Evening Post. WEDNESDAY, OCTOBER 20. 1937. WHAT LIES AHEAD?

Evening Post, Volume CXXIV, Issue 96, 20 October 1937, Page 12

Evening Post. WEDNESDAY, OCTOBER 20. 1937. WHAT LIES AHEAD?

''Men in the City all agree that slump talk is fantastic" was the gist of a cheerful cable message which, on Monday, recorded London's emergence from the most anxious fortnight on the Stock Exchange since 1929. "The Economist" was quoted as declaring that the majority of industrialists endorsed the opinion of the Prime Minister and the Chancellor of the Exchequer that recovery had not reached its peak and that there was little real evidence in British national economy to suggest that a real slump was ahead. On the contrary many industries had spectacularly increased their rate of activity in the recovery years. There is no sign of a serious decline in the purchasing power of the public (stated "The Economist") and even the export trades are less vulnerable than in 1929, as primary producing countries are no longer dependent upon foreign loans. The economic defences are thus sounder than in 1929 and a repetition of such a slump is most unlikely. This is encouraging and of no small importance to New Zealand, for though the Minister of Finance aims to insulate the Dominion from the economic changes overseas, he has admitted on various occasions that this is not wholly possible. By a prudent management of our own affairs wc may interpose buffers to lessen the shocks of world trade movements, but we cannot achieve complete isolation any more than we can attain full self-sufficiency. Cheering as the cable message and "The Economist" opinion must be, however, to those who feared that the London Stock Exchange disturbance was the precursor of a slump, too much must not be read into it. When it is said that recovery has not reached its peak, it is not to be assumed that there is no peak and therefore no possible decline —that industry will go on increasing and expanding, and the sun of prosperity will shine for ever. All that can safely be taken from the statement is that there is still force in the expansion movement, and still "time to adopt measures to guard against a boom which would be followed inevitably by slump. The necessity for such measures was stressed six months ago by Mr. J. M. Keynes who cannot be classed among the economists who accept the tradecycle theory without qualification. He pointed out the danger of the rearmament loan of £80,000,000 leading to inflation, through higher purchasing demand outstripping production capacity so that the demand spent itself in raising prices. As a means of avoiding inflation he proposed careful planning to distribute work in the depressed areas (where there were still unused resources), to encourage exports in payment for imports which would help to satisfy a greater purchasing demand, and to controj, capital development by public and local authorities. The purpose of the last-named measure would be to avoid duplication of the demand upon productive resources which would certainly result in higher costs. A similar precaution is advocated by Professor Lionel Robbins in an article in "Lloyds Bank Review." Professor Robbins writes: By damping down public expenditure on things other than armaments, it would ease the strain on the capital market and diminish the temptation to resort to unsound methods of finance. By deferring such expenditure till the time of depression, it would prepare a store of sound proI jects of development which could take up some of the deflationary slack in the capital markets when private investment holds back. There is certainly nothing very risky about euch [ a policy. It is the very minimum of common prudence. It is this "very minimum of common prudence" that we have been urging upon the New Zealand Government. We are not damping down public expenditure but stoking it up.- This cannot be excused with the pica that we have no large-scale armament expenditure. We have not, but our overseas income is affected by Britain's armament expenditure, and cessation of that expenditure will mean a reduction of our overseas and our national income. There is a further step proposed by Professor Robbins, but not by Mr. Keynes to which we should also give consideration. Mr. Keynes says: "Keep interest low," but Professor Robbins holds that there is danger in this. Only when the system is in a state of collapse and when idle capacity and idle labour abound, can a general expansion of credit be regarded with comparative equanimity (he writes). Now this means quite definitely that, once this point has been reached, a continuance of the regime of cheap money which has accompanied the previous depression is dangerous. If money is kept cheap by deliberate manipulation in the' face of a rising investment deirfand and rising costs and money incomes, then malinvestment of the kind which sooner or later leads to a bad crash is deliberately encouraged. There is no need to be a fanatical adherent of any particular brand of trade-cycle theory to believe this. The warning is one which New Zealand cannot disregard. Here money is being kept cheap and even made cheaper by deliberate manipulation, particularly by the issue of new credit; The Government is accelerating public expenditure and public investment. Yet, if the contention of the Minister of Labour is correct, idle labour which is employable does not now abound. The back of the unemployment problem

has been broken. There are sufficiqnt complaints of inability to obtain labour for farms, for skilled trades, and for domestic employment to indicate that there are not now great unused labour resources to draw upon. Rising costs begin to show the result —that expanded demand is being spent in raising prices. If steps are not taken to check this, we shall very quickly be experiencing that boom which must be followed- by slump. Economists are agreed upon this fact, that the lime to prevent a slump is before the boom is well developed. Here the Government steadily refuses to admit that there is or can be a boom, and it may be sadly enlightened when it discovers that there was a boom and the slump has followed.