THE New Zealand Herald AND DAILY SOUTHERN CROSS. TUESDAY, OCTOBER 5, 1920. TRADE AND PRICES.

New Zealand Herald, Volume LVII, Issue 17593, 5 October 1920, Page 4

THE New Zealand Herald AND DAILY SOUTHERN CROSS. TUESDAY, OCTOBER 5, 1920. TRADE AND PRICES.

The unemployment which- is reported from many British cities is not due to over-production in the ordinary sense of the term. It is caused by a rapid fluctuation in the ratio between supply and demand, in which the chief factor has been the decline of purchasing® power. There has been an increase in output, but in hardly any commodity is the supply yet equal to the world's needs. Unfortunately a world impoverished by war, which for many years has lived by creating an artificial purchasing power, finds itself near the end of its financial resources. The result is a compulsory economy, which, though disturbing to trade, is the first real symptom of economic convalescence. The contraction of purchasing power is due principally to the slowing down of the inflation , which has been practically universal. j In the United Kingdom it may fairly ! be said that inflation has been

checked, though deflation has hardly commenced. During the latter part the, war the Government was spending about £50,000,000 a week, part of which was provided by the simple process of printing

aper money and so" creating new

credit and purchasing, power. The process is now reversed. The country is attempting to redeem portion of its debt, the volume, of credit is stationary or is increasing only insensibly and the wave of extrava-

gance which followed the war has in large measure spent itself. The gratuity moneys paid to soldiers on demobilisation are for the most part exhausted and heavy taxation is limiting the purchasing power of even the comparatively wealthy. Even where the power to spend has not been diminished the inclination to spend has been modified by the prospect of a fall in prices. Similar influences have been operating in other countries, in most of them far more violently than in the United

Kingdom, and they have reacted on British foreign trade. Over-specula-tion in Japan produced a financial crisis, during which several banks had, to suspend payment, at least temporarily, and this lessened the Japanese demand for goods. A heavy fall in the price of silver reduced the foreign purchasing power of China by nearly 40 per cent, and caused the cancellation of many orders, especially for Manchester goods. Finally the Continental markets have proved most unreliable. Some countries, such as France, have taken heroic measures to check the fall in the exchange, and by prohibiting the importation of luxuries have closed their markets to many British manufactures. Others, the most embarrassed, have continued to pour out paper money till the instability of the exchange has rendered business practically impossible. {

For these reasons the point has been reached in a variety of trades at which output exceeds the immediate demand. A reduction in prices would no doubt stimulate the demand immensely, but English | manufacturers have shown little disI position to cut their prices. Arguing, no doubt, that the restriction of trade was temporary, they have preferred to put goods into stock. This attempt to maintain prices may succeed for a time, but as it involves the locking up of capital and the immobilisation of credit, it is attended by obvious dangers, and has not passed without criticism in the United Kingdom. It is interesting to note that the recent pricecutting in the United States was produced by a somewhat similar condition of trade. The Federal Reserve Board set itself to compel the liquidation of commodities held for I purely speculative purposes, and j succeeded to the extent of forcing | a considerable volume of goods on I to the market at reduced prices. There its effort to reduce the volume of credit ended for the time being. The American railways, which have not yet recovered their pre-war efficiency, had become seriously congested, and farmers and manufacturers, unable to send their products to market,

had- to postpone payment of their bank loans. Consequently the immobilisation of credit, which had been intermittent throughout the winter as the result, of labour troubles, began again.

! ; The decline in the world's purchasi ing power is, of course, temporary, ' and if the Brussels Financial Con- ; ference can devise means of stabilisI ing the exchanges it will go' a long ; way toward re-establishing the Con- ' tinental markets, 'The present disturbance of trade is due to the transition from ah inflationery to a deflationery period and it carries its ' own corrective. The change-over involves a fall in 'prices and manufacturers and sellers would be wise not to resist this tendency. The more gradual they can make its processes the better for themselves and the whole community. The fall will come first at the expense of the extraordinary profits. The revival of selling competition will be more effective than any legislation in stopping " profiteering," and it may be taken as axiomatic that before long profits will again be placed on an economic basis. After that the reduction of producing costs will become urgent. A little more than one hundred years ago the Napoleonic war had produced the same inflation, but the introduction of* machinery brought an economic revolution and permitted prices to fall without dislocating industry. The resources of science are not yet exhausted and it may be assumed that they will again come to the aid of the manufacturer, though not, perhaps, in so dramatic a fashion. Meanwhile the darkest cloud on the industrial horizon is the disinclination of labour to cooperate in the truly humane work of replenishing the markets of the world. The productivity of British labour is estimated to have fallen by 20 per cent, since 1914, and still the demand for shorter hours is continuously coupled with that for higher wages. The conjunction is absurd. Unless production is materially increased wages must inevitably fall. The task of raising the general standard of comfort, or even of maintaining the present level, is not one for employers alone. Without the wholehearted co-operation' of the workers it cannot even be attempted.