MONEY AND MARKETS

Southland Times, Issue 23988, 1 December 1939, Page 3

MONEY AND MARKETS

SYSTEM OF PRICE REGULATION IN NEW ZEALAND

Two bulletins dealing with price regulations have been issued by the Canterbury Chamber of Commerce, in collaboration with the Department of Economics of Canterbury Univer sity College The subject is approached with the remark that “at the present time business in New Zealand is subjected to a degree of regulation and regimentation never before experienced.” The bulletin states that wages, hours, and working conditions are regulated more rigidly and over a wider field than ever before. The import of goods and the associated dealings in exchange are subjected to a cumbersome system of licensing and regulation, and both imports and exchange are in short supply. Many forms of manufacture and trading are subject o licence, which tends to result in discrimination, privilege and monopoly, accompanied by price fixing and by insecurity both of capital and of occupation. Internal transport, which is vi a to the production and trade of the community, is closely regulated and heavily taxed and the result is seen in hig ransp r costs which limit production and consumption, trade, and employment.

Only a small part of the regulation is due to the present war conditions, the bulletin states. In war time it appears inevitable that regulations should increase. Yet the effects of the regulations already imposed are such that they should be closely examined and every care taken to limit regulation to what is unavoidable. The real function of Government control m war time is to redirect production into new channels and maximize supplies of goods and services essential for war purposes, while maintaining at the same time the national income up°n which the people live and from wmch the war effort must be financed. The chief purpose of price limitation in war time is to -secure the equitable distribution of essential commodities, particularly foods, which are in short supply. In New Zealand there are as yet few such essential commodities in short supply, and the most urgent need is for substantial increases in production of the goods and services required for war purposes, for home consumption, and for export. It appears improbable that the increases in production and the adjustment 'of productive forces required can be secured by regulation as effectively as they would be if the price system were permitted to run free and to exercise its proper function of adjusting supplies to the changes in demand. This is the real function of prices, which cannot operate effectively if prices are artificially fixed. ONLY FOR ACUTE EMERGENCY

The chamber goes on to make a more detailed examination of the Price Stabilization Emergency Regulations i issued on the outbreak of war. Such regulations, it states, might have some justification for dealing with fixed supplies over a brief period of acute emergency, such as isolation by earthquake. As a means of stabilizing prices in war time, when conditions and costs are changing rapidly, when continuous supplies must be sought from many sources, and when flexibility of organization, mutual bargaining, and quick decisiqns are essential, they can only be regarded as quite impracticable. The machinery provided for adjusting prices to changing conditions is much too slow and cumbersome to deal with the ever-varying complexity of production and market conditions, . and the attempt to stabilize prices by regulation of this kind can result only in regimenting, restricting, and reducing business, to the detriment of consumers, producers, traders, and the Government itself. CONGESTION AND DELAY No tribunal, the chamber states, can possibly deal with all the applications that would need to be made. Hopeless congestion and long delays are inevitable even for the most important items of trade. Pending decisions by the tribunal, traders are unlikely to sell at a loss and either consumers must be deprived of the goods they require or the regulations must be disregarded. It seems extraordinary that the Government has not yet recognized that such sweeping regulation and inadequate machinery of adjustment are quite impracticable in the present situation. As a temporary measure for a brief period, while new methods were being devised and while existing stocks held out, the regulations might conceivably be of some use. Over a longer period they must break down completely. The chamber states that it is manifestly impossible to isolate and prove every detailed item in cost increases over the whole field of production and trade. Price investigations have proved repeatedly the futility of attempts to fix costs for individual items in general trade. The variation in conditions is too wide to permit it. l . . . It is the. function of prices to equate supply and demand. They can discharge this function only if they are free to move readily. Where supplies are short, rising prices limit demand to the supply available and stimulate greater supplies, which, in turn, bring subsequent reductions in price. Where surplus supplies must be sold, reduced prices attract more demand and discourage over-production, hi this way, where prices are free and flexible, the whole economic organization for production, consumption, and distribution is self-adjusting. Fixed prices prevent the necessary adjustments from being made, and thereby increase dislocation and throw productive resources out of use. MAY DEFEAT THEIR END The view is expressed that sufficient has been said to show how completely impracticable are the regulations as a •means of achieving the end they seek. Already the experience of their working, or failure to work, is enough to show that they ' should either be repealed or substantially modified. Unless this is done either they must fall into disrepute and ultimately break down, or business and the whole community, which depends on business, must suffer severely. In time of emergency such as war, experiments must be made, and good administration consists less in avoiding experiments than in readiness to discard or amend them when they prove unsuccessful. The price regulations are necessarily experimental. Interferences with trading practice and legal regulation are likely to succeed only when they conform with what experience shows to be necessary . . . The objective of the New Zealand regulations appears to be the prevention of profiteering and the maintenance of prices at as low a level as practicable in the circumstances. Experience of the regulations shows that care is needed lest the methods adopted defeat the end in view. Thu first essentials for low prices are abundant competitive supplj and satisfied demand. If regulation diminishes supply and leaves consumers unsatisfieo, then either strict rationing must be imposed, or prices will rise, in spite of any regulation. If the Government wishes to maintain abundant supplies of consumers’ goods at low prices, the metho"', adopted should aim, not at wholesale price fixing, but at the maintenance of supplies and the reduction of costs.