MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LX, Issue 71, 21 February 1940, Page 14

MONEY AND BUSINESS AFFAIRS.

WAR’S EFFECT ON ECONOMY. (By EI.J.K.) There is much speculation in various quarters as to the effect of the war when it ends, on world economy. Various opinions arc held as regards the duration of the war; some believe it will be a long conflict. It is quite obvious that no one can safely predict its duration. In the Great War, when costs were expanding, eminent economists in various parts of the world predicted that the war could not last more than two years, because the nations could 'not stand up to the enormous cost. The war. as we know, lasted four years, and all the world, except perhaps the United States, emerged so much poorer. Lack of the means of payment will not shorten the present campaign, not so long as the printing .press is capable of turning out fiduciary money, that is, banknotes. It nmy he possible after a real fight on the Western Front to'form some idea as to the duration of the hostilities. In the meanwhile the blockade of Germany is having its effect, and that the Germans are tired and wanting pence is shown by the repeated efforts of the German authorities to stage a peace offensive, or peace pressure or peace front. Germany largely discounted her resources in her war preparations, and although the German people arc suffering from lack of nourishing food, they arc far too well disciplined to attempt to kick over the traces. A battle lost on the Western Front would cause a drastic change in German sentiment. But the war must end, for it is not the normal state of human existence, and many are endeavouring to probe the future and are trying to visualise the economic conditions in the immediate post-war period. The Governments have taken control of practically all business activities of the people, and the people have acquiesced in this because it is realised that if the war is to be won the Government must have at its disposal the full resources of the country. This is quite right during wartime, but the danger is that this system of control and regulation wotdd be carried over into peacetime to the detriment of industrial enterprise. Jn New Zealand’s case several of the measures passed during the Great War have been maintained ever since, such as the Board of Trade Act and rent restrictions. When the war ends international trade will not revive immediately; it will have to he fostered and encouraged for the nations would be too poor to do much trading. Every country will endeavour to export as much as possible, hut to import as little as possible, overlooking the basic fact that the exports of one country are the imports of others. The system of bilateral trade agreements is likely to he extended and such agreements are a hindrance to the expansion of international trade.

Then, too, the distribution of gold will be an important factor. Just now gold is gravitating to the United States, mainly for safe keeping. Fortunately the world’s output of the yellow metal has been increasing at a marvellous rate during the past five years. In 1933 the world’s output of gold was about 25,335,000 fine ounces, since when there has been a steadyannual expansion, the output last year being 39,300,000 ounces, an increase of over 50 per cent, in the six years. Moreover, the price of gold is to-day 168 s per fine ounce—that is the Bank of England price—so that it will he ■seen that the supply of monetary gold is more than ample to finance thiec times the volume of normal international trade.

ft is just possible that the price of gold may go higher,' because of currency inflation, which is likely to increase. This great increase of money will cause prices to advance lor manufactured and consumer goods, but probably not for raw materials, and this would mean a lower standard of living. Most responsible authorities are positive that the standard of living will he lower. It is seen in New Zealand that, it is so, for even the most elementary and essential of household requirements arc becoming dearer and dearer.

The immediate post-war period will present serious, difficulties, and much will depend upon how it is approached by British bankers and economists. Britain will lie expected to lead in this matter, for she understands the technique. Britain will he expected to help ail the smaller nations, and will not fail them.

The capacity of the British workers to save is remarkable. A saving campaign was launched in England about five weeks ago, and now it is stated that about £80,000,000 has been accumulated. This is equal to about enough to pay the cost of the war for two weeks. It has this merit, that the

British Government obtains the money at a small rate of interest, and without any flotation charges. Another good point about it is that it minimises the effects of inflation, for the amount saved represents so much money taken off- the market and withheld from expenditure. Ju New Zealand, however, the position is quite different. Eor the nine months to the end of December the amount deposited in the Post Office Savings Bank totalled £25 300,902, and the withdrawals £30.435,080, so that the withdrawals exceeded the deposits by £5,175,178. This is very discouraging for it is nearly as End as it was in the depression when the people had to live upon their past savings. This is very difficult to understand, for the economic conditions have ’ not been unfavourable, employment has been fairly general, and wages good. Tn the corresponding nine months of 1938, the withdrawals exceeclecl deposits by £2,750,37/. fins adverse movement began in October, 1938, and has been continued ever

since, each month adding to the total. The weather conditions in Europe are still very bad, but a change may soon be expected, for good spring weather is not far off. With the spring will come the wholesale borrowing. 'The Netherlands Government is already in the field seeking a loan of £40,000 000. This appears to be a compulsory loan, for those who do not voluntarily subscribe will be compelled to do so, and will receive a lower rate of interest. Compulsory loans in a time of emergency are no new tiling. A compulsory loan was issued in the Dominion during the Great War, and many of those who were forced to subscribe suffered considerable inconvenience in business, for it tied up their working capital. Many sold out at a loss. In this cara-p-iign fhc trading hanks rendered considerable assistance hv advancing money to those who had to subscribe.

Tlie return of the Reserve Bank for the week ended Monday, February 12, does not call for much comment. At £9 234,478. sterling exchange shows the small decrease of £8024. It is possible that there may he a further small decrease this week, lint a further payment from the British Government should‘set- a substantia] increase.of sterling funds, and this goes to show that import restrictions are becoming effective. Advances to the State now amount to £21.610.000. having increased by £IOO,OOO during the week. The note issue totalled £18,191,431 an increase of £-19,710.