THE ECONOMIC SITUATION

Manawatu Standard, Volume LII, Issue 68, 19 February 1932, Page 8

THE ECONOMIC SITUATION

DRASTIC PROPOSALS DISCUSSED

FREE ' EXCHANGE ADVOCATED

Termed by the president as rather drastic, startling and Somewhat revolutionary proposals, six definite suggestions for copiftg with the present situation of the Dominion and its finances were brought forward at'a special meeting of the .Palmerston North Chamber of Commerce yesterday afternoon. Important recommendations were submitted for adoption by the Government.

SUMMARY OF PROPOSALS. Summarised, the proposals brought forward for discussion were as follow: (1) Free exchange. (2) General reduction of 20 per cent, on all fixed charges. (3) Cut in salaries and wages of a further 10 per cent., including pensions and superannuation. , (4) Economies in State departments and in the spending of moneys upon public works. (5) Deficit finance for a period of three years. c (6) Appointment of a'Currency Commission. Mr M. H. Oram presided, others present being Messrs Graham,- Furby, Stevens, Cousins, Brown, Stuart, t ree, Morrison Harwood, McPhersdn, McGregor, Mason, Archer and Chandler. Apologies for absence were received from- Messrs Mackie. Winks, Bennett, .Wallace, L. H. Collinson, Noedl and Aitchison.

money, has to be found on the internal debt. That reduction would go a long way towards counterbalancing the increased charges upon, the overseas debt on account of the additional exchange. That is, the taxEayer would not be called upon to nd the Hicney required. “Then, so far as the farmer is concerned, interest is the first charge upon the source of the wealthy which comes into this country and percolates through every channel of industry. Interest is the main items in the farmers’ costs. He can be assisted by raising his prices or lessening his costs to bridge the gap between falling costs and falling prices. Tire reduction of. interest charges will enable the farmer to remain on the land and bring production costs into relation with prices. . “Further,” continued the chairman, “there is the question of reducing fixed charges to assist industry. Salaries and wages have already been cut by 10 p>er cent., and there will probably be another cut. Interest must be brought into line. In ether words, the object of these proposals is to spread the sacrifices to be made as far as possible over every section of the community. It is not to bridge the gap by attacking costs alone; not by manipulating costs alone, but if by a kind of temporary inflation the exchange can increase prices a little, and costs can be reduced to a comparatively low and equitable level, and if by this means another £lo,r id,CGO can be brought into circulation in this country, it _ will increase trade and commerce. Circulation of money is the life blood of all businesses. The withdrawal of money from circulation is exactly analagoua to taking all of the water out of the upper reaches of the stream until there is nothing left to irrigate the fertile valley. ECONOMIES AND FINANCE. “Every salary cut for which there is no compensating concession on the other side, every withdrawal of money from circulation means diminished business, less profit, more unemployment and less money. The proposal is designed to set the economic cycle going in the other direction now. It is realised that if salaries and wages are cut, a further 10 per cent, pensions, superannuation and similar benefits' should be dealt with in exactly the same way. The Economy Commission already, appointed is considering avenues of economy. There is no doubt but that in the past a great deal of money has been wasted through the Public Works Department in this country. “The fifth proposal is a revolutionary one. It is for a policy of deficit finanoe for a period of two or three years, and carried out by the issue of Treasury bills which could gradually be withdrawn as taxation proceeds were made available to meet them, instead of attempting to balance the Budget immediately by increased and crushing taxation. Let it be spread over a period of years as is done by trading concerns. No matter how good a Parliament there is, it has not the technical knowledge necessary to deal with intricate matters of currency, banking and finance. A Currency Commission would be of inestimable benefit in guiding the destinies of this country. Cabinet Ministers, harassed with a hundred and one details, cannot be expected to be banker, economist, primary, producer and finance expert.” EXCHANGE QUESTION. Mr Morrison intimated that the chamber had already committed itself to the principles of free exchange as outlined in the first proposal, Mr Free asked if there had been any definite indication that exchange would rise to 30 per cent, if it was left free. The chairman of the Associated Banks had said it would remain' round a level of about 10 per cent. It was obvious, stated Mr Oram in replying, that if that was the case there would be no necessity for pegging exchange. “I cannot see any evidence to support the supposition that exchange is likely to go to 80 per cent.,” stated Mr Free, “and yet it is an assumed fact.” “What position does this chamber find itself in with regard to free exchange if the reduction of all fixed charges is not acceded top” asked Mr Brown. “In that event it is going to bestow upon the community untold hardship, particularly upon the working people and the wage earner. Personally I- am absolutely opposed to free exchange unless there is a reduction of all fixed charges.” The chamber decided by a majority vote on the motion of' chairman, seconded by Mr Mason, to adopt the proposal for free exchange, it being clearly understood that that meant no interference with exchange by the Government, and opposition to the Government pool. Those who voted against the motion were Messrs Brown, Furby, Cousins and Stuart. INTEREST AND RENTS. “How do you fix the figure at 20 per cent,” inquired Mr Graham when the proposal for the reduction of all fixed charges to that extent came forward. The chairman said that that was following the Australian practice, where reductions of 4s 6d in the £ had been granted in mortgagors’ relief applications. It was difficult to say definitely whether 20 per cent, was necessary or enough, but it could be in the vicinity of that figure. Mr Mason asked if the term fixed charges included interest, rent and wages. The chairman: Not wages. Mr Morrison: City Council rates? The chairman: Hardly. That is a charge imposed year by year. Mr Graham: Is compulsory reduction advocated The chairman: Yes. Mr Free: Is that meant to apply to loans overseas?

The chairman asked at the outset if the meeting was to bo open to the Press.

“The proposals are absolutely startling,” stated Mr Morrison, who moved that the discussion be open to the Press. He said he saw no reason for departing from the usual custom. Sir W. H. Brown seconded the motion, which was carried. The chairman said he was pleased that that was the feeling of the ingFollowing upon a joint conference between a committee of the chamber and representatives of the farming community and other organisations, stated Mr Oram, proposals had been discussed with special reference to interest, exchange and fixed rates. Those who had formulated them had met on two occasions and had the assistance of Mr D. 0. Williams, lecturer in economics at Massey College. It had been decided that certain proposals should be urged and it had been suggested that a public meeting should be called in order that they could be submitted with the object of stimulating interest and promoting action.

VIEWS OF CHAIRMAN. “The proposals are somewhat startling and distinctly drastic,” stated the chairman. “Twelve months ago the Government proposed to institute a cut in civil servants’ salaries. That was discussed by this chamber, which considered that the cut could only be justified provided it was the forerunner of a general scheme to bring all costs down to a lower level. Up to the present no substantial effort has been made by the Government to attach interest and other fixed charges, but the position is so serious that it must be faced.' It is proposed firstly that the Government should be urged to remove restrictions on free exchange. Secondly, it is proposed that there should be a reduction of 20 per cent, on all fixed charges, including interest and rent.

“There is a proposal for a further reduction of 10 per cent in wages and salaries,” proceeded the chairman, while further economies are sought in State Departments, with a rigid and careful supervision of the spending power of the Public Works Department and all the operations carried out by it. The most startling proposal of the lot is for deficit finance for a period of three years, and lastly it is proposed that a permanent currency and finance commission should be appointed to advise the Government from time to time concerning currency, banking and finance questions. It could be constituted by representatives from the banking, primary producers, commerce, economists and Treasury groups, and should have power to make public at any time any of its recommendations to the Government.

BANKS’ CONTROL OPPOSED. “Concerning the first proposal for free exchange,” added the chairman, “on more than one occasion I have gone into that matter, but there seems to be no adequate reason at all why exchange should be controlled by the banks. There has grown up in the past a policy of bridging-the gap between exports on the one hand and imports and fixed charges on the other by a yearly loan. AVe have been living on borrowed money, instead of the income which percolates through the , country. That must stop. From figures taken out it would appear that the interest on the overseas debt, together with imports, will more than balance the export value of our produce. That difference can be met by permitting free operation of exchange, thus restricting imports when there is an averse trade balance. By .he operation of economic laws_ it would restrict importing by making it more difficult. There is the alternative of arranging with, the banks for them to control the whole revenue from exports, paying therefrom Government and local body indebtedness at Home and then rationing the remainder. of the money among the importers. “I say without any hesitation that no Government on earth is capable of carrying out that policy. In the first place it is not necessary to put the whole of the business through 'ffie banks, and secondly it is an unwarranted interference with private enterprise. Credits sought in London must be brought back to New Zealand and then remitted to London, allowing the banks to earn double exchange. Then', assuming that _ exchange is allowed to go free and increase, there is no question but that it would effect a benefit to the primary producer. Leaving that at one side for the moment, supposing that exchange would normally rise to 30 per cent, it free, and it is pegged at 10 per cent. ? The difference between the two rates is nothing more nor less than a direct class charge upon the primary producer, who is prevented from reaping the benefit of an increased price. Such a thing is economically bad and cou’d have nothing but a bad effect. If exchange went up it would help he primary producer but would be aetrimental to. the importer, restricting imports and increasing the cost of living in New Zealand so far as imported goods are concerned. The lost of remitting money to London would be increased; the cost of interest and fixed charges for Government and local body debt overseas would be increased. It would be disadvantageous to the taxpayer and the importer, but it is needed in order to overcome the dimculty of keeping the primary producer upon the lamf-the country’s sole source of revenue.

The chairman: No. You cannot deal with that. It applies to internal loans only. Mr Brown said a 20 per cent, reduction of all fixed charges would automatically bring about a reduction in city rates. Disagreement with an all-round reduction of 20 per cent, was voioed by Mr Mason on the grounds of inequality of sacrifice because some investments had been, made when the purchasing value of the pound was low. The chairman said there were bound to be small injustices in any scheme. Mr McGregor voiced disapproval of

REDUCTION OF INTEREST. “The effect of a considerable reduction of interest means that les

the proposal to reduce fixed charges because it involved Government interference, that not being consistent with, the advocacy of the first proposal. It was being suggested that the Government should tax a special class. Any reduction made should be on a voluntary basis. *Some farmers would still have to go off the land if a reduction ■of 80 per cent, in interest was made, while others could pay _ and should honour their contracts while they were able to do so. The Court'could deal with cases of hardship. Mr Free asked if voluntary negotiations as suggested should be made to apply to mortgages on city properties. Mr McGregor: Yes. POSITION OF WAGE EARNER. Mr Brown said he was quite satisfied that the first two proposals should be taken together ana also the next two together similarly. “I am •against any suggestion of a reduction in wages and salaries if there is not a reduction of fixed charges,” he added. < “What is going to be the position of the wage earner with no reduction of fixed charges and rents? It is terrible at present, and would be absolutely chaotic. It is very dangerous to pass the proposals unless they are linked together, or the first and third proposals will be left on sinking sands. Mr Morrison said he would vote against the proposal because of its impracticability, and also its absence or detail. . . The chairman said he agreed that the less interference there was by the Government the better. The best way of getting down to bedrock was to cancel all restrictions on contracts between man and man, including la Arbitration Court. “It is unfair,” he said, “to cut salaries ana wages and leave interest untouched. Much as Government compulsion is to be regretted, I see no alternative, lfi© only ground on which we can support a wage reduction is that it is the Beginning of a general reduction of all charges. To reduce wages further -vna leave interest untouched would not be unfair, but would be the ruination of business. Enough money has already been withdrawn from circulation through the cut in salaries and wages. I disagree entirely with Mr The reduction of these fixed, charges is practicable. Rent will adjust itself, and the reduction of rent will be a set off to the salary reduction. . “Our objection is that salaries and wages have already been reduced and should, not be cut a further 10 per cent.,’ r stated Mr Stuart. Mr Mason: I don’t think that proposal should be there at all. I move that everybody be compelled to write down assets to an economic value. Mr Brown seconded the motion pro forma, but it was lost. , . . Mr Morrison moved that the aetjnition “fixed charges” be altered to interest and rent 1 to avoid ambiguity. The chairman said that the proposals only broadly expressed the principles advanced. . , ~ , Mr D. McPherson suggested that instead of “20 per cent, reduction in fixed charges,” all interest and rent charges be reduced commensurate with the reduction in salaries and wages. FURTHER CUT PREDICTED. “I feel certain that there will be a further reduction of 10 per cent, in wages and salaries,” said Mr Oram, “and we want 20 percent. off other charges £o bring them into line.” Uultimately the proposal was amended and carried in the following form by five votes to four: “That there be a general compulsory reduction of approximately 20 per cent, in all interest and rent charges/’ ? Mr Stuart said it should be made explicit that the chamber considered the third proposal should not operate until the second was in force. The chairman: They are meant to be contemporaneon s. Mr Stuart: Tlie Government might think otherwise. “I am absolutely opposed to the third proposal,” stated Mr Brown. “Salaries and wages have been cut and it is time for a reduction of fixed charges to operate. It lias been agreed by professors of economics that the wages, cut has not helped the position one iota. Instead of three men replacing two the position was reversed. The month after the cut the unemployment figures made their greatest rise. We must even up matters a little. Mr Archer voiced a strong objection to another 10 per cent, wage cut. “I agree with Mr Brown and go further, stated Mr Mason. “The cost of living has not been reduced as promised.” .> EXEMPTION OF PENSIONS. Mr Graham moved that pensions and superannuation should not be cut. Mr McPherson seconded. Mr Stuart considered that there should be po distinctions. The president said that it would not be possible, regrettable though it might be, to leave pensions and superannuation untouched.” “When this. country has to cut old age pensions and disabled soldiers’ pensions we had better go bankrupt,” stated Mr Morrison. “You would not be saving a great deal of Government funds and in cutting superannuation you would be robbing workers of the savings of 20 and 30 years.” The amendment to exempt pensions and superannuation from tne proposal was carried. Mr Free then moved va further amendment to the effect that the proposal for a wages cut be withdrawn and. be reconsidered when the reduction of fixed charges had been in operation for twelve months. Mr Brown seconded the motion. Mr Free said wages had been cut and others should now lead the way. A definite reduction in the cost of living had been promised, but increased taxation had made that impossible. The motion was altered for submission as follows: “That no further wages cut be introduced until the proposal for the reduction of interest and rent is in operation.” COST OF LIVING. “From the business and not from the worker’s point of view we cannot ask for a further reduction in wages.” stated Mr Morrison. “Twelve months ago the chairman assured us that if there was a 10 per cent reduction costs would fall. He was wrong in that case and I believe he is.going to be wrong.” Mr Oram said the cost of living had actually fallen 10 per cent at that time. Mr Furby said that was only in certain items. Mr Free pointed out that the president had not been responsible for the increases in taxation which had increased the cost of living. The motion was carried as amended. /• The suggestion was advanced by Mr Morrison that the fourth proposal recommending further economies in State departments and the spending of public moneys should be held over, as it was anticipating the work, of the Economy Commission. Mr Graham moved a motion that this recommendation be deleted, and that course of action was agreed upon. BALANCING THE BUDGET. Discussing the proposal for deficit finance, Mr McGregor urged that -the Department of Economics of Canterbury College be asked to elaborate a statement upon the.advisability or possibility of deficit finance by Treasury bills for a period of three years. The chamber approved of this suggestion. Dealing with the last proposal for the appointment of a Currency Commission,

Mr Brown said the country was already over-run with commissions. Mr Oram said such a commission could be advisory, with a certain amount of power. Currency and finance could not be allowed to drift as.it had in the past. Mr Morrison said the proposal was intensely valuable and, on his proposal the chairman agreed to withdraw it and elaborate it at a later date. It was decided to submit to the*Associated Chambers and to the Prime Minister the recommendations- carried.