LETTERS TO THE EDITOR

Dominion, Volume 8, Issue 2458, 11 May 1915, Page 8

LETTERS TO THE EDITOR

ECONOMICS. AND PRICES. Sir,—lt was to be expected that the present abnormally high prices of most commodities would produco its batch of complaining letters, protests, resolutions, etc., from all sorts and conditions of men. Why, it is asked, should wo pay these high prices? One here and there replies that they are due to the operation of "economic law," apparently being not quite clear what he means by that phrase. Others (and they are tho large majority) cither deny the existence of such laws outright or appear to think that if they exist at all it is the Government's duty to sweep them out of the way, and substitute others more favourable to themselves. According to them, Government-made laws are to take the place of ccononic lawsthc artificial is to replace the natural -alter which all will be well. Throughout the many complaints made and the i i anous remedies suggested there is made plain tne fact that few, if any, of tho writers have any but the vaguest ol vague notions as to' what an economic law is, nor do tlioy understand why their lives should be for one moby the intrusion of anything economic into them Tho purpose of this lettc,- is to explain tho meaning of tho term "economic law," and to show that whatever there may ue thjit is economic in tho constitution of society is there to stay, and will continue to produco its effects despite Governments, unions, or Any otner body of men. When I say that no economic law can ancct the prices of commodities or the cost of living (these are two distinct things) in any way,' that statement will be endorsed by economic science to tho full. .No economic law can put a penny on or take a penny off any commodity whatever. It is absolutely without power of any sort. Any comfort, howover, your readers may derivo from this fact I fear will be considerably damped when I add that it is quite otherwise with economic forces. This is what your _ correspondents really mean, in an indefinite sort. of way, when they use the term "economic law.' Economic forces are the causes of all economic phenomena, while an economic law is merely a statement of tho observed order of these phenomena a statement framed by the economist to convey to the mind, in as concise and accurate a form as possible, what effccts these economic forces producc. Tako, for instance, sucli an economic forco as self-interest. The whole industrial world is swayed by it and tho effects it produces are, other things oqual, tho same everywhere. It is tho business of- the economist to observe what those effects are, state tho results of his observations in the form of a generalisation and this statement becomes the economic law of self-interest. I must add, however, that the economist 'has nothing to do with individual coses of self-interest. He observes its effects only in tho mass, the combined results of its working throughout the whole community. Looked at in this way, individual idiosyncrasies are seen to cancel themselves and its action is as regular as that of gravitation itself. Without this regularity it would be impossible to generalise it and no economic law could be formulated. An economic law, however, is too abstract a thing for the ordinary mind to grasp. If my argument is to be clearly, followed I must- take a concrete case by means of which tho working of the economic forces involved may be easily traced. Supposing I tako tho present wheat position as my illustration as by doing this I may incidentally throw, some light oil a subject at present much misunderstood. That there is a shortage of wheat this year no I one will, I think, be disposed to deny. I Now, assuming that 110 artificial hindrances are allowed to interfere with freedom of trade, what will be tho effects which the self-interest of all concerned will produco under these circumstances'? In the first place, holders of wheat, finding themselves in a strong position, raise tho price. A second result is that farmers, influenced by this increased price (their dutv, to their country does not enter into the matter as Mr. Massey seoms to think), place more land under wheat for the coming season, a further result of which" must be to increase the supply and so lower the price when the next hervest comes in. Again, consumers of wheat, having to pay the increased price, lower their rat© of consumption. Other and cheaper cereals are substituted where possible, they waste less and their, actual consumption is less. It is an observed fact that the price and consumption of a commodity vary inversely. As tho price goes up the consumption falls proportionately. Now, holders of stock, if they are intelligent business men, know that if they are to do the best thoy can for themselves they must sell out the whole of their wheat before the new wheat appears on the market, otherwise they will have to accept for any remaining stock the lower prices which.are then certain to come. The average price reached mnst be one which will bring the average rate of consumption to such a point as will just about absorb the existing stock by harvest time. The point is one at which an equilibrium is reached between demand (consumption) and supply—an equilibrium, that is, between the opposing economic forces at work, viz.—the self-interest of the community who want wheat as oheap as they can get it on the ono side, and the selfinterest of holders, who want the liest price they can get, on the other. Everything tonds towards this equilibrium, for it will he easily seen that any departure from it is detrimental to all concerned. For if holders withheld stocks, forced up the price beyond what is necessary, and so forced down the consumption, they must lose heavily on tho stock left over. If, on the other hand, a lower price wero fixed by outside intervention, consumption would be quickened, stocks would disappear before the harvest came in, and more would have to be purchased from abroad at ruinous prices. The whole arrangement is 0110 by which the self-interest of holders and consumers mutually restrain each other. Holders of wheat prevent its too rapid consumption by raising the price, wliilo consumers prevent holders raising the price unduly high by lowering their consumption. Tho restraint which consumers thus have it 111 their power to put on holders negatives tho possibility of their "exploiting the public," as tho phrase goes. Thousands have attempted this, probably nil have lost, and very many totally ruined themselves by the attempt. I do not believe there is a business man in New Zealand with any length of experience who is not able to point to many such cases which have come under his notice of men and firms bringing disaster on 'themselves in attompting this impossible feat. Further there is shown in tho above case the futility of Government intervention. In a matter like this 110 Government that was ever created can make the lot of tlio consumer any easier, though thoy can easily make it harder. More again history is strewn with the records" of mischiefs caused by its meddlesomeness in economic matters which they do not understand and had very much hotter have left alone. But 1 suppose n 0 number of Government failures will over convince tho average voter that it cannot by an possibility benefit himi that it cannot obtain for him tho same good results from a small as from a largo supply of wheat. The few, however, who look somewhat deeper 'into the matter know that a Government can no more !lx the price of a commodity with benefit to the community than it can Regulate the rotation of tlw earth round

the sun. Both are equally outside its province and beyond its power. I ani> ctc -' A. BLAIR. Wangauui, May 7, 1915.