THE NEXT SLUMP

Press, Volume LXXIII, Issue 22005, 1 February 1937, Page 15

THE NEXT SLUMP

TO THE EDITOR OF TUB PRESS,

Sir, —Your leading article "Controlling the Boom" and Mr Kitson's reflections at the annual meeting of the Stock Exchange were both interesting, but I suggest could have been carried further with profit. We cannot study the slumps that have occurred since the invention of the savings banks without realising that they were all due to mass movements, that in every instance it was the mob that rocked the financial boat. Those past experiences indicate, too, that there is no danger for a year or two of another slump, either minor or major. The mob is still on tlfe cautious and saving side of the boat. Before a slump can occur we must pass through many phases. First, we have an increase in prices of certain commodities, then in commodities in general, then in real estate, both improved and unimproved. We are in this stage now. Next, we have increased activity in established enterprises and the formation of new ones, especially those which provide for increased production or improved methods, frequently requiring considerable scrapping, and all demanding changes from trading capital to fixed. The next stage is full employment at high wages, heavy spending by the masses, large public works expenditure (a loral example before the slump was the Drainage Board's capital expenditure), and a much lower ratio of savings to production. The last phase is a speculative mania, abnormal investment prices, a forest of "wild cats," a heavy expansion of discounts, insistent demands for loans, and high interest rates. When this stage is reached, a slump is certain and imminent. The mob is on the reckless and spending side of the boat. Industry, too, cannot bear for long the burden of high interest rates. Will the next slump be a minor or a major one? Your leading article and the discussions in financial circles supply the answer. The fact that a slump is feared will prevent a major slump. The next "mob" will average younger and be proportionately smaller, and the financial stabilisers will not be discarded. A major slump cannot occur until the havoc of the last major slump has been forgotten by the older generation and unknown by the younger. Mr Kitson stressed the fact that we lose more by the migration of our best youth than we do by the escape of capital. And naturally, as long as we have poor legislation, the immigrants we attract will be poor in intelligence and the capital we tempt will be the rapacious class, willing to take risks only at a high profit. In national affairs the future is more important than the present.—Yours, etc., A. N. DAVIS. January 31, 1937.