The Press FRIDAY, JANUARY 21, 1938. Unprecedented Prosperity

Press, Volume LXXIV, Issue 22306, 21 January 1938, Page 10

The Press FRIDAY, JANUARY 21, 1938. Unprecedented Prosperity

No one will question the Prime Minister's statement that New Zealand is enjoying a period of "unprecedented prosperity" or the figures on which this statement is based. But it is permissible to point out that not all the economic indicators are as favourable as those he mentions and that not all his generalisations from the figures he quotes are valid. The value of both primary and secondary production is a record high level, there has been a substantial increase in employment, and internal trade, measured by the volume of note circulation and cheque transactions, is brisker than it has ever been; so much is indisputable. But it is important to note, as bearing on Mr Savage's assertion that there are "firm prospects for "continuance of prosperity," that investment has not participated in the general process of recovery from the depression. It is, of course, impossible in New Zealand to measure even approximately the volume of investment; but the signs that investment is lagging are unmistakable. One of those signs is the Government Statistician's index of share prices, which was at 954 in December (base: 1926=1000), compared with an average of 986 for the year 1936. Another sign is that fixed deposits with the trading banks are still abnormally high and that the ratio of advances to deposits is now about 86 per cent., compared with 98 per cent, for the corresponding period in 1930. Still another sign is that the price of Government securities continues to be high, indicating that money is not flowing readily into industry. Those whose business it is to handle money for investment will testify that these indications are in the present instance reliable and that the investment market is in fact stagnant. The extent to which this state of affairs is the result of local conditions is a matter for argument—and the argument will necessarily be inconclusive. Investors in most countries were timid during 1937, for reasons which are not easy to discover. But it is worth noting that, since the end of the depression, the index of share prices has risen less in New Zealand than in Great Britain or Australia, suggesting that the steep increase in costs in New Zealand, partly a result of Government policy, has been an important factor. Though the lag in investment has no immediate effect o»? prosperity, it is nevertheless disquieting, since in the long run employment in industry depends more on investment than on any other single factor. But it is when he discusses the relationship between prosperity and politics that the Prime Minister is most open to criticism. " The people " have more money to spend," he says, " and " they have spent freely to the benefit of busi- " ness and the community generally. In other " words, the policy of the Government in practice has established conditions which have " made this record prosperity possible and are " still maintaining it." This is reasoning of the same order as that which attributes the wind to the motion of the windmills. The conditions which have made prosperity possible in New Zealand are the same which have made prosperity possible in most other countries and are outside governmental control. It will not be denied, however, that the Government's policy of expanding pur lie works expenditure and State expenditure generally and of raising wages and shortening hours of work by legislative action has caused the community as a whole to spend more freely and therefore accentuated the boom. Whether it is wise to accentuate a boom deliberately is another question. Members of the Government have from time to time affirmed that the economic cycle can and should be controlled; and it is at least probable that cyclical movements can be made less violent by expanding public works expenditure during depressions and curtailing it during booms. But it is apparent that this Government is no more able than past Governments have been to resist the temptation to spend freely because there in plenty of money available. Nothing is more certain than that, when export income begins to decline, public expenditure will also begin to decline. Mr Savage has protested that there is no reason at present to fear a depression. He may be right; but he is hardly justified in supposing that the economic cycle has gone out of business.