FALLING PRICES.

Otago Daily Times, Issue 18825, 31 March 1923, Page 13

FALLING PRICES.

AN ECONOMIST’S WARNING SITUATION REVIEWED BY PROFESSOR CONDLIEFE. A TATI D ANALYSIS. The opening lecture of the coming winter’s session of the Workers Educational ociat ion was given iu tho l.ppcr Oliver M (ha University on Thursday cidling. Dr G. E. Thompson presided. The lecturer wa- Professor *L B. Loudlitfe of C.'.ulcrlmry College, whoso subject was announced as ‘‘A Review M the Economic Situation in Now Zealand. In spile of the fact that the lecture was given on tho very eve of the Easter holidays there v\as a large altd.dance, and tho address ■which was illustrated by a .'ones of graplnc diagrams was foil -oil with the closest interest thioughout. Dr Thompson, iu introducing the lecturer. referred to Professor Coudlitfo s picst*we as a gratifying proof of tho of tho connection between tho Lniycrsity end the Workers’ Educational Association. The W.E.A. was to some extent at any rate fulfilling the wider aims that every university ought to set before it. It aimed at producing good citizens. A man who acquired a thorough knowledge of two subjects became to the State worth two men. iu sober earnest this was a. real \uty of increasing tho population. He wished to let them know that the movement was anfortunately in sad need of funds, and ho regret ted "that, so far it had not been supported by public bodies here as it had been in other centres. Prolessor Conilli'fi'e, at the outsetconveyed tho hearty greetings of the W.E.A. of Christchurch, and its congratulations. He went on to refer to the. great importance of the W.K.A. movement, especially in a young country such as this where for better or for worse wo were committed to the experiment of democracy. He for one was not satisfied that we had achieved anyth lug like a workable system of democracy as yet. People had agitated for electoral reform thinking that if they once secured , the vote they had in their hand tho key that would solve all their problems. He illustrated how easily democracy could be misled by unscrupulous demagogues by rclerencc to the fact that Horatio Bottcmloy had been returned by one, of tho biggest majorities in England, and showed that the ■work of tho W.E.A. was a great safeguard against such dangers. Tho work of Hie politician was not to convince his audience tv any reasonable means, but to find out what Hie psychologist called Hie ‘'emotional complex'’ of his audience and work oa that. When he recently gave a lecture on a constitutional question a minister with Cabinet, rank took 20 minutes to propose a vole of thanks, and incidentally showed that he had not in tho slightest degree understood what the lecturer had boon saying. All he had been listening for was catch phrases that appealed to his prejudices, and when he brought these out with a resounding thud tho audience clapped. Ho was not there to suggest that emotion was an evil thing and needed to he repressed. There was far too little emotion in our social life. Emotion was tho great driving force of life. What he did suggest was that our emotions were in such a crude and chaotic state that any unscrupulous person could come along and rouse them when we did not really know what was being done w;ith us. Wo needed a little more emotion concerning the tragio state of affairs in Europe brought about by the peace treaty and tho national policy of animosity. Civilisation might perish because wo had not enough emotion and could contemplate such a condition without doing something to end it. We needed to have our emotions under control and attached to definite ideas and principles. Tho W.E.A. was trying to increase the sum of knowledge and lesson prejudice so that our emotions might move along correct paths. Tho only hope of democracy lay in developing this power of judgment. A key to tho problem lay with tho university. Democracy had a power of judging most difficult questions that hail been very greatly underestimated. Democracy only required leaders whom it could trust. Tho uni versify must provide men who would ho able (o put the facts of social questions in a detached, unbiassed, and scientific way, men whose word could lie trusted and who had no axe to grind. Ho .suggested that (he W.E.A. had done a groat deal not only for the working people but for the universities. There were three {treat functions (hat every university ought to try to fulfil. There was the obvious one of training specialists in the different professions, but (hat was only one-third of its work. It must also add something, however little, to the stun of human knowledge by research, and it, had to spread that Knowledge among the great mass of the people. The urgent need for scientific guidance in social problems was almost the most important task that wo had lo face. The university must not interfere in party politics but should provide the facts on which politicians founded their arguments. Hie lecturer referred to his first introduction to the W.E.A. when in Wellingtqn ho found Messrs Holland, Eemple, -' raser, and Hickey all members of ‘ his class. During that year he wont through a fairly severe course of education, but lie pleasantly disclaimed responsibility for all the political opinions of these gentlemen. Tho data he was going to submit had been very carefully gathered, and was correct so far as he knew, hut he would invite them to draw their own conclusions from it. He proceeded to show a number of diagrams most of which had boon prepared cither by students of Dr Right, or by his own students. When wool first 'dropped he pointed out that the effect wa.s felt all t a rough (he community and similarly when (lie price of wool recovered the effect was also at once fell.. Pastoral products in i r rp al, °'d. 80 per cent, of our exports but they had risen steadily, as his diagram showed till now they were 93 per cent of (he wnole. The prosperity of New /.ea and depended largely on the level of world prices winch were out of onr control Iho next diagram showed the steady increase of our population and tho progress m our trade from the year 1853 when statistics were first kept. After the discovery of gold ln 1862 it was the imports that increased in a more marked degree than tue exports. After a brief spell f! [ very great prosperity (he returns of allnVijil gold fell Off, and about 1370 imports fell below exports and wo woio beginning for tho hr-t time to pay for onr national <lobt. Ihon aroso a wizard of finance who inaugurated an extensive policy of borrowin => for public ■works nm] so Jong as that money lasted thorn was an appearance of prosperity. Fhe depth of the depression that resulted was not reached till 1895, Another diagram showing tho total trade per head clearly indicated in peaks and valleys (ho periods of prosperity and ,lepressio" in oui: national history. From 1373 to 1695 the general (rend was downwaid.*', but from 1095 it had been rapidly upwards. This was further explained b‘v the next graph which showed that world prices wore falling from 1871 (after the Franco-Pi insnin war) to 1895, hut had been rising Since 1895 up l„ (.he present. As prices rose or fell practically together ail over the world the explanation could not l e referred to any local causes. Onr money standard was like, a piece of elastic. From 1070 onwards the output of #oods wa.s in* < i eas.ng fastez* than the supple of mon°v and prices were falling.* ‘From 1695 costs kept lagging several years behind pric es, and it was no wonder that New Zealand was prosper,.us and successive Finance Ministers kept producing handsome sm"Viuses. Another graph showed the actual volume of trade per head, which suggested thar the value of products had a direct influence on productivity. Professor Condliffe next illustrated the steady increase in money wages especially since the outbreak of war. but another line showed that tho actual level of wage' measured in terms of things they would buy had fallen. The fluctuation of the marriage rate was shown to correlate in a remarkable degree witlz tho fluctuations in exports. The influence of. the war period on the producing industries of this country was next illustrated. The effect was to increase the temporary , prosperity of the industries hv giving a fictitious value to their products. The cardinal mistake in tho economic war policy of the dominion was the failure to not noon the warnings given by the economists. The Into Dr Bedford had pleaded with tho Government to nut on an export duty to intercept some of this increased value, and if that advice had heeu accented we would have been saved a great deal of the depression suffered during the last few years. It was a great defect in nur nnli(ica) fystem that men who had (riven their life study to these economic problems could he brushed aside by politicians who had no idea of tho fundamental principles underlying the prosperity of the country. This war surplus went into private hands, and a prftat deal of it was wasted. Skilled workmen lived on a fictitious a ecu mu lei; on of capital, and a lot of capital was wasted in

tho hands of the Government. It was this wastage of capital that was tho cause of the trouble at tho present time, Tho increase of expenditure of tho country during the war period was next discusssed. Up to 1918 there had not really been a ■very groat increase in expenditure or public debt, and as a matter of fact the greatest increase had- occurred since. The chickens came home to roost. Much of the increase was due to political exigencies, and that was a fact they should remember when recording their votes. The greatest increase in revenue during tho war period came under tho heading of loans. It was a great misfortune for New Zealand Hint the whole of the war expenditure was met out of loans. The burdens of taxation were not nearly as heavy ns they ought to have been in view of the war profits made. Administrative services wore swelled to such an extent that additional borrowing was necessary. New Zealand’s war finance did not compare at all favourably with tho war finance of Britain, where much of the expenditure was mot out of taxation. Moreover, the loans were raised in an inequitable way, which had been greatly to the profit of the banks. Passing on to the present economic situation. Professor Condliffc said that the depression was not an unexpected thing. Lecturing in 1918 at Hornchurch, he and others had fold the soldiers that a grave crisis was boUntl to come if tho existing policy was followed. Dr Bedford and Dr Right both knew it, was coming. Another diagram showed the regular cycle of prosperity and depression ns expressed in graphs of the rate of interest, the volume of speculation, and. thirdly, Hie combination of the volume of business multiplied by the general level of prices. The first sign of the coming of depression was (he tightness of rnonev and tho rise in the rate of interest. The Hnrdward economists who prepared this diagram had been able to predict very accurately the future of (he rale of interest. Similar calculations were being made in Britain, and from the progress of prices there and in the United States the position in New Zealand could easily he predicted. When in 1920. on the strength of such information, he predicted in Christchurch that prices would fall he was amazed at tho violent, outburst that assailed him. Cue member of a public body suggested that he was a dangerous young man. who should he put in gaol. Deferring to a diagram of unemployment in the Old Country he said that working people were passing through a worse period of distress than they had known for 50 or perhaps 100 years, bunco 1920 (he rate of unemployment h"d never fallen below one in seven. The reason (hat Britain’s exports were increasing was that sho was paying her debts abroad. He quoted an American authoritative prediction that the upward trend of prices would be steadily maintained throughout the present year. The periods of boom, depression, and recovery extending over about 10 years were a regular phenomenon of the whole of the nineteenth century, and were largely due to the fact that business men acted like a flock of sheep. lie had often been amazed at Hie shortness of view of leading and successful business men. If these movements were understood it would bo quite possible for the Government to stop in in periods of depression and do much to level things np. Distinct from the short-period crises io which he had referred (here was a movement extending over a much longer period of falling prices alternating with rising prices. Fie traced this movement through the past century. He suggested as something fairly certain that (he period of rising prices (hat Now Zealand enjoyed from 1895 to 1920 had definitely come to an end. and we were in for a prolonged period of falling prie'es. He thought that, the rise in prices would continue for (he next year or two years, but there was nothing surer in the economic world than that after that (here would come another period of falling prices. This was the most important fact in our whole economic situation. Despite the ups and downs of prices a general falling tendency would be manifested for a considerable number of years unless an economic miracle happened. In Christchurch ho had been (old that it was not his business to make dismal predict ions, but rather to show how falling prices could bo avoided. He was perfectly prepared to do (hat, and so were economists the world over, but they despaired of getting their ways and means accepted by governments or the general public, in time to avoid tho falling pricey. Air Heynes and his associated experts had showed Germany how the mark could be stabilised at 3000 to the £ if a few simple conditions were granted, but there wa,s no likelihood of any of these conditions being fulfilled. Politicians never heard a thing until it reverberated back to them from tho groat public, and that was why instead of trying to convert the politicians they were trying to spread knowledge among Hie people A most significant feature about, our public debt was that a very large proportion of it—almost 50 per cent.— was entirely unproductive. This liability would not decrease in Hie next few years even if prices fell. At the present time we were paying in interest on our debts a sum of fnoncy equal to (he whole of our pre-war budget. Tho real problem was to adjust the heavy overhead charges to a farting level of prices. This was not really a formidable problem if we could get people to face it. In America they were already adjusting themselves to a long period of falling prices, but the difficulty was to get people to do that, though all economic experience pointed in that direction. Mr Dunn moved a very hearty vote of thanks to the lecturer, and said that Professor GondlifTe had gone a long way to re-establish the credit of economists by faking account, of tho human and emotional element. He spoke of tho great value of the W.K.A. lectures to tho community, and added cordial thanks to Professor Adams for his work with the lantern. Mr J. Johnson seconded the motion, which was carried witli hearty applause.