of living We I an( * f:on ditions of work and **2 ® ea ,P er our standard of real tfctt *ili '"Rher. I think therefore tjjl ®ewbers of this Federation for a ,£f ep f. to qualify any claim »lintiU t ;_ ac^' on of money wages by B4 <se tn that every effort must be **B# hj» .Prevent the reduced money tb S «| " less nurchasing value thf e^ a^'on tri'de union leaders Minister a few weeks t>» H.S. SE r o PP°s (, cl the request made tf tbe rn V°" for an amendment n atlon Act to enable the We a .J? "® ,,r t by treneral order to «a«3. ? u ftion in the money rate of "rferatim, me emphasise that this ij,T®' B on l v asking what wa« S* v,Mn„, w °rkpra at a time when ' ii in money—risins: and hence enj. p.. J? a > vphie of money wages, .this iU wor ker=i was well put , t'oii. even if the av«uUt Sed tw 'iliAcio'us. First it was money should be

i maintained and even increased because by so doing the purchasing i>ower 0 t | the community would be maintained or , increased and hence more of the products of its primary and secondary industries could be purchased within New Zealand. The answer to this argument is that it wan put forward in the United Htate-s after the collapse last November. Many manufacturers gave it a trial. To-day, a year ufter, money ! wagos in the United States are being reduced contemporaneously with retail prices. If money wages paid absorb so much out of the returns in money from a farm, factory, or business that sufficient is not left to provide for tlie requirements in money of taxes, rates, reasonable wages of "supervision, repairs, and maintenance and a reasonable return on capital invested, either money wages must be reduced proporj tionately with the other charges on i the business or the concern must ! gradually go down. To-day, the fall in prices has been so severe that after providing for money wages at the old rates in many cases, however good the management, little or nothing is left after payment of taxes, rates, repairs, a nd maintenance for wages of supervision or interest on capital invested. Primary Producers' Case. "You will note I have said 'reasonable' wages of supervision and 'reasonable' return on capital invested. This meets the second objection urged by Trade Union leaders which I will deal with presently. There is a further objection to tllis argument that in the interests of the producers, money wages should he maintained or increased. Two-thirds at least of our primary products are exported and hence their price is not affected by the local demand. It is determined by world competition. The amount of these primary products consumed locally would be altered so little by an increase in money wages and the amount to be exported in consequence so little reduced that no alteration would be made in the export prices of these products. "In New Zealand owing to the small proportion of our primary products consumed locally, local prices are determined by export prices and if money wages are to remain the same the workers will be benefiting by the reduction in local prices of these'primary products duo to a fall in world prices. What help is it to the farmer if slightly more of his products are consumed locally when the price he received locally is the same as he gets for that portion of his products he lias to export? Besides if this contention of

Labour leaders is correct why has this remedy not been tried? It would be so easy. Prosperity would be assured at once by an increase of, say, 25 per cent, in the present money rates of wages. I shudder to think what the actual result would be. Unproductive Expenditure. "There is another answer to thifl contention of Labour leaders. Every economic student knows the distinction between productive and unproductive expenditure. Money, for example, expended on amusements, luxuries, and articles not actually required to keep his dependents in good health and efficiency or to assist in the production of other necessary articles, is unproductive expenditure. Articles or benefits so purchased, once consumed and enjoyed, nothing remains. If however, that money were spent for example on improvements to farms or factories or even in maintaining men while working upon experiments resulting in inventions or improved industrial methods, you would have something permanent as a result of the expenditure and something whieh would assist in the future production of wealth. This is productive expenditure.

"Now there is no higher standard of money wages in the world than that of New Zealand. Part, it may be small, of these money wages is spent in unproductive expenditure. If these money wages were reduced, this unproductive expenditure would be the first to go. In times of economic difficulty like the present unproductive expenditure must be reduced and productive expenditure increased. It is better for the nation and in the long run for the workers, that its members should oe compelled to do without a few luxuries and amusements if in this way there i& more money available to put into .useful permanent development work. The miser who saves is at any time a more useful citizen than the prodigal who spends his money (even if he has plenty) on luxuries, amusements and other unproductive expenditure. Even if the miser simply deposits his savings in a bank or building society lie in that way makes his savings available to the customer of the bank or building Society who requires a loan for productive expenditure. That is why France, whose citizens are saving almost to miserliness, is so prosperous. Her unproductive expenditure is small. "I don't want to be misunderstood. In prosperous times a Certain amount of unproductive expenditure is natural and in a way to the advantage of everyone.

It helps to make people good-tempered if nothing else, but in times like the present it is productive expenditure which has to be encouraged and provided for. If to keep our industries efficient we all have to become Spartans and confine our personal expenditure to necessaries, "and not luxuries, by so doing we will all assist to bring back again more speedily prosperity to our country. Xiost Capital. • "The second argument put forward by this doputation was that capital and management must make saprifices first, and this contention was supported by the suggestion that many, if not all, undertakings in New Zealand were overcapitalised. The deputation was quite right. There must be universal selfdenial practised, but it failed to recognise that heavy sacrifices have already been made by capital. There has been a fall of from ten to fifty per cent, in the value of shares in different undertakings varying according to the soundness of these undertakings, the efficiency of their management and their potentialities. Not only havo values fallen but dividends declared are less with the exception of the few concerns who have accumulated big reserves (declared of secret) by excellent and conservative management. "As to the fall in the value of dwell, ing- houses, workers throughout New Zealand, and even in Duncdin and Wellington, know this £rom their own experience. So far the saver in the past has already lost heavily on the average, although naturally individual losses have varied considerably according to the soundness of the judgment shown in their respective investments. "As to the over-capitalisation of freezing concerns referred to by this deputation, owing to the necessity during the war for increased storage for meat, new freezing companies sprang up and existing companies altered or extended their works. When the war was over so much storage was not required. The extra profits made during the War were not sufficient to pay for the new works and extensions required thus for a comparatively short period. The result was that most of the new companies were forced into liquidation and lost not only their shareholders' capital but some of their bankers', depositors', and ordinary creditors' besides. The older companies fared somewhat better, but foUnd themselves with works that had to be solidly written down. One company,, indeed, which had made good profits, overlooked this point, and although It did not distribute all of these profits in cash, issued new shares in lieu of cash payments. When, however, shortly afterwards it was seen that plant and buildings erected during the war must be written down, these

shares fell, ond the reduced market value of the old and new shares combined was lass than the nominal value of the old shares. It has not been able to pay a full dividend upon its increased capital, and certainly dividends declared by it have never interfered with the wages paid to its employees. Companies in New Zealand have increased their capital from time to time, but in the case of no company of importance has this new capital been, issued except that cash has been paid by its shareholders to the amount at leaßt of the nominal value of its shares, or the shares have been paid out of the savings of the company and distributed to their shareholders in preference to declaring cash dividends. By this latter mothod those companies which .have prospered increased their resources to keep up with their increased business. "Moreover, for one company which has been able to do this you will generally find another company which has been unfortunate, and if it has not lost all its capital and disappeared, is struggling. How can any company whose nominal capital is represented by paper assets make profits? Its shares may be sold to innocent investors at au over-value, but once tested by the acid of active business a company with paper assets must come to grief. "If it is any consolation to the worker who finds his money wages reduced, ho can rest assured that if prices for our primary products do not improve the owners in New Zealand of property, however well selected, will lose substantially, and where bad judgment has been shown will be lucky to have any left at all. He does not need to have any doubts whether the man who has saved and the managers and higher-paid men in business will suffer more than himself. Circumstances will ensure this. "I am sorry workers owning their own houses will be affected also. It is bad luck that this fall of prices has been so sudden and so sleep. If it had come gradually (as up to last year I hail hoped it would) its effect would not have been so distressing and bewildering. '' Silver Linings.'' "The to arc. however, in New Zealand some silver linings to the clouds. This country luis certain natural advantages peculiar to itself. It can grow grass better and more plentifully than any other country in the world. It has a wonderful climate. We have already a very high and easy standard 01 living, compared with other countries. Kven though we all have to simplify it, we -•shall still bo much better off than mo3t other countries Moreover, I find that in Europe the primary producing countries were all complaining that the prices of their products were less than costs of production. It is probable, therefore, that present prices for our primary products will improve somewhat. It would, however, be unwise to expect this improvement to bo very substantial. Competition in primary products must increase and become keener. You have only to look at the increased exports of food products from the various countries to recognise this. Still, our trade competitors and ourselves start on the same handicap. All of us have tt> reduce our costs of production, and the nation who does so most successfully will come oui on top. Railways.

"V\ e have thu land, we haVe the eJimnte, and I believe we have the men to do this, but Parliament must also do its part. At the present time three railways are being constructed, which, us far as the expert testimony goes, will when completed involve this country in a loss of interest on capital cost and working expenses of £735,000 a year. \\ ith the position of Australia before us largely duo to the expenditure of loan moneys upon unproductive public works, with a public and local body debt per i.end closely approximating to that of Australia, with an anticipated Budget deficiency on last year of £3,O<X),OCjO, which has to be provide*! for by increased taxation, with a doubt thrown upon the solvency of our superannuation funds, with the burden of taxation already approaching; the limit, when increases mutt mean simply decreased returns, with a threatened return to pre-war prices for our primary products, the construction of these railways is still proceeding, and the question of whether they should be stopped is boing allowed to drift. Seven hundred and thirty-five thousand pounds is more than one-filth of the amount at present derived from our income tax. Surely Parliament could rise above Party differences, forget p;ist promises and opinions, local self interest and that of individual members, and in the interests of the whole country stop the imposition of such a ghastly burden upon New Zealand. The terrible expenditure necessitated during the war has dulled our senses towards amountsIn 1913, with an annual Budget of say £11,000.000, the annual loss of £735,000 would have raised unfinijnous condemnation. Although to-day we have to budget lor nn annua] expenditure apart, from railways of approximately £24,000,000, this loss is just as stupendous and the country is far less able to b*ar it. | 'Supposing the expenditure oil i railways gives employment to 4000 men for four years. It would be cheaper to pay these men at the rate of £IOO per year lor doin« nothing for four years than to continue the construction of these lines. The pmourit paid then would be only £2,400,000 and interest on this sum at 51 pet cent, is only £132.000 a year, compared with £736.000 a, year, tlie annual I'iss on th« railways constructed.

Wheat Prices. "If in the interests of our primary producers, costs of production and money wages are to be reduced, the cost of living in iairhess to the Worker and also of everybody else must be brought <jown. Personally, I believe that New Zealand should be salf-sup>-porting as regards wheat. This has necessitated protection. The method adopted was to fix a basic price which Parliament considered wheat farmers should receive and tn impose protective duties, increasing proportionately with the decrenne in prices outside New Zealand below that basic price. That basic price was fixed at 6e &d, being Is 3d over 5s 6d, which' was then considered likely to be a fair average standard price of wheat at the world ports of export outside New Zealand. Now, however, world prices of whent have fallen well bejow 5s fid per bushel. "The present price may advance but if, say, 4s and not 5s 6d should become the fair standard world price of wheat at ports of export, then it will be necessary for the present price for wheat in New Zealand under the protective tariff to be fixed at Is 3d plus 4s, and not Is 3d plus 5s 6d. Wheat-farmers cannot expect to escape the fab in world prices which the grazier and the dairy-farmer have had to face. Moreover, a reduction in the price for wheat in New Zealand as also a reduction in the price of moat and dairy produce Will assist that fall in the Cost of living required to facilitate the reduction of money' wages. There is this also to consider. Already the competition between vyhqat-farmers in New Zealand is reducingfthe price of wheat below 6s 9d per bushel, the protected price for New Zealand wheat. Tho market price is now a little over 6s. If, however, wheat prices in New Zealand are to be maintained while the prices of all other farm products fall heavily, so many farmers will be induced to grow wheat that the price in New Zealand will be soon forced down by internal competition well below the protected price. This of course might take one or perhaps two seasons to bring about, but it would give rise to many complications and in the long run the wheat-farmers might be well advised to acquiesce in any