FOUND IN PAIRS

Taranaki Daily News, 13 January 1932, Page 12

FOUND IN PAIRS

POST WAR SLUMPS A LESSER AND A GREATER. . HISTORIC EXAMPLES. “We had a primary and a secondary post-war depression following . the BrrtishiAmerican War of 1812, again a primary and a secondary post-war depression following the ' United States Civil War, and now once more a primary and a secondary post-war depression following the World War. (Moreovei, these pairs of post-war depressions have had certain definite characteristics in common that appear to indicate th a "t thev have formed parts of a specialised pattern that business activity follows after all great wars.” 'The above sentences are taken from the Cleveland Trust Company Business Bulletin (U.S.). The pair of slumps following the Great War began with the depression of 1921, which was short and shallow. That beginning in 1929 is still with us. The Bulletin analyses post-.war slumps and sums up as follows: “It is not the event of war that shapes the patterns, but rather the fact that great wars cause sudden and extreme advances in commodity prices. It is this sudden price advance which largely determines the nature and sequence of the business cycles of the following 20 years or so. 'Since sudden advances in the general levels of commodity prices seldom come except in time of war, the special pattern of business we are considering may be thought of as restricted to post-war periods. “In broad general terms we may think of all the people in the world as being divided into two great classes. In the first class are the people, who live in the country, and earn their livelihoods by extracting valuable things from the earth through, agriculture, mining, lumbering and fishing. In the second class are those who live in towns and cities, and support themselves by taking the things produced by t'he country dwellers and fabricating them, and trading in them.”

RURAL AND CITY EXPERIENCES. The following observations on the sequence of post-<war slumps, and the different incidence of events in town and in country, are interesting in view of New Zealand happenings: — ‘‘When war comes, and commodity prices mount, the prompt result is a great wave of prosperity for the farmers. For some time their production costs increase but little, and the increases in the prices received for crops are almost all profit. Under such conditions of very rapid price advances, the doubling of the amount received for a crop oi given size may well result in a tenfold increase in farmer profits. The next development is a great speculation in farm lands, the ploughing up of additional fields, the use of profits to buy more land, and a large increase in farm mortgages. Production is sharply stepped up. "This period proves rather difficult for the city dwellers, for while industry and. trade are brisk, and. everyone can find work, the cost of living is high, wages do not advance nearly so rapidly as prices, and industrial disputes are frequent as pay advances are demanded. However, toward the end of the war, or shortly thereafter, commodity prices reach their peak and turn down. With the price deflation comes business depression for rural and urban dwellers alike. After the Civil W’ar this came in 1805, as soon as hostilities ceased, but after the World War the primary post-war depression did not come until 19211. With the depression comes a collapse of the farm land boom, and the farmers find themselves burdened with the heavy mortgages placed at the earlier high land prices. URBAN BOOAI THAT BREAKS. “When this primary post-war price deflation and primary post-war depression have run their course, there ensues a period of urban prosperity. Food is now relatively cheap in the cities, for production has increased more rapidly [than demand. Food constitutes a large .part of the cost of living of the industrial workers, and when food prices decline more rapidly than wages the result is a period of hard ' times for the farmers, but of prosperity for city people. The world was moving through, such a period from the depression of 1921 to the end of the prosperity in 1929. Two characteristic developments mark a period of that sort. The first | is a boom in city real estate, with great activity in building construction, stimulated not merely by the prevailing economic prosperity of the city dwellers, but also by the making up of the building shortages that accumulated during the previous war period of inflated prices. The other development is general speculation in almost everything except commodities. “A period of this sort can last a long time, but eventually it destroys itself. The real estate boom and the construction boom run to excesses. General speculation creates fictitious values. There comes a time when the country districts, with their diminished purchasing power, can no longer consume their normal proportion of the goods produced by the cities. Then comes a secondary decline in commodity prices, a collapse of city real estate values, and the secondary post-war depression, afflicting urban communities and country districts alike. During this secondary depression wages, prices and profits for both city dwellers and country people are painfully jarred and jolted back into a working adjustment that enables the nation, or the nations, to make progress in the long task of paying off the accumulated -indebtedness.” Remembering that it takes about ten years for the°above-described events to take place, the Bulletin concludes. “The peak of commodity prices of the war of 1812 came in 1815, and the secondary depression was ushered in ten years later by the panic of 1825. In the Civil War the peak of prices came in 1864, and the first full year of the secondary post-war depression was 1874. After the World War the peak of commodity prices was in 1920, and the first full year of the secondary depression was 1930. In each case there seems to have been the same farm prosperity and farm land speculation, (3) price deflation and depression, (4) city prosperity and speculation, (5) secondary price deflation and secondary depression. “The same sequence has been followed before in earlier war and postwar periods, but this time the whole world is involved. Instead of thinking about it in terms of country districts and city populations, we must re-' member that this time it affects whole nations, and almost all nations, all over the world. Our troubles are not the result of some mysterious and hitherto unsuspected weakness in our social system, nor can they be cured by adopting a five-year, or ten-ycar, or twentyyear plan of reorganisation of our industries, our banks, and our commerce. •The true lesson of this depression is that we cannot afford any more great wars.”