The Reason Why.

New Zealand Mail, Issue 878, 28 December 1888, Page 28

The Reason Why .

Economists are being very freely taunted just now by some European writers for their failure to afford a satisfactory explanation either of the long-continued depression of trade’, or of the recent revival. The various theories of over-production, over competition, and excessive facilities of communication, which have been dwelt upon with much insistence by one or another of the oracles in this branch of science, are all declared to be open to contention in so many directions that none of them can be accepted as authoritative. Another view set forth is that there had been no unprecedented depression at all in English trade , about as much as usual of everything having been bought aud sold, but that there had beon a remarkable depression in prices and consequently in profits. It is contended that the “ appreciation ” in the valae of gold, the increase in the means of intercommunication, the “ rush of the nations into commerce,” the “ filling of the reservoir of capital so as to make money cheap,” and the competition for customers, sent down prices to an extent almost unprecedented, to so low a point, indeed, that producers thought themselves ruined, and in some cases had only the two alternatives of going on at a loss or stopping altogether. The “proceaSjof adjustment,” about which economists are so fond of talking—under which capital shifts from unprofitable to profitable employment—did not come into play because all profits were so low that there was little inducement to incur the trouble and risk and worry of shifting capital from one occupation to auother. As a writer remarks: “ It is all very well for economists to talk, but if you have been trained to sugar-burning you do not want to grow oranges.” There had also to be taken into account the difficulties experienced now but not formerly in -regard to wages. It appears clear that wages did not fall in proportion to the diminution of profits, partly it is supposed through the workmen’s organisations, but also in consequence of the change in social opinion. It followed, therefore, that while profits were reduced to a minimum, or oven disappeared altogether—nay, in some cases were changed into dead losses—there was no relative reduction in working expenses, to say nothing of that formidable item the taxes, and so the depression lasted long. It is now generally pronounced to have ended in England at all events, yet nobody seems able to formulate any definite aud conclusive reason why this should have come about, and the ingenious theorists who devote themselves to speculation of this class are eagerly engaged just now upon the solution of this pleasant but perplexing problem. One theory which we find put forward in an English review is that the* immense cheapening of almost everything which has taken place has on the one hand checked over-production, and on the other vastly inci’eased consumption, so that the world’s glutted storehouses are growing empty at last. It is suggested that this preduced an increased demand, followed necessarily by a rise in prices, and that this at once led to a rush on the part of shrewd dealers to avoid being caught unawares by a sudden rise, which might place them at a serious disadvantage in their trade. It is held that producers have learned so sharp a lesson from their late experience that they will be able to guard themselves in some degree against a recurrence of tli9 depression. It is pointed out that they have everywhere reduced the cost of output,—have introduced more economical machinery, have rigorously cut down “ exponses ” which could be avoided, have reduced wages as far as they dared, and have so increased the rapidity of overturn that a profit of 5 per cent, is nearly as desirable as one of 15. It is asserted that the young firms, aud the speculative firms, and the firms resting on shareholders, have been the first to do this, and have been the first to profit bv the revival of trade, as the orders are riot going to the steady old firms which want 15 per cent', but to new people who will take anything, and who try to make up for all shortcomings in the w-iy of profits by activity, push, and ways of utilising credit. “ Sixpence on the pound of profit,” remarks one writer, “ is poor work, but it will do if you can make half-a-crown so nimble as to do the sovereign’s proper work.” The situation, in Bhort, is summed up thus : “ Business has recovered itself, but has been Americanised in the recovery.” The next question that suggests itself

therefore is :—How will this change of character affect the future of British trade ? Tho opinion of some of the highest authorities un economic questions seems to be that to the majority of trades two very marked consequences must follow. One is that the day of little firms in the producing business is very nearly done, and they will have to combine themselves if they want to live. “ When the new quickmoving method of trade has settled itself,” it is said, all profits will be low, and the ouly people who get enough will be those who produce or dispose of enormous quantities. Rent, to take a single illustration, may be nothing if you are selling by the quarter million, * and a crushing weight if you are selling by the thousand ouly. It is the same with all outlays. In cheap days, only the big people can Btand the fixed charges, and at the same time keep up the quality of their goods, and they will crush out the little people by wholesale, as they already do iu the metal trades.” The only remedy for that is declared to be combination, and wherever genius, or taste so marked as to be genius, or special ability, is not required, business will pass, first to the big capitalists—because they have nerve and decision —and next to the companies, which, as a rule, have neither decision nor nerve but which can trade largely, can therefore keep down the proportion of their fixed outlay, and can content their shareholders with a steady 7 per cent. The experience of the great English brewing companies is instanced as in point, and it is remarked that in two great trades at least which are trying to establish monopolies, prices had reached so low a mark that it was hardly worth while to go on, as more could be obtained out of Consols. It is expected that many firms will combine in this sorb of self-defence, and that without seeking monopoly, they will compel most lesser undertakings either to join them or cease. The second consequence predicted is that the middlemen, including all distributors not protected, like druggists, by extremely specialised knowledge, will, by-and-by, have a bad time of it, because nobody else is left for competition to squeeze.. “ Producers do not want to fight their workmen, aud in many cases cannot do it. They have cub down agents, overseers, and clerks already, to a dangerously low point, and have nearly reached the limit of the possible in diminishing the need for capital and increasing the quickness of overturn. You must have some money even with a telephone in the office, and you must take bills, however short their dates may be. Consequently, if any more is to be saved, it must be by dealing direct with the consumer. This is not so easy as it looks—first, because the great middleman gives liis customers a larger choice tbau any single manufacturer can ; and secondly, because the little middleman, with his civility, and his credit, and his knowledge of his customers, adds to their comfort in a degree for which they are willing to pay. Nobody has the cellars for ten trucks of coal..,at a time.” Hitherto the middlemen have skimmed the cream of trade, but the oracles of economic science pronounce their day to have gone by, and prophesy that everybody who can sell direct will do so, aud will sell to the best customers whose orders make the whole difference between profit and loss, and that depots will bo established in every branch of trade, owned by combined manufacturers, and offering goods at very nearly wholesale prices. And we find the project thus summarised up :■ —“ lb is iu this way that trade is going more and more—small profits, quick returns, intolerable activity, few masters, and an* endless multitude of subordinates, who are, in fact, salaried salesmen, of all kinds." In other words, all the smaller shopkeepers are to be swallowed up by huge monopolies just as the tradesmen in the neighbourhood of Westbourne Gl-rove in London have been ' overwhelmed by the oft-burned, but allconquering Whitely. The outlook may be inevitable, bub it is scarcely attractive.