THE New Zealand Herald AND DAILY SOUTHERN CROSS WEDNESDAY, JULY 15, 1931. A FINANCIAL DIAGNOSIS.

New Zealand Herald, Volume LXVIII, Issue 20925, 15 July 1931, Page 10

THE New Zealand Herald AND DAILY SOUTHERN CROSS WEDNESDAY, JULY 15, 1931. A FINANCIAL DIAGNOSIS.

Appointed'some 18 months ago by the British Government, the Committee of Inquiry into Finance and Industry, better known as the Ma«j Millan Committee, has reported. Its findings are extremely interesting, if in some instances decidedly vague. Both characteristics were almost foregone conclusions from the order of reference, which stated that the duty of the committee was: —"To inquire into banking, finance and credit*, paying regard to the factors, both internal and international, which govern their operar tion, and to make recommendations calculated to enable these agencies to promote the development of trade and commerce, and the employment of labour." The Times elaborated the purpose of the inquiry by saying the committee had been called into being because a considerable section of opinion in the country had been haunted f<?r some years by a " vague and illdefined notion that industry has been stifled and strangled by want of proper facilities for credit." The committee was obviously intended to decide whether that conception was a bogey; if so, to lay it, if not to advise how substantial difficulties in the way of economic recovery could be met. It was presided over by a distinguished lawyer, experii enced in similar inquiries. The | personnel included representatives | of banking and finance, industry and ! commerce, the trade union move- | mcnt and academic economists. The | Times suggested this catholicity of selection made the prospects of unanimous conclusions very doubt-1 fill. A report has been produced with but one dissentient, Lord Bradbury. So close an approach to unanimity has doubtless been possible because of the vagueness in recommendation already mentioned. This is "especially true as regards the international factors included in the order of reference. Comment on the report must be subject to the reservation that it has obviously been drastically summarised for transmission. Even so, the're is no doubt about the major finding on the cause of the present depression. The committee says definitely the " Economic difficulties of the post-war decade arc primarily due not to any Wanton misbehaviour in monetary factors but to unusually . large and rapid changes of nonmonetary phenomena." In this one sentence the committee throws the weight of its authority against those theorists who attribute the depression almost wholly to monetary factors, especially to a shortage of gold. It proceeds to cast the blame on the conditions invariably cited ; by the opponents of the monetary theory—instability in the demand | for capital, war debts, tariffs, rapid i technical changes in productive proi cesses, pegged wage rates, Budget j disequilibrium in many countries, | and the speculative booms and ! slumps of New York and other j centres. Such a finding will not | eliminate the gold shortage theory, | but it strikes a shrewd blow at it, for names of eminent weight and authority are subscribed to the verdict. It is the more interesting since for years before the depression arrived there? were many predictions that unless certain economic conditions—including those cited by the committee —were eliminated there must inevitably be an economic collapse. W T hen it came, despite such forecasts, heard for years before 1929, an immediate search for other causes began, and the monetary theory was the chief result. The MacMillan Committee returns very definitely to the older conception of what ails the world in an economic way. It says in effect that the tribulations of the day cannot be attributed to any single cause; as an obvious corollary,it offers no single or simple remedy. It discarded such a /possibility by its early diagnosis, and thus deliberately made its own task the more difficult. Only the international and general recommendations in the report can be considered, important though those intended for Britain alone may be. Chief among the former is the proposal that the central banks of the world should seek to raise price levels and then "when the point comes at which prices are appropriate to the then existing levels of salaries and wages " to stabilise them.. This is exceedingly interesting, only the committee does not explain how it is to be done. An outstanding feature at present is the extreme lack of equilibrium in prices. Some have fallen enormously, especially those of primary produce; others, notably those of I manufactured goods, have not shown | a corresponding movement. Obvi- ! ously equilibrium must be restored | before there can be any stabiliI sation. The committee suggests neither how this can be done, nor when it is likely to occur. Again, it says there is need of greater willingness in creditor countries to buy and lend. Nobody will contest that seriously; but when the committee says, legislative checks on foreign lending having been removed, the market should be encouraged to " take up attractive foreign loans " it demands something that is wholly unnecessary. So long as there is any lending at all attractive loans arc easily placed. The foreign borrowers who need credits most desperately are those whose' lbans are not attractive; and this is a permanent, not a passing, feature of .the money market. The banks arc recommended to help break the depression by a policy of purchasing securities and driving down the rate of interest on'long term borrowing, bringing a revival of new enterprises. This is simply an anticipation of what always happens at the end of a depression ; but the proposal ignores the main factor in keeping up interest rates, heavy borrowing by Governments. This recommendation is made contingent on international agreement by cen-

tral banks and issuing houses. So are the other major proposals ; and where are the signs of such agreement being immediately in prospect? Having discarded any single prescription the committee shows by the vagueness, the inconclusive nature, of what it docs prescribe, the difficulties faced by those who, having any real appreciation of tho complexities involved, s,e6lv to find remedies for a -world depressed and distracted by economic ills.