THE ECONOMIC SITUATION

Taranaki Daily News, 1 December 1932, Page 13

THE ECONOMIC SITUATION

FARMERS’ POINT OF VIEW. EFFECTS OF THE SLUMP. (Contributed by Farmers’ Exchange Committee). Last week a number of members of Parliament, alarmed at the collapse that is taking place in New Zealand’s export price level, approached the Government to see if something Could be done to ease the position, arid, amongst other remedies, they discussed the question of widening the sterling exchange. Since then the Press has been flooded with a storm of protests. In reading these protests anyone with even an elementary knowledge of economics cannot help being struck by the appalling ignorance and narrow views of nearly all the participants. A meeting of city men in Wellington commenced their proceedings by an announcement from tne chair that only one point of view would Le listened.to and no one would be permitted to put the other side of the question.’ Then speaker after speaker got up and displayed their absolute ignorance of the fundamentals of the economic life of this country.

The world economic' collapse in which New Zealand is so deeply involved is so intense that the time has gone by when the situation can be viewed from the point of view of sectional interests. The position is so grave that the economic condition of New Zealand must be viewed as a whole as an economic unit forming a cog in the world’s economic wheel. Any country that wishes to enjoy the fruits of modem civilisation must become a unit in the economic life of the whole world and deal with other countries. No country can enter modern civilisation and live to itself. Some countries are more self contained, or self-sufficing than others. Of all countries in the world New Zealand depends upon other countries most. Evidence of this is the fact that New Zealand’s oversea trade or exports and imports combined is per head of its population the greatest in the world.

A country can only maintain its economic connection with the rest of the world by means of its export industries. Without these a country cannot export and therefore cannot import, borrow or lend, because it has no means of making payments beyond its shores. No one can study the literature of the present unprecedented economic depression without realising that the great problem that is creating the most anxiety in every country is the maintenance of its export industries. These industries are the foundation of its export industries. These industries are the foundation upon which the economic life of every country rests. Britain’s export industries are her factories and her mines. The objects of her negotiations at Ottawa and since then with other countries are to get markets beyond her shores for these industries. The maintenance of her factories and her in & healthy condition is the fundamental necessity of a healthy economic life for Britain. New Zealand’s export industries are her farms. Other exports are so small that they hardly count. Her farms, too, are highly specialised. A few lines are produced very largely in excess of our requirements, for home consumption. Wool, lamb, butter and cheese, with fruit coming on. These are the main lines. Wool we consume about 4 per cent, and export 96 per cent. Lamb We consume 7 per cent, and export 93 per cent. Cheese we consume 6 per cent, and export 94 per cent., and with butter, home consumption is about 20 per cent, and exports 80 per cent. We produce these lines because they are the lines our country is best fitted to produce. It is this export production that is the base of our whole economic life. It is upon this foundation that the whole economic structure of the country is built. While factories and mines form the foundation upon which Britain has built her economic structure, farms are the foundation Upon which New Zealand has built hers. In common with the rest of the world New Zealand is passing through the greatest economic blizzard in history. In common with the economic foundations of every country, the economic foundations of New Zealand have been badly shaken and fractured by the storm. The first necessity is to repair the foundations. It is no use tinkering with other industries and occupations until the foundations are made secure. If the foundations fail the whole structure falls to the ground. A building shaken by an earthquake cannot be repaired unless the foundations can be made secure. The upper stories must wait until the foundations are examined and the course of action with regard to them decided upon. Britain is busy establishing conditions that will enable her factories and mines to function. Let New Zealand get busy and establish conditions that will enable her farms to function. Before our farm foundations can be dealt with we must diagnose their condition. What is the matter with them? The summary of index numbers on page 28 of the October number of the monthly abstract of New Zealand statistics shows the position at a glance. Base 1914 at 1000 Retail prices now 1307 - Wholesale prices now 1236 Farm expenditure costs now .. 1490 Pastoral and dairy produce export prices now 785 There is the problem. The cities and towns are serving the farms on price levels ranging from 1236 to 1490 and the farms are serving the cities and towns on a price level of 785.

What is the result? To try and meet the position farmers are taking all they can out of their farms and neglecting the necessary maintenance. Producing capacity is running down. Butter-fat production per cow is down over 301bs in two years and sheep stock down two and a quarter million in the lame time. Maintenance neglect is increasing. In the last two years much has been spent on maintenance that was not -earned from the farms. This cannot continue as resources are ending. It must always be remembered that rich land in New Zealand is comparatively scarce. The bulk of our produce in this country comes from improved second 'and third class land, a large proportion of which land on present price levels is nor . paying working expenses, leaving nothing for maintenance or interest. What would a city man say if he entered a factory and, saw the building and plant falling into disrepair and was told that earnings were insufficient to maintain them. He would say that factory would soon end. Farms are factories, and many farms are now going through this process. What is the remedy? A glance at the index figures quoted makes it obvious. Wholesale and retail prices and farm costs must be brought into line with export prices. The problem- of how to do this concerns everyone. It concerns the city dweller just as much as the. farmer. Failure to keep the grass growing in the country will soon make it grow in the cities. It is idle to talk of the advantage of city over rural securities. They stand or fall together. If the cities refuse to bear their share of the increase that a widening of the exchange would bring in the price level, then they must bear the reduction of city prices and costs until these meet the export price level. The longer this is delayed the more both city and country will suffer. \ If widening the exchange is not the remedy, t&en it is up to citj interests

to produce a remedy, because either remedy or decline must come. It is said we must have a natural rate of exchange and not an artificial one. Farmers would have been satisfied with a natural rate, but they have not had it. Exchange has been an artificial rate for quite eighteen months. Last year the New Zealand Treasury, which is normally the largest buyer of exchange, kept out of the exchange market by raising £4,000,000 in London on short dated Treasury bills. This kept exchange down. The Treasury, in effect had a gamble on the exchange market. When the due date for the payment of the Treasury hills arrived and exchange had not fallen the bills were renewed for six months and the Government established the compulsory exchange pool, thus continuing an artificial exchange rate. When the renewed Treasury bills became due, instead of remitting the money from New Zealand to pay them, the Government raised a five million loan in London to enable the bills to be met. In addition, the Government sold £2,000,000 of New Zealand securities held in London. It thus found £7,000,000 of London money to artificially keep down the exchange rate. This transaction will cost this country £400,000 per annum for the next two generations before it will be paid off. It is to be hoped that this performance of the Treasury will not be repeated and that New Zealand’s exchange requirements in London will not again be met by the issue of Treasury Bills to be afterwards converted into a long dated loan, thus handing our troubles on to posterity instead of facing them ourselves. If this method of dealing with exchange gives a natural rate then a spendthrift, continually. increasing the mortgages on his inheritance and living on the proceeds, is adopting a natural way of living. In addition to the transactions referred to the banks have reduced their stocks of gold during the past year by approximately £1,350,000. This had the same influence on keepnig down exchange as the shipment of an equivalent amount of produce. City men are saying business will be ruined if exchange fluctuates and that exchange must be left entirely to the banks and the Government must not interfere. During the last 14 months England has allowed her currency—sterling —to go from 33 per cent, off gold in December back to 19 per cent, off in April and down to 32J per cent, off at the present time. Such wide fluctuations have never been suggested for New Zealand, although on these wide fluctuations British business carries on. Then as to the suggestion that the Government should not interfere but- should leave it to the banks. The British Government is

interfering. It has put up a fund of £167,000,000, which is being used secretly to keep the exchange at the point between sterling and gold where the British Government wants it. The Indian, Swedish and other Governments are doing the same thing. It is not fair to ask the banks to incur the risk of loss that would be involved in keeping exchange at the point best suited to the interests of the country. Like the British, Indian, Swedish and other Governments, the New Zealand Government should in a world crisis such as we are passing through, take its share of the risk. Other city men are claiming we must keep close to parity with sterling. Our conditions and Britain’s are entirely different and this difference must be recognised. Britain’s export industries are secondary industries, ours in New Zealand are primary.