The Waikato Times With which is incorporated The Waikato Argus. FRIDAY, DECEMBER 10, 1920. TRADE AND FINANCE

Waikato Times, Volume 93, Issue 14539, 10 December 1920, Page 4

The Waikato Times With which is incorporated The Waikato Argus. FRIDAY, DECEMBER 10, 1920. TRADE AND FINANCE

In all the papers which we get from Rome there is constant reference to the shortage of capital which is hampering business in many ways, and is partly accountable for the falling off In manufacturing activity. In view of the extraordinary destruction of capital caused by the war, it was only to be expected that a shortage would be felt, but there are other reasons also for the position. The loans made by the nations at war led to the creation of ai. immense amount of credit based on bonds issued by Governments. There was, therefore, a much larger amount of loanable capital in existence than before the war. It is contended also that the United States Federal Bank Act, 1913, is a powerful agent in the'creation of credit, and that the Federal Reserve Banks are empowered to lend to an amount altogether out of proportion to previous requirements. We must always remember that we have not got the old safeguard of a gold standard, and that wc rely at present on Government regulations and the judgment of bankers. The problem is difficult. On the one hand if the banks meet the demands of trade and increase their loans, the effect is seen at once in rising prices. If, on the other hand, credit is restricted, there is a contraction of business, followed by unemployment. All authorities are agreed that inflation must be decreased, but at the same time they recognise that if this be done too quickly it will li ad to disaster and suffering. The course of events depends largely upon the policy pursued by Governments. In the Old Country they are hampered by tiie immense floating debt, and finance is on an essentially unsound footing. The Chancellor cannot balance his Budget; that is to say the revenue does not meet expenditure, in spite of huge sums obtained from the sale of war stores. A quantity estimated to bring £200,000,000 was offered for sale in October, and there are further large amounts to follow. This money should go in reduction of debt, but is taken ir to account as revenue. It has been pointed out, too, that the Civil Service are paid on a scale based on the index figure of the cost of living prepared by the Ministry of Labour. We are familiar with the system here, but so far have applied it only to wages fixed by the Arbitration Court. Prices have fluctuated more in England than here, ar.d civil servants whose nominal salary is 35s per week are stated to be .paid over £4 per week. The increase on larger salaries is not in the same proportion, but is something very substantial. There is, therefore, nothing to wonder at that the annual expenditure on tiie Civil Service bears no relation to what used to be spent. The Chancellor endeavours to meet the requirements by heavy taxation, including the excess profits duty, and this is greatly resented by business men, and is undoubtedly a serious handicap to trade. It is in addition a great cause of high prices, for the manufacturer, the warehouseman and the retailer all add the taxation to their profits. It is obvious that before prices can fall the Government will have to» practise a very strict economy; and that is a tiling which no Government is willing to do, for it is necessarily unpopular with civil servants and with all those who profit by Government expenditure. It is not only in expenditure that Governments affect the supply of capital. In the question whether deflation, or in plainer language a fall of prices, shall be rapid or slow, the Government at Home and here have definitely ranged themselves on the side of a slow deflation. At Home the Government are the great holders of wool, and they refuse to make much reduction on the ground that it would definitely injure colonial interests. There is no doubt that it would affect producers ol wool, bill at (lie same time the refusal to meet the market and accept lower prices has the effect of locking up a great deal of money, first in advances made 1.0 those who will not sell, and secondly in a higher range of prices for- the. manufactured article. If wool were the only thing which is withheld it would not be noticed so much, but the same course is being adopted with other produce. The Canadian wheat-growers are forming :i vast combine to keep up the price of wheat. There are still large stocks ol frozen moat in store, though this seems to be moving off more satisfactorily. We are not considering the probable political effect of these movements to maintain high prices, which, however, are likely to be serious. It

is the effect on the supply of capital which we wish to point out. If staple commodities like wool and wheat are held in store, the owners obtain advances to a greater or smaller extent against them. If the money goes in this direction it will bo withheld in other directions. We are beginning to this here, and shall probably feel it to a much greater extent later. At Home it is but one cause among many, and is, therefore, little noticed. It helps, however, to cause the restriction of credit which affects trade. There can be no doubt that a rapid fall of prices would cause much suffering and great losses. Unfortunately the maintenance of high prices causes a good deal of suffering also. It is a legitimate function of the banks to moderate the fall, and on the whole it seems to be agreed that they have exercised much judgment in so doing and in different countries have refused to assist in holding up goods and maintaining prices. But while the banks are justified in moderating the fall, and in endeavouring to prevent change being too rapid, the Governments arc in a different position. They are trustees of the whole population, and should to the best of their ability hold the balance fairly. To assist in maintaining prices means helping some classes to make money at the expense of other classes. Such action may be right for banks, but is distinctly dangerous for a Government, and it can excite no surprise if it leads to serious discontent.