" STILL PRECARIOUS "

Evening Post, Volume CXIV, Issue 38, 13 August 1932, Page 10

" STILL PRECARIOUS "

AUSTRALIA'S POSITION

AS SEEN BY A BANKER

PROBLEM OF LOW PRICES

"Our present position is, I.suggest, precarious," said Mr. A. C. Davidson, genera] manager of the Bank of New South Wales, in the course o£ an address given by him in Adelaide as the Joseph Fisher Lecture, iv Commerce, 1932, under the auspices of the University of Adelaide. Mr. Davidson acknowledged the heroic measures already taken, by Australia to extricate itself from its difficulties, but "another effort is needed to stop the vot," Mr. Davidson said, "to restore the hope and chance of profit throughout Australia and thereby to sustain the very creditable effort we aye making. The Premiers' Plan of June, 1931,' so far succeeded that it paved the vray. The new effort which will be shaped at the present, or at subsequent, conferences of the Premiers may be expected to broaden and staighten out that way. • . ■ "Events overseas since June, 1931," he continued, "have warned us against too heavy a use o£ the method of reduction, or forcing down. To bring and to keep Australian costs below prices that are continually falling would require additional cuts iv wages and in interest. Such a process would condemn business to the depressing prospect of further falls in prices,! and as costs fell the desperate competition /to maintain turnovers would mean further price reductions and further cost of living adjustments. The result would be a^ vicious spiral into abysmal and indefinitely prolonged depression. There are evident reasons, partly of a budgetary origin and partly in relief of rural costs, for the rounding out in all States and, industries of the reductions already made in interest and wages. ' ''If we attempt to rely on deflationary measures alone to restore equilibrium we shall run grave risks of a financial crisis in Australia similar to that which occurred last year in Austria, Germany, and Britain, and which has been avoided only with great difficulty in the United States." Mr. Davidson aavocated raising of the rate of exchange. "If used in a measure and degree calculated to offset the pricedropping effect of wage and other w ductions, it would give us iv Australia what we so urgently need as a basis for Renewed investment and the employment it would bring, namely, a cessation in the fall of prices." WHAT AUSTRALIA HAS DONE. As a nation, Australians were entitled to draw, from a retrospect of what they had achieved, courage to continue the fight, Mr. Davidson said. But even if wages, salaries, interest, and rents had all been cut by, 20 per eeut. and nothing else done, the .adjustment of Australian costs would not have restored a margin, v even a hope of profit to the exporting industries. The direct reductions were fortunately supplemented by an indirect reduction smoothly achieved by the fall, between October, 1930, and January, 1931, in the exchange value of the Australian pound; This meant that Australian prices were restated in a unit of smaller and, incidentally, of more stable purchasing power than the pound, sterling. The wholesale price level in Australia since January, 1931, had been relatively stable during a period of acute decline in all other wholesale price levels. The fall in the exchange value of the Australian pound made no direct increase in the national income, but indirectly it increased it by maintaining production at record volume in the all-important industries, and thus preventing the appalling increase in unemployment that would have followed the collapse of wheat-growing aud grazing., ■ ■ '• ■ RAISING EXCHANGE RATE. "At the moment," Mr. Davidson concluded, Australia has the opportunity to restore a profitable basis to industry and investment by the middle way recommended by Sir Wallace Bruce's special committee. This includes action along ♦hree lines:—(l) The completion of the cuts m interest and wages contemplated and assumed in the Premiers' Plan of June, 1931; (2) a drive for efficiency in oil industries, enforced upon the protected secondary industries by* a downward revision of the tariff; and (3) the prevention of a fall iv prices consequent oh these measures by an upward movement of the rate of exchange under the control of the Commonwealth Bank." Taken by itself, a policy of increasing Australian exports would mex-ely accentuate the competition for a shrinking volume of international trade, Mr. Davidson added. If Australia was to recover her internal balance she must adopt policies that chimed m as a whole with the efforts of others overseas. The fiscal policy of the Commonwealth must be reshaped gradually to restore the market in Australia for British and other imports, and in this there need be no menace to Australia's efficient secondary industries. As he saw it, the task of the Australian representatives and at latev conferences would be to pave the way for policies in currency and in trade which would dovetail together the interests of the Dominons and fareafc Britain in the mutual service of a freer trade.

(A copy of the address is received from the Bank of >i«w South Wales, Wollin^ton.) -