NEW WOOL PRICE

Otago Daily Times, Issue 24950, 24 June 1942, Page 4

NEW WOOL PRICE

LITTLE RISK OF INFLATION SUGGESTION BY ECONOMIST A suggestion that if the question of the handling of the 15 per cent, increase in the price of wool granted by Great Britain were referred to a Joint Committee representing the Treasury and the woolgrowers "extremely important results" might be obtained, is advanced by Dr R. W. Souter, professor of economics at the University of Otago, in a statement to the Daily Times last night. Professor Souter, after suggesting that in official quarters the possibility of inflation may have been over-estimated, points to the possibility of grave problems arising as a result of the war in the Pacific, and suggests that if advantage is not taken of the present situation to prepare for such eventualities, the resulting confusion, if they should occur, might be little short of disastrous. / Question of " Inflation " "In a statement on Friday night," Professor Souter says, "the Minister of,Agriculture, Mr J. G. Barclay, announced that' the Secretary of the New Zealand Treasury had reported that, in his opinion, full payment of the increased price to the woolgrowers at present would result in a definite inflationary tendency. His report had stressed that the increase of 15 per cent, in the price of wool sold to Britain would mean an additional payment to the producers in New Zealand of from £2,250,000 to £2,500,000, and that against this extra money no additional goods could be provided. The additional payment would merely intensify the demand for the restricted supply of commodities available under wartime conditions, and (his would have an inflationary effect.'

" Mr James Begg, in the course of a criticism of the proposals put forward by the Minister, with the ' inflation ' problem as follows: ' That the increased price, if paid to farmers, will increase their purchasing power is obvious; but such increase cannot be in-' flationary, as it is balanced by a similar increase in London funds. The increases granted recently to other sections of the community have no such balancing factor.' " I think it should be clear, without academic discussion," Professor Souter says, " that Mr Begg and the Secretary of the Treasury are using the term ' inflationary ' in two distinct senses. Under normal peace-time conditions Mr Begg's remarks would have relevance. Increased consumption by woolgrowers would stimulate imports. Importers would demand increased amounts of overseas funds to pay for these imports. Importers' funds in New Zealand and bankers' funds in London would be correspondingly reduced. There would be no ' inflation.' Presumably it is precisely because these normal conditions are simply not operative in the present state of war that the Treasury has reported to the Minister on the lines announced. Mr Begg's remarks are, therefore, without bearing on the present war situation, and the very real problem posed by the Secretary of the Treasury remains for solution. Woolgrowers' Viewpoint

"At a meeting of the Otago Provincial Council of the New Zealand Farmers' Union on Friday, Mr Begg stated, with characteristic vigour, 'that in his opinion, the proposals, if carried into effect, would amount to nothing short of misappropriation of money which the British Government had agreed to pay for a specific purpose.' As against this, the Minister in his statement plainly says: 'At no time had it been suggested that the proportion to be withheld should necessarily remain with the Government, and, in fact, it had been proposed that the industry itself could, if it desired, create its own trust fund as a reserve against any unforeseen contingency and for payment to the woolgrowers at a- later date.' It is impossible to avoid the -conclusion that Mr Begg's language is extreme and his attitude intransigent. At the same time, there seems. to be no reason whatever to doubt the good faith of the Minister, or to suppose that his proposals amount to anything other than an honest effort to cope with the problem stressed in the Treasury report " Nevertheless," Professor Souter said " I bell«ve there are solid grounds for the woolgrowers' strong dissatisfaction with the Minister's proposals as they stand, and good reasons for believing that a much more satisfactory solution could be hammered out if the problem were tackled in a proper manner. A largfft class of sheepfarmers have suffered adverse conditions in recent years. It cannot be other than highly satisfactory to them to'have it suggested that a large proportion of the present 'windfall' should be pooled indefinitely and for an indefinite purpose, even if their own leaders control the pool. The suspicion is also bound to be prevalent that the very existence of this pool will be used by the Government on some future occasion as an argument against the granting of ' legitimate' assistance. Equity strongly suggests that the whole of the 'windfall'—which belongs to the farmersshould be distributed now or in the very near future, if at all practicable.

Committee of Experts

" Can this be done without ' inflation' of the commodity prices? It is impossible to criticise the Treasury report to the Minister without seeing it. But the Minister's references to it at least suggest that the possibilities of cprnmodity-price inflation may have been somewhat over-estimated. .Many farmers will employ their ' windfall' for purposes other than the purchase of consumable goods—rent, interest, reduction of debt, war loan, etc. I wish to suggest that if these possibilities were investigated, not by a one-day conference of the Minister and the farmers' leaders, but by a joint committee of experts representing the Treasury and the woolgrowers, extremely important results might be obtained. "It should not be forgotten," Professor Souter concluded, " that a year ago both the farmers and the Government were faced with the grave possibility of a large-scale unexportable meat surplus. Even graver possibilities may yet arise before the war m the Pacific is over. The machinery above proposed would pave the way for coping promptly and with the aid of detailed technical knowledge with the very grave financial difficulties that would arise. If advantage is not taken of the present situation to prepare for such eventualities, the resulting confusion, if they should occur, might be little short of disastrous." DOMINION MILLS NO BENEFIT FROM LOWER PRICE (Special) CHRISTCHURCH, June 23. The suggestion that woollen mills would benefit if the local price of wool were not advanced 15 per cent, in sympathy with the increased price paid by Britain was denied by Mr W. R. Carey, general manager of the Kaiapoi Woollen Manufacturing Company Ltd. "It is the consumers who will get the benefit if the local price is not subject to the 15 per cent, increase." he said.

Woollen mills, Mr Carey said, had been brought into an arrangement, not through their own wish, under which the prices of their products were stabilised, not for the benefit of the mills, but for the benefit of consumers. It was wrong, therefore, to say, as had been said at a farmers' meeting at Blenheim, that the mills were being subsidised at the expense of the sheepfarmers.

Mr Carey said the Government was the largest purchaser of the mills' products now, so that the general public would benefit if the local price of wool were not increased, because war expenditure would be kept at a lower level. He said that the position was put fairly by Mr J. J. Maher. vice-presi-dent of the Makara-Hutt Valley Provincial Executive of the Farmers' Union, in a statement at Wellington. Mr Maher's comment on the suggestion that the local price should not be increased was: "This is not a subsidy to the woollen mills, as is suggested in some quarters; it is a subsidy or gift to the public of the Dominion."