THE FINANCIAL DEPRESSION

Otago Daily Times, Issue 21600, 22 March 1932, Page 12

THE FINANCIAL DEPRESSION

TO THE EDITOR. Sir —Until the publication of the two economic reports the public had not had anything presented to it in so tangible a shape riveting attention upon the importance of public finance. Not that everybody is equally impressed or enlightened by the reports, because a correct impression can only be secured by intelligent understanding, and intelligent understanding is a gift which the report cannot bestow upon anybody, nor can it be secured even by the highest system of public education. The value of. the reports lies in the facts they contain and in the conelusions drawn from these facts indicating the steps to be taken to secure economic stability. These steps are, however, in part disclosed in the report, and no reason is furnished for the partial omission. The report presented by .the committee of economic experts is mainly marked by this defect, because it fails to state explicitly that economic equilibrium can never be secured within New Zealand while outside financial conditions control and regulate retail prices- and wages within. The report says correctly that since “ 1895-96 high export prices and heavy overseas borrowing have maintained New'Zealand wholesale prices at a very high level compared with British prices. Our prosperity has unquestionably, tnerefore, been built upon these two external factors which now, for the time being, have ceased to operate, and this explains why the farming community is in financial trouble. “ Oversea loans are no longer available and New Zealand’s income is short by £6,000,000. There is thus a direct loss ot nearly £28,000,000 from exports and borrowing,” while our fixed obligations in payment of remain a permanent . charge. But this,” Professor Copland declares, “is not the total loss at the moment. The direct loss has fallen mainly on farmers and workers and industries dependent upon the expenditure of loan money. The spending power of these people nas been severely reduced, ihey cannot pmchase the goods and the services of domestic industries. Consequently there are heavv indirect losses. Profits decline, output is reduced, transport is less used, all services are curtailed, and unemployment rapidly increases. These are all products of the maladjustment in the economic system caused by the direct loss ot national income."’ . Here we require to pause and leflea

severely upon Professor Copland’s logic in tracing cause and effect. Maladjustment is unquestionably tbe cause responsible within the economic system, but by what process of reasoning does Professor Copland arrive at the conclusion' that “maladjustment is caused by direct loss of national income.” Maladjustment means a wrong adjustment, implying, according to Professor Copland’s logic, that national income was correctly adjusted previous to the loss, but has become wrong since the fall in prices took place from which the whole community now suffers. We trace our prosperity to a rise in export prices from which the farmers secure an increased profit that is further supplemented by the immediate rise in profit accruing from the advance in local prices, which reacts upon wages and reduces the purchasing power of every wage earner throughout New Zealand. On the strength of this rise in profit obtained by our exports, our National Debt has increased from 1912 to 1931 by £190,000,000. Can Professor Copland or any other expert banker, financier, or economist venture to affirm that up to 1928 no maladjustment in our economic system took place? How are we to account for the financial dilemma in which we now find ourselves except by maladjustment dating back to the rise in 1895-96, when it was declared that the then prevailing depression litled through a rise in the general price level abroad? What will be the position of the great body of wage earners in New. Zealand, who already have been subject to a 10 per cent, cut, with a certainty of a further cut in nominal wages and, a prospective rise in the cost of living, which, economists and all statesmen declare, is the only thing that can restore the farmer to a sound financial position? A cut of 20 per cent, in wages _ and a prospective rise in the cost of living—this forms the principal recommendations of the economic experts to be effected by an “equitable sacrifice” imposed by legislation as a remedy to restore sound finance, not to mention the allurement attached to a few thousand Treasury bills. Presumably this. prescription also cures maladministration embodying maladjustment, but these are questions upon which the Economic Committee had no instruction to report.—l am, etc., W. Sivebtseit.