PRICE MOVEMENTS

Dominion, Volume 28, Issue 86, 5 January 1935, Page 14

PRICE MOVEMENTS

Factors in World Recovery FUTURE CREDIT POLICY The present is a convenient opportunity for reviewing the grounds upon which the case for a rising price-level has beeu based, the methods which have already been tried for raising prices, and the circumstances which are likely to affect the efficacy of such methods in the future, says the latest circular of the Bank of New South Wales. There.is fairly general agreement that some upward movement of prices is desirable, but in discussing methods for attaining this objective, it is important to bear in mind the ends which a rising price level is designed to facilitate. The most obvious motive for reversing a downward price trend is the necessity for relieving pressure upon debtors. From the point of view of the community as a whole, however, a consideration of the immediate interests of debtors, important as it is, does not go to the root of the matter. It is not the relief which the debtor gets which concerns us so much as what he does after he gets his relief. And even more fundamental is the behaviour of people who may not be debtors at all, but who refrain from incurring liabilities because they believe that the general trend of prices will make it impossible for liabilities to be met. The case for a rising price-level turns upon the effects which it is likely to have upon the state of mind of people; who, when prices are falling, refrain from making any commitments and therefore check anv expansion of business activity. Position of the Producer. If prices fall more rapidly than the efficiency of production improves, profits are contracted or disappear altogether. In such circumstances the process of production threatens to leave the producer in a position definitely worse than if he did nothing at all, and the inevitable consequence is that the process of production slows down, A rising price-level might be expected to help us out of a depression if it stimulated production until it at least reached sOme'-,‘ng like the total recorded for prosperous years. The total at which we should aim would not be made up of precisely the same constituent items as in the past. There must be important and difficult transfers both of labour and of capital into relatively new industries, but in general terms, a rising price-level is to be desired to the extent to which it gives producers such an assurance of a margin of profit as will induce them to expand l their activities. No producer who discovers that he is able for any reason to offer his goods to the public more cheaply need hesitate, however, to do so on the ground that his reduced prices may check the upward movement of the price level. If as a result of some new invention, or for any other reason, production becomes more efficient, a lower price-level is clearly in the interests of consumers, and is often quite consistent with steady _ or even rising incomes for the individuals who are engaged in production. Rising prices are not to be welcomed entirely without qualification. If the process is carried too far, the stimulus to expansion mny become too uudiscriminating and serious errors may be made in selecting the fields of industry in which rapid expansion is likely to be justified by the probable demands of consumers. The two methods for raising prices which have been most discussed arc creujt expansion or cheap money, and restriction of production. Restriction of production has had the support of some reputable authorities, but it is quite inappropriate for the purpose we have in view. There are no sound grounds upon which a general restriction of production can be defended, and restriction in particular industries is valueless unless it is accompanied by at least an equal expansion in some other field. If production in important fields is restricted, the general level of prices will undoubtedly tend to rise, but such an upward movement of prices cannot rave any beneficial effects, because the expansion of production which rising prices are designed to encourage has itself been ruled out at the outset as an impossibility. Expansion of Credit.. A policy of credit expansion is usually supposed to demand the co-ordinating influence of a central bank, which it is believed can guide the policies of other banks, first by variations in the rate nt which it is in certain circumstances prepared to advance money and secondly by so-called “open market” operations, which in this case mean buying Government securities and thus releasing an increased volume of central bank credit. These methods have been systematically used for some time and they have not entirely failed to produce the effects which were hoped for. Wholesale prices in many countries are higher than they were two or three years ago. On the whole, however; the results have been somewhat disappointing. The catastrophic downward movement has been checked, but the upward movement has been hesitant and slow, and the full recovery of business activity is still delayed. It is difficult to avoid the conclusion that the restoration of a satisfactory general level of prides must be the consequence not merely of general credit expansion, but, still more important, of a well-balanced programme of production expansion which will pay attention much less to movements of the general price level than to movements of the particular prices and costs which affect particular industries. If for any reason there were a simultaneous expansion of production in several industrial groups, which paid due attention to the probable demands of consumers with rising real incomes, this expansion would itself become an independent influence fostering business recovery and stimulating an upward price trend which would relieve the burdens of debtors and provide the prospects of profit which would encourage a further general expansion of production. Sound Credit Policy. Many authorities still pay formal tribute to the virtues of a world goM standard. It is significant, however, that recovery has been most marked in those Countries which have freed themselves from the limitations imposed by the gold standard, and the practical conditions which supporters of the gold standard are compelled to lay down as essential before a return to gold can be contemplated are so unlikely of fulfilment in any future which is not indefinitely remote that the whole discussion nt the present time appears highly academic. There can be no doubt about the importance of sound credit policy ns a factor in the restoration and maintenance of a satisfactory economic equilibrium and of a satisfactory level of prices, and nt certain stages in the process of recovery its importance may be so great as completely to overshadow everything else. But when we have passed through these preliminary stages, and it. becomes necessary to lay the foundations firmly for n long-period programme of industrial advance. credit policy mu-t fall back info its proper place a° merely one among a number of instruments all of which must be used together in a harmohions way if the possibilities of material progress are to be converted into actualities. Wellington Poultry Market Prices of live poultry on the Wellington markets this week are quoted by Townsend nnd Paul, Ltd., as follow: —• Fowls: White Leghorns, hens, 1/9 to 2/eaeh ; cockerels, 1/6 to 2/6; pullets, 3/6 to 4/-. Black Orpingtons, hens (heavy), 3/6 to 4/6 each; (med.), 2/- to 2/6; cockerels (heavy), 3/6 to 4/-; (med.), 2/- to 2/6. Ducks: Indian Runner, young 2/9 to 3/- each; old, 2/3 to 2/6. White, heavy, 3/6 io 4/-. Geese, 4/6 to 5/- each. Turkeys, 9d. to 1/- per lb.