THE PRICE CYCLE

Hokitika Guardian, 18 December 1930, Page 2

THE PRICE CYCLE

(Auckland “Star.”) ,;.sThe sudden advance in thg butter market/ with good prospects of further Improvement is ft-matter for general public'congratulation: Of course,- the rise'-in - price means a substantial gain to • our, long-suffering -dairy farmers. But. its material value is perhaps less important than the effect that it should haVe in giving hope and confidence, to our pfimary producers and helping :to dispel': tjie atmosphere. of. ffespon4 enc y apa.g.lo.om that .lias weighed: down this cominupity far too long,' In saying this, we have no intention of encouraging unduly high hopes for the, imitfediate future in the butter market, No doubt special circumstances have assisted to raise prices in England just now, such as the shortage of supply due to the late arrival of weatherbound shipping and the strong seasonal demand near Christmas time, . But by far the most important factor in the situation'is undoubtedly the low price of .butter itself For the pm ious fall in price, by bringing our pro-duct within toe reach of many people.who have not hitherto been; able-to afford it, has naturally: enlarged and intensified the demand at Home, and has thus contributed'directly to the heavier sales and the upward movement of prices chronicle d during the post fortnight. As a matter of fact, the recent course of events in the butter market discloses in .striking fashion the working of the omnipotent laws of Supply and Demand in their relation to price. When prices fall below certain point, the demand for the commodity in question always tends to harden, with the

inevitable result of raising prices again though not to the original level. Not only does this benefit the producer at once, but by stimulating production it widens the extent of the market. The effect of a fall in prices may thus bp a greatly enlarged volume of trade, through which the whole community profits, as increased turnover means' increased gains to the producer in spite df the relatively low range of prices. ; During the Industrial Revolution, a century ago, improvements in laboursaving machinery cheapened the cost of production, especially in the cotton and woollen trades, and prices fell rapidly. But the increased demand due to the fall in prices .'compelled production on a huge scale, with a further correspond" ing fall in cost of production; and in a comparatively short time the fall in the prices of goods was far more than compensated ,to the manufacturer, by the immense increase in the volume of his output. Though the analogy between primary and secondary industries is not perfect, the same economic principles and laws are at work in the two cas. es. ■ /ltd the moral of it all is that our dairy farmers and our wool growers after prices have fallen to a certain level, may always expect a recovery, due to' the stimulation of demand and the enlargement of the market by that very decline in prices which, for the time being they naturally regret.