MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LX, Issue 29, 3 January 1940, Page 12

MONEY AND BUSINESS AFFAIRS.

1940 PROSPECTS. (By “H.J.K.”) Political and business leaders Jiave broadcast their messages of hope to the people for the Acw Year, and those messages have been rightly very highly flavoured with optimism. The outlook for 1940 does not, at the moment, look as promising as all could wish, but there is nothing to be gained by taking a pessimistic view. Indeed, pessimism means defeatism, and as a people and a nation we are by no means downhearted. After all, whatever troubles are in store for us are mostly man made and capable of being overcome. The depression was ranch more trying and difficult, and yet, after much real tribulation, we eventually surmounted it. And all can do the same with any economic troubles that may menace us during the rear.

It cannot be too often stressed that economic problems cannot be overcome in any scientific way, because economics do not constitute a science; they are too inexact for that, but they form a branch of ethics. It is a question of how people, individually and collectively, will react to a given economic problem. The problem may be refractory, but because hope springs eternal in the human breast the economic difficulties are overcome.

When there is a trade depression and everything seems at sixes and sevens, men and women and families unconsciously put their shoulders to the wheel and do their share towards pushing the depression out of tlio country. That happened with the last one. Everyone exercised care; there was the minimum of waste of goods and gradually the moral factor conquered. During the depression commodity prices were low; yet notwithstanding that there was a substantial increase in farm production. One might have thought that when prices were low it would be folly to increase production ; but the producers did not view it in this way. They argued that to obtain the same volume of income as previously output must lie increased, quite oblivious of the fact that increased output means increasing the supply and lowering the value of the goods. It is easy to sec now that the producers did the right thing in their own interests to increase production. Very low prices ruled for our butter and cheese, and these low prices stimulated consumption. Gradually surplus stocks were absorbed and prices began to rise, and the result was that for the increased production good prices were realised, and the producers not only recouped their previous losses, but bad also a credit balance to show.

The troubles that face us now arc very different from those we experienced during the depression, and how the individual and the people as a whole will react to the new situation is a problem not easily solved; and that is why it is contended that economies are a branch of ethics. The solution of practically every economic problem depends upon the human factor, and as no one appreciates economic troubles, everyone unconsciously co-operates to overcome the troubles.

'While it is very desirable to he hopeful mid optimistic, it is more desirable to face up to' troubles, for it is only by doing so that we can deal effectively with them. The troubles people face just now are import restrictions and exchange control ; the one is the complement of the other. There arc many people who with a superficial knowledge insist that the Government should abolish import control. Such people do not realise that they are asking for something impossible. Even if the Government washed its hands of the matter import control would still lie in force, for the hanks would he obliged to restrict imports. The hanks cannot provide more exchange on London than they possess and, therefore, must restrict imports. The hanks would probably do the job far better than the Government, but that is bv the wav.

Import restrictions arc the result of something that happened previously, ami that something was the rapid absorption of sterling funds in imports and in other ways. At the end of 1936 the banks held sterling funds to the amount of about £40,000.000. It was a sort of nest-egg accumulated during the bad years. At the same time our export income was large. For the year ended June 30. 1937. it amounted to £64.621.000; in 1938 it totalled £61,919.000. and in 1939 £57,851,000. The Dominion seemed to have London ip rids to burn, and did do some burning, and burnt its fingers over it. Besides exceptionally heavy _ imports, there was a marked repatriation of capital by British and other investors and there was a flight of capital. This demand for sterling funds was so great that as far hack as June last the banks were acting very cautiously in granting exchange, as importers no doubt know.

Since the peak year of 1937 our export income has fallen by about £7.000,000, and bur London balances are very low, too low to permit of our meeting the debt service. And it must be remembered that during this year flic debt service will be increased bv £2,500.000 in New Zealand currency. Tltis is due to the terms of conversion of the loan of £17,000,000

which matured on the Ist instant. Provision must be made for the debt service, and it is only the balance of sterling funds that becomes available for imports and remittances. Notwithstanding that restrictions have been in force for thirteen months it is only now that there is a probability of sterling funds increasing. Imports arc declining sharply. In November they were about £2,000,000 less than in November, 1935.