THE ECONOMIC SYSTEM.

Press, Volume LXIX, Issue 20907, 14 July 1933, Page 12

THE ECONOMIC SYSTEM.

ADJUSTMENT TO CHANGING CONDITIONS. ADDRESS BY MR 11. B. LOW. "The evils attending economic adjustments under the present system arise from the fact that those adjustments are not made soon enough." said Mr H. B. Low last night at the monthly meeting of the Canterbury branch of the New Zealand Economic Association. Mr W. Machin 'president of the association) occupied the chair. Speaking on the subject of national stability as a preliminary to international equilibrium, Mr Low said that many of the things done to obtain national equilibrium might actually make the attainment of international equilibrium more difficult. National boundaries were of little economic meaning, and policies that were just national might be very incomplete. The tariff walls that nations built round themselves were damaging to trade. They called forth retaliations from other nations, resulting in a further upset of international equilibrium. The tariff walls which England had erected in the last two years in order to gain stability had made the business of achieving international stability more difficult. Unemployment was at present very much in the public eye; yet that was merely a result of other things. It was in some ways a measure of the attempt to seek stability in the case of each Individual business. It was necessary to get beyond the outward symptoms of the trouble to the root causes.

! The Profit System. There was no need, said the speaker, to remind his hearers that they wore now living in a rapidly-changing world. There was now more luxury than before, involving trades which were less stable in their nature, ana which thus increased the difficulty of economic planning. Our economic system was a profit system, working not only on profits made now, but also on profits expected in the future. This used to be considered perfectly selfregulating, but much regulation was needed now. Sir Arthur Salter, the noted economist, referred to the present situation as that of a "competitive system in transition." "If it is really a profit-motivated system. then we must be prepared to see that it is allowed to work as a profitmaking system. We must not blame a machine for breaking down when fed on oats instead of petrol, if petrol Is what it iB made to run on; we must give It petrol," said Mr Low. If our system offended our democratic sense at; a profit system, wc might bo prepared to change it and adopt some social control and direction independent of profit; but if the system could be run only on profits, then attempts to guide it in oilier ways would not be very successful, it might be noble to work for a loss, but it would lead to bankruptcy. Profits being residual share.; were very sensitive to falling prices, and Industry tended to close down as soon us there was even an expectation of loss. Our economic system was rigid; this was not so bad in the nineteenth century when price changes were not ot the same magnitude, but it was a matter of serious concern to-day. In a slump falling prices gave a severe shock to confidence, arising from expectation of loss.

Trices and Costs. Evils arose from friction in the working of the economic system. As prices fell, costs remained constant, any attempt to cut them down in ordinary circumstances being looked upon as disastrous—a great blow to confidence. But should this attitude be held? asked the speaker. Reductions in costs of production were usually bad, because they were usually made too late. Too much importance was attached to the money rate of interest and to the money rate of wages; and it was left to the urgencies of unemployment to bring about reductions in them.

A man balancing a pole was able to do so because he countered every movement immediately instead of waiting till it had fallen too far, and a cyclist kept his balance because he responded at once to every movement and did not keep straignt ahead with rigid handle-bars till he was about to fall. Similarly, it was necessary in making economic adjustments to make them immediately; the evils of our system arose from its rigidity.

People lost confidence if prices fell: but there was no occasion for this; if adjustments were made quickly they would be much smaller than was otherwise necessary. In a democratic country adjustments were accompanied by unemployment simply because in such a country they were not made quickly or widely enough. Jn New Zealand, for Instance, wages and rates of interest had been reduced, but equilibrium had not been produced because the adjustment had taken place so late. Flexible System Wanted. Under our present system we had the employee whose wage was considered fixcu and was not reduced in depressed times till the employer was simply unable to make things pay; and we had the investor demanding his pound of flesh; while at the same time commodity prices were continually changing. Since such a system, half rigid and half flexible, could not be made to work, it was necessary to aim at, and to agree as a community, on a system that would be wholly flexible. In such a . system, adjustment in wages and rates of interest would be made according to a sliding scale arrangement depending on some general trade index figure, and reductions would in that case take place before the need for them was evident. This might be hard to bring about in a democratic country, though the speaker knew of some cases in Christchurch where agreements along those lines had been made. Nevertheless it might be done by government action in the interests of the people. I

Intimes of depression, when the individual found it impossible to carry on private enterprise, the Government should take the initiative and should borrow freely for the carrying on of public works. Public works should. Jn u °P a different basis, as a channel to which unemployed could be directed as soon as unemployment became apparent.

Surely," concluded the speaker, the world is old enough now to be able to take stock of itself and make provision for its well-being." The Discussion. Mr D. I. Macdonald, secretary of the association, said that there seemed i to him to be only two possible ways j of bringing about a suitable system. One was by means of a dictatorship, which would be repugnant to a democratic people; the other was by means of a committee of experts acting in conjunction with a strong and stable central power. It was surely possible, he suggested, that in a country like New Zealand, that a body of men could be brought together—the best men from the spheres of economics, labour, and so on—which could advise the Government in a suitable policy, especially if it had at its disposal such powers as those which President Franklin D. Roosevelt had been granted. It was true, he said, that in recent years the best possible men had not been available on such bodies; but unless some such policy was adopted we should go muddling on till our system broke down. "A Ship at Sea." Mr G. H. Holford, comparing the state to a ship of sea, said that it was well known that a lively ship was the most seaworthy, while one which responded slowly was to be mistrusted. Ships could be stabilised by a. gyroscope; the gyroscope ol the eco-

ism nnrf it 2, s price-mechan--2i i because th e workings of that had been restricted that things wer e g ol n g b a d]y . Before he system hud worked fairlv had °starfpi? Ul SinCe tho Gove ™menlt nad started on a campaign of interfering legislation in the interests of comparatively small sections of the commumiy, the system had been upset. He considered that in good times should V n s . h ° uld . be accumulated which except for touched by politicians except foi the express purpose of coping with unemployment. The main difficulty about this was that we had ideas nf 1 !. suniCle " t] y educated up to ideas of co-operation. He Quoted as a system Vf hC ri Ca u e q I Donmark with its system of adult education.

Two Schools of Thought. Mr W. Machin ("president of ihr> association) said that there were two chools of thought; one considered that tnmn a t% SS New Zealand to attempt to do anything until there was cla^mp°d a fh V i' orld recover y; the other I i , l that . , a country such a s ours should be able to get sufficient from its export trade to enable it to carry 2*- i 1 rneans were suitablv thoueh ( t ted ' The ® e two schools of thought were perhaps not altogether irreconcilable; might not the business man, for instance, who curtailed his staff m order to carry on his business on sound economical lines, be actually doing as much for his country's good as the member of a distress board who was trying to find employment for the maximum number? Similarly, he continued, might not countries which were concerning themselves with putting their own affairs in order be actually doing a great deal to further world interests?