WILL HIGH PRICES LAST ?

Te Awamutu Courier, Volume 55, Issue 3938, 11 August 1937, Page 8

WILL HIGH PRICES LAST ?

PRIMARY PRODUCERS’ PROBLEM. PROFESSOR CONDLIFFE’S VIEW. Professor J. B. Condliffe, author of the World Economic Survey published every year by the League of Nations, believes that primary producing countries should not over-estimate the time during which they can £ount on high prices. Such countries are entitled to expect returning prosperity, he thinks, but they would be well advised to use the first profits- of the present boom to restore their equipment and rebuild their reserves abroad. Professor Condliffe was formerly Professor of Economics at CanterburyUniversity College, New Zealand, and will take up an appointment as Professor of Commerce at the University of London next October. His views on the maintenance of prosperity in primary producing countries are contained in an article he has written for a special number of World Trade, the. organ of the International Chamber of Commerce. “At the present time practically all the raw material producing areas are prosperous,” Professor Condliffe writes. “ Some of them, indeed, are rapidly approaching a state of boom. Even though the prices of some important foodstuffs have not yet responded to the rising demand, the export markets for minerals and textiles have carried most primary producers into prosperity. It is necessary only to mention nickel in Canada, tin in Malaya, copper in Rhodesia, rubber in Netherlands Indies, and wool in South Africa, Australia, New Zealand, and the Argentine to realise how large a part the boom in raw materials plays in the economic life, or these areas. “Increasing demands for raw materials are among the first signs of recovery from a depression, and therefore purchasing power increases in the primary producing areas at an earlier stage in the cycle than in the manufacturing countries. But the reverse also is true. Normally the demand for raw materials falls off before the boom in finished goods is at its peak. Therefore the raw material producing countries are likely to be faced by declining export receipts when their outgoing payments are still increasing. “ It follows that in a period of increasing prosperity it is wise for primary producing countries to practise a degree of insulation. Part of the proceeds of higher export prices can be ear-marked to build up exchange reserves against possible future drains on the external balance of payments. “ At the same time the abuses of the pre-depression gold exchange standard ought to be avoided. If liquid short-term balances owing to primary producing countries are sucked into an expanding spiral of credit, in the great financial centres, they feed the industrial boom. There seems no reason why assets built up in the financial centres should not be prudently managed so as to provide reserves of exchange for the primary countries without facilitating unsound credit expansion in the industrial countries.”

REDUCTION OF DEBTS. “ The practice of debt repayment,” Professor Condliffe continues, “ is now being followed by many of the primary producing countries. This is an effective way of insuring against the possibility of future strains on the balance of payments. Countries whose finances were kept sound in the depression have been enabled to convert their foreign debt, and some of them—for example, South Africa—have used surpluses to repay externa! debt.

“If the primary producing countries decide in the good years to con - serve their inflated receipts from exports, obstacles to their full transferences would serve a double object: damping down boom conditions at home and building reserves against possible external drains in the future. The. use of accumulated export receipts to clear away arrears and resume debt service may be a very useful investment against future emergencies.

“ The danger of boom conditions in primary producing countries,” Professor Condliffe concludes, “is precisely the same in principle as in industrial areas unbalanced investment, speculation, and general misdirection of available resources. “ How far is it wise to allow what may be a temporary and exaggerated demand for raw materials to direct investment and labour into copper or rubber ventures in the tropical colonies ? How wise is it for the agricultural countries of Europe to barter their increased receipts for armament and capital imports ? “ Obviously the primary producing countries can reap the fruits of their good fortune only by means of such transfers from abroad. They can avoid future disappointment, however, only if they keep the transfers within limits and do not project permanent commitments on the basis of what may prove to be passing good fortune.”