“SOMETHING WRONG”

Dominion, Volume 24, Issue 68, 13 December 1930, Page 8

“SOMETHING WRONG”

Unemployment Problem

CORRESPONDENTS’ VIEWS

That a country like New Zealand, richly endowed by Nature, and carrying a comparatively ' small ■ population, with millions of pounds deposited in the banfis by the inhabitants, should be labouring under a serious slump of such a character as to cause widespread unemployment, is a clear indication that . something serious is fundamentally wrong with our financial and commercial system, writes Benjamin David, of Wellington, to the Editor. It is 40 years since 1 first set my foot on New Zealand soil,, and during the intervening period I have vritnessed several slumps and booms with their consequent sufferings and drawbacks, yet none of the earlier slumps have seemed so unjustifiable as those of 1021 and 1930. The unemployment of today is the result of financial disease, to cure which one must first ascertain the cause. The cause, to my mind, is very clear, and the remedy very simple. As far as New Zealand is concerned, the cause is internal, and is not external, as might be supposed, by the fluctuations in. price of our exports. Fluctuations on the world’s markets—the markets on which We depend—are a constant quantity, and have always to be reckoned with.’ Another factor, Which can never ..be left out with. impunity, is the purchasing power under normal conditions of thea.consumers in our world’s markets. These fluctuations," and the. normal purchasing, powers,, have been ignored by us since the war started, with the result that the machinery.’ of our financial and commercial systems has become seriously Clogged. ■ Let US bear in mind, at this stage of our analyses, that, although the rest of the worid is .in the throes of unemployment, France is immune. France was . the only country which, when war was declared, issued a decree prohibiting commercial exploitation within her own borders,- • thereby preventing- - the juggling in land values which- hasTJben so rampant in New Zealand ever since. Consequently France,: internally, quickly returned to normal conditions after the cessation of war, with only her special external war loans, to trouble her, with no unemployment problem to deal with, and with gold rolling in to her coffers.. And yet, France was one of the most devastated countries during: the war. Not so ■New Zealand! /Further to the cause of our trouble, let us bear in mind that the determining facto: 4 in normal, values is the law of demand and supply. Truly speaking this law only operates normally under conditions of world peace. Any'interference with this law will bring about complications with more or less disastrous results, 1 the reactions from which cause slumps when the day of reckoning arrives—and to-day is our day of reckonng. ‘ ■ The law of demand and supply, therefore, under normal conditions, is the corner stone, of the foundation upon which we should build up our estimates of values; Just at this point we went wrong when war broke out. War conditions are an interference witli the normal conditions of demand and supply, and will mislead the unwary into the mirage of high prices. Any super-normal prices must, in the rebound, result in sub-nor-mal prices with consequent slump and unemployment. This is exactly where we stand now in richly-endowed New Zealand. :: ;./ 77‘7

Like a great tidal wave, high prices for our exports swept men off their feet, until we. beheld the spectacle of landbred farmers, who should have known better, plunging into gambling speculation in land at, values based on current, prices for primary products, forgetting that the price of products/will fluctuate while the price to be paid as interest on mortgages .remains cdhstantly the same, witlrpower to the mortgagee to forclose if the price pf products felLto figure which would not permit the mortgagor to pay the interest, nor employ labour on the land. The "reaction hits the towns which are in a large measure dependent on the circulation pf ? the net- incomes from, the landWhen there is no net' income ,to circu.‘late, ,-then, unemployment becomes rampant. . .. i ..■ . - /■ . /' Now we arrive'at the root. of. our trouble :, there is no .net income from .the land circulating in sufficient quantity to .prevent.unemployment;/Where is all the money from the fat—very fat—years we have experienced in New Zealand for bo •long? . i ■ >lt is in the banks,to the credit of private individuals who are so scared by . the fear of slump that they, prefer to keep it. hidden under a bushel until the country has travailed back to normal. To restore confidence in the minds of these -people, is a necessary essential to the solution .of our unemployment problem.' •To prevent a recurrence of the same conditions is another essential. How can ■it,be done? The solution lies in the adjustment to normal of land values and interest on mortgages, so as to allow the 'Occupiers of land to have net incomes available for circulation. This can easily be brought about if the mortgagees will approach the question from a commonsense standpoint; The true'interest of the person who owns money available for ■ loam on mortgage lies in being able' to get a Security which will be so sound that the regular payment of interest and return of capital on due date are assured. The conditions that go to provide that security can only be such as will permit of the mortgagor receiving from his property a net income available by him for circulation. Consequently in order to provide against the fluctuations in the prices for our exports it would be necessary to fix a basic rate for interest, letting the rate of interest rise and fall automatically with the fluctuation in the prices of our products; Thus the rate of interest could be declared every six months by the Government Statistician in the same way as the index figures in the cost of 'living are determined by him to-day. The basic wage in the States of Australia Is ■fixed in this manner; the system working 'automatically. If the standard rate of interest under normal conditions is fixed at five per centum per . annum, then the price of interest will rise or fall with the price of products, and the property owner will always have money for circulation in reproductive channels within bur own borders'. The quicker that mort'gagbrs and mortgagees get together and write down their land values to normal, ‘the better will it be for themselves and all' concerned. If they won’t now adjust these matters through reason then the "law of demand and supply will force them to it. through suffering. A continuous fo.come on a 5 per cent, basis from land at normal value is far better for the mortgagee than spasmodic high rates on high values which react with loss to all concerned. The assessing of values to normal, and fixing the rate of interest on /the index system as recited above, will restore confidence, reduce unemployment, and prevent in the future unhealthy booms with, their consequent slumps and unemployment.' .7 •