IMPROVED CONDITIONS

Taranaki Daily News, 22 February 1935, Page 8

IMPROVED CONDITIONS

FEAR COMPLEX REMOVED PROGRESS MUST BE SLOW. STEPS TAKEN IN PANIC HARMFUL. Mr. H. Valentine in his presidential address to the New Zealand Society of Accountants at Auckland yesterday, said there had been a .continuance of the recovery from the lowest depths of the depression. The uncertainty and fear of worse to come which for a time more or less paralysed enterprise had, to some extent, been removed. There had been a reaction to more normal conditions consistent with present price levels and restrictions, together with a substantial amount of adjustment to new and greatly modified standards. Now that it was possible to view the position in a better perspective it was obvious that some of the more drastic curtailment of the panic stages of the depression were unnecessary and in many cases positively harmful. Until major difficulties such as exchange disequilibrium, unbalanced world production, economic nationalism, and over capitalisation were removed or surmounted, recovery must, however, proceed with slow and halting steps. To a great extent these difficulties could be overcome only by international action, of which, unfortunately, there was not yet much sign. Prospects of re-estab-lishing either the pre-depression volume of trade or pre-depression price levels appeared to be so remote that a drastic writing down of capital must be regarded as unavoidable. After providing for the irreducible external debt the national wealth of the Dominion had been greatly diminished and it was to the problem ,of internal adjustments that the best efforts must be directed, notwithstanding the difficulty under present conditions of determining exactly what equity remained. Essentially the problem was one of liquidation and reconstruction with which accountants were familiar, albeit on a much smaller scale. While the war and international complications arising out of the war were no doubt largely responsible for the present troubles, a wide spread disregard of the basic principles of sound finance had greatly intensified them. Excessive borrowing and borrowing on insufficient margin, capital outlay on ambitious projections without a complete survey and investigation of the relative data, inordinate speculation, inadequate provision for amortization of debt, for depreciation and other wastages or losses of capital and for the risks inseparable from all business, vzhether public or private, had all in greater or lesser degree contributed to the difficulties. SOUND UNDERTAKINGS STABLE. By way of contrast it was a noteworthy fact that established undertakings which had been conducted on sound lines had in most cases weathered the storm. There had been no question as to the stability of the banking system and no wholesale failure of commercial houses such as there had been in the past under similar circumstances, and, during the present depression, in some countries. Even in the farming industry, which was faced with extreme difficulties owing, partly at least, to the relatively greater fall in the price levels of primary products, a substantial proportion of farmers had, by prudent management in the prosperous years, placed themselves in a position to face the crisis. Unfortunately, however, in the course of reconstruction it was inevitable that the prudent should suffer with the imprudent. Unlimited borrowing and the mobilisation of credit by the State in order to utilise the funds now lying idle for the purpose of providing work and creating prosperity were strongly advocated. Unless the expenditure was reproductive, prosperity created by such means must be merely temporary and would cease when the credits were exhausted, leaving a burden of debt as a charge on posterity. At the opposite extreme an eminent economist of international standing strongly advocated the drawing up of a well considered programme for deliberate resistance to the economic leadership of Governments and Parliaments and for the reconstruction of a social order essentially based upon economic freedom and responsibility of the individual, subject in the first place to the laying of a reliable foundation of a new international system of money with parities fixed according to the internal purchasing power of each of the countries concerned.

Such a programme would make a strong appeal to many. The fixation of would parities was in itself, however, a task that called for a high order of economic leadership by the Governments of all countries, and difficult internal adjustments. Only sheer necessity would bring about such a result. Coupled with economic freedom and responsibility of the individual must be high standards of enlightment and a willingness to subordinate purely selfish interests to the general public interest. SOUNDNESS OF PRINCIPLES. In the welter of economic theory, accountants had the satisfaction of knowing that the soundness of the principles on which accounting practice was based had never been in question but had been even more firmly established by the experience of the past few years. A wider application of such principles to all business, whether public or private was essential to the re-establishment and maintenance of prosperity in the Dominion. If in the course of the reconstruction principle was sacrificed to expediency, they would be laying up still greater difficulties in the future. The road to recovery was likely to be long and difficult but clear vision and wise leadership could do much to assist and hasten progress. _ The widespread influence of the profession had been a big factor in pre- ’ paring organised business to meet the crisis as well as it had done. The improved standards which had slowly but surely been established during recent years had also been reflected in the financial affairs of the State. Time did not permit more than brief mention of such matters as the systematic provision that was now made for the amortization of the public debt and of loans raised by local bodies; the adoption ot sounder accounting and financial methods by trading departments of the State and the setting aside of reserves for depreciation and for the renewal of assets and trading risks; the introduction of better systems of costing and stores control and many other similar improvements, all of which were exercising a strong influence for good on the public finances. The accountants of the public service had played no small part In bringing about these improvements. Further progress would be governed largely by the readiness of the public mind to accept higher standards, which in many cases entailed the present assumption of burdens which in the past had commonly been thrust on to the future.