THE FUNCTION OF PRICES

Taranaki Daily News, 3 December 1930, Page 4

THE FUNCTION OF PRICES

INTERFERENCE methods RESULT OF ARTIFICIAL CONTROL. ADJUSTMENT OF (PRODUCTION. (Special Correspondent.) Wellington, November 26. Many people speak rather loosely regarding prices, and again and again we hear of schemes for stabilising puces, as though this can be achieved by legislation. Prices have a distinct function to perform, and they do perform that function when left alone, but when Governments step in and with nostrums endeavour, to stabilise they create fresh and very big troub es for the community, -for legislative in terference invariably causes loss of public money, with the inevitable consequence of increased taxation. When prices are high, it is an I " d ! catl ’ n the commodity or commodities that aie sclliim at high prices are not in Suffiei- ■ ent supply to meet the demand, and the ■natural result is that production is stimulated. When prices decline then •it is obvious that the commodities affected are excess supply and production of those commodities should be curtailed. While to increase produc-tion-is comparatively easy,,«, >8 »ot quite, so simple a matter to bring about a reduction. ... . i The world war was responsible for very high prices for very many com.modifies, and those high prices were made possible by the excessive and extensive. use .of credit Inflated, values followed upon inflated credit, and the post-war deflation of 1920-21 was what was to have been expected and what

had happened after previous great wars. The deflation of 1920-21 was, however, arrested by various expedients, but now itTcan be seen that the deflation was only postponed. What is going on now is I readjustment as in 1920-21, but at a greatly accelerated pace. If .the earlier readjustment process, had been allo ed to proceed unmolested it would have been gradual and would therefore not have caused the distress that is now being experienced. During the war countries not involved speeded up production to take the place of the shortage created’ by nations involved in conflict. When the war ended countries longest involved in the contest gradually got back ihto production, and out- I .side- of those countries there was a further increase ’ n production, I In the meantime, despite the reduction of costs. through more intensive use of machinery, there was widespread artificial control. In industrial under< takings there have been cartels and mergers and rationalisation, and in agriculture We have had the Stevenson plan in respect of rubber, the. (Patterson plan in respeqt of ’butter; ■ wheat pools, control boards, .subsidies, etc. (Because of this artificial control of prices the price trend was no 'longer a reliable indication : of whether or .not the, world was runninir’info overproduction. An example or two will illustrate this. When hostilities began, in Europe the production of beet sugar automatically ceased. The production of cane sugar was speeded up .in the West .Indies, Cuba and Java, and in Australia growing in Queensland and New •South Wales was stimulated by a sys-j tern of subsidies, The production of the countries, named is still on a large scale, and now Europe, has resumed thp. production of beet sugar, and, what is. more, . England is now producing about 300,000 tons, annually, while before the .she produced no sugar. The P*9’ ductioh of cane' sugar at present it . more than sufficient (.for world consumption, and in addition there is 1 the ’beet sugar production. Sugar is cheap iii every country (except Australia,’ where Government control has penalised the people. • ■ ■ . i , The war put Russia, out of action-as a wheat exporter; and before the war she. "was equal. to furnishing the rest of Europe with about 225.000,000 bushels annually. ■ Wheat held its high pribe in the post-war period- through the pools.' In North America the price was for a considerable time over a dollar, and on occasions it was as high as 1 dollar 50 cents. Now Russia is again a factor in the wheat situation, and the importing countries in Europe have imposed hig tariffs for the purpose of stimulating production, also to avoid buying wheat in ’the United States, as that makes it all the more difficult for the debtors to meet-their obligations to America. Wheat has slumped everywhere. , ~ The world has been fooled by the artificial control of prices, and is now confronted by over-production. If-the; 1920-21 slump had been-allowed to run, its' course we should long ere this- have; made 'the necessary adjustments;, now the deflation and adjustment will be a Ion" drawn out process, infliqting con-; Siderable hardships on communities-; Even bow there are many people who advocate tariffs, subsidies, pools, etc., to stabilise prices, so that. the . lessons of the past are ignored. It would be as well for- everyone to realise that it is impossible by leislatiogn to prevent the action of economic-laws or to evade the consequences of their- operation. These laws’are inexorable. ' ■ .