TRADE REVIVAL

New Zealand Herald, Volume LXXV, Issue 23232, 29 December 1938, Page 6

TRADE REVIVAL

MTEK THE WAR CRISIS WORLD OUTLOOK FOR 1839 HOPEFUL BUT PERILOUS BY H. V. HODSON Editor of the Round Table No. H. In the financial and industrial world as a whole the main effect of two months of fear of war was simply a limitation or suspension of new commitments or enterprise. The fact tliat during the period of the crisis new deposits in the British Post Office Savings Bank exceeded withdrawals is specially remarkable, because it suggests a combination of inner national confidence with a reluctance to attempt anything speculative. This goes far to account for the sudden strength of the phase of revival after the crisis. Retarded investment was now accelerated, suspended commitments quickly taken up, more helpful lines of spending embarked upon. This in addition to the enlarged spending for armaments and their kin. The swift -turning of first feelings of relief into anxiety or even remorse, as far as international politics wero concerned, had little effect on financial recovery. The characteristic political events of this period, from the average business man's point of view, were not the antiJewish crimes in Germany, nor the anti-French agitation in Italy, but the introduction of the Reynaud plan of economic reforms, the sober determination with which Great Britain set about improving her defences, the defeat of the French general strike, and the Republican gains at the American elections. Trade Cycle Theory Falsified This historical picture, therefore, is one of politics producing the stimulus and economics the reaction. That political movements themselves often have economic causes, on a wider view, no one would deny. Even on the shortterm view, the political stimuli, when closely examined, are frequently found to be little more than occasions for tho working of hidden economic forces. Thus, if tho Republican gains in the .United States elections wero a stimulus to further economic improvement, that improvement could not have supervened had not the ground already been prepared for it by tho pump-priming programme of the Democratic regime. We must therefore seek the cause of the general trend in economic affairs during 1938, not merely in political fluctuations, but also in the economic complex itself. The international trade cycle, if such a thing exists, has plainly not revolved according to forecast. Favourable Factors Likewise, in looking out upon the prospects for 1939, we must attend not only to the political probabilities, but also to the economic facts. They are on the whole more favourable than one would have felt justified in hoping a year ago. Although commodity prices have fallen, they are still remunerative to producers in the majority of primary industries. There has been no calamitous throwing back of stocks of goods from the consuming to the producing end of the economic chain. Such & movement of stocks is the real test of cyclical depression. The flexible system of currency relations has so far worked quite well. Though there are iwarnings to be drawn from a comparison with 1930-31, it would be a mistake to try to identify the_ present state of world economic affairs with the situation then. Banger of Unbalanced Budgets On one point, however, the warning is peculiarly grave. The economic disasters of 1931 were closely connected with deficit budgets on the one hand and ;with debit balances of trade on the other. Heavy armament expenditure obviously enhances the likelihood of both these dangers to-day. The hidden peril is that'the democratic nations may try to achieve rearmament without tears. There must be economic sacrifices. Whether through heavier taxes, reduced incomes, or higher prices, the democratic peoples, like those of the totalitarian States, must face a reduced standard of life and comfort. If they do not grasp this fact and adjust themselves to it, they will be living in an economic as well as a political too}, s paradise. a (Concluded)