THE FINANCIAL OUTLOOK.

Sun (Christchurch), Volume V, Issue 1359, 21 June 1918, Page 6

THE FINANCIAL OUTLOOK.

BANK OF O. MEETING. POST-WAR POSSIBILITIES. MR HAROLD BEAUCHAMP'S VIEWS. (Special to The Sun.l WELLINGTON, June 21. The ordinary general meeting of the proprietors of the Bank of New Zealand was held at the Head Office of the Bank to-day, Mr Harold Beauchamp presiding. _ The Report and Balance-sheet were taken as read, after which the chairman touched briefly on the various items in the annual accounts, which are published on the leader page of this issue, and speak for themselves.

Mr Beauchamp then proceeded to deal with several matters, and said: Passing now to general matters, it r is disappointing to have to record that we are still under the shadow of the great war. The Germans have recovered a great extent of the country that was wrested from them in Northern France and Flanders, and there were occasions when they all but succeeded in breaking the Allied line. But the indomitable pluck of the British and their Allies stemmed the onslaught. Their capacity for endurance, was never better displayed than in the trying weeks of March and April. The nation, too, remained steadfast and confident. The situation to-day is in some respects very similar to that of over n century ago, when our present valiant Allies, the French, were under the leadership of Napoleon, the military aggressors of Europe. Englishmen of that day had to face a position far more serious than the present. A contemporary has thus described it:— France had to her credit a long line of glorious victories on the Continent. England was in a parlous condition. The Hank of England suspended cash payments, and many Ranks crashed, while thousands of individuals became bankrupt. There was an expedition to the Dardanelles that was a colossal failure; another to Egypt that showed endless incompetence; . another to Waleheren which marked the hopeless stupidily of the English commanders; and there was a rebellion in Ireland. The invader landed in England on three separate occasions; the Navy was in mutiny at Spitliead and at the Nore and blockading London at a lime when Britain was threatened with the combined navies of the world. Soldiers-ringed the coasts of Britain and practiced fighting breast-deep in water; beacon tires were ready to he lighted to give the- warning signal; the blockade of England was decreed from Berlin, and fighting was going on in every part of the world; and yet -with a tenacity of which we have always been proud, our forbears held on and endured ail the hardships, horrors and privations of that day, in order that we in our turn might emulate their example.

This is a picture which should hearten us and till us with hope for the future. Britain has a long way yet to go before her fortunes are at as low an ebb as they were then. The same doggedness and tenacity of purpose that carried her through then will carry us through now. The race has not lost its vigour and dash, and our soldiers of to-day, with the assitance of our Allies, will see the war through to a victorious end. War Prosperity. The prosperity of the Dominion continues though the war is still raging—or perhaps I sliould say because the war is still raging, for there can be no doubt it is dependent on the demands created by the war. The British Government has purchased practically all the principal products of New Zealand, and the figures of the operations of the Imperial Supplies Purchase Department illustrate the extent to which our producers have benefited. The figures up to May 25 are as follows: Purchases Total Commenced. Payments. Meat .. .. March 3, 1915 .. 24,029,688 Cheese .. .. Nov. 4, 19(5 .. 8,272,951 Butter ~ .. Nov. 20, 1917 .. 2,764,303 ■Wool .. .. Dec. 1, 1910 .. 24,26(5,894 Slipe wool .. March 31, 1917 .. 1,870,072 Sheepskins .. Feb. 5, 1917 .. 850,112 Hides .. .. March 19, 1917 .. (595,830 Schcelite .. Sept. 20, 1915 .. 101,710 Other business 1,158,534

04,016,42-1 The banking returns pf the Dominion show to some extent the effect of these payments. /The deposits (excluding Government) and advances for the series of war years show as follow: March Quarter. Deposits. Advances. £ £ 1014 .. .. 24,030,250 23,000,750 1915 .. .. 20,829,239 23,740.51)2 1910 ~ .. 31.274,058 23,733,892 1917 .. .. 34,350,510 27,094,930 1918 ~ .. 35.505,498 29,317,895 In the four years covered by the war, Ihe deposits increased by £11,475,248, equal to 47.75 per cent.'; while the advances and discounts increased by £5,651,145, or not quite 24 per cent. The expansion in the advances occurred during the last two years, and may be attributed almost, if not entirely, to the lack of shipping facilities, which has necessitated the holding of produce for longer periods than usual in the Dominion. Industrial enterprise and development have not been active during the years of war, and ordinary advances have probably reduced rather than increased, for, in the absence of fresh undertakings, the incoming proceeds of produce sold at high prices have enabled substantial reductions to be made in liabilities.

The mortgage returns of the Dominion apparently emphasise this, for (he mortgages registered during the vcar ended March 31 last were some £2,927,000 less than for the year ended March 31, 1017. It is important that we should guard against being misled by these figures into the belief that all is well for the future, and that the present hanpy position of financial affairs will continue without interruption. It is well that we should recognise at once that this cannot be. The huge sums raised locally by the Government for war purposes are being largely spent within the Dominion, creating an artificial prosperity which cannot be expected to last longer than the expenditure of the borrowed money which is creating it; and when all this money no longer circulates, there will almost certainly be a great contraction of business in every direction. Prudent people will therefore anticipate and make provision for this inevitable contraction, recognising thai war prosperity must necessarily be temporary. Rise in Price of Commodities. I have had prepared for circulation as an appendix to this address a table showing the rise which has taken place in the prices of the leading merchantable commodities between July 101-J, and April, 1018. A consideration of this table is very instructive. It shows large increases in practically all lines. Thus we find fencing wire has risen from £9 10/to £55, or 479, per cent., and dilliculf

to import even at the higher rate. Wire nails are 32!) per cent, higher, tinplates 268 per cent., linseed oil 279 per cent., currants 14G per cent., fine salt' 313 per cent., carbonate of soda 416 per cent., soda crystals 300 per cent., alum 400 per cent., cotton licking 255 per cent., grey sheeting 250 per cent., and so on. There is a disposition in some quarters to regard these increases as preventable by locally applied remedies, and to lay the responsibility for the present high prices on the shoulders of the. merchants and middlemen. Closer investigation,' however, serves to show that this is a delusion, at any rate as far as imported goods are concerned. The demand for goods, and (he deficiency of the supply owing to the diversion of labour to the production of war necessaries, have led to higher prices being offered in order to obtain what is required. The larger wages which have to be paid for expert service and because of the increased cost of living, the higher transit charges both by land and sea. increased insurance premiums, the delays in getting merchandise forwarded owing to the difficulty of obtaining tonnage-—all have contributed to the forcing-up of prices: anVl it is impracticable, in the circumstances, to devise any method by which enhancement of prices can be prevented. Such enhancement follows as a natural consequence of the general rise in the cost of every department of service in industry, trade, commerce, and government; and the cost of living here, as elsewhere, must necessarily increase because many of the imported articles are included in the list of essentials of life.

According to the April Abstract of Statistics for New Zealand, the increase in prices since July, 1914, in the three food groups—groceries, dairy produce, and meat —in the following New Zealand centres was:—Auckland 31.1!) per cent. Wellington 30.29 „ Christehurch .. .. 30.60 „ „ Dunedifi 38.20 „ Napier 38.53 ~ Palmerston North .. 44.75 „ „ Masterton 315.53 „ Invercargill 30.94 ~ „ In the Commonwealth of Australia the average advance in the cost of foods and groceries between July, 1914, and-March, 1918, in the several States is shown in the table following:— , New South Wales .. .. .ft.3 per cent. Victoria |.. 31.8 „ Queensland 30.1 „ „ South Australia .. ~ 23.7 „ „ West Australia .. .. 11.4 „ Tasmania 35.G „ „ The Commonwealth average is 30.5 per cent. * The New Zealand average is 34.02 per cent. The difference between the two is very small, and in the comparison with the several Commonwealth States New Zealand snows to better advantage than either New South Wales, or Tasmania.

The conditions are of course diflicult for those with fixed salaries, because the purchasing power of the sovereign has depreciated. The Government Statistician estimates-it will purchase now only as much foodstuffs as, before the war, could have been purchased with 13/llf. Employers of salaried clerks and officials are in most cases taking this into account and affording relief to some, extent by way of temporary bonus or other allowance whilst these abnormal conditions continue. War Indebtedness and War Budgets. Britain's war expenditure continues at the rate of practically £7,000.000 a day, and nearly every country in the world is piling up debts incurred for either war or defence purposes. A glance at the staggering aggregate will be instructive. The Mechanics and Metals National Bank of New York has published an interesting booklet entitled "The Cost of the War." The publication has been made with the object of providing a serviceable work of reference for (hose whose interest in the financial significance of the war is more than cursory. On the assumption that hostilities will continue to the fourth anniversary (Ist August, 1918), the writer estimates the direct cost of the war, based on the daily rate of expenditure, as follows:

Daily Total Military l Average. Cost. £ £ 3 years to August, 1917 18,000,000 19,490,000,000 1 year to August, 1918 31,800,000 11,630,000,000 For 4 years.. 21,450,000 31,120,000,000 The figures of the United States are included in the last year. The sum of money expended since the middle of 1914 has been greater than the combined money expenditure for all other wars that have occurred in recent history. The following table shows the approximate costs of the world's most notable struggles of modern times:— £ Napoleonic Wars .. .. 1,250,000,000 Crimean War 340,000,000 American Civil War .. .. 1,600,000.000 Franco-Prussian War .. 700,000,000 South African War .. .. 250,000,000 lUiso-lapaiK's*'War .. .. 500,000,000 The Great War .. .. 31,120,000,000 Even if the war terminated at the end of the year (which unfortunately does not seem probable), there would still be very heavy expenses in respect to repatriation, re-condi-tioning of shipping and railways, and readjusting ihe businesses that are now controlled, together with numerous othjbr items. These we may safely reckon would absorb another one thousand to two thousand millions of expenditure. To every belligerent country Ihe enormous outlay is causing grave concern. Britain is manfully facing The situation and, we have been authoritatively informed, has provided out of taxation the interest and sinking fund for every pound ! sterling so far borrowed. The way I in which the people of the United Kingdom are responding to the calls made upon (hem is simply marvellous. The Budget estimates and the actual receipts into Ihe Imperial Treasury for the past five financial years are as under:— Year ended Budget Actual March 31. Estimates. Receipts. £ £ 1914 .. .. 191,825,000 198.242.000 1915 . . . . 2(19,206.000 220,694,000 1916 .. .. 305,011.000 336,766,000 1917 .. .. 199.275.000 573,427,000 1918 .. .. 638,600,000 707,235,000 The total receipts from taxes in the last financial year were £013,(140,000, —or more Shan three times ihe amount of the total revenue collected in the last peace year. But large as the tola! revenue has been I for 1917-18, it will not suffice for the current year, and the Chancellor of the Exchequer has imposed additional taxation, estimated to yield £114,00(1,000, of which those who pay income-tax will again be obliged to j provide a very huge proportion. I This greatest Budget in history was accepted and passed by the House

of Commons with little or no com-1 ment. I

Following the example of the Imperial Government, the New Zealand Minister of Finance has imposed taxation on a heavy scale, and has been able to announce the huge surplus of £5,085,933 for the last financial year; and the whole of this amount, together with the realised surpluses of the two previous years, or more, are being invested in Imperial Government securities, —thus serving the double purpose of furnishing the Imperial authorities •with financial assistance at a time when such help is really needed, and also providing for New Zealand a "nest-egg" which the Dominion will find extremely useful when the war terminates. War Debts and Catch-Phrases.

The problem of adjusting the war debts of the countries concerned will, when hostilities cease, become one of the most pressing importance. How is the burden of debt to be lifted, and what are the steps to be taken in order to make an equitable distribution of it? Already the glib tongues of the unthinking are busy with the catch-phrases "Conscription of Wealth" and "Levy on Capital"—terms which, to a certain section of society accustomed to only superficial examination of complex problems, have a particularly alluring sound, and appear to be considered as affording an easy way to a solution of the difficulty. If by "Conscription of Wealth" is meant merely that the vast expense of the war must be met lately by those who are best able to pay for it, no one could raise any just or valid objection. But when the phrase is used merely as the antithesis to "Conscription of Life" it implies that those without property have been forced to give their lives, whereas the moneyed classes have not,, and that, to make the sacrifice equal, the latter should be compelled to surrender their wealth, or else the former should refuse to make further sacrifices. No imputation could be more unfair or unjust. As far as life is concerned, the rich have made sacrifices in this war on a scale, I believe, proportionately greater than the poor. When the call to arms came, the sons of the British aristocracy, and of what are known as the "upper classes" of society, rushed voluntarily to the colours, and it is well known that there is hardly a family of any distinction in Great Britain that does not now mourn the loss of one or more of its male members. As a matter of fact, there are many ancient British houses that will become extinct as a consequence of this war, and many others that are .threatened with extinction. And what applies in the Old Country applies equally here, although the differences are of course less marked.

But supposing the imputation were true, which it is not, who would contend that the sacrifice of life on the one hand could be equalised by a cash payment on the other? Then, again, what would be the practical result of a "Levy on Capital"? It would be nothing more than a penalty on thrift. The man who, by dint of care and selfdenial, has laboriously built up a little capital out of his savings—and it must be understood that tiie phrase includes all degrees of capital and not merely large accumulations—is to be taxed, while the man who has spent, year after year, the whole of his income in perhaps riotous living, is to get off scot free. Could anything be more mischievous?

Assessing Taxes on Capital

Furthermore, how is such a tax to be assessed? Are a man's cash and investments only to be taken into account, or must all his possessions be included? Surely it must be the latter, otherwise the man who put his money into war loan would be worse off than the man who invested in pictures, pianos or pearls, which is 1 unlhinkable. If, for the purpose of this levy, houses and lands, stocks, machinery, plant, works of art, personal jewellery, motor-cars, and the hundred-and-one items which make up a man's estate have to be valued, when would the process be completed, and what would be the ultimate cost? Is the tax to fall only upon the present possessors of capital, and is the capitalist of to-morrow to get off seathless? The war is being waged not merely for the benefit of the people of to-day, but also for the generations yet unborn, and it cannot be held to be fair or just that the capitalist of to-day should bear the whole or even the larger proportion of the burden. Apropos of the subject, it may be remarked that an income tax, which even in New Zealand rises to 7/6 in the £, may, in a sense, be regarded as something approaching "Conscription of Wealth." That we are living in abnormal times is undoubted, and that exceptional measures may have to be taken to cope with the situation is probable; but let us determine that they shall at any rate be practicable and as far as possible fair to all the interests concerned. Do not let us waste time in considering merely academic questions, selfishly searching for measures which will penalise one class whilst allowing the class to which we belong to escape scot-free. o Post-War Conditions.

After-war conditions are naturally in the minds of most people, and what those conditions are likely to be we can only judge by the experience of the past, and what history teaches us. Writing of the great peace after the Napoleonic War, Spencer Walpole says in his "History of England":— "It is clear, therefore, that the first consequence of peace was to reduce our import trade by nearly 20 per cent., and our export trade by 10 per cent. Prices 'fell below the cost of production, and English goods were selling for much less in Holland and in the North of Europe than in London 01' Manchester." * Shortly put, this*"meant that the impoverishment of the customers destroyed their purchasing power. The utilities —that is, the mines, the forests, etc.—were there, ability was there, and the labour was there in abundance; but the capital and purchasing power was absent. This is not a picture of "Business as usual." Economy and Industry. A critical position is bound, to exist after the war, and many proposals are being put forward for meeting the situation. Two conditions are essentia], viz.: Strict economy and greater industry and production. Everyone can assist in obtaining the first by exercising strict economy in living, and by the avoidance of luxury. We must have greater production in New Zealand; the output of our primary products must be expanded, and the efforts of all should be concentrated on the attainment of that end. We must not delude ourselves into a false security

by catch-phrases, the inventions of visionaries. A young nation has no use for dreams. After the war, the pj-ices of our produce must fall, because our customers will be impoverished, and will not have the purchasing power. There will continue to be a demand for our meat, butter, cheese, and other products, but not at the prices of to-day. Examining briefly the prospects before our staple products, wool seems likely to be in rather better demand than some of Ihe other products. Europe supports 182,000,000 sheep, and her flocks have been enormously depleted during the war—reports state to the extent of 58,000,000 head. A large decrease in the production of raw materials can therefore be expected from that quarter. Stocks, of woollen goods the world over will be at a low ebb. Reserves which were on hand in 1914 have been consumed and not replaced. Germany before the war was a large buyer of Australasian wool; but hep purchasing power after the war is bound to be very restricted, and there is, besides, the sentimental factor of the British declining to trade with Germany, or limiting to the lowest possible extent their dealings with that counry. The loss in this direction may be recovered by an increased trade with Japan and the United States. Against these'favourable factors must be set the measure of the development of substitutes, which has been brought to a fine degree of perfection in Germany, and also the 'extent to which shoddy will figure in the new fabrics and materials. The discarded woollen clothing of the soldiers is being bought up in the West Riding, and when the wait ends there will be an enormous amount of these goods turned over to the mills. The utilisation of this material will tend to check the price of the raw material, but to what extent cannot be now determined.

High Prices for Primary Products. During the currency of the war, I think we may expect to see high prices continue for butter, both for domestic consumption and for export; but we may anticipate a substantial drop in values after the termination of hostilities. At the moment the exportation of this product from the Dominion is prohibited, as stocks are required for the home trade. With lessened importation into Great Britain, there has been a great increase in price, and this has stimulated, enormously the manufacture and sale of margarine, the quality of which, by scientific treatment, has vastly improved. Thousands of erstwhile consumers of butter, through force of circumstances, have become accustomed to margarine, and these are not likely to revert to butter if the price of the latter be fixed at too high a figure. Moreover, with the return of hundreds of thousands of men to civil life, and the discharge of a large body of women now engaged on munition and other work, we may reasonably look for an appreciable contraction in the spending power of the people, and this will undoubtedly compel them to economise by using margarine in lieu of butter, even when the present restriction on the shipping is removed. Still, we shall always find an outlet for butter in Great Britain; but it is, I fancy, possible that prices, for some years, may be rather lower than those current in the 1913-1914 season. It is significant that many dairy companies in New Zealand, during the past few years, have practically discontinued the manufacture of butter, and are now devoting their attention to the output of cheese. The last-named product, it is thought, stands a better chance than butter, because it has been so extensively used for Army supplies. Hundreds of thousands of soldiers have become acquainted with its great value as an article of diet, and this will undoubtedly cause them to continue its use when they revert to civil life. However, the competition of margarine will be a factor in determining the value of cheese, as well as butter, but to a considerably lesser degree. The demand for meat, and especially beef, should continue satisfactory. There is unquestionably a shortage in the docks and herds; and until the equilibrium is re-estab-lished, prices are likely to be relatively high and subject only to the purchasing power of consumers.

The increased production necessary to meet these new conditions and to maintain a level of prosperity can only he attained by scientific and intensive farming, which in itself implies small holdings and closer settlement. Placing soldiers more or less unused to farming upon land purchased at present high prices may do some good, but the times and conditions will call for more strenuous effort than that. New land—especially native land—must be broken in, and that now in occupation must be made to produce a great deal more. The Manufacturing Outlook.

It is unnecessary to say respect to our secondary industries, for New Zealand is not, to any large extent, a manufacturing country. Such manufactures as do exist in New Zealand must eliminate unprofitable and out-of-date methods, and adopt better and more economical means of production. That is what is going to be increasingly fashionable in the world for some years to come. Specialisation, standardisar tion, and combination will unquestionably be necessary. There are indications that the commercial war which is predicted to follow the present ghastly struggle will be a contest beiween combinations of national importance, and therefore, it may be, a facsimile of the present war of nation against nation. These combinations will not be merely on the base of price-agreements, or on monopolistic lines, but co-operative, and designed to cheapen production while conserving quality. Several huge combinations have already been arranged, and apparently with official sanction. In the new scheme of things, Capital and Labour must work together in harmony for mutual benefit. In the past, Labour leaders have taught their fellows to believe that Capital is antagonistic to Labour, that Labour is not getting adequate rewards; and these mischievous statements have gone uncontradicted, not because they could not have been contradicted, but because there has been no organisation seized with the duty of controverting them. We have Chambers of Commerce, Employers' Associations. Industrial Associations, Fanners' Unions, and other similar concerns, which hold conventions and conferences perhaps once or twice a year, send a deputation or two to interview Ministers, and then drop ,back into the routine of life with(Out having accomplished much of material importance. It appears to

me that a "Bureau of Industry and j Commerce" would be desirable,; which should have for its main ob-j ject the refutation of unfair state-! ments. the explanation of illogical theories, the education of the workcrs into an appreciation of their: rights and duties, and the establish-! ment of confidence and respect between those who pay the wages and! find the capital for industry, and] those who receive the wages and work at the industry. Get the workmen to understand that high wages are caused by increased production, that increased production tends to cheapen goods and so lowers the cost of living. The workers cannot greatly and permanently improve their position except by an increase in the efficiency and "output of their labour. Trade unions have directly and indirectly encouraged the "go slow" policy, first by insistence on all their members being paid a minimum wage, irrespective of efficiency, and by the mistaken idea of discouraging and deterring others from doing a reasonable maximum amount of work. The slowest and least skilled' workers have been allowed to set the pace and also the standard. They have been under the impression that it is injurious to their class to do as much work as possible. Proof of the unsoundness of such principles should be given to the workers, who are, after all, reasonable human beings, eager and anxious to improve their | condition. An organisation such as suggested, "that would undertake this (educative work, would be doing the | community eminent service.

Self-Reliance in Finance. •

The new problems, and especially the economic problems, that will confront us after the war, will need to be carefully considered and boldly attacked if they are to be satisfactorily solved. New Zealand will be obliged to rely on its own financial resources, and whatever capital may be necessary for whatever purnose must be found within our own borders. The door of the London monev market is now closed to us, and, it is reasonable to assume, will remain shut for some considerable time. This may prove of some genuine benefit to us in compelling us to be self-reliant. With the fall in the prices of our produce it will be necessary literally to make two blades of grass grow where one grew before. Our National Debt, which is now some £150,000,000, will be greatly increased before the war is over; and the interest obligations, and the other war obligations, such as pensions, etc., will remain with us for years to come. Taxation cannot be lessened, but may be increased, and a time of stress may be before us. It is our imperative duty to take thought of thesa matters and |to make provision, not for the best that U likely to happen, but for the worst that can overtake us. I now beg to move that the Report and Balance-sheet be adopted. Mr W. Watson seconded the adoption of the reuort and balance-sheet, which was duly approved.