PRICE RECOVERY

Evening Post, Volume CXVI, Issue 49, 26 August 1933, Page 16

PRICE RECOVERY

LONDON BANK REVIEW

"WILL THE BOOM LAST?"

"Evening Post," August 26. A London cablegram published in "The Post" on July 19 last quoted the Westminster Bank, London, as taking an optimistic view of the upward tendency of commodity prices. A full report of the bank's review of the price situation is now available and quotations from it are given hereunder. A boom in prices in July was admitted, but the question then asked was: Will it last? As the Westminster Bank saw it, the recovery in values cf principal primary products over the past four months was remarkable both for its magnitude and for its übiquity. But it was undoubtedly associated with widespread optimism in the United States, fostered by the monetary and general economic policy of the new American Administration. The World Conference had, in comparison, been of secondary importance, and while the optimism which was engendered at its opening assisted the upward movement in commodity values, the dissipation of some of that optimism did not appreciably check it. ASSAILING DOUBTS. "Whether the recent rises in commodity values are to prove a mere flash in the pan," states the bank; "whether the upward movement will be followed by a natural, but partial, setback, leaving prices higher at the end of the process than at the beginning; or whether the recoveries are, at any rate as yet, of not undue dimensions and it will be feasible to hold prices around the levels they have achieved —these are the doubts which must necessarily assail any student of the present situation. Events alone can provide the answer, but certain fundamentals of the position deserve attention." The bank deals in detail with some of these fundamentals, noting that "it has naturally been the commodities in which the American markets are especially important that have shown the most spectacular rises. "But the advances in their quotations have not been confined to America. The appreciation in commodities has, indeed, overcome the depreciation in the dollar very significantly, with resulting rises in British and other European markets. . . . RESTRAINED INFLATION. "It is not a misnomer to call the recent rises in commodity prices an 'inflation boom,'" the bank continues,, "but it is certainly a half-truth—firstly because while American monetary policy has been largely responsible for the increases it cannot take all the praise, and secondly because there has been no actual inflation. Inflation implies the use of the printing press or the injection of credit into the banking system to put funds at the disposal of Governments or of industry. President Roosevelt has put forward a programme of public works for which he has power to raise many millions of dollars. This money has not been raised. At the_ same time, the President has been at pains to balance his ordinary Budget by legalising and taxing the beer trade, decisively rejecting the 'soldiers' bonus' schemes and planning new taxation. There has therefore been no actual inflation in American public finance. "Nor has there been any forced increase in note issues in the United States." HOUSES SET IN ORDER. Even if the rises in prices as referred to are to be followed by a setback, the bank thinks it may be 'expected with reasonable confidence that ! the setback will be partial. In various ways and by various methods, several industries and some countries have already gone well on the way. to setting their houses in order, and the fruits, were seen in their improved economic positions which had already become visible.in.the early part of this year. It is .granted.that the extent to which the boom- has so. far been fostered by speculation based on prospects of inflation has rightly aroused apprehension. But it must at the same time be remembered that, compared with their previous falls, prices have risen only moderately. So far, the.recovery is to be regarded as improvement above the very low levels reached under the influence, in part, of unusually large stocks; that has now been counteracted by the optimism engendered by recent events. In consequence, rising prices, so far from checking demand, have encouraged it. It has been, too, in the most severely depressed agricultural products and industrial raw materials that the biggest increases have been seen. ELEMENT OF SPECULATION. The bank finds it hard to say, how far the demand for commodities is consumptive or how far speculative, but to the extent that real consumption of goods has been stimulated by the boom and by the now general improvement in conditions this year, the recovery can be regarded as durable. The purely speculative element can support the markets only for a limited period. "Controlled" inflation could, in theory, be so practised as to raise prices to any desired level and then keep them on an even keel, but.experience_ of governments' power to manage inflation and of public confidence in that power arouses scepticism as to how far theory may be borne out in practice. THE DANGER POINT. "The greatest danger inherent in the present situation, as the Westminster Bank sees it, is that suppliers should seek to force prices tip too high, and thus check demand. More especially is this true of producers of secondary products ■who may feel reluctant to lose the benefit they have been deriving from the greater fall in the prices of their raw materials than in those of their finished goods. "Another danger is that the rise in prices may cause an over-rapid breakdown of marketing and production restriction schemes. The sooner free marketing and free production are resumed the better,' but the restoration'of freedom must come in an orderly fashion. « "If these two dangers arc successfully avoided," the bank concludes, "there is reason to believe that, although difficult times lie ahead, the recovery in commodity values marks the definite turning of a corner." During the calendar year 1932 some sixtytwo consignments, comprising in all over 344,000 specimens, of beneficial insectswere dispatched to various Dominions and colonies by the Empire Marketing Board from its Parasite Laboratory at Farnham Royal, England.