MONEY AND BUSINESS AFFAIRS

Manawatu Standard, Volume LVI, Issue 168, 17 June 1936, Page 2

MONEY AND BUSINESS AFFAIRS

' COST OF LIVING. s' (By H.J.K.) \. Investigations show that commodity . values in many eases have risen and ‘ this seems not to be due to the recent ' legislation forcing up the wages scales and hours for these do not come into - operation for a few weeks yet. The r rise then, at present, appears to be • a normal movement due to the law i of supply and demand. Dairy produce s prices, butter in particular, arc gov- - erned by London prices, and as the | London quotation just now is nearly -,1125, equal to 140 s Now Zealand curI renev, the price of butter retail is Is .' 4d per ll>. A few mouths ago the retail \ price was Is per lb so that there has I been ail advance of 33 1-3 per cent. ! But let us put it in another and per- ■ haps a simpler way. In January 20s 1 would buy 201 b of butter retail at 1 Is per lb. To-day 20s will buy only ■ 151 b of butter at Is 4d per lb, which : j means that in respect of butter a Re- , serve Bank pound note has depreciated I 25 per cent. It is a question whether it can stop at that. At present the price is governed by the London quotation, and assuming that this does not vary over the next three months and the new wage scale comes into operation in the meanwhile, the dairy farmer, the dairy factory and all services connected with the transport and the marketing of the butter will be costing more, so that instead of butter retailing at Is 4d the price will probably be Is 6d, which would reduce the purchasing power of the pound note in relation to butter by 50 per cent, as compared with January last. ! It stands to reason that in most households it will be found imperative to consume less butter, and if that hapi pens the authorities would be faced 1 with a new problem, and that is tho disposal of the surplus arising from the lessened domestic consumption. The natural thing to do would be to export the butter, but if Britain im- ’ poses a quota on our butter, and that ’ seems probable, the position will become very complicated and very difficult, and at present a way out of the impasse is much obscured. At the moment tiie whole economic structure appears disrupted, and t-rad--1 ers generally are upset, being unable : to estimate the possible and probable effects of the new wage scale. All agree that costs will he increased, and 1 there is equal unanimity that prices of commodities must advance, the alternative to this being bankruptcy. That seems plain enough, but we have to reckon with some prices being raised too high and some not high enough, hut given free play prices will adjust themselves to the true economic level. In the new economic life which we will soon begin the worker will get in--creased wages all round and more leisure or spending time. He will have to pay more for his foodstuffs, his clothing and liis pleasures and it is highly likely that tho increase of a pound a week in wages will not buy within 25 per cent, of what the pound will buy now. Thus a worker on a £4 per week wage has that raised to £5 under the new regime and as under that regime the purchasing power is 25 per cent. less, the 100 s in wages would be equal in purchasing power to only 755, whereas at present his 80s wages goes further. Of course there are soap-box monetary reformers and street-corner economists who refuse to see this aspect of the matter, but ]>erhaps an actual demonstration of the effects of tampering [ with prices and wages and disturbing ! the economic structure of the country inuy convince them. And we are only at the beginning of things for there are repercussions which must follow ! the first of the repercussions, and those are at present under a veil.

TWO BANKING REPORTS

Tiie reports of the Bank of New Zealand and the Reserve Bank cover the same periods—that is for the year ended March 31 last, and both reports show that the hanking position during that period was sound and satisfactory. Tho speech of the chairman of the Bank of New Zealand, Sir George Elliot, was devoted partly to a reference to the legislation passed through the session just closed and affecting affaire. It is difficult to know what of the recent Acts does not affect banking and economics. One thing appears certain, and that is that manufacturers and traders generally will require to employ more capital. which should mean more business for the trading hanks, and the resulting interest must he added to costs of production. Tho trading banks will lose the London funds resulting from the sales of daily produce, which will now go to the Reserve Bank. But the trading hanks will not he short of London funds for they will still have the financing of the other export primary productsSir George Elliot saw fit to refer to past history to show that whatever assistance was given the bank by the Government of the day, the country has been well paid since. In 1894, in fact ever since 1891, a serious economic crisis overshadowed the world. In the opinion of many competent to judge that earlier depression was much worse than the present one for most of the banks in Australia and New Zealand were involved. That is to say that instead of the banks being able to render assistance, the hanks themselves needed help. It is not so in this depression. The hanks are to-day all sound, with ample funds, and have been a tower of strength to the respective Governments. In tho eighteennineties bankruptcies were numerous, unemployment was most marked and, as was said, the people were taking in one another’s washing just to keep going.. There were' no monetary reformers or economic cranks then, and hanker and bankrupt, trader and creditor, were left to work out their own salvation. It was not until towards the end of 1897 that there was any promise of improvement.

RESERVE BANK RATE. In the report of the Reserve Bank reference is made to hank rates and attention is called to the fact that according to the Bank of International Settlements. 85 pc cent, of the world’s area enjoyed stable exchanges during 1935. and this no doubt accounts for the improvement of international trade that was recorded for last year. It is noted in the report that the Reserve Bank’s original discount rate was 4 per cent., or 1 per cent, below the host rate then being charged by the trading hanks for overdrafts. The Reserve Bank’s rate was reduced to 3) per cent, in July, 1935, and it was now as low as 2 $ per cent., having been reduced to that rate in M -, roh this voar. Wp cannot sec the force of this recital, for the Reserve Bank exercises no control over the hanks’ overdraft rate. It was a central hank without the powers of a central hank. Although it has declared a discount rate it has not discounted a single bill, not even a Treasury bill, for the State accounts have been in credit all the time.