DOUGLAS CREDIT

New Zealand Herald, Volume LXX, Issue 21561, 4 August 1933, Page 14

DOUGLAS CREDIT

?THE ECONOMIC. COMMITTEE ib PROF. BELSHAW'S REJOINDER EFFECT OF HIGH EXCHANGE Prdfessor Belshaw writes: —In his previous letter the Rev. W r . Averill charged the economists with being responsible for tho world crisis, and with having no proposals to bring about' recovery. I replied to these charges., Mr. Averill has now changed his ground somewhat. Tho Economic Committee, of which 1 was a member, is accused of having failed to bring about recovery. Hence wo should try Douglas Credit. May I repeat that oven if Mr. Averill's charges are correct, Douglas Credit must still be examined on its own merits. Would Mr. Averill contend *for one moment that because the clergy have failed to make the world goocly we should jettison Christianity and accept, without . the severest exaininatiort, any fantastic alternative which might be offered? Would he, because he was a clergyman, consider it no part of his duty to criticise such an alternative?

I presume that Mr. Averill has read the economic report, but if so, 1 think it misleading and a little ungenerous of him to blamo its signatories for " . . . the present Government's policy of wago-cutting," and leave it at that. The basis of the report was to avoid, as far as possible, the necessity for further wage reductions and reductions in other incomes (i.e. internal deflation) by raising the exchange, and to distribute the loss in national income resulting from tho fall in overseas prices as equitably as possible. Further, it was never argued by me, or any other economist, that a riso in exchange would "solve unemploj*ment." To use Mr. Averill's own words, the purpose of raising the exchange was to "avoid the full force of the world slump." This it has done. It is also pertinent to point out that the full report was not adopted for a year after its preparation. The recommendations in regard to exchange which would have helped to shelter us from the storm were not adopted until a year later. There was also some delay in giving fiill effect to the recommendations .regarding fixed charges. Further, since the report was presented, and Until a few weeks ago, the efforts of the Government were nullified by the progressive deterioration in world conditions, and the decline in our export prices. This gives point to the contention that action within New Zealand cannot be completely efficacious in short space. The claim is reasonable that the situation would have been much worse if the findings of the economic report had not been given effect to. The following quotation from the London Economist, a liberal journal on current economic problems, suggests that there are some, at least, who are -competent to judge who do not share Mr. Averill's opinion:—" The Governments that have so far coped most intelligently and most successfully with the depression are, perhaps, the Australian and New Zealand coalitions, which took the best available expeit advice and carried it out by Parliamentary methods." I may point out, in conclusion, that many may agree with the need for currency reform who reject the Douglas plan. v ; f ! , CAUSES OF SLUMFS • ' SEVERAL THEORIES * Emptor " writes: —Major Douglas Bays: " The primary cause of the industrial depression and consequent unrest is financial. It is due to lack of power to buy, not due to lack of either power or will to produce." And " there is a lack of money required to pay the iprices demanded." And again: " The industrial depression arises primarily from financial and not from physical or psychological causes." in-his report on the Douglas system Mr. Waites, Government Statistician of New South Wales, observes: —" Unfortunately, he (Douglas) does not appear to have discussed at any length the relative importance or the possible effects of" tho large array of other factors which may, of themselves, have produced ' this depression, or have dislocated the monetary and industrial systems. From this standpoint, tlierefcye, his analysis seems inadequate. . . So far as I have observed Major Douglas has not adequately dealt Tvith them in any of his works." It is well, therefore, to consider other explanations as to the causet of slumps and booms which have occurred during the industrial era. The following theories concerning crises have been advanced:—

(1) Say's theory (1767-1832) of openings for trade asserts that every supply gives rise to a demand, for, from the producer there always comes a demand for other goods, consequently there can be no such thing as general over-production. (2) The theory of over-production advanced by Sismondi and Malthus stressed the idea that the increase of capitalist production is not attended by a corresponding increase in the purchasing power of the workers. (The similarity of this argument with that of Douglas is striking). (3) The theory of under consumption advanced by Rodbertus and Karl Marx develops the same idea as the theory of over-production, but', looks at tho matter chiefly from the consumer's standpoint. (4) Tho quantity theory is advanced bv the monetary school, according to which unfavourable market conditions and the occurrence of crises depend upon the the quantity of money in circulation. (5) The theory of over capitalisation, ■ stressed by Cassel, jvhich claims that ' slumps are caused by an unduly rapid increase,in fixed capital during periods of good trade. 1 (6) .Jevon's sun-spot theory attributes to cyclical weather movements and the consequent variations in the harvest yields, the base cause of industrial fluctuations. This cyclical theory has recently been revived by Speithoff, the kernel of whose doctrine is over capitalisation in goods of indirect consumption " (iron, coal, bricks, cement, timber, etc.). (7) The organic theory advanced by Othniar Spann, which attributes crises to the fact that the economic structure is undergoing a process of continual change; these changes arise from a change of aim and changes in methods of production. The foregoing theories reveal that economists other than Douglas have been considering ideas akin to thdse of Douglas for a very long time. Douglas disciples would therefore do well to walk with circumspection, and to resist an enthusiasm engendered by a narrow survey of the efforts of other inouircrs. Major Douglas' axiom one, that all troubles are financial, may not bo correct.