FARMING ECONOMICS.

Manawatu Standard, Volume LI, Issue 117, 18 April 1931, Page 5

FARMING ECONOMICS.

ADVICE TO MEN ON THE LAND. MAKING PROVISION FOR BAD TIMES. A most interesting address was delivered to the gathering of farmers in Palmerston North on Thursday by Mr D. O. Williams, lecturer in economics of Massey College, who dealt with tho economic side of farming. “Never before have economic issues been so important to New Zealand,” said Mr Williams. “Hard times New Zealand has had, but the scale of the present distress has never been paralleled before. I come before you, offering you no simple panacea for your ills, tendering you no magic by which you can order your financial spectres to vanish. I leave the provision of magical formulae to those who. are simple-minded enough to think that the economic problem is simple, and to those who are simpleminded enough to believe that all that is needed is common sense. I am afraid that the matter is much more difficult tjian appears at first sight. Fundamentally, the economic curse of modern life is the persistent cycle of boom and depression ; and I believe further, that with men acting as they do, the mam damage is done in boom times. . In boom times too marly of us are smitten with an unwarranted optimism. Despite ourselves we persist in believing that good times have a permanence which justifies us in launching out m all sorts of ventures and making commitments which are supportable only so long as prices keep up. In bad times we are smitten with a palsy of fear and, as a result, what is had in all conscience is made infinitely worse through exaggerated pessimism. Exaggerated optimism in good times, exaggerated pessimism in bad times are the twin, complementary evils which shatter our economic security. There will, no doubt, always be some ebb and flow of prices. Absolute stability is not possible and probably it is not economically desirable. But the normal ebb and flow which is more or less inherent in modem industry is _ so vastly accentuated by blind optimism and by equally blind pessimism that life for many becomes little but a deplorable gamble. SAVING IN GOOD TIMES. “I want to put it to you as simply as I can that the time to’look after yoiir pennies is when times are good—the time to save is when it is easier to spend—the time to attack your mortgage is when it is easiest to borrow. That, gentlemen, is my present gospel. It must obviously not be carried to ridiculous extremes. It must not be carried so far as to paralyse legitimate and sensible progress. But it must be thought of. When times are good again—as they will be—and butterfat is, say. Is 6d or Is 9d a lb.—as it may be—and you are tempted to buy land, that is the time to say to yourselves—‘hold on. butterfat will drop again’— not 'go for it, butterfat will boom for ever.’ IRRATIONAL OPTIMISM. “Yet I find that it is precisely that cautionary attitude which is so lacking when things are going well. And in many cases, the present mess that some farmers are in is due to nothing so much as the wild, irrational optimism that possessed them when they purchased land at Eldorado prices. Farmers, I have noted, are generally unwilling to admit that any blame should attach to themselves. They will quickly enough curse the Government, or the profiteer; or talk a lot about the parasitic middleman; but they resent criticism of their own actions. Now* I have no' patience with

the attitude which suggests that farmers are wholly helpless puppets at‘the mercy of sinister and malicious economic factors. Much of the present distress they could not possibly help; but some of it, in some cases, must undoubtedly be their own responsibility. I suggest that the time has come when farmers should talk less about being the backbone of the country and face the fact that a back-bone doesn’t make the whole of man; and in addition to back-bone they nave brains as well, and therefore the responsibility that attaches to intelligence. PERSISTENT RISE AND FALL. “In my view the rational attitude is to recognise that prices—particularly of primary products—are subject to this persistent rise and fall; and to conduct the business of farming on that basis. It means little whether a farmer makes this or that profit on a year’s operations. What matters is whether he can show a profit over the full period of a cycle of prices. This is the essential point. Farming has to be run as a business nowadays; and as a business it must take facts as they are. If those facts show that normally prices complete their full cycle of depression and boom in, say, five years; then five years is the economic unit of measurement.. If during two of those five years prices are booming and profits are good, remember that they are provisional profits only, and that out of them you may have to meet the losses when prices are falling. I urge this point of view on you with all the emphasis of which I am capable. And now is the time to underline it, because from now on, for a year or two, we may reasonably expect a period of rising prices. I urge you to look forward a little further, to say 1934 or 1935, and remember that always there is a limit to your rising prices, always the tide will turn and prices will again recede. The advice applies to others as well as to farmers. It applies particularly to governments. A Government with courage enough to be cautious and conservative in good times; with courage, say, to raise taxes in good times (when the burden would not be felt) —- would not need to lay a crushing hand on industry in bad times. It appears to me that the logical and sensible procedure is inverted both by governments and by many private individuals. And therefore I plead for a little sane pessimism when times are good, and a little sane optimism when they are bad. AMOUNT PAID IN INTEREST. “This persistent ebb and flow of prices does all its damage because some prices move more slowly than others. When they are rising, the farmer benefits as a rule because his costs do not rise as fast as the price of his products. Conversely when prices are falling he suffers, because agaiii his costs do not fall as quickly as his produce prices. Of these costs, the two most outstanding ones are wages and interest; and of these two, interest is, as a rule, more important than wages. According to the Year Book 1931, wages represent 25 per cent, of the total farm expenditure ; while interest and rent represent 33 1-3 per cent. The figures are not more than rough approximations; but they do indicate that to tho average farmer interest is a problem of major importance. Particularly is this so when prices are falling, for every fall in prices makes the real burden of interest heavier. Wnen prices are rising the rate of interest is not much thought about. Now interest is precisely one of the costs which lags behind the movement of prices. So long as interest is covered by binding contracts, it must lag behind prices, and no accurate adjustment' of interest to prices is possible short of a revaluation in our money system, or of our system of contracts. While this is so, I am definitely of the opinion that the long term rates of interest are too high for the trend of economic affairs. “In saying this I am not relating interest rates to the present level of prices. Comparisons between the rates of interest and a depressed level of prices are not of much use, for a depressed level of prices is a temporary matter. The present prices are no more normal than were 1920 prices. Interest and wages based on peak 1920 prices are out of touch with normal economic conditions; and so are interest and wages based on slump prices. REASONABLE AVERAGE. “The appropriate conditions are neither peak prices nor slump prices, hut a reasonable average level of prices. What lam suggesting is that present interest rates —long term rates—are much more appropriate to peak prices than to the normal trend of prices. I cannot do better here than quote you from the brilliant Englishman, lleynes: ‘We cannot hope for a complete or. lasting recovery until there has been a very great fall in the long term market rate of interest throughout the world towards something nearer pre-war levels,’ and ‘I am bold to predict,’ he says, ‘that to the economic historians of the future the slump of 1930 may present itself as ,a death struggle of the war rates, interest and re-emergence of the pre-war rates.’ To this he adds that the much needed and desired fall is likely to be,a long and tedious business unless it is accelerated by deliberate policy. As to the deliberate policy I'may quote from the March, 1931, number of the Bank of New South Wales circular which says ‘there is no reason why action should not expedite this process. The governments, the banks and the savings banks could, by agreement, bring about an immediate reduction of interest. The Government’s share in the task would be, by balancing their budgets, to refrain from making demands upon the limited credit available. With this done —banks could proceed to reduce interest rates on botlr deposits and advances. It would then not bei long before all classes of investors would be compelled to take lower rates of interest on new investments.’

“I think wo all, as a result of recent experience, have come to realise that the world we live in is a fairly irrational affair and that, unless we keep alert, we are likely tobe crushed by economic forces which we can’t control. Many a good man has gone under and seen years of work and effort lost, and been left with nothing beyond a feeling of resentment. The task of farmers, as I see it, is to remember and to profit in experience from these past years. Above all, do not forget that booms and slumps will recur and' that the bigger the boom the bigger will he the slump after it. Be a little more sceptical of prosperity when it comes again, act in the certainty that it will not last for ever, and then depression will have fewer terrors for you. Do *not make the fatal error of acting as though this present slump is the last one you will experience.”

Urgent freight, including livestock, will be carried on the new evening air parcels service to bo started by Imperial Airways between London and Paris, on May 1. Twin-engined Handley-Page-Napier_ airliners, each carrying over a ton of freight, will be used.