WELLINGTON NEWS

Hokitika Guardian, 9 January 1928, Page 4

WELLINGTON NEWS

FARMERS’ CAPACITY. (Special to “ Guardian WELLINGTON, Jan. C. On the farmers’ capacity to pay depends the main hope of brighter business in 1928. This fact is now generally recognised, but it is not so fully respected as it should be by politicians and others. The farmers’ capacity to pay depends upon the prices realised for the produce exported, and the cost to the fanners of the produce exported. If the farmers’ cost of production is represented by 100, and his return from the produce exported is 110 he has a margin of 10 per cent, which would represent his purchasing power; on the other hand, if his produce realises only 10.5 and his production costs remain the same his income or spending power is reduced to 5 per cent, and it is something of this nature which has happened since 1925. The farmers’ costs of production have remained stationary, having been fixed for him by the decision of the Arbitration Court, and he has been compelled to explore other channels for increasing his purchasing or spending power. Me has increased his production, for we know definitely that owing to the increases of the flocks, the season’s wool clip will be larger, and that, therefore, the output of frozen mutton and lamb will be larger. This increase in production is brought about by relatively small increases in costs, so that by increasing the production the average cost is reduced, and he has thus increased his spending power. If commodity prices remain constant, that is if prices stabilise at present levels, the actual gain to the farmers will be satisfactory and will enable them to catch up on arrears. For the first three months of the current season conditions have been remarkably good. The wool cheques and milk cheques have been extremely satisfactory. and there is no doubt that most farmers arc paying off debts previously incurred, but so far they have nothing much to spare, and it. is this spare money that they need to spend on the development and upkeep of their lands. Because of this slight improvement in the economic conditions of the farmers there has been a disposition to avoid the facing of true facts of the position. We have made no adjustments in the costs of production, they remain as fixed by the Arbitration Court, and the position will not bo troublesome so long as produce prices are maintained, but this is a factor that we onunob bank on. Prices are continually fluctuating, and the tendency of prices is generally towards a lower level. The world entered on a period of deflation in 1925 and prices have been falling steadily since then. In 1929 and again in 192" inflationary European countries were able to dominate the markets, but practically all Europe is now on the gold standard, that is deflation is now general, and prices must come down to their true level. There must be a readjustment of production costs in New Zealand to compensate for the lower level of values, but that does not mean that there will bo any decline in real wages. If prices decline the purchasing power of the pound sterling will expand relatively, that is the pound will go further than it does now, and a reduction in nominal wages will in no way affect j real wages, or the purchasing power of! the wage earner. It is so difficult to ; get the average worker to realise this, and further he is prevented from giving earnest consideration to the matter by the parasites who batten and fatten on the cupidity of the workers. It must not ho forgotten that the increased returns being obtained by flic farmers are being largely used to catch up on arrears. They have very little to spend oil land improvement, and on personal requirement, consequently the curtailment in this direction will manifest itself in unemployment, and the building trade in particular will continue t.u show more unemployment than perhaps other trades. There will not be much increase in savings and money will in consequence tie scarce and dear. Of course there is an expectation that money will be cheaper in England, but there is very little warrant for that belief. Italy lias come on to the gold standard, but France lias still to get there. In any case all European countries will endeavour to conserve their resources and expand their exports. Hut whatever may be the monetary position in Europe, the conditions in Australia make it clear that we may anticipate something in the nature of a financial crisis in the Commonwealth, and what affects the Commonwealth will affect the Dominion. Sharebrokers anticipate a good year, or at least a year equally as favourable as that of 192", but this anticipation has been expressed, but no facts given to support the view. The past year was a good one for the Stock Exchange, and the main attraction was the numerous new | issues of shares by the trading banks. This attraction will he wanting this year, and there will not ho the same turn-over in hank shares as there has been. Investors will require an increased yield from investment bank shares, and there will not he the same volume of business in them. All investment shares are at top prices and further advances are unlikely. Industrial shares will be as quiet as ever, although many of them have improved their position. Taken on the whole 1928 will be a shade better than in 1927 thanks mainly to the increase in the output of our primary products.